Censored Political Thoughts

“The expected return/risk profile of the stock market has shifted to hard-negative”

2011-12-18T17:39:00.001-08:00

Wall Street Fund Manager John P. Hussman

One of the most respected Wall Street fund managers has confirmed what every hedge fund manager in the world knows. The European Central Bank (ECB) will not keep inflating credit. Italy would need $1 trillion to $3 trillion, Greece $500 billion, Germany is leveraged up to 82% of GDP, France is in worse shape. It all adds up to a $30 trillion bail out by some estimates. The European banks have “rehypothecation,” a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing, to the edge of the financial cliff.
The “growth” in the USA last quarter can be summed up as follows. The GDP “increased” 2.0% and the Gross Domestic Income, what we are actually earning, grew at a 0.3% pace. You do the math.
The following appeared in Hussman Funds on 12-12-2011.
With the exception of extreme market conditions (see Warning- Examine All Risk Exposures , and Extreme Conditions and Typical Outcomes ), I try not to wave my arms around about near-term market risks, but I think it’s important to cut straight to the chase here. The present market environment warrants unusual concern, in my view. Based on a wide variety of evidence and its typical market implications over an ensemble of dozens of subsets of historical data, the expected return/risk profile of the stock market has shifted to hard-negative. This places us in a tightly defensive position. This isn’t really a forecast in the sense that shifts in the evidence even over a period of a few weeks could move us to adjust our investment stance, but here and now we observe conditions that have often produced abrupt crash-like plunges. This combination of evidence includes elevated valuations, overbullish sentiment, market internals best characterized as a “whipsaw trap” on the basis of typical follow-through, heightened credit strains, and clear evidence (on reliable forward-looking indicators) of oncoming recession, among other factors.
As always, we try to align our investment positions with the evidence we observe. If the evidence softens, our hedges will soften. While the quickest route to a modest exposure to market fluctuations (perhaps 20-30%) would be a clear improvement in market internals – which could justify a less defensive stance even in the face of recession risks and rich valuations – the most likely route to a significant investment exposure would be a decline to much lower prices and correspondingly higher prospective returns. Presently, avoidance of major market losses takes precedence in our analysis.

Latest Unemployment Rate is 10.6%

2011-12-18T17:38:00.002-08:00

The latest official unemployment rate is 8.6%. Everyone knows it is worse but very few have the skill set to find out the truth. Different economist have different methods. I like using “real world” analysis comparing today’s economy where the federal government consumes 25.3% of the GDP to the 1999-2000 economy where the federal government consumed 18.2% of the GDP.

Civilian Labor Force Participation Rate going nowhere but down

I do this because that is when the labor force participation rate peaked at 67.9% in July 1999. The employment-population ratio also peaked at 64.9% that month. Compared that to today’s dismal 27 year lows of 63.9% and 57.6% respectively.
Simply put keeping the 1999 ratios we have 140,580,000 workers today compared to the 148,681,000 we should have with limited federal government and sound economic policies. The civilian labor force is 153,683,000 but under the 1999 criteria it would be 157,278,000. Doing the math the “1999″ unemployment rate would be 10.6%, not 8.6%.

Inflation and Money Creation 101

2011-12-18T17:38:00.001-08:00

Since 1913 we have had a monopoly central bank commonly referred to as the Federal Reserve. Before the Federal Reserve we had, more or less, free banking with various federal government interventions, laws, and central planning. US Central Banks (1791-1811) and (1816-1841) were put out of business due to inflation, corruption, and general incompetence.

The First Central Bank of the United States (1791-1811) created inflation, corruption, and scandal

Under the private decentralized system of banking, banks typically loaned out 50% to 83% of their deposits. Today that number is legally 90%. Banks under the Federal Reserve System are MORE leveraged than under capitalism. A typical bank before 1913 loaned out 79% of its deposits in the form of loans. Before 1933 the public could redeem their dollars for physical gold. This prevented banks from printing money not backed by gold, or before 1873, silver.
The Federal Reserve remained on a loose gold standard, called the Bretton Woods system (1944-1971) that allowed selected central banks to exchange dollars for gold. In return for this privilege the central banks generally used dollars as their reserve currency “because it was backed by gold and as good as gold.” In 1971 Nixon removed the United States from the gold standard in part because of the pressures to finance the Vietnam War and increased federal expenditures on programs such as the “Great Society” social welfare programs designed to eliminate poverty.
First the basic principal of printing money is to give the money to your favorite constituencies so they can always be in a position to outbid the peasants for goods and services. The favorite constituencies of the Federal Reserve are the Washington politicians and Wall Street. The game is rigged, how can you compete against an institution that can print money whenever it wants? You can’t.

The second central bank of the US (1816-41) was ended due to inflation, corruption, and scandal

The elites watch you work like a dog creating wealth, and then steal your wealth through inflation and taxes. You always end up broke and the elites remain permanently enshrined in their positions of power and privilege, thanks to the wonders of the central banking system.
The elites want readily available credit and the ability to pay back their loans in cheap paper dollars, not hard gold or silver. The elites also want inflation for the prices of the goods they produce to exceed the wages of the workers. This is the secret to wealth inequality. Most workers do not have the educational background to understand inflation. Prior to 1933 they were protected from greedy bankers and politicians by being able to possess gold, but with a fiat currency backed by nothing they are at the mercy of the central bank that allows politicians and Wall Street to steal workers money by using inflation to disguise the theft.
So what has happened since 1971 as we prepare to march over the fiscal cliff of financial insolvency?
Since the complete transfer from a fiat currency the Dow Jones Industrial Average (DJIA) has increased 1,262% and the Gross Domestic Product (GDP) 1,233% using “nominal” numbers or numbers not adjusted for inflation. More or less in lock step as one would expect.
Total credit market debt owned has increased 2,902%, outstripping GDP growth by a factor of 2.35.
The Federal Reserve monetary base, (coins, paper money, and commercial banks’ reserves with the central bank) has increased 3,658%, outstripping GDP growth by a factor of 2.97.

The third central bank of the US will end its reign soon mired in inflation, corruption, and scandal

Gold, the traditional source of real monetary value, has increased 4,177%, outstripping GDP growth by a factor of 3.39.
What these numbers are saying is there has been a huge creation of credit and cash by the US central bank as well as the European Central Bank (ECB) that is inflationary and not justified. Gold is simply a barometer reflecting the increase in the money supply as well as the justified inflationary fears of investors.
In past times with gold and silver when times were good people demanded to use their money for consumption. This demand for money increased the cost (interest rate) for banking deposits. When the interest rate increased capital users of money stopped expanding (using money), waiting patently for the day when interest rates declined. When the economy slowed down consumers prefer to reduce consumption and save. This saving reduces interest rates and signals to capital users that now is a good time to expand when money is cheaper. This basic interaction between consumers and capital users of money works perfectly when there is capitalism and no central bank or federal government interfering in the market place. Money, gold and silver, are allocated in an efficient manner for the maximum benefit of society.

The Second Bank of the United States Chairman Nicholas Biddle was just as corrupt as Ben Bernanke

When a banker loans out money he would expect to see a return above the inflation rate plus 3%. Prior to 1913 there was virtually no inflation. Deflation was more common because producers found cheaper and more efficient ways to produce goods and services similar to today’s price reductions on electronic products. So a typical banker would loan out $1,000 would expect to see $1,030 paid back in a year.
So why are bankers loaning out the equivalent of $1,000 to get a payout of $425?
Your guess is as good as mine.
That is the essence of why the world is on the verge of a market failure and collapse. The central bankers have inflated the money supply to historic proportions. There is nothing backing this money but the promise to print more money. It is a Ponzi scheme. It will collapse.
The yield on a 10 year US Bond is 2.02%. With an official inflation rate of 3.6% why would anyone hold a 10 year bond till maturity, essentially losing 1.6% per year?
The answer is no one plans on holding that 10 year bond till maturity. They are hoping the economic chaos in Europe, China, and Japan will drive the price of the bond higher and they will be able to sell the bond for cash, and a profit, before the inevitable bust comes. As long as the number of suckers exceeds the number of people cashing out the game goes on.
Someday even the great and mighty central banks will not be able to print enough to keep pace with those cashing out. That day is fast approaching. When the US Treasury Department is bailing out Europe it is only a matter of time before the math catches up with the banking, government, and private sector elites.

World Meltdown Theme Song

2011-12-18T17:37:00.002-08:00

This version of the classic song, Come Undone, is, in my opinion, the best version ever performed. Listening to the words about the breakup of a intensely physical relationship mirrors the breakup going on right now between the Western extravagant lifestyle of bureaucrats, central banks, and elites, from decent society.
One partner went horribly into the direction of ethnocentric pursuit of self gratification using deception and trickery to disguise cheating at the expense of the other hard working honest partner. And so it is, our government parasites and followers lived for decades on the hard work and borrowed money of other more productive members of society. When the full impact of the betrayal is known to the hard working people of the world there will never be a safe place for the parasites.

Below is the official version of the song.
“Come Undone” is the second single from the album Duran Duran (The Wedding Album) by British band Duran Duran, and is their twenty-fourth single overall.
With their commercial and critical success reestablished by the previous single “Ordinary World”, “Come Undone” continued to showcase more of the band’s entry into the Adult Contemporary genre. The single proved to be the group’s second consecutive US top ten hit from The Wedding Album. It was also popular in the UK and other international markets.
The group’s guitarist at the time, Warren Cuccurullo, is credited with developing the instrumentation for “Come Undone”, most importantly its guitar hook, which he developed while trying to do a re-interpretation of “First Impression” from their 1990 album Liberty. In 2005, Cuccurullo revealed to author Steve Malins that he and Nick Rhodes had originally planned on using the song for a project outside of Duran Duran with Gavin Rossdale, but had changed plans when singer Simon Le Bon took a liking to the music and began to come up with lyrics on the spot.[1] The song was included as a last minute addition to their self-titled album in 1993, with the lyrics being written by Le Bon as a gift for his wife, Yasmin.
The group’s bassist, John Taylor, did not actually play bass on this track, although he does in the music video. Nick Rhodes and John Jones both contributed synth bass on the track during his absence. Tessa Niles was credited with backing vocals. The song also contains a sample from The Soul Searchers’ song “Ashley’s Roachclip”.
According to John Jones, “at the time we had completed and mastered the Wedding Album and had started the cover album “Thank You”. One day we took the drum loop and bass groove from a demo of mine called “Face to Face” and added the ultra cool guitar riff that Warren had come up with for a new “cover” version of “First Impression”. After a couple of hours of tweaking we played the track over the phone to Capitol in Los Angeles and they loved it and said they wanted it on the Wedding album! When Nick arrived that afternoon the intro was carved into a song that we played to Simon that night. He was back the next day with the lyrics and the melody and I think we finished the vocals the day after that. On the fourth day we finished the track detail and sent it to David Richards in Switzerland to be mixed. “Come Undone” was also a song by Karen Hendrix and myself from the late 1980s. There is a cover version of it out there called “Cloud 9″ by Alan Frew”.

Kyle Bass Give Three to Five Years Before Massive Political Upheaval

2011-12-18T17:37:00.001-08:00

Hedge fund manager Kyle Bass has been intimately involved in studying the financial conditions of world governments. His intimate knowledge allows him to correctly allocate his clients assets so they will make money. His comments are brutally honest. The world has gone mad printing money in a effort to sustain a lazy bloated government sector. The private sector has been equally irresponsible. Which brings us to the bottom line, where did these governments and private institutions get all this cash?
Central banks.
The battle for the people is to force bankruptcy and put the too big to fail banks out of business. The battle for the elites is to have one more bail out, one more quantitative easing. Bass give the people hope that our governments will collapse and cease to exist in the near future. Hopefully without the war.
Here is the link to his interview explaining the financial conditions of Europe, Japan, China, and the USA.
http://www.youtube.com/watch?v=5V3kpKzd-Yw

GM Meeting the Production Goals of Comrade Obama

2011-12-18T17:36:00.002-08:00

One of the oddities of the current “recovery” has been the performance of the manufacturing sector. One would suspect if the global economy was normal and the dollar dropped in value our exports would be increasing. Simple enough.

GM Vehicle Inventories from 2009 to present

But the world economy is not normal. China is suffering inflation woes from years of a mercantilism economic policies of exporting goods and services and importing cheap dollars. The Chinese Central Bank is reported to be leveraged 1233-1 making the 56-1 leveraging at the Federal Reserve seem downright prudish. Socialist Europe is a basket case set to implode similar to the USSR implosion in 1991. So where is all the GM production going to?
Just like the former USSR where production goals were more important than actually utilizing resources to increase utility consumption for the masses, GM seems to be copying the USSR model in meeting production goals but not selling anything. Inventories at GM dealers have increased 42.4% in the last two years from 438,000 to 623,666 cars sitting on dealer lots.
Funny, the Institute for Supply Management (ISM) Manufacturing: PMI Composite Index (NAPM), Index, Monthly, Seasonally Adjusted is up from 50.8 in October to 52.7 in November. I guess we know why now.

US Set to Bail Out Europe

2011-12-18T17:36:00.001-08:00

Here is a statement released by presidential candidate Ron Paul on the subject.

Presidential Candidate Ron Paul

The Fed’s latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed. Under current law Congress cannot examine these types of agreements. Those who would argue that auditing the Fed or these agreements with central banks harms the Fed’s independence should reevaluate the Fed’s supposed independence when the Fed bails out Europe so soon after President Obama promised US assistance in resolving the Euro crisis.
Rather than calming markets, these arrangements should indicate just how frightened governments around the world are about the European financial crisis. Central banks are grasping at straws, hoping that flooding the world with money created out of thin air will somehow resolve a crisis caused by uncontrolled government spending and irresponsible debt issuance. Congress should not permit this type of open-ended commitment on the part of the Fed, a commitment which could easily run into the trillions of dollars. These dollar swaps are purely inflationary and will harm American consumers as much as any form of quantitative easing.
The Fed is behaving much as it did during the 2008 financial crisis, only this time instead of bailing out politically well-connected too-big-to-fail firms it is bailing out profligate government spending. Citizens the world over deserve better than this. They deserve sound money that cannot be manipulated and created out of thin air by central planners who promise printed prosperity. Fiat money caused this European crisis and the financial crisis before it. More fiat money is not the cure. The global fiat currency system has proven itself a failure, we need real monetary reform. We need sound money.
Please allow me to translate into a more colloquial interpretation;
“We the elites at the Federal Reserve and in Washington DC have decided that our peasants are not contributing enough wealth from their personal wages to sustain the lifestyle the elites in Washington, New York, Paris, Rome, and all of Europe have become accustomed to.
Therefor to sustain the lifestyle of the rich and almost famous government comrades we will impose a tax on the America peasants in the form of inflation of and unspecified amount until such time as to satisfy our European elites, or we can sucker China into bailing out our bail out.”
“You have no right to your money and wealth. The Federal Reserve will steal your wealth to pay the elites as they please. No gold, no silver, no justice. American gave up their right to economic sovereignty in 1913. Shut up and pay up. The Federal Reserve is your master and you should be thankful we do not confiscate all your wealth.”
American are getting what they deserve because they trusted politicians and central bankers with their money. No Social Security, and no means to make and keep wealth. The Federal Reserve has decided they will steal your wealth whenever they damn well please. Shut up citizen and get use to $5.00 a gallon gasoline.

Global Ponzi Scheme Crashing Into Reality

2011-12-18T17:35:00.000-08:00

The over the counter, unregulated, market is now $707.6 trillion. One slight problem. The GDP of the worlds economies combined is $63 trillion. So just one market has bet $707.6 trillion on a $63 trillion world economy?
What about the government debt?
What about the corporate debt?
What about the personal debt?
To illustrate our credit bubble here is a graph of the total credit market debt owed (TCMDO).

Total Credit Market Debt Owed, up 3,146% since 1971
The TCMDO is up 3,146% since 1971, when the Federal Reserve went off the gold standard and could print as much money as it wanted to with no consequences.
To the right is a graph of the Gross Domestic Product (GDP), which increased 1,282% in the same time frame.

Gross Domestic Product up 1,282% since 1971
And inflation from 1971 has increased 469%.

Consumer Price Index up 469% since 1971
What we seem to have here is a failure to communicate between the capital markets, world production, and our bankers and politicians. It seems as though our central banks and world politicians have been having a grand time selling the peasants on social justice programs, generational theft, free medical care, and other such frivolities while having quite the global party on the peasants dime. Throw the poor ignorant fools a bone and then rip them off blind politics. Yea we see it.
For the record according to the numbers the GDP growth was, to be generous, 3% from 1971 to today. Debt growth was 6.7% during that same time frame. In other words our politicians and central banking financial wizards have managed to borrow and spend $31.8 trillion more than GDP growth would justify.
Putting yet in another way to comprehend the magnitude of this central banking/Washington blunder in normal times with a gold standard would debt would be about $22 trillion not $52.5 trillion.
There is no way out of this but massive default and deleveraging.
The alternative is taxing the peasants more so the elites can continue their parasitic existence of luxury.
War.
Years of stagnation as the central governments and banks devour more and more private resources.
Default and a end to all central banks and government social justice schemes.
This is a lesson we will all learn the hard way, when you trust other people with your money, they (politicians) rip you off.

Happy Thanksgiving

2011-12-18T17:34:00.002-08:00

The Real Meaning of Thanksgiving: The Triumph of Capitalism over Collectivism
This time of the year, whether in good economic times or bad, is when we gather with our family and friends and enjoy a Thanksgiving meal together. It marks a remembrance of those early Pilgrim Fathers who crossed the uncharted ocean from Europe to make a new start in Plymouth, Massachusetts. What is less appreciated is that Thanksgiving also is a celebration of the birth of free enterprise in America.
The English Puritans, who left Great Britain and sailed across the Atlantic on the Mayflower in 1620, were not only escaping from religious persecution in their homeland. They also wanted to turn their back on what they viewed as the materialistic and greedy corruption of the Old World.
In the New World, they wanted to erect a New Jerusalem that would not only be religiously devout, but be built on a new foundation of communal sharing and social altruism. Their goal was the communism of Plato’s Republic, in which all would work and share in common, knowing neither private property nor self-interested acquisitiveness.
What resulted is recorded in the diary of Governor William Bradford, the head of the colony. The colonists collectively cleared and worked land, but they brought forth neither the bountiful harvest they hoped for, nor did it create a spirit of shared and cheerful brotherhood.
The less industrious members of the colony came late to their work in the fields, and were slow and easy in their labors. Knowing that they and their families were to receive an equal share of whatever the group produced, they saw little reason to be more diligent their efforts. The harder working among the colonists became resentful that their efforts would be redistributed to the more malingering members of the colony. Soon they, too, were coming late to work and were less energetic in the fields.
As Governor Bradford explained in his old English (though with the spelling modernized):
“For the young men that were able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. then he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignant and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc. they deemed it a kind of slavery, neither could man husbands brook it.”
Because of the disincentives and resentments that spread among the population, crops were sparse and the rationed equal shares from the collective harvest were not enough to ward off starvation and death. Two years of communism in practice had left alive only a fraction of the original number of the Plymouth colonists.
Realizing that another season like those that had just passed would mean the extinction of the entire community, the elders of the colony decided to try something radically different: the introduction of private property rights and the right of the individual families to keep the fruits of their own labor.
As Governor Bradford put it:
“And so assigned to every family a parcel of land, according to the proportion of their number for that end. . . .This had a very good success; for it made all hands very industrious, so as much more corn was planted then otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little-ones with them to set corn, which before would a ledge weakness, and inability; whom to have compelled would have been thought great tyranny and oppression.”
The Plymouth Colony experienced a great bounty of food. Private ownership meant that there was now a close link between work and reward. Industry became the order of the day as the men and women in each family went to the fields on their separate private farms. When the harvest time came, not only did many families produce enough for their own needs, but they had surpluses that they could freely exchange with their neighbors for mutual benefit and improvement.
In Governor Bradford’s words:
“By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And the effect of their planting was well seen, for all had, one way or other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others, so as any general want or famine hath not been amongst them since to this day.”
Hard experience had taught the Plymouth colonists the fallacy and error in the ideas of that since the time of the ancient Greeks had promised paradise through collectivism rather than individualism. As Governor Bradford expressed it:
“The experience that was had in this common course and condition, tried sundry years, and that amongst the Godly and sober men, may well convince of the vanity and conceit of Plato’s and other ancients; — that the taking away of property, and bringing into a common wealth, would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort.”
Was this realization that communism was incompatible with human nature and the prosperity of humanity to be despaired or be a cause for guilt? Not in Governor Bradford’s eyes. It was simply a matter of accepting that altruism and collectivism were inconsistent with the nature of man, and that human institutions should reflect the reality of man’s nature if he is to prosper. Said Governor Bradford:
“Let none object this is man’s corruption, and nothing to the curse itself. I answer, seeing all men have this corruption in them, God in his wisdom saw another course fitter for them.”
The desire to “spreading the wealth” and for government to plan and regulate people’s lives is as old as the utopian fantasy in Plato’s Republic. The Pilgrim Fathers tried and soon realized its bankruptcy and failure as a way for men to live together in society.
They, instead, accepted man as he is: hardworking, productive, and innovative when allowed the liberty to follow his own interests in improving his own circumstances and that of his family. And even more, out of his industry result the quantities of useful goods that enable men to trade to their mutual benefit.
In the wilderness of the New World, the Plymouth Pilgrims had progressed from the false dream of communism to the sound realism of capitalism. At a time of economic uncertainty, it is worthwhile recalling this beginning of the American experiment and experience with freedom.
This is the lesson of the First Thanksgiving. This year, when we sit around our dining table with our family and friends, let us also remember that what we are really celebrating is the birth of free men and free enterprise in that New World of America.
The real meaning of Thanksgiving, in other words, is the triumph of Capitalism over the failure of Collectivism in all its forms.

Why the European Central Bank Will Not Print

2011-12-18T17:34:00.001-08:00

The following appeared in Hussman Funds on 11-21-2011.
Over the past week, we’ve heard all sorts of propositions that the European Central Bank (ECB) “must” begin printing money to bail out Italy and other countries, because “there is no other option.” There are three basic difficulties with this idea. The first is that ECB buying might help to address immediate liquidity issues of distressed European countries, but it would not address long-term solvency issues, and would in fact make them worse. The second is that the ECB, under existing European treaties, has no such authority, and the prohibitions against it are very explicit. Changing that would be far more difficult than many market participants seem to believe, because it would require an explicit and unanimous change in the EU Treaties that AAA rated countries such as Germany and Finland vehemently oppose. The third difficulty is that even if the ECB was to buy the debt of distressed European countries with printed money, the inflationary effects would likely be far more swift than anything we’ve seen in the United States. This would not “save” the euro, but would simply destroy it by other means.

John P. Hussman of Hussman Funds is well known for his impeccable financial research

Investors are not likely to be treated with a “surprise” announcement that the ECB is going to expand its purchases of distressed European debt. Any significant ECB intervention would likely follow a formal revision of EU treaties that trades greater ECB flexibility in return for more centralized fiscal control.
Let’s cover these points individually.
Liquidity versus Solvency
First, it is important to keep in mind that while ECB buying of distressed European debt can address short-term liquidity problems (the need to roll over maturing debt as it comes due), it does not address the long-term solvency problems in these countries (the fact that they are mathematically unable to make good on it because the debt violates the no-Ponzi condition ).
A central bank works like this. It buys some amount of government debt, and pays for it by printing currency (or bank reserves). That initial purchase essentially represents free revenue to the government, since it gets to buy goods and services in return for costless pieces of paper, and the income from the bonds held by the central bank is transferred back to the government over time. The central bank can exchange maturing bonds new ones, or change the composition of its portfolio in other ways, but if it doesn’t increase the size of its overall portfolio, no new “base money” is created.
Rest of blog here.

Money Velocity at 47 Year Low

2011-12-18T17:33:00.002-08:00

The Federal Reserve has done everything it can to stimulate the economy, pouring billions of “liquidity” into the market. Like a junkie looking for one more fix the Fed has been supplying the dope for America and the federal government to get high, the housing boom, and now to dull the pain of our economic collapse. And like the junkie who needs a bigger and bigger fix to get high, eventually the drug loses its potency and/or kills the junkie. And that is where we are at today.

Last time there was this much cash sitting around was 1964, prior to the escalation of the Vietnam War

We are going to have a “mini boom” in the coming months as Europe implodes and billions move from Europe to America, but the underlying economic conditions here are just as volatile or worse. We may be following Europe into the debt abyss in, at best, five years. Most think by the fall 2012 all but the dullest among us will see the enormity of our money/government bubble bursting before our eyes. Economic catastrophes generally take 3 to 5 years to fully reveal themselves.
Fall 2008, 2009, 2010, 2011, 2012…
For those sleeping in economics here is the quick definition of the money velocity;
“The velocity of money (also called velocity of circulation) is the average frequency with which a unit of money is spent in a specific period of time. Velocity has to do with the amount of economic activity associated with a given money supply. When the period is understood, the velocity may be presented as a pure number; otherwise it should be given as a pure number over time. In the equation of exchange, velocity of money is one of the variables claimed to determine inflation.”
What this means is the Fed is pumping billions into Wall Street and nobody is spending. The money is sitting idle, like gasoline in storage, waiting, waiting, waiting, to be spent. When that day comes the potential for inflation rates of 38% from years of zero percent interest rates is all but certain. This is the game plan of the politicians. Inflate the debt away. 15 trillion minus 10% inflation lowers the debt to $13.5 trillion without one tax hike. 38% works even faster to absolve the federal government of its debt obligation.
For the American public this would be a tax hike of 38% with no representation. Washington could care less as long as the bureaucrats are paid and congress continues to get rich. Business as usual for the masters. Bad times for the peasants.
So while the propaganda reads that inflation cooled from 3.9% to 3.6%, and the GDP is a positive 2.5%, the underlying fundamentals have not changed. We are catching a break as Europe falls down. Enjoy it this holiday season.

Newt Gingrich Is No Conservative

2011-12-18T17:33:00.001-08:00

This article appeared in CATO on 11-15-2011 by Gene Healy.

CATO scholar Gene Healy

Has it really come to this? Newt Gingrich as the conservative alternative to Mitt Romney? That’s what many in the punditocracy have proclaimed as the former speaker of the House has surged recently in the polls.
Yet a look at his record reveals that Newt is hardly the “anti-Mitt” — he’s Mitt Romney with more baggage and bolder hand gestures.
Every Gingrich profile proclaims that he’s a dazzling “ideas man,” a “one-man think tank.” It seems that, if you clamor long enough about “big ideas,” people become convinced you actually have them.
But most of Gingrich’s policy ideas over the last decade have been tepidly conventional and consistent with the Big Government, Beltway Consensus.
Gingrich’s campaign nearly imploded this summer when he dismissed Rep. Paul Ryan’s, R-Wis., Medicare reform plan as “right-wing social engineering.” But that gaffe was a window into Gingrich’s irresponsible approach toward entitlements.
In 2003, Gingrich stumped hard for President George W. Bush’s prescription drug bill, which has added about $17 trillion to Medicare’s unfunded liabilities. “Every conservative member of Congress should vote for this Medicare bill,” Newt urged.
And in his 2008 book Real Change, he endorsed an individual mandate for health insurance.
In a 2006 piece for Human Events, Gingrich offered House Republicans “11 Ways to Say: ‘We’re Not Nancy Pelosi.’” Point seven proposed a Solyndra-on-steroids industrial policy devoted to “developing more clean coal solutions, investing in a conversion to a hydrogen economy” and more. It’s not clear why the former madame speaker would complain.
It’s also unclear why anybody looking to distance himself from Pelosi would plop down on a love seat with her to call for government action on climate change — as Gingrich did in a 2008 television commercial.

Newt cannot keep his zipper closed and pretends to be a conservitive

It was a season of bipartisan chumminess for Newt. “Kerry and Gingrich Hugging Trees — and (Almost) Each Other,” the Washington Post described a 2007 global warming event Gingrich headlined with Sen. John Kerry, D-Mass.
On foreign affairs, Gingrich’s ideas are a little less conventional, but his apocalyptic saber rattling hardly instills confidence. “We need a calm, reasoned dialogue about the genuine possibility of a second Holocaust,” he told an American Enterprise Institute audience in 2007.
In 2009, he proposed zapping a North Korean missile site with laser weapons. (“Beam me up, Mr. Speaker!” as former Rep. James Traficant, D-Ohio, used to say in the ’90s.)
There’s no denying that Newt is smart, but there’s a zany, Cliff Clavin aspect to his intellect. At times, Gingrich, who’s written more than 150 book reviews on Amazon.com, sounds like a guy who read way too much during a long prison stretch.
The former speaker’s immense self-regard is evident in one of the exhibits to a 1997 House Ethics Committee report on him. In a handwritten 1992 note to himself, he wrote: “Gingrich — primary mission, Advocate of civilization, definer of civilization, Teacher of the rules of civilization, arouser of those who fan civilization, … leader (possibly) of the civilizing forces.” Whew!
When he’s not leading the assembled armies of civilization in a Thermopylae-style battle against “Obama’s Secular Socialist Machine,” Newt does a little consulting on the side.
In 2009, the ethanol lobby paid his firm $312,000, and in 2006, the former speaker scored a $300,000 fee from Freddie Mac, one of the government-sponsored enterprises that helped pump up the disastrous housing bubble.
They sought “my advice as an historian,” Gingrich later explained. (Maybe they were impressed by all those Amazon reviews).
Newt may be a poor fit for the role of “anti-Romney,” but you can say one thing for him: He knows how to play the Washington Game.

How Do Austrian Economists Predict Bubbles?

2011-12-18T17:32:00.000-08:00

With the coming financial bubble bursting before our eyes in Europe how is it that some economists, Austrians, always seem to get it right and others, Keynesians, seems to be completely clueless?

Austrian Economist Ludwig von Mises 1881-1973

The short version for why the Keynesians (the 90%) always get it wrong is that they believe in fairy tales. When you believe in propaganda, lies, and are a shrill for the rich elites, it is really difficult to get anything right. Ask Keynesian, 2008 Nobel Prize winner, Paul Krugman. He never gets anything right.
Keynesians serve no other propose than to advocate for the elites who get wealthy on government and the Federal Reserve inflationary policies. They are completely useless for making predictions and advocating any economic policy that would help Main Street USA. They provide cover for our politicians and the Fortune 500 elites, nothing more.
So what is the Austrians secret?
The first secret is they read economic history.
Can this be boring?
For 99.9% of the population yes it is but for a few it is not. Only by reading economic history do you get familiar with what is a fool’s errand, what always fails, and what works. Good books can come from the left and right. “Lords of Finance” by Liaquat Ahamed, “History of Money and Banking in the United States” by Murray Rothbard, “Money, Sound and Unsound” by Joseph T. Salerno. No economist can be worth a damn without a fundamental understanding of sound money, banking, and history.
Maybe this is why banking history it is never taught in our universities?
Learning banking history exposes very unpleasant facts such as;
We have had three central banks in the United States. The first two were killed due to inflation, scandal, and corruption.

1974 Nobel Prize winner and Austrian Economist F. A. Hayek

Since the founding of the Federal Reserve our dollar has been devalued 98%.
The Federal Reserve Bank of New York lowered the stock market reserve requirements to purchase stocks from 100% to 10%, fueling the artificial stock market boom and bust of the 20s. Is this fact in a government text book?
The Federal Reserve intentionally lowered the value of the dollar in the 20s to appease England and England’s pursuit of a strong pound thereby further fueling real estate and the stock market speculation in the United States. Capitalism did not spontaneously “explode” in 1929, the exposition was fueled by the Federal Reserve’s cheap money policies.
Not knowing history leaves economists blind and gullible fools for the official propaganda from the White House and Federal Reserve.
Understanding sound money practices makes understanding “bubbles” extremely easy. Every Austrian economist nailed the housing boom and bust. Peter Schiff of Euro Pacific Capital made a career out of predicting the bust on business shows and at hotel conventions.
How?
The simple version is as follows;
When excess money is created by the Federal Reserve it has to go somewhere. In the 1920s it went into real estate and the stock market. In the 1990s it went into the dot com bubble and bust. In the 2000s it went into housing. The secret is to;
1. Recognize when the Federal Reserve is inflating the money supply.
2. Recognize where the money is being invested onto, what is the “bubble?”

Austrian economist Lew Rockwell can see a money bubble 10 miles away

Usually it is pretty obvious when the Federal Reserve is inflating the money supply. Without boring readers with M1, M2, monetary base, and other numbers the quick easy way is to compare the inflation rate with the Federal Funds rate.
The simple rule good Federal Reserve Chairmen like Paul Volker (1979-87) follow is you put about 3% to 4% distance between the inflation rate and the Federal Funds rate. Volker did this in 1981 even when the inflation rate reached 15%, peaking out the Federal Funds rate at 19%. He understood basic banking principals. If you want to grow the economy you need to save and invest. If the inflation rate is 15% you need to attract savers. To attract savers you need to offer a interest rate ABOVE the inflation rate. Volker followed his principals and the US economy turned around under Reagan and the rest is history. Reagan left office with a 5.4% unemployment rate, in part thanks to Volker’s sound understanding of basic bank principals.
Profitable savings rates is how the banks attract funds that will be invested to grow the economy. Getting paid a return above the inflation rate attracts savers.
This is not the same as printing money and shoveling cheap dollars at bankers. Savers defer their preference for consumption, not using recourses that investors can now use. Printing money means both fight for the same resources creating inflation. This is a big difference between the Austrian economists and the Keynesians.
Allowing bankers to use savers money to make investments into the economy benefits the rest of society with jobs, production of goods, services, and an increased standard of living.
Bankers need to have a little leeway when they make loans. The fudge factor. The spread between inflation and interest rates give bankers some flexibility and freedom to make riskier loans. Not all loans will pay off and a little room for error is needed. Today with a 3.9% inflation rate and a 30 year prime fixed mortgage rate of 4.3% disaster is right around the corner when the inflation rate increases to 5%, 10%.
So what happened in the 2000s that tipped Austrian economist off that there was a housing bubble?

To quote Glen Beck "The Federal Reserve needs to pack up its stuff and go away."
In 2000 the inflation rate was 3.4% and the Federal Funds rate was 6.24%.
In 2001 the inflation rate was 2.8% and the Federal Funds rate was 3.89%.
We had a recession in 2001 and the Federal Reserve was “fighting” the recession with artificially lower rates. Meanwhile the housing Index jumped from 4.2% annual rate from 1990 to 2000 to a 7.6% increase in 2001.
Housing construction actually increased during a recession!
This was misinterpreted by Federal Reserve Chairman Alan Greenspan (1987-2006), Krugman, and the other Keynesians as the easy way out of the recession.
In 2002 the inflation rate was 1.6% and the Federal Funds rate was 1.67%.
The Housing Index increased 6.3% in 2002.
Federal Reserve Chairman Greenspan had clearly abandoned sound banking principals of rewarding savers with SOME profit over inflation. Instead from 2001 to 2004 the M-3 (discontinued in 2006) measure of money growth increased 6.9% annually and the monetary base (coins, paper money, and commercial bank reserves) increased 7.1% annually.
Now both capital users (home builders for this bubble) and consumers were using the same resources, setting the stage for disaster that would inevitably follow.
In 2003 the inflation rate was 2.3% and the Federal Funds rate was 1.13%.
The Housing Index would increase at a astonishing 8.1% annually from 2003 to 2007.
In 2004 the inflation rate was 2.7% and the Federal Funds rate was 1.35%.

Austrian economist and Euro Pacific owner Peter Schiff made his reputation predicting the housing bubble

If Peter Schiff was hesitant in 2002 and 2003 about the housing bubble by the time 2004 came around it was clear to Schiff and any Austrian economist that this was going to be a monumental bust of historic proportions.
In 2005 the inflation rate was 3.4% and the Federal Funds rate was 3.21%.
In 2006 the inflation rate was 3.2% and the Federal Funds rate was 4.96%
In 2007 the inflation rate was 2.9% and the Federal Funds rate was 5.02%.
Alan Greenspan resigned in 2006 and Ben Bernanke finally popped the housing bubble with the standard inflation rate plus 3% difference. The consequences of Greenspan’s actions are 4.2 million unsold homes and another 2 million in the pipeline that have not been foreclosed on.
If sound banking principals were used the Federal Funds rates would have been 5.8% in 2001, 4.6% in 2002, 5.3% in 2003, 5.7% in 2004, 6.4% in 2005, 6.2% in 2006, and 5.9% in 2007. On Main Street these Federal Funds rates would roughly translate into rates of 8%, 7.5%, 8%, 8.5%, 9%, 8.5%, and 8%.

Austrian economist Tom Woods wrote the best seller "Meltdown" explaining the housing boom and bust

Would there have been a housing boom and bust if the going interest rates were 8% combined with a 20% down payment?
No.
Sound banking principals were not followed by Alan Greenspan and the Federal Reserve. Congress and the President compounded the problem with the social justice nonsense Community Reinvestment Act and other crap. Fannie Mae and Freddie Mac further distorted the market by buying up bad mortgages. If the free market was allowed to operate none of this would have occurred.
So how do Austrian economists know there is another bubble occurring today?
Same principals. Federal Reserve creating money, artificially low interest rates, and enormous investment into a selected sector of the economy.
So where is all this money invested?
Government and Wall Street.
The money bubble we are experiencing today is a government money bubble. Unlike housing where we have houses with government we get nothing for our investment. Nothing but a memory of food stamps and cash for clunkers.

Austrian economist Gary North

What is happening with inflation and Federal Funds rates?
In 2008 the inflation rate was 3.8% and the Federal Funds rate was 1.93%.
In 2009 the inflation rate was -0.4% and the Federal Funds rate was 0.16%.
In 2010 the inflation rate was 1.6% and the Federal Funds rate was 0.18%.
In 2011 the inflation rate is 3.9% and the Federal Funds rate is 0.08%.
It certainly looks like Ben Bernanke is doing exactly the same thing Alan Greenspan did.
Do the money supply numbers show a dramatic increase?
Yes they do.
While M-3 was discontinued in 2006 we still have M-2 which has increased 6.7% annually since 2008. The monetary base has increased 54% annually since 2008.

Austrian economist Murray Rothbard

Where is the money going?
During the Clinton years the federal government grew at an annual rate of 3.2%. Clinton reduced the share of the federal government’s consumption of the Gross Domestic Product (GDP) from 22.1% to 18.2%. Inflation averaged 2.6% annually under Clinton.
During the Bush years the federal government grew at a annual rate of 6.6%. Bush increased the federal government share of the GDP from 18.2% to 20.7%. Inflation averaged 2.8% under Bush.
During the Obama years the federal government grew at an annual rate of 7% including a astounding semiannual growth rate of 12.7% in the second half of 2009. Obama has increased the federal government share of the GDP from 20.7% to 25.3%. Inflation has averaged 1.7% under Obama.
Clearly anyway you look at it the federal government is getting the majority of the cheap cash.
And who is the other recipient?
Wall Street.

Fredric Bastiat figured out the government plunder game centuries ago

The Federal Reserve has been pumping billions into Wall Street banks who then use the cheap cash to speculate, buy T-bills, park the money back into the Federal Reserve, buy diamond rings for the mistresses, and squander it if they so desire.
Reserve balances with the Federal Reserve have increased 17,154% since 2007. Wall Street has trillions in “liquidity” that is being squandered or sitting idly.
Before you condemn the banks for holding onto this cash imagine first if, with fractional reserve banking, the banks loaned out, say $15 trillion all at once in a $15 trillion dollar economy. Ka-Boom!
The 3.9% inflation rate we have today is going to be a fond memory soon.
The only thing restraining inflation has been the loss of employment, and purchasing power, by millions of Americas. This is reflected in the 28 year low Employment-Population Ratio, from 64.5% in 2000, to 58.2% today. The 9% unemployment rate grossly misrepresents the severity that the dismal economy is having on employment.
Is the picture beginning to become clear as to the enormous mess the economy is in?
The free market and capitalism did not created this mess. It was the Federal Reserve and federal government.
Combine this with public and private debt of $54 trillion, European banks leveraged at the insane ratios of 50 to 1, Greece, Italy, Portugal, Ireland, Spain, and more printing of money and the enormity of the catastrophe awaiting the economy is beginning to dawn on the average citizen.
There are some Keynesians still out there telling the public not to worry. The same misguided fools like Paul Krugman blowing smoke for the uneducated masses to consume.
Austrian economists understand history, money, and simply put the two together. Nothing fancy or special other that rejecting the dogma of the day that is designed more to protect the elites ripping off the peasants than to provide any real understanding of the subject.
Economics in a typical university consist of hero worship of the federal government and Federal Reserve. Often lies are told to students mixed in with the bogus theories about multipliers and other mythological BS theories. It is very rare to find a professor question the dogma of the day. Most fall in line with the propaganda because they want that big fat government paycheck. There is very little academic honesty in the field of economics. Keynesians, Chicago school, and others pursuing fables and myths dominate the profession. Their job is to pass on these myths to the public. They provide cover for the elites. Is it any wonder we have Wall Street protesters blaming capitalism for economic failures?
To get out of this mess and return to prosperity the federal government needs to reduce its consumption, as a percent of the GDP, to a minimum of 18%. Mitt Romney’s 20% proposal will do nothing to help deficits. It would add to the deficit. Since WWII the federal government has collected more than 20% of the GDP in taxes once, in 2000. This means at a 20% “cap” we would have federal budget deficits 98% of the time.
A better percentage for the federal government would be 11%. This would mean the end of all social justice programs and entitlements. These programs could be administered by state and local governments as the founding fathers intended.
The Federal Reserve should be ended.
A return to free banking would be brutal, but swift. Once the transition was complete a return to normalcy could begin. The boom bust cycle we are all familiar with would be moderated by the free market, adjusting interest rates automatically, and not set by some senile 80 year old man living in a fantasy world.
We will go bankrupt. The federal government will fail. Social Security will be gone.
How do we deal with it?
The sooner the better for our children. It is no longer about the adults. We will take care of our grandparents the old fashioned way, by ourselves. We need to force the politicians to go bankrupt and eliminate all federal social programs so our children will live debt free.
Or we can deny reality and print some more money.

The Incoherent Demands of a Wall Street Protester

2011-12-18T17:31:00.002-08:00

From a rich elitist Wall Street protester.

Former KGB Agent Yuri Bezmenov understood brainwashing and how effective it was

“Here are my demands/solutions behind my support of the Occupy Wall Street Movement. I’ve already gotten a lot of feedback, but comments are absolutely appreciated.”
1. “Ending the Electoral College and deferring to a true popular vote.”
The writer does not understand that without the Electoral College, winner take all of a states delegates system, high population wealthy cities New York, Los Angeles, and Chicago would dominate elections. Candidates would find little or no reason to go to Tennessee, Kentucky, Colorado, New Hampshire, and other poorer, less populated states, and cities. Concentrating political power into the hands of a few elites in large metropolitan areas does not help America and I suspect would lead to secession movements very rapidly.
2. “Banning lobbyists from representing private, for-profit interests from influencing any actions of the federal government.”

Fascism, communism, socialism, it all ends up here.

Instead of the Joseph Stalin solution restricting free speech approach how about a flat or Fair Tax?
Eh?
Why are the lobbyists in Washington?
Tax loopholes? Money?
Ya think?
Why not a flat 17% tax (no loopholes) and shrinking the size of the federal government to 18% of the Gross Domestic Product (GDP).
I would bet that would lower the rent on K-Street considerably. Treating the symptoms, banning free speech, and not the problem never solves the problem. Killing free speech would drive the corruption underground.
We have to admit that the bigger the federal government is, the more corruption there will be.
Eliminating all social programs and reducing the size of the federal government to 11% would eliminate trillions of dollars of waste and corruption. National defense, and a few other legitimate functions.
Ending free speech is not a viable solution.
3. “Any corporation with any profitable presence in the US must pay a tax determined by the profit margin and total value of ALL assets affiliated with the corporation.”

Indoctrination sessions in the USSR

Is this guy on the Chinese propaganda payroll? If he is then he is smart, otherwise he is a fool.
Yea America needs Soviet style confiscation of private property, not.
If the people like toilet paper rationing and pretend employment jobs like in the former USSR, this is the economic policy for them. For the rest of us capitalist pigs we prefer buying our own toilet paper.
4. “No longer allowing corporations the rights given to individuals in any US court of law.”
How about we just stop bailing out the banks?
Corporations have a right to their day in court and the day we stop giving them that right is the day we become like Venezuela, Africa, and Cuba.
Rationing toilet paper and poverty is not cool. Having a thug steal your private property is not social justice.
Ask does hippie singer Grace Slick own a house? Why? “All your private property is a target for your enemy.” The people should be able to steal her house?
5. “All individuals that have broken the law or profited from a crime (no matter the scale) be held personally accountable, regardless of the entity they are affiliated with, in any appropriate court of law in the US.”
WTF? I do not have a clue.

Modern fascist Bill Ayers would deny he is a murdering thug but his words tell a different story

6. “Make all private dealings of the Federal Reserve public and accountable to the American people.”
I have an idea, end the Federal Reserve and return to free banking. It worked great. Read all about it on Ludwig von Mises. Mises.org It is brilliant! Those Austrian economists are just sooooo cool. Unlike the Keynesian fools.
7. “All federal funds allotted to private entities and the exact use of those funds must be made public and easily accessible by both the federal government as well as the funding recipients.”
Transparency is always good.
8. “Strictly enforcing corporate tax laws and making the closure of all tax loopholes and the protection from new forms of tax evasion a top priority in government.”
I have a better idea, end all corporate taxes. This would do three things;
1. It would end corruption. No need for a loophole if the corporation pays no taxes. Politicians love high tax rates so they can sell loopholes.
2. It would bring jobs back to America, and the people. Wages for the people would increase. Poverty is not cool.

Did this protester ever think that less government means less corruption?

3. It would end the fallacy that corporations pay taxes. They do not. The people pay the corporate taxes in the form of;
a. lower wages that hurts the people.
b. less research and development that leads to less innovation.
c. lower dividend, profits, and stock prices that impoverishes the people.
Americans rarely see through the accounting gimmicks of our tax code. The government sponsored propaganda has generations of Americans stupefied by the simplest of simple economic understanding. Former KGB agent Yuri Bezmenov nailed it when he described in detail how propaganda renders people incapable of logical thought.
9. “Limiting the amount of time candidates have to campaign (1 or 2) month campaign season at most).”
Why don’t we just be honest about this and say the protesters want the incumbents to win re-election, forever. This is the effect this law would have on elections. Back in the USSR!”
10. “Cap campaign donations at $1000.00 per individual person, no other legal entity such as corporations or unions will be allowed to make political donations of any sort.”
Another law to favor the elites and ruling class. These protesters probably never meet a dictator they didn’t like. Stalin, Hitler, Pol Pot, Roosevelt, Wilson, and the rest of the despots love laws that ensure there is no competition in elections. We want only the socialist, fascist, and communist view expressed in politics. All glory to the state! Rationing toilet paper to commence immediately! Save the trees! Hug a tree!
Reading this socialist rhetoric from a young, rich, prima donna, makes me sick. As one who grew up in poverty, on welfare, with a poor education or no education, I understand how lucky I am to participate in a capitalist system, tarnished by government corruption as it is. When you face the prospect of not eating for days it focuses your mind on what you need to do to survive. Running around begging for food from the government isn’t one of them.
Because of government school propaganda people do not understand government does not produce anything. Government takes, steals, from people who worked to produce items people want to consume and gives them to others. If the government did not steal and take their cut of the loot there would be more for the people to consume. It is a good gig when you steal peoples money, and use that money to educate them with nonsense that they need to allow you to steal their money from them, or they cannot survive. Reminds me of Tony Soprano except bigger! Great work if you can get it.
In closing, please watch the video of Yuri Bezmenov who explains the brainwashing process much better than I do.

GDP Numbers (+2.5%) and Inflation (+3.9%)

2011-12-18T17:31:00.001-08:00

The US Department of Commerce announced Gross Domestic Product (GDP) growth of 2.5% in the third quarter of 2011. These numbers are chained to 2005 dollars, or adjusted for inflation. The chained number was $13.3528 trillion or $15.1986 trillion nominal 2011 dollars. The GDP the nominal growth rate was 4.95%, adjusted for 2005 dollars the growth was 2.44% with the DOC using statistical corrections to 2.5%, the number reported to the press.

Is Wall Street the predator or victim?

The DJIA responded and has increased 11% this month making it one of the best performances in years.
But what is the real picture?
What was not reported with such enthusiastic fanfare is the official inflation rate is 3.9%.
How do the two interact?
If we look at the DJIA over a 10 year horizon we can see where the economy is and why investing in stocks instead of gold, silver, or platinum might not be a good idea.
On October 26, 2001, the DJIA was 9,545, and on October 28th, 2011 it was 12,231. One decade later the DJIA has risen 28% or 2.8% a year. The CPI index rose from 178.3 to 226.889 during the same period or 27.3%. In other words even with the 11% rise this last month over the last decade if you invested in stocks you, at best, broke even.

The New York Federal Reserve Bank is hording all the gold, not Wall Street.
During that same decade the Federal Reserve has increased the monetary base 296%. Gold has risen 541%, the federal debt has increased 150%, and federal spending 87%. It seems the Federal Reserve and Federal Government had much better decade than the “greedy capitalist” on Wall Street.
The real profit taking this last decade was the Federal Reserve Bank stealing the modest gains on Wall Street with inflation and the Federal Government stealing the rest. Theft by inflation and borrowing.
Historically before the post 1971 fiat money inflation the federal government and Federal Reserve would not be able to get away with this theft. In 1907 when the federal government printed too much money they almost went bankrupt and had to be bailed out by J.P. Morgan.
When Nixon was printing too much money before 1971 to pay for the Vietnam War European Central Banks could redeem the excess dollars for gold. This acted as a brake on printing dollars and inflation. When this brake was removed prices increased from 5.7% annually from 1913 to 1971 and 11.8% annually since 1971 to today.
What this means is that for a century we have been toiling and having our labor ripped off not by Wall Street but by a few secretive bankers at the New York Federal Reserve.
In the coming months there will be the last gasps of the government money bubble and maybe a stock market rally. What people need to be looking at is the official inflation number as well as the unofficial inflation numbers. Currently some economists calculate the inflation number at 10.4% or negative GDP growth. In Germany in the 1920s during the hyperinflation period the stock market rallied year after year but when the inflation died stocks declined 33% in real terms.
Be careful out there and do not get caught up in the hoopla.

Europe’s Date with Reality

2011-12-18T17:30:00.000-08:00

It is no secret that the European Unions days are numbered. “After 19 months of denial, propaganda and phony fixes, the political and finance leaders of the European Union are claiming a “comprehensive solution” will be presented by Wednesday, October 26. There have been any number of insightful descriptions of what’s going on beneath the artifice, spin and lies, for example:

Landesbank of Germany, leveraged 53.04 to 1

FACT #1: Europe’s entire banking system is leveraged at 25 to 1. This is optimistic. According to Hussman Funds many banks are leveraged up to 50-1.
American banks are typically leveraged 12 to 1, which is where they were at in 2008, saved only by our corrupt politicians and the Federal Reserve. Historically, before the Federal Reserve, banks were leveraged 4 to 1 through most of the 19 th century, typically lending out 50% to 83% of their funds depending on how risk adverse the individual bank management was. The average was 21% kept in reserves, and 79% loaned out. With the onset of the large central banks the crazy pyramid schemes are creating some truly historic leveraged numbers as shown here;
To further put this in perspective Lehman was leveraged 30 to 1. This means a drop in asset prices of 4% at a leveraged ratio of 25 to 1 wipes out a bank.
Landesbank leveraged 53.04 to 1 with tangible assets of 1.43%.
Dexia SA (Nationalized due to insolvency) previously leveraged at 52.83 to 1 with tangible assets of 1.49%.
Deutsche Bank – RG leveraged 37.82 to 1 with tangible assets of 1.83%.
Danske Bank A/S leveraged 30.68 to 1 with tangible assets of 1.97%.
And the list goes on, Credit Agricole, ING Groep-ADR, Commerzbank, UBS AG-Reg, Barclays PLC, Nordea Bank AB, BNP Paribas, Credit Suiss-ADR (22.86 to 1), SOC Generale, LLoyds Banking, Roayal BK Scotland, and Fortis Banque in the best financial shape at 17.75 to 1 with tangible assets of 5.61%. A far cry from the days when a renegade bank would leverage themselves 5 to 1.

Socialism always fail's. Europe will become a dictatorship or embrace capitalism in the coming years.

FACT #2: European Financial Corporations are collectively sitting on debt equal to 148% of TOTAL EU GDP.
This is just the financial corporations. No derivatives, personal, or other off balance sheet items. Before you feel sorry for the Europeans please note that we owe 364% of the GDP when total private and public debt is accounted for.
FACT #3: European banks need to roll over between 15% and 50% of their total debt by the end of 2012.
Simply put this represents billions of dollars that the European banks will have to raise in 2012 or become insolvent. Similar to the situation the United States federal government has gotten itself into with short term T-Bill debt that must be rolled over every month. US treasury auctions have become lively affairs of late, just imagine the atmosphere that will consume the boardrooms of European banks in 2012 as they teeter, one after another, on insolvency.
FACT #4: According to Jagadeesh Gokhale, Senior Fellow at the Cato Institute, in order to meet current unfunded liabilities (pensions, healthcare, etc) without defaulting or cutting benefits, the average EU nation would need to have OVER 400% of its current GDP sitting in a bank account collecting interest.
That would translate to $64 trillion dollars for the entire EU. Not going to happen. China will not be riding to the rescue anytime soon. KaBoom!

$779 billion is not $3 trillion

Bail out numbers of 3 trillion euros have been thrown around and the total EU member nation pledges for any attempt at a bail out is, at best, 779 billion euros. Not even close. Remove Greece, Portugal, Italy, Spain, and the number drops to 494 billion euros. Continue removing Ireland, preexisting commitments, and other contingencies and the bail out fund becomes 74.6 billion euros.
Our Federal Reserve is leveraged 56 to 1 and contemplating acquiring additional toxic assets from member banks aka Quantitative Easing III. With the demise of Europe in 2012 the United States banking system will undergo a similar catastrophe.
The European banks will fail, popping the money bubble, with deflation and economic recession or depression.
Best option; kick the can down the road. This has been the option since 2008 and the days of doing this are numbered.
Here is a quote from Clive Maund on the consequences of the crisis;
“If Europe should fail this is what we can expect to happen – European banks will crash and burn and take down major US banks, which are already walking wounded basket cases anyway. We are likely to see a lengthy unscheduled “bank holiday” – banks will slam their doors and if your money is still inside their vaults then you are out of luck. Major disruptions in supply and distribution of food and fuel in particular will trigger general panic, and riots and mob violence will spread rapidly – what we have seen on TV happening in Greece will suddenly happen on the streets of the US and many other countries. Stockmarkets will crash in a manner that will make 2008 seem like a “walk in the park”. Virtually every asset class and investment will crater – especially commodities, stocks and Real Estate. The euro will be vaporized. The tidal wave of funds liberated by this mass panic are going to have to go somewhere and normally we would expect them to go into the US dollar and Treasuries, but with US banks failing even this cannot be relied upon. The one surefire investment category that will shine – provided that is that the markets or brokerage houses etc involved with these transactions don’t themselves fail – is “misfortune securities”, meaning bear Exchange Traded Funds and Puts (one party, the buyer of the put, has the right, but not an obligation, to sell the asset at the strike price by the future date, while the other party, the seller, has the obligation to buy the asset at the strike price if the buyer exercises the option).
The gravity of this crisis is such that we are not simply talking about protecting investments and making opportunistic gains out of the mayhem that will ensue, if Europe should fail, we are talking survival issues as well, as due to the interconnected nature of the global economy things could become very ugly, very fast across a broad front. If you want to learn what life is like when banks suddenly slam their doors, then you should read up on the Argentinian crisis of the early nineties. The middle class suddenly found themselves disconnected from their savings, and as many of them lost their jobs at about the same time, they became instantly destitute, and forced to swap their possessions for food. Crime soared and people who had been used to living relatively cushy lives suddenly found themselves living on the edge in a law-of-the jungle nightmare. If Europe should fail this is what may quickly become reality not just in Europe but in the acutely fragile and vulnerable US and many other other countries as well. Other undesirable consequences will be unemployment rising to incredible unprecedented levels, so that students leaving college will have almost ZERO chance of finding work. The travel industry, much of which is non-essential, will be devastated with airlines slashing flights and going bust and hotels suffering extremely low occupancy rates.”
My best guess is five months, but some are predicting as little as five weeks. Best case scenario, Bernanke prints $3 trillion and nobody notices.

The Bond Crash of the 1930′s. Recurring in 2012?

2011-12-18T17:29:00.002-08:00

The first part of this blog appeared in the Housing Time Bomb on 5/9/2009 and the second on Zero Hedge on 10-21-2011.
On a side note I was talking to another “economist” who has no clue about any of them weird bubbles in the economy about to burst. Another clueless Keynesian? Ignorance is bliss.
I am sorry but with all the financial meltdowns blowing up all over the world how could this coming bond market meltdown be a surprise?
“Watching treasuries sell off over the past couple weeks motivated me to take a look back to The Great Depression to see what happened to bonds in the great 1930′s bond collapse. I had always known there was a bond crash during this time, but I really had never focused on the timing of it.
I was able to pick up a great chart highlighting what happened:”

Monetary experts, and the few economist who do not believe in fairy tales, have know for centuries that the standard time for a inflationary crisis to play out is about three years, give or take a few. We appear to be right on schedule with our date with destiny.
The author wrote this in 2009 and was off by a couple of years.
The marketable securities held in accounts by foreign official and international accounts has declined 15.4% annually since August. Slight down ticks in securities have occurred in the past but not with the Federal Reserve simultaneously pumping billions of dollars of “liquidity” into the markets to artificially suppress the interest rate to record lows. Well scratch that, this did occur… in the 1930′s.
The following interview was performed by Zero Hedge on 10-21-2011.
“Paul Brodsky does not trust the bond markets. That position may seem strange coming from someone who has spent most of his professional career trading bonds, but it’s precisely this insider knowledge that has led him to start directing investors to safer harbors.
In fact, he thinks our credit system is so far out of control that it will cause a massive – and largely unavoidable at this point – devaluation of the US dollar (and most other fiat currencies, as well).
In our interview with Paul, we asked him to explain the reasons for his concern and to detail how he sees a bond market breakdown unfolding. At the heart of the matter is the run-up in overnight systemic repurchase agreements among banks that started in 1994, which goosed the ensuing credit-driven buying orgy in our economy and has left the system much more vulnerable to exogenous shocks as a result:”

Securities held by foreigners has dropped at a annual rate of 15.4% since August. Are the Chinese losing faith in US financial instruments?

“All the way through 2006 a monetary aggregate called M-3, which was the only aggregate that included repurchase agreements (which is the process by which banks fund themselves with each other) grew almost 12% a year. It is an enormous amount and that basically tells you that this overnight lending among banks provided the fuel from which all of the term credit, the 30-year mortgages, auto loans, and revolving consumer credit came – which of course has never been paid down from whence it came. So in effect, we knew that the system became highly susceptible to any hiccup.
So the system is levered at least 20 to 1 and there is effectively 20 times more debt than money with which to repay it. And so that is a long-winded way of setting the table for where we come down in our macro views. Clearly, it has great ramifications, negative ramifications for the currency and given that the dollar is the world’s reserve currency, we think it has significant ramifications for the global monetary system in general.”
Add to this the lax oversight from the Fed at the time, which as Paul states seemed primarily focused on making sure “banks could expand their balance sheets”. Along with the repurchase agreements, the practice of “sweep programs” helped the banks gain unfair advantage while technically not breaking the letter of the law. Chris summarizes this process as:”

The politicians will blame the bond market collapse on the free market

“This is a story of leverage which really began in the mid-nineties. So this is not any particular policy disaster that went off the rails in 2000 or even more recently than that. Interestingly, I have never connected the stop before between the overnights, the repos, and something else that really caught my eye in the mid-nineties. Actually, it was ninety-four or ninety-five.
I don’t know if you know about the sweep programs – for the benefit of listeners who may not, what Greenspan did was he allowed banks to essentially dodge the reserve requirements by “sweeping” demand accounts. And what I mean by that is, if you have money in a checking account, that is yours to demand anytime you want: the banks have to hold a reserve against that, by law, of 10%. But banks were allowed through this policy tweak that the Fed had done, to effectively sweep that money out of that account just before the stroke of midnight.

The Federal Reserve will pretend they did not see the collapse coming

So that at midnight when they take the snapshot and say, “How much money do you have to hold in reserve against?” they would sweep the money out of the way. The snapshot would be taken, and the bank would say “Look, there is no money, we get to hold very light reserves here.” And then the money would get swept back in at let us say, 12:01. But during the snapshot period, oops, it would have disappeared.
That is where I had chased back where this credit bubble really got into high gear. And I thought it was due to the fact that banks were allowed to dodge these reserve requirements, effectively running leverage far, far higher.”
“At some point, the growing leverage in the system and the rising amount of new credit and money supply leads to ever larger distortions in market pricing. Paul sees this as leading to inflation.”
“So economics has kind of taken leave of the bond market. The Treasury bond market is no longer we think a true signal of interest rates, where they should be, or a true signal of inflation. It is an interest rate curve that has been distorted by terribly distorted incentives as we see it.

Ben Bernanke is repeating the mistakes of Alan Greenspan, only worse.

So we understand that. We do not think it is right. We would rather have markets be free to adjust to where they should be, but frankly, we do not see that happening. To your question specifically about will we have something similar to what happened in Greece here in the U.S., we do not think we are ever going to get to that point here. And it is not because we are proud Americans and we think that the U.S. is better in every way than every foreign land; that is not the case at all. We think it is not going to happen here because if anything dire happens in terms of interest rates, like the threat of rising interest rates, you would see the Fed’s balance sheet come under severe stress.
I think the Fed is going to have to continue printing. They are going to go to a significant QE3 at some point. I do not know exactly what form it will take but they are going to have to monetize debt. The process of doing that is I am sure your listeners know, is when you buy debt, you print money with which to buy it. That moves new money out, ostensibly into the system but as we have seen it only goes into banks as excess reserves. This process is the exact process of inflation, so if you print a dollar, you are diminishing the purchasing power of that dollar through dilution. And it is a very easy thing to understand that more dollars chasing the same amount of goods and services and assets must drive the price level higher for those goods services and assets. And so what we see happening is, through this process of money printing, we will have rising prices that rise much faster than wage growth or income growth and it is going to make the ability to service debt that much harder.”
“It’s these growing inflationary pressures that Paul sees leading to an accelerating devaluation of paper currencies in the coming years. He sees a revaluation of the US dollar vs gold as a likely outcome at some future point (estimating gold could reach a price in the neighborhood of $10,000 per ounce if it is indeed re-monetized).
Ultimately, he recommends investors concerned with protecting the purchasing power of their wealth today get exposure to hard assets that can’t be so easily inflated away:”
“All of these currencies are baseless and are losing their purchasing power versus the goods and services with inelastic demand properties, such as natural resources and things of scarcity.
Gold should be thought of as cash in the best currency. I would suggest anything scarce with inelastic demand properties, and that is of course how we get energy and how we get agriculture and various other things. They should be considered very strongly.”

Student Loan Bubble To Exceed $1 Trillion

2011-12-18T17:29:00.001-08:00

From Zero Hedge on 10-20-2011

Student loan debt has grown by 511% over this period. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

While one of the biggest complaints of #OccupyWallStreet protesters, and much of the balance of middle-class America, continues to be the burden of student loans, the paradox is that, as the USA Today reports once again on one of its favorite subjects, student loans are set to surpass $1 trillion in total notional for the first time in history on what appears to be relentless demand and interest for this cheap form of educational financing, making this debt burden the single largest form of consumer debt, well bigger than outstanding credit card debt, and smaller only compared to mortgage debt. “The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year.
Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York. Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports.

Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what’s owed on home loans and credit cards.” What explains this insatiable demand for this kind of debt? Well, it’s cheap, it’s easily accessible (the collateral is education), and it is fungible – a student can take out a loan, yet use part or all of the balance for tangential purchases (that iPhone 4S sure would make me cool). But this, like every other debt, comes at a price.

PEW Research Group Findings on Impending Bankruptcy

2011-12-18T17:28:00.000-08:00

The PEW Research Center recently published ten charts showing how the United States has gone from a budget surplus nation into a debtor nation facing bankruptcy. Some of the assumptions are debatable, such as the Bush tax cuts costing the federal treasury revenue, but the inescapable facts are plain for every citizen to see. Simply put we have spend beyond our means and we have to choose a long drawn out deleveraging process that could take decades, or bankruptcy and reorganization.

Joseph N. Pew, Jr., founder of the PEW Research Group

The first chart perpetuated the myth that the Bush tax cuts of 2001 and 2003 cost the United States treasury $3.5 trillion in revenue. According to the US Department of Commerce tax collections from July 2001 were $1.8949 trillion and dropped to $1.8274 trillion by July 2003, reflecting the recession after 9-11, but increased to $2.6515 trillion by July 2007. A increase of 39.9% from 2001 or 6.7% annually. Tax collections during this time reflect the overall economy, tax cuts did not “cost” the treasury anything. As has been shown on several occasions when tax rates increase people and corporations change their behavior to avoid taxes.
This is also reflected in the taxes collected as a percentage of the GDP. From 19.5% collected in 2001 there was a drop to 16.2% in 2003 and a increase to 18.5% in 2007. This was not as spectacular as the 2000 tax collection number of 20.6%, under a balanced budget, but federal consumption of the GDP was only 18.2% in 2000. In 2007 that number had increased to 19.6% of GDP, a 7.7% increase. This means that 7.7% of the economic activity was taken out of the private sector that produces economic growth, and tax revenues, resulting in fewer taxes collected and jobs created. PEW fails to take into account this crowding out affect.
18.5% is very respectable when compared to the dismal 14.4% collected with the same tax code under Obama. Federal consumption of the economy as measured as a percentage of the GDP is at 25.3%.
Chart two breaks down the $12.5 trillion shift from 2001 to 2011 into a pie. Brief highlights include $1.262 trillion for the wars in Afghanistan and Iraq, $1.386 trillion on interest on new legislation, and $726 billion on the 2009 Recovery Act.

PEW Chart 1 showing budget projections
The third chart gives the severity of the unemployment problem, the percentage of unemployed out of work longer than a year has hit a post WWII high of 31%, but no explanation as to why.
My simplistic explanation as to why is the size of the federal government. Of course there were free trade agreements, welfare reform, wars, tsunamis, and a infinite amount of other factors affecting unemployment but from the numbers it is plain to see that there is a inverse relationship between the size of the federal government and employment.
In 1993 the federal government consumed 21.4% of the GDP and the Civilian Labor Force Participation Rate (CLFPR) was 66.3%. By 2000 federal consumption of the GDP had fallen to a 34 year low of 18.2% and the CLFPR had risen to an all time high of 67.1% for the year. Since 2000, with the exception of the housing boom years of 2003-07, the CLFPR has declined to an estimated 64% for 2011 and federal consumption has risen to a 66 year high of 25.3% of the GDP. The last time the federal government spent this much of the GDP was WWII.
Why would we expect employment to increase when the federal government removes resources from the productive private sector and wastes the resources on bridges to nowhere and corporate welfare schemes like Solindra. If the $553 million loan was removed from the federal government and given to private investment firms the resources would have been allocated in a much more efficient manner and the workers would be producing products that were profitable, and more importantly, these workers would still be employed. With the federal government misallocating resources to Solindra, and others, the workers at these facilities end up unemployed and producing nothing for society. Some call it crony capitalism and others fascism.

Federal Revenue increased after the 2001 and 2003 Bush tax cuts.

Graph four shows the spending increases and tax collection as a percent of the GDP. These numbers can be obtained from the White House Historical Tables.
Chart five is budget projections through 2021. What should interest seniors is that PEW and others look at publicly held debt or “hard” debt. These numbers dismiss “soft” debt or debt owed between government agencies. This soft debt would include Social Security IOU’s. In other terms when the financial tsunami comes those billions in Social Security IOU’s will be worthless pieces of paper suitable for history lessons and wall paper.
Currently the “hard” debt is 62.3% of GDP in 2010. Generally 60% or below is considered “sustainable.” So if the “soft” debt, Social Security, is added into the equation our 99.2% debt is unsustainable? Pew does not address this.
PEW also ignores our total public/private debt of $54.5 trillion or 364% of GDP. Wall Street investment firms consider anything above 250% as 100% assurance of bankruptcy.

PEW Chart 3 showing long term unemployment at post WWII records

Chart six shows that if federal spending continues to grow with GDP growth rates the debt will exceed the 60% solvency number and climb to 81% by 2021.
Chart seven shows that if entitlement programs are not addressed discretionary programs will have to be cut 46% starting in 2013 to meet the goal of a 60% debt to GDP ratio by 2021.
Chart 8 shows that with the current “Automatic Sequester” law or the super committee of 12 members of Congress will have to cut $454 billion out of defense over the next decade. 70% of the cuts will come from discretionary spending and none from Social Security and no more than 2% per year from Medicaid.
Chart 9 looks at optimistic debt ceilings of $16.4 and $16.7 trillion assuming interest rates remain relatively stable. With a public debt of $14.34 trillion any inflation surge causing the Federal Reserve to abandon its official policy of virtually zero interest on the Federal Funds rate will torpedo these projections. Currently the federal government pays a very reasonable 9% of the budget on interest payments. If interest rates, and inflation, increase this number will increase.

The Civilian Labor Force Participation Rate at a 27 year low while government spending as a percentage of the GDP is at a 66 year high of 25.3%

Chart 10 estimates that with the American Jobs Act the debt ceiling would be reached by October 2012 or August 2013.
Looking at the ten charts in aggregate it is clear that the United States is, at best, facing severe debt deleveraging problems. PEW correctly shows that if current policies and recommendations are followed there is a very real possibility that we will be WORSE off a decade from now with our national debt. This assumes economic growth, inflation stability, and interest rate stability.
The bottom line is Americans need to realize that no matter which group crunches the numbers they all come up bad for today’s young people. We have to come to grips that the federal government, entitlement programs, personal debt, public debt, will destroy America.
Do we go through years, possibly decades of debt deleveraging?
Do we sit down and discuss bankruptcy?
Do we saddle our children with an impossible debt?

PEW Chart 2

How do we humanly end entitlement programs and convert to private accounts?
We need to decide what direction we want to pursue. We can become slaves to debt as our politicians would desire. They, and the rich, own the debt. Getting the people to pay the debt has always been the goal of the elites, a financial form of slavery started by Alexander Hamilton.
Or do we stop playing their game, walk away from the debt, and restrict the power of the federal government to collecting no more than 11% of the GDP in taxes?
The founding fathers made their choice for limited government.
Choose wisely.

Silly Financial Experts

2011-12-18T17:27:00.002-08:00

http://www.youtube.com/watch?feature=player_embedded&v=brb8u0WV9ZA

Obama Tax Would Pay for Four Months of Deficit Spending

2011-12-18T17:27:00.001-08:00

The inferior (leftist indoctrination) education Obama has received from Columbia and Harvard becomes more apparent everyday. The latest example of, stupidity, from the leader of the free world is the millionaires tax. As can bee seen below in a e-mail from the Congressional Budget Office the tax would raise a grand total of $453 billion dollars or about 35% of the $1.29 trillion deficit.

This assumes that millionaires will not change their behavior and will continue to work the same as before the tax with the same economic conditions. Real world evidence gathered over 60 years plus from the White House Historical tax collection records shows that Americans will not pay more than 20% of the GDP in taxes even with 90% top tax rates. The millionaires subject to the tax will simply defer income or get compensation in other forms of payment bypassing direct income payments. Examples would be longer vacations, less work output, stock options, company benefit increases, and other tricks employed by accountants for generations.
We can assume that the $453 billion figure is under a best case scenario. Realistically, with the exception of a few new money superstars, most businessmen and women will know how to work the system and the $453 billion would become, optimistic projection, $200 billion. This assumes 44% of the millionaires lack the intelligence to hire a good accountant.
The cost to society would be much higher than $200 billion collected in taxes. The $253 billion that would have went into consumption or savings would now be put into less productive uses such as tax shelters or in off shore accounts, possibly invested in China, Brazil, Singapore, or any number of uses that would not benefit Americans. Obama does not understand basic economics and the fact that if rich people are not using their money someone else is. If the money is in the bank it is being loaned out. If it is in the stock market it is being used as collateral to build economic growth. Simply put taking $200 billion out of the savings and investment portion of the GDP equation and putting it into government consumption hurts long term economic growth.
I cannot take much more of this economic illiteracy from our Dear Leader and his Keynesian advisers. We need some hope and a change next year.

Our President is a economic illiterate

Dear Mr. Leader:
As you requested, CBO and the staff of the Joint Committee on Taxation (JCT) have estimated the budget impact of S. 1660, the American Jobs Act of 2011, as introduced in the Senate on October 5, 2011. CBO and JCT estimate that, in total, enacting S. 1660 would decrease deficits by about $6 billion over the 2012-2021 period (see enclosed table). That estimated deficit reduction of $6 billion over the coming decade is the net effect of $447 billion in additional spending and tax cuts in titles II through III and $453 billion in additional tax revenue from the surtax specified in title IV.
S. 1660 is similar to S. 1549, the American Jobs Act of 2011, as introduced in the Senate on September 13, 2011. Provisions in title I, II, and III related to both federal revenues and spending are identical for the two bills. The only difference between the bills is that S. 1660 replaces the provisions in title IV (Offsets) of S. 1549 with a surtax of 5.6 percent, starting in 2013, on a taxpayer’s modified adjusted gross income in excess of $1 million (or $500,000 in the case of a married individual filing a separate return), indexed for inflation. JCT estimates that title IV of S. 1660 would increase revenues by $453 billion over the 2012-2021 period, whereas title IV of S. 1549 would increase revenues by $450 billion over that period.

Friday Night Outrage

2011-12-18T17:26:00.000-08:00

This MF is pissed. The Wall Street protesters better hope law and order is maintained. If Red Neck nation ever get the green light to light up the crazy ass communist its lights out. The leftist bastards of America don’t have a clue what they are dealing with.

How out of Control is the Debt Problem?

2011-12-18T17:24:00.000-08:00

How bad is our financial situation?

Former Reagan adviser David Stockman thinks the Federal Reserve policies will condemn the United States to 10 or 20 years of substandard economic performance.

Historically nations carry about 1.6 times their GDP in debt. If we are looking at today’s economy that would be $24 trillion for all public and private debt. Our actual debt is $54.6 trillion or 3.64 times our GDP. Wall Street assumes a country will go bankrupt when the debt to GDP ratio exceeds 250%.
What will happen?
Since WWII history shows that episodes of deleveraging fit into one of four types:
1) Austerity, or ‘belt-tightening’, in which credit growth lags behind GDP growth for many years; typically 6 to 7 years.
2) Massive defaults; the US defaulted on WWI Liberty Bonds, paying out less than 50 cents on the dollar to redeem the bonds. It is expected that Greece will agree to pay around 40% of the value of their bonds, which are essentially in default with yields of over 100% on one year bills.
3) High inflation; Zimbabwe 2011, 1920s Germany, and Argentina 1999-2002, are examples of severe inflation.

From $18.92 an ounce for gold to $1621 and ounce. 8,468% increase or the dollar is worth 1.1% of what is was when the Federal Reserve was created in 1913.

4) Growing out of debt through very rapid real GDP growth caused by
a. A war effort. War economies generally consume 37% to 50% of nations GDP. The standard of living can fall dramatically in a short period of time but you most certainly will have a job.
b. A ‘peace dividend’ following war. Bill Clinton took advantage, with the Republican congress, of the collapse of the USSR and cut the federal government consumption as a percent of the GDP from 22.1% to 18.2%. A remarkable accomplishment.
c. An oil boom for oil-producing countries. Technological change related to energy, such as an efficient way to replace gasoline with natural gas, alternative energy breakthroughs, and other productivity gains.
An example would be when the worlds economy switched from a paper society to a computer society.
How did we get here?

Printing money does have consequences

The first step was the creation of the Federal Reserve in 1913. Before the creation of the Federal Reserve prices, and inflation, was virtually zero or negative, with the exception of the civil war period. From 1833 to 1913 gold was $18.92 an ounce.
On April 5, 1933, Roosevelt signed Executive Order 6102, declaring that under the threat of imprisonment for 10 years, a $10,000 fine or both, everyone in America was required to turn in all gold bullion to the U.S. Treasury at payment of $20.67 per ounce. Essentially robbing the public of what little wealth they had left.
The Federal Reserve maintained an informal gold standard from 1933 to 1944 between Europe and America until the Bretton Woods agreement was formally signed allowing an official exchange rate and redemption of dollars for gold by select European central banks. The agreement lasted to 1971.
What happened when we were on the gold standard?

When money dies

The wholesale price index went from 151 to 81 between 1869 to 1889, deflation, gold standard.
The CPI went from 138 to 93 from 1869 to 1889, gold standard.
Wages went from 77 to 72 (urban), 96 to 78 (farm), and 87 to 75 (combined) from 1869 to 1889, gold standard.
Interest rates went from 6.45% to 4.43%, 1878 to 1889.
The GDP (1958 dollars) 1869-78 = 23.2 bn, (1958) $42.4 bn, 1879-88, and $49.1 bn (1958) 1889-98. Pretty impressive 112% growth rate.
Multiply by 7.551 for 2011 GDP numbers if desired.
And here is the key statistic, for the people, per capita income (PCI),
PCI 1869-78, $531 (1958 dollars), 1878-88 $774 (1958), and $795. Did you get that!
Let’s put that into today’s money.
1869-78 an average person’s income was $4,009
1879-88 an average persona income was $5,844, a 45.8% increase.
1889-98 an average person’s income was $6,003, a 2.7% increase.

Monetarist economist Milton Friedman, Nobel Prize winner in 1976, would be flabbergasted at the actions of Alan Greenspan and Ben Bernanke

Labor productivity increased, equipment purchases, capital formation, all on a gold standard. In other words, the bottom line, wages went up and prices went down on a stable gold standard.
Inflation? Why is it bad and who benefits?
From 1913 to 1971 when the United States was on one form or another of a gold standard the Consumer Price Index (1982-84 dollars) increased at an annual rate of 5.3%. From 1971 to 2011 the increase has been 11.7%. Removing the gold standard and having a 100% fiat currency more than double the annual price increases. The goal of the elites, Rockefeller (Democrats) and Morgan (Republicans), of inflating the currency was achieve with spectacular success.
Why do the elites want inflation?
Originally the elites like Rockefeller and Morgan wanted cheap, easy credit for expansion and cheap, devaluing paper money they could pay back the loans with. Paying back loans with devalued dollars would save millions for industrialist borrowing billions. Paying workers in cheap dollars, giving a raise once a year, and having the ability to increase prices many times a year for products shifts the income distribution in favor of the elites.
In recent times the bottom 20% of the populations share of the GDP has declined from 5.3% in 1980 to 3.4% in 2010. The second fifth from 11.6% to 8.6%. The third fifth from 17.6% to 14.6%. The fourth from 24.4% to 23.2 and the richest 20% have increased their wealth from 41.4% to 50.3%.
The standard response from the left is Ronald Reagan caused this when he cut taxes. Democrats perpetuate this lie to divert attention away from the truth and the real culprit, inflation. Since the income tax was instituted tax collections have never exceeded 20.6%, under Bill Clinton in 2000, despite tax rates of 90% or higher. The whole “tax the rich” debate is a dog and pony show. Democrats know their elite friends will never pay 90%. It’s all a scam to divert attention away from the real culprit, the Federal Reserve.
When Nixon reneged on the Bretton Woods gold standard system in 1971, the monetary base and bank reserves in the United States, the part of the overall money supply that the Federal Reserve controls directly, was $69.8 billion. Ten years later it was $147 billion, another ten years later it was $319.7 billion, another ten years later it was $645.1 billion, and last month, exactly 40 years after the dollar was “freed” from gold, it was $2,684 billion. An increase of 3,745% or 93.6% annually. Gold prices have increased 3,891% or 97.3% in that time.
So how bad is it?
Today we have exported an estimated $6 to $7 trillion dollars overseas. We have exported our deficits and inflation overseas. The central banks of Korea, Japan, and China have allowed our politicians to live beyond their means for several decades. It will end, soon.
There is $1.577 trillion in reserves parked at the Federal Reserve today potentially representing $15 trillion in loans in an economy of $14.99 trillion.
Federal Reserve Chairman Ben Bernanke and former Chairman Alan Greenspan have destroyed the capital markets first with cheap housing money and now when saving and investment is most desperately needed, with more cheap money creating massive misallocation of resources by the only player in town to gobble up all that cash, the federal government. A colossal misallocation of resources on special interest groups that will make the eventual crash even harder. Some economist like former US Representative and Director of the Office of Management and Budget under Reagan, estimate stagnant growth for 10 to 20 years.
The problem is that right now we are in the “good days” of this depression. Nothing has occurred other than the massive loss of jobs. When interest rates climb, and they will climb, the federal government will move towards insolvency, inflation will pick up, state and local governments will be squeezed, and there is a very good possibility we will revolt or end up in a world war similar to WWII that ended the Great Depression.
It does not have to end up in violence. If we understand the basic economics we can overcome this monetary disaster in a few years, not decades. We as a nation have to acknowledge that we will go bankrupt. that is the first step. We have to acknowledge that we need to eliminate the Federal reserve bank and return to free banking that existed from 1833 to 1862. We have to acknowledge that we can no longer be the worlds policeman. We have to acknowledge that the proper role of the federal government should be no more than 11% of the GDP, not 25.3% like today.
The first step towards recovery is to acknowledge that yes, we do, have a debt and income inequality problem. This is not a Democrat or Republican issue. It is a issue that desperately needs to be addressed. In the absence of leadership the best we can do is educate people, one person at a time, as to the true nature of our economic demise.

European Trader Make confession on BBC about the Coming Euro Collapse

2011-12-18T17:23:00.001-08:00

Stating the obvious for those informed. This European trader tells the BBC that the European Union is toast. The realization dawned on most of the traders when they realized Germany was the only player that had the economy and resources to bail out the PIIGS, or China. When the German people realized that a bail out would increase their national debt, in a best case scenario 32%, in a worse case scenario 52%, a German equivalent of the American “Tea Party” was spontaneously formed. In days gone past the peasants would set up barricades throughout the large cities, find the elites, then tar and feather them.
China is suffering stagnant growth and inflation from all the dollars they imported from America combined with sluggish international economic growth. China will not ride to the rescue.
Bernanke can print more money, with the consequences of further aggravating the US 3.8% inflation rate, just as the 2012 election cycle is beginning.
For those thinking the rush to the American dollar as a safety is a long term trend, think again. We have a majority states that could possible go bankrupt. We are Europe in a couple of years at best.

And my university rides my ass because I detest teaching Keynesian economics and prefer to teach Austrian economics.

The European Monetary Union will break down

2011-12-18T17:22:00.002-08:00

The following appeared in Lew Rockwell on 9-24-2011

Austrian economist Gary North

The European Monetary Union is going to break down. This will be followed by a break-up of the European Union.
This is denied by the New World Order’s promoters of international unification. They have been planning for this since the end of World War I. They have been actively implementing this by stealth since the early 1950s. They used treaties to bring this political unification to pass. They used economic unification as the bait. The hook of political unification was always buried in the bait.
The threat facing the NWO is that the economic bait has turned out to be poison. The EMU is based on a common central bank and a common fiat currency. But without a common system of government, there can be no fiscal union. There can be no central planning by Keynesian means.

Soon to be in the dust bin of history

The nationalism implied by Keynesian fiscal manipulation has led to the Greek crisis. The EMU rested on an unlikely premise: the wisdom of Europe’s commercial bankers, who had spent their careers in highly regulated domestic markets. Always before, bankers in large banks could count on their national central banks to bail them out. But, in this new world banking order, the European Central Bank does not have the flexibility to bail out all of the large national banks that are now in big trouble. There are members of the ECB’s board who are part of the German-Dutch axis, which favors tighter money and stable prices. The Board must placate them to some degree. This reduces the ECB’s response time.
The Party Line of the EU and the ECB is that there is no unity-threatening problem or series of problems facing the central government. They insist that the current problems are temporary.
We have heard all this before.
THE BREAKDOWN OF COMMUNISM

Socialism never works. It always ends up in war, bankruptcy, or both.

The greatest event of my life was the suicide of the Soviet Union on December 31, 1991. The Communist empire went under without a shot being fired. The Communist Party’s senior officers looted the Party’s funds and sent the money to Swiss bank accounts. Then they privatized the state’s main economic assets so that they and their cronies became incredibly rich.
The second greatest event was the decision of Deng Xiaoping in 1978 to free up Chinese agriculture. That led to the most rapid economic growth in human history. Nothing like it had ever happened to so many people. South Korea’s per capita economic growth, 1950 to 1990, was greater, but South Korea was a much smaller nation.
Communism was the most powerful ideology of tyranny in man’s history. It failed operationally in the USSR in less than 75 years. It failed in Communist China in less 30 years.
The cash nexus seduced the vanguard of the proletariat. The inevitable socialist victory was exposed as a gigantic fraud. The messianic religion of Marxism went down with the two Communist ships.
Today, the rag-tag army of tenured Marxist professors in Western universities have as their only surviving models Cuba and North Korea. The satellite photo of the two Koreas – bright lights in the south, one light in the north – is the most powerful epitaph of Communism there is.
Now another victory of liberty over centralized politics is unfolding. It is taking place in Western Europe. It is not going to be reversed. The New World Order’s number-one poster child – the European Union – has begun to fall apart. Nothing will reverse this.
There are those in the West who will deny this. There are also those who from 1992 until today insist that the collapse of the USSR was in fact a gigantic deception. The Communists are still in control, they tell us. These people cannot bring themselves to admit that Communism lost the battle. Like the original Communists, they believe in the absolute sovereignty of political power. They believe that the West could not possibly have won, because the Communists were better at intrigue and military power. But the West did win, because the Communist leaders gave up the dream of a socialist world and decided to go for the money.
Let me tell you how I knew that the Communists had failed completely. First, the new Russian government changed major cities’ names back to their pre-Bolshevik names. Leningrad became St. Petersburg. Stalin re-named Volgagrad to Stalingrad in 1925. Khrushchev changed it back in 1961 as part of his de-Stalinization program. Both changes revealed the nature of politics in Russia. The names of cities were testimonies to the ruling power. That was why the name changes after 1991 were significant.

Yea all these countries will fly strait, not.

Second, mobs of people pulled down statues of Soviet leaders. One of the statues that disappeared was that of Pavlik Morozov, the 13-year-old boy who informed on his father. He had been made a hero by Stalin after he was murdered at age 15. He had the boy’s relatives executed for the crime, although they all denied that they had done it. The Morozov story was taught to Soviet children until the very end of the regime. His statue has disappeared from the public park built in his memory.
The fall of the Soviet Union was no deception. It was real. That was two decades ago.
There is another fall coming.
BREAKDOWN TO BREAK-UP
I will state it again. The breakdown of the European Monetary Union will be followed by the break-up of the European Union.
The EMS is breaking down. A few columnists in the West are now admitting this. On the whole, however, the Party Line of the media follows the Party Line of the EU bureaucrats: “The crisis in Greece is a temporary aberration. It will be solved by EU, IMF, and ECB policies.”
The problem with the Party Line is that Greece keeps flaring up. Short-term interest rates are over 100%, indicating a loss of faith by investors in the Greek government’s ability to make interest payments in euros. If the EU, the IMF, and the ECB had a plan to deal with the underlying problem in Greece – its looming inability to make interest payments in euros – they would have implemented it. They keep announcing temporary bridge loans. These “bridge loans” are in fact sinkhole loans. Everyone presumably knows this, yet they do not invest accordingly. The various stock markets’ wild gyrations in Europe indicate that hope and fear are balanced, unlike any government’s budget.
Hope will degrade into fear as reality sets in. What is reality? That large European banks bought Greek government bonds, because they assumed that no member of the EMU would pull out as a way to default on euro-based debt. But it is clear that this is exactly what Greece will do. The default is statistically inevitable. The sinkhole is a bottomless pit.

Progressive communism was always at the root of the EU

The euro was the poster child of European unification, just as European unification was the NWO’s poster child for worldwide unification, the dream of the Trilateral Commission. The euro was rammed down the throats of Europe’s national central bankers in 1999. They had enjoyed considerable autonomy. National politicians also resented the fact that they would no longer have great influence in domestic monetary affairs. They would henceforth have to persuade the bankers at the European Central Bank to follow policies that would sustain national welfare state policies.
That world is gone, but there are domestic politicians in PIIGS nations who would very much like to restore it. They are being pushed hard by voters to break free of the “austerity” programs being rammed down their throats by the IMF and ECB.
The Bible teaches, “The rich ruleth over the poor, and the borrower is the servant to the lender” (Proverbs 13:22). This ticks off the borrowers. The Bible also teaches, “The wicked borroweth and payeth not again” (Psalms 37:21a). This really ticks off the borrowers. “That’s an insult to our integrity!” Then, when their governments announce limited cutbacks in domestic spending, the threatened employees take to the streets. “You owe us what you have promised!”
In short, voters want to impose austerity on the creditors. They do not want creditors to impose austerity on their welfare state governments.
Some interest groups are going to get stiffed. The Party Line at the EU, ECB, IMF is that employees of high-deficit countries are going to get stiffed. The Party Line in the Greek trade unions is that the ECB, IMF, EU bureaucrats are going to get stiffed. Politicians in PIIGS nations claim that no one is going to get stiffed if the ECB, IMF, and EU will just lend more money to tide them over. The commercial bankers want the EU and ECB to serve as lenders of last resort to banks, so that, when the PIIGS default, the bankers will not lose their bonuses. Voters in Germany don’t want to get stuck with the tab for bailing out PIIGS or banks. Investors in European stocks keep sounding like Rodney King. “Can’t everyone just get along?”
The New World Order’s promoters are wringing their hands and pleading, “We worked so hard to sneak through this deal. We are not quite finished with our plans. Now voters are trying to kill it. It’s just not fair!” I think of a classic video scene that best describes the present predicament of the NWO.
THE BEST-LAID PLANS
The Wall Street Journal published a report on the breakdown of the EMS. I liked the way it started out:
When the history of the rise and fall of postwar Western Europe is someday written, it will come in three volumes. Title them “Hard Facts,” “Convenient Fictions” and – the volume still being written – “Fraud.”
The author says that the first hard fact was military necessity in the post-War period. The Cold War began.
The next hard fact was hard money. He correctly identifies this as “the gift of Ludwig Erhard, author of the economic reforms that created the Deutsche mark, abolished price controls, and put inflation in check for generations.” Erhard was a disciple of Wilhelm Roepke, who was a disciple of Ludwig von Mises. In mid-June, 1948, Erhard unilaterally abolished the entire Allied military system of price controls, fiat money, and rationing. The next day – literally – the “German economic miracle” began.
The author continues: “The third hard fact was the creation of Jean Monnet’s common market that gave Europe a shared economic – not political – identity.” The author has fallen for the ultimate fraud. Monnet had been working for political unification ever since he and Raymond Fosdick, John D. Rockefeller, Jr.’s agent, sat together at the Versailles Peace Conference in 1919. In 1919, Fosdick sent a letter to his wife. He told her that he and Monnet were working daily to lay the foundations of “the framework of international government.” [July 31, 1919; in Fosdick, ed., Letters on the League of Nations (Princeton, New Jersey: Princeton University Press, 1966), p. 18.] Fosdick returned to New York City in 1920, where he took over running the Rockefeller Foundation for the next 30 years.

Lots of history of totalitarianism. The EU being the latest dive into dictatorship and the latest failure.

Monnet was the front man for the New World Order. He promoted political unification by wrapping it in the swaddling clothes of economic unification.
The author accurately describes the suicide of Western Europe.
In 1965, government spending as a percentage of GDP averaged 28% in Western Europe. Today it hovers just under 50%. In 1965, the fertility rate in Germany was a healthy 2.5 children per mother. Today it is a catastrophic 1.35. During the postwar years, annual GDP growth in Europe averaged 5.5%. After 1973, it rarely exceeded 2.3%. In 1973, Europeans worked 102 hours for every 100 worked by an American. By 2004 they worked just 82 hours for every 100 American ones.
He argues that “It was during this general slowdown that Europe entered the convenient fiction phase.” One fiction was that adding new members to the EU would enable the European economy to rival the output of the United States. Another fiction was that there was a central core of outlook and values that would unify the new collective. Here, he is woefully naive. That had been the assumption of the United Nations Organization from the beginning, and the League of Nations before it. That was the heart of Monnet’s vision. It did not start in 1973.
And there was, finally, the whopping fiction that Europe had its own “model,” distinct and superior to the American one, that immunized it from broader international currents: globalization, Islamism, demography. Europeans love their holidays and thought they were entitled to a long holiday from history as well.
He’s got that right!
Then he lists the frauds. First, Greece was allowed into the European Monetary Union. But that was not a fraud. The critics in the 1990s said that all of the Club Med nations would run deficits. They warned that the euro could not hold.
There was no fraud involved in letting in the PIIGS. This was basic to Monnet’s vision from 1919. It had to work. It must work. It is ordained to work. This is the NWO’s religion.
The non-PIIGS bankers thought it would work. They loaded up on PIIGS sovereign debt.
This was not fraud. This was the implementation of a deeply political religion. This was self-deception on a continental scale.
Yet he is right on this point.
There was the fraud of the so-called Maastricht criteria – the fiscal rules that were supposed to govern the euro only to be quickly flouted by France and Germany and then junked altogether in the current crisis. There was the fraud of the European Constitution, overwhelmingly rejected wherever a vote on it was permitted, only to be revised and imposed by parliamentary fiat.
What is now happening in Europe isn’t so much a crisis as it is an exposure: a Madoff-type event rather than a Lehman one. The shock is that it’s a shock. Greece was never going to be bailed out and will, sooner or later, default. The banks holding Greek debt will, sooner or later, be recapitalized. The recapitalization will be borne by German taxpayers, and it will bring them – sooner rather than later – to the outer limit of their forbearance. The Chinese will not ride to the rescue: They know not to throw good money after bad.
And then Italy will go Greek. Europe’s crisis will lap on U.S. shores, and America’s economic woes will lap on Europe’s – a two-way tsunami.
He sees that this fraud is not going to hold together. There is a reason for this.
The “fiscal union” that’s being mooted will never come to pass: German voters won’t stand for it, and neither will any other country that wants to retain fiscal independence – which is to say, the core attribute of democratic sovereignty.
He makes a forecast: “What comes next is the explosion of the European project.” Then he makes an assessment: “Given what European leaders have made of that project over the past 30-odd years, it’s not an altogether bad thing.” I’ll say not. It is a great thing. It is, in fact, the greatest thing that is likely to happen in the first two decades of the 21st century. It is the extension of the two break-ups of the 20th century.
But it will come at a massive cost. The riots of Athens will become those of Milan, Madrid and Marseilles. Parties of the fringe will gain greater sway. Border checkpoints will return. Currencies will be resurrected, then devalued. Countries will choose decay over reform. It’s a long, likely parade of horribles.
CONCLUSION
The price of the break-up of the ECB, the EMU, and the EU will be high because of the frauds and convenient fictions that preceded them. If Europe’s voters had not created welfare states, if they had not consented to a common fiat currency, but instead had abolished all central banking and had allowed competing private currencies, and if they had abolished tariffs and not created a bureaucratic monstrosity of non-governmental agencies with the power of government – the WTO and its peers – there would be low transition costs. But they listened to Monnet. They will now pay the price.
So will all of its trading partners. So will the large American banks that sold credit default insurance to European banks.
September 24, 2011
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.
Copyright © 2011 Gary North

Three Obama Administration Scandals

2011-12-18T17:22:00.001-08:00

The following appeared in Hillbuzz on 9-19-2011 by Bridget.

Harbinger Hedge Fund manager Philip Facone. Ever wonder why Dodd-Frank legislation passed in 2010 never wrote one word about regulating Hedge Funds? George Soros, Philip Facone, and other managers keep the political elites immersed in cash.

Obama’s troubles are beginning to pile up…and the timing couldn’t be more perfect for Republicans coming into the 2012 elections(and I’m not even talking about this miserable economy). 3 very shady newsworthy scandals involving the Obama White House are slowly creeping into the news. Of course, they aren’t in the news as much as they should be but people are beginning to know some of the criminal activity that makes up the day to day schedule of this White House. I thought I would do a brief summary of the 3 “biggies” and do follow up posts when new details are learned.
So…here goes
1. Fast and Furious: Most everyone is familiar with this one. It’s the ATF “sting” operation in which assault weapons were knowingly sold to violent Mexican drug cartel members with the intent of tracking these guns into Mexico to catch higher ups in the cartel world. The problem is that most of these assault weapons have disappeared into the underworld of Mexican crime and are showing up at violent crime scenes…including the murder of Border Patrol Agent Brian Terry. This little scandal involves the ATF, FBI, DEA, Border Patrol and the Department of Homeland Security…..all under the watchful eye of the Department of Justice. I do not believe that Obama will be implicated in this one because Eric Holder is the front-man and Obama will be protected at all cost. Just my opinion.

The founder of Hillbuzz and Gay activist Keven DeJan became disenchanted with Democrats during the 2008 election when Obama thugs stole the Democratic nomination from Hillary Clinton.

2. Solyndra: This one has been getting a lot of press lately. Solyndra is a California based company that makes solar panels. Obama made it the poster-child for his green jobs initiative and publicly touted it’s huge potential to not only advance the movement towards solar power but also the benefit of creating more jobs. So..what’s the problem you ask? Solyndra was doomed from the beginning and was in serious financial trouble before the White House granted it a $535 million loan guarantee (through the Stimulus legislation). The problem with Solyndra is that it’s new solar panels (which are cylindrical and supposedly lighter and easier to install) are very expensive to make and thus are more expensive to buy so consumers are continuing to buy the cheaper flat panels….which work just as well. Solyndra was never ever ever going to be profitable and the White House was warned about this but still continued to push for stimulus money. Solyndra filed for bankruptcy on September 6th…leaving the American taxpayer with a $535 million dollar tab. Oh….and one more thing….the primary shareholder in Solyndra is The George Kaiser Family Foundation. George Kaiser is a rather large campaign fundraiser for Obama and has visited the White House 16 times since 2009. What a coincidence.
3. Lightsquared: So far…there has been very little press about this one and details are still emerging. Lightsquared is a company that is involved in the broadband connectivity network. Their product would make it easier and faster for people to connect to wireless networks. The company is owned by the hedge fund Harbinger Capital. This hedge fund is headed by billionaire Philip Falcone who happens to be a huge donor to Democratic senatorial campaigns as well as to Obama’s campaign. Shortly after he made large donations to Democratic senatorial campaigns, the FCC granted the company a waiver to build their national 4g wireless network cheaply….which is a highly unusual move for the FCC. What a coincidence. Numerous people are crying foul but the bigger scandal here is something a little more criminal than big donor favoritism. The Pentagon is very concerned about Lightsquared’s new broadband network because the GPS system that it uses would interfere with the same system that the military uses to help it with missile tracking (among other things). The Pentagon sent Air Force General William Shelton to testify at a closed door meeting about their concerns. Just a few days ago, General Shelton revealed to House strategic forces subcommittee staffers that the White House tried to “encourage” him to say things in his testimony that would be beneficial to the Lightsquared project. The General was not too happy about being asked to change his testimony on the request of the White House. This one is much more than a “pay to play” scandal. This one is flat-out criminal and involves witness tampering. This has been getting some media coverage but not very much. It is my opinion that this one is the worst of the 3 scandals for Obama but time will tell whether he will suffer politically. I’m betting that there are many more “Solyndra’s” and “Lightsquared’s” out there but we’ll never know with our politically biased media.
There’s one thing that’s for sure with this crooked administration….
Read more http://hillbuzz.org/

Federal Reserve Will Pump Money into the Stock Market, Bond Market, and Europe

2011-12-18T17:21:00.002-08:00

Why is this so predictable?

Federal Reserve Chairman Ben Bernanke. His job is to print more money for the elites and politicians.

The only trick in the bag for Keynesian economist is to inflate the money supply. The only question is how and where. Federal Reserve Chairman Ben Bernanke will announce next week “Operation Twist” where he will outline more inflation programs.
Wall Street reacted positively for his last Federal Reserve news conference with a 430 point rally. There is little doubt that next weeks announcement will have much the same effect on Wall Street, and potentially create irrational exuberance.
This does not translate to Main Street in the long run, but the press will report it as a positive. It simply means the Fed is pumping money into Wall Street assets, creating profits for millionaires and inflation for Main Street citizens.
What Bernanke will most likely do is buy longer term bonds, cheapening money, making the stock market more attractive. Yields lately have increased up to 1%, printing more cash to purchase long-term bonds would drop the yields.
One of the ways to accomplish this would be to announce a ceiling on 10-year bonds of 1.5%. This would give the Fed the excuse to purchase bonds when the ceiling went above the 1.5% yield, pumping “liquidity” into he bond markets, and indirectly Wall Street by making bonds less of an attractive investment alternative for consumers.
Bernanke might increase the cost of parking reserves from commercial banks at the Federal Reserve by eliminating interest payments on the reserves. This would mean with an inflation rate of 3.6% the $1.618 trillion reserve balances with federal banks would lose $58.2 billion a year in value plus the loss of another $1.6 billion from the discontinuation of interest payments. The goal is to turn out this cash on Main Street in the form of loans.

Reserve balances with the Federal Reserve banks sitting idle, potentially $16 trillion in new loans.

The potential loans possible with these reserves are over $16 trillion. The GDP is currently $14.99 trillion. Unless the GDP keeps pace with the money supply these new loans would create the potential for substantial amounts of inflation.
The Fed will also continue the policy of bailing out Europe, weakening the dollar, and increasing inflation pressures in the USA.
One of the reasons China has been sitting on the sidelines with trillions not choosing to buy Euros is that Chinese Central Bankers know the USA will do it for them. Latter when the USA is in a weaker financial position than today and Europe continues to struggle with debt China will be in an even stronger position to choose a bail out of Europe or America, most likely Europe for many geopolitical reason, including ending the United States dominant global position in the world.

Printing money does not solve economic problems

Buying European financial instruments also accomplishes the goal of creating inflation and forcing banks to make a decision to pull reserves losing value at the Federal Reserve and theoretically put the money onto Main Street. Bernanke may be up front and honest about this policy of deliberately increasing inflation to stimulate more loans to Main Street with the intention of lowering unemployment. Economists refer to this as the Phillips Curve where inflation is increased and unemployment is reduced in a trade off.
Bernanke might also open the Federal Reserve discount window up to a wider spectrum of financial investments.
“It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.” Zero Hedge, 9-16-2011.

A German businessman buying a loaf of bread in 1925

The bottom line is the Federal Reserve has one trick, printing money. The PhD level bankers switch up their tricks to confuse the public, but it comes down to printing and paying off Wall Street, the White House, and for now the Europeans. Life will remain good for the elites, they own the bank, as long as their money is worth something.
What this will mean for Main Street is a probable money bubble that will almost certainly confuse voters in the 2012 election, which is the game plan. The bust will soon follow, as it always does.
Bernanke has been trying this strategy for years with, at best, modest success. This will be another attempt at creating the final bubble in the United States before the final collapse of the US dollar. With the collapse of the dollar and the end of our standard of living the chances for a dictatorship or dissolution of the United States increases dramatically.
Obama, and the Democrats, are praying desperately that his last attempt by the Federal Reserve works before the 2012 elections. They hope and pray to maintain power in the coming years when today’s inflation rate of 3.8% is a fond memory. We the people want freedom from the elitist tyrants. Knowledge is power.

Obummer, Poverty Rate climbs to 15.1%

2011-12-18T17:21:00.001-08:00

WASHINGTON (AP) — The ranks of U.S. poor swelled to nearly 1 in 6 people last year, reaching a new high as long-term unemployment woes left millions of Americans struggling and out of work. The number of uninsured edged up to 49.9 million, the biggest in over two decades.

Obama economics

The Census Bureau’s annual report released Tuesday offers a snapshot of the economic well-being of U.S. households for 2010, when joblessness hovered above 9 percent for a second year. It comes at a politically sensitive time for President Barack Obama, who has acknowledged in the midst of his re-election fight that the unemployment rate could persist at high levels through next year.
The overall poverty rate climbed to 15.1 percent, or 46.2 million, up from 14.3 percent in 2009.
Reflecting the lingering impact of the recession, the U.S. poverty rate from 2007-2010 has now risen faster than any three-year period since the early 1980s, when a crippling energy crisis amid government cutbacks contributed to inflation, spiraling interest rates and unemployment.
Measured by total numbers, the 46 million now living in poverty is the largest on record dating back to when the census began tracking poverty in 1959. Based on percentages, it tied the poverty level in 1993 and was the highest since 1983.

Its all fun and games, Cloward and Piven, for the Harvard educated socialist.

The share of Americans without health coverage rose from 16.1 percent to 16.3 percent — or 49.9 million people — after the Census Bureau made revisions to numbers of the uninsured. That is due mostly because of continued losses of employer-provided health insurance in the weakened economy.
Congress passed a health overhaul last year to address rising numbers of the uninsured. While the main provisions don’t take effect until 2014, one aspect taking effect in late 2010 allowed young adults 26 and younger to be covered under their parents’ health insurance.
Brett O’Hara, chief of the Health and Disability Statistics branch at the Census Bureau, noted that the uninsured rate declined — from 29.3 percent to 27.2 percent — for adults ages 18 to 24 compared to some other age groups.
The median — or midpoint — household income was $49,445, down 2.3 percent from 2009.
Bruce Meyer, a public policy professor at the University of Chicago, cautioned that the worst may yet to come in poverty levels, citing in part continued rising demand for food stamps this year as well as “staggeringly high” numbers in those unemployed for more than 26 weeks. He noted that more than 6 million people now represent the so-called long-term unemployed, who are more likely to fall into poverty, accounting for than two out of five currently out of work.
Other census findings:
—Poverty rose among all race and ethnic groups except Asians. The number of Hispanics in poverty increased from 25.3 percent to 26.6 percent; for blacks it increased from 25.8 percent to 27.4 percent, and Asians it was flat at 12.1 percent. The number of whites in poverty rose from 9.4 percent to 9.9 percent.
—Child poverty rose from 20.7 percent to 22 percent.
—Poverty among people 65 and older was statistically unchanged at 9 percent, after hitting a record low of 8.9 percent in 2009.

Income Inequality Explained for Robert Reich

2011-09-10T22:28:00.002-07:00

I recently came across some graphs by former Clinton Labor Secretary Robert Reich designed to elicit a emotional response to the increasing income inequality in America. Reich split up economic distribution from 1947 to 1979, years dominated by Democrats, and 1980 to present. The years, according to his graphs, should have been split up from 1947 to 1971 and 1971 to present if the income inequality gap is the criteria that is to be focused upon.

Former Clinton Labor Secretary Robert Reich blames the rich and Republicans for everything

Reich points out that pay rose with productivity from 1947 to 1979. The actual split appears to be around 1971, the year Nixon took the United States off the gold standard, not 1979.

First cause of the divergence between productivity and income would appear to be the size of the labor force.

Sure enough a little digging reveals that “From 1930 to 1950, the foreign-born population of the United States declined from 14.2 million to 10.3 million, or from 11.6 percent to 6.9 percent of the total population. These declines reflected the extremely low level of immigration during the 1930s and 1940s. The foreign-born population then dropped slowly to 9.6 million in 1970, when it represented a record low 4.7 percent of the total population. Immigration had risen during the 1950s and 1960s, but was still low by historical standards, and mortality was high during this period among the foreign-born population because of its old age structure (reflecting four decades of low immigration).”

“Since 1970, the foreign-born population of the United States has increased rapidly due to large-scale immigration, primarily from Latin America and Asia. The foreign-born population rose from 9.6 million in 1970 to 14.1 million in 1980 and to 19.8 million in 1990. The estimated foreign-born population in 1997 was 25.8 million. As a percentage of the total population, the foreign-born population increased from 4.7 percent in 1970 to 6.2 percent in 1980, to 7.9 percent in 1990, and to an estimated 9.7 percent in 1997.” US Census Bureau.

In other words the foreign-born population reached a record low in 1970 of only 4.7% of the total population and increased up to 9.7% in 1997, when Reich was Labor Secretary, and 12.4% today. You would think a United States Labor Secretary could understand the relationship between supply and demand for blue collar labor, but he blames it on the evil rich capitalist and Republicans.

Robert Reich always blames the rich and Republicans, never the real culprit, government

One of the big fallacies that economists like to feed the public is immigration is good for the economy because increasing the population results in economic growth. This is the equivalent of saying John Wilkes Booth is a great actor, leaving out the fact that he assassinated Abraham Lincoln. Yes Wilkes was a great actor but he was also a cold blooded killer. A slight omission of the facts.

Estimates of the cost of services provided illegal’s range from $11 billion to $22 billion, plus $1.9 billion for food stamps, plus $1.6 billion for jail time (21% of US prisoners are illegal aliens), plus $10 billion from the federal government, plus $2.5 billion for Medicaid, according to the Center for Immigration Studies and the Personal Liberty Digest. There is nothing free about immigration.

Recently “There were 11.2 million unauthorized immigrants living in the United States in March 2010, virtually unchanged from a year earlier, according to new estimates from the Pew Hispanic Center. The number of unauthorized immigrants in the workforce, 8 million, also did not differ from 2009. Both the population and workforce estimates are below their 2007 peaks, apparently driven by a decline in the number of Mexicans, the largest group of unauthorized immigrants. The report also includes estimates of state populations of unauthorized immigrants and of annual births to unauthorized immigrants.”

“In the year following the end of the Great Recession in June 2009, foreign-born workers gained 656,000 jobs while native-born workers lost 1.2 million. As a result, the unemployment rate fell for immigrants while it rose for the native born. The reasons that only foreign-born workers have gained jobs in the recovery are not entirely clear. It could be greater flexibility among immigrants, normal business cycle ups and downs, typically more severe for immigrants, or a return of immigrant workers following a recent hiatus. But employment for immigrants remains below its level in 2008 and their wages fell sharply in 2009-10.” Pew Hispanic Center.

So we have increased immigration since 1970 from a low of 4.7% foreign born persons to 12.4%, but former Labor Secretary Reich blames capitalism, rich people, and Republicans for the lower wages and unemployment in the bottom 20 percentile of the population. Really?

I giggle and have to ask myself is Reich really this stupid or does he just believe the public is this stupid? Inquiring minds want to know.

For the record labor is a impute, just like steel, glass, wheat, corn, apples, or any number of producer imputes. If the supply increased and the demand decreases wages will fall. If the supply increases and demand remains stagnant then wages will fall. If wages are not allowed to fall, such as during the Great Depression due to wage restriction imposed by FDR, unemployment will increase. Simple supply and demand analysis.

What else happened between 1948 and today?

Total government consumption of the GDP was increased from a average of 26% from 1948 to 1971 up to 31.4% from 1971 to today. Currently the White House numbers show 35% of the GDP is consumed by government at the federal, state, and local level. This is certainly understated due to accounting procedures for the calculation of the GDP. Some organizations, including the Wall Street Journal, put federal, state and local consumption of the GDP at 42.6% to 45.4%. Whatever the exact number one thing is certain, Uncle Sam is getting a larger share of today’s workers income.

Reich ignores this and also ignores who gets the money. In 2008 Social Security recipients received 21%, defense 21%, interest on the national debt 8%, other mandatory programs 10%, Medicaid and Medicare 23%, and other discretionary expenditures 17%. Vote buying and special interest groups.

Where is Main Street in this picture?

According to the White House the percent of taxes collected, regardless of the top tax rate, generally falls between 18%, and in boom times 20%, of the GDP. The post WWII record is 20.6% in 2000 and the low 14.4% in 2010. Generally the percentage of tax collections rise and fall due to strong or weak “aggregate demand.”

So why blame the rich and advocate for higher income taxes when the rich do not pay income taxes, as Warren Buffett correctly points out. Income taxes are for the little people. They always have been and always will be. In the 1950s when the top tax rate was 90% the rich simply reinvested into their companies or received other compensation packages that were not taxable. Company cars, business trips, medical plans, dental plans, company lodging, and other benefits. 20% of the GDP is the upper limit for tax collections, in a good economy.

But what about going off the gold standard in 1971?

Consumer Price Index (CPI) increased dramatically after 1971 and the removal of the United States from the gold standard

Prior to 1971 the United States was on the “Bretton Woods system” where foreign central banks could redeem dollars for physical gold. This inhibited the Federal Reserve from printing too many dollars creating inflation.

The inflation rate, as measured by the Consumer Price Index (CPI-1982-84 dollars), from 1947 to 1971 averaged 3.5%. From 1971 to present the CPI inflation averaged 11.7%.

Gold prices increased an annual average increase of 0.7% from 1947 to 1971. From 1971 to present gold prices have increased 111.7% annually, despite the best efforts of the world’s central banks to suppress the price of gold.

Does Reich take into account this loss of purchasing power due to inflation?

Of course not. Reich would never blame the government, or the Federal Reserve, for anything bad that happens. It’s a con game by Reich and most politicians. The Democrats straw man is the rich and Republicans. The Republicans straw man is the Democrats and “big government.” It’s all designed to make the people ignorant and angry, and it works quite well.

But where does the “lost” purchasing power go?

Silly question. I bet everyone reading this knew in a New York minute where the “lost” money goes. The first, and most obvious beneficiary, is the Federal Reserve. When the Fed creates money out of thin air, and inflation, it buys bonds from Wall Street and the federal government. Wall Street and the federal government get the new money and get to purchase goods and services at the old price level. From these institutions the next in line are the politically connected contractors and powerful Fortune 500 corporations. It’s like a food chain and Main Street is at the anus part of the food chain. We get the crap, inflation, in the form of higher prices and the politicians, Wall Street, and Federal Reserve get to wine and dine in luxury.

Who created this unjust system?

Government. Something that neither party will ever admit.

Who gets hurt by a rigged inflationary system combined with unlimited low wage workers immigrating into America?

The poor and middle class. Most poor and middle class workers are struggling to make ends meet and generally lack the economic knowledge and skills to protect themselves from inflation like the upper highly educated government class and rich do. Inflation hurts the least educated and most venerable members of society. Inflation is a huge transfer payment from the middle and low class private sector workers to upper middle class government workers and the rich.

By allowing illegal immigration, the elites have created a permanent second class citizen that can be exploited in the labor force and be used to drive down blue collar wages.

Where is the indignation from Reich and the Democrats?

There is none because Hispanics vote, often times illegally, overwhelmingly Democrat. In 2008 67% voted for Obama. Despite the popular belief that only Republicans are rich the fact is 7 out of the top 10 richestmembers of congress are Democrats. Cheap, exploitable labor appeals to both Democrat elites and Republican elites.

A third area that Reich ignores is transfer payments. According to John P. Hussman “22 cents of every dollar of U.S. personal consumption is now financed with transfer payments.”

Wage Income paid out as a percent of nominal GDP

Simply put government transfer payments are now substituting for wage income to the greatest extent ever observed in history. In 1970 the percent of wages received in relation to the GDP peaked at about 53.5%, and transfer payments accounted for approximately 7.5% of the GDP. Today wages make up 44% of the GDP, and transfer payments almost 16% of the GDP. The government is literally stealing money from people’s right pocket, taking their cut, and giving it back to their preferred recipients in the left pocket.

Needless to say this disincentive to work and incentive to becoming a member of a politically connected group produces nothing but injustice to the workers who rightfully earned their paycheck. Nothing is gained from this transfer of wealth and much lost for the workers without political connections. Politicians and the rich elites gain and the blue collar working-class lose.

Transfer payments paid out as a percent of GDP

I am sure there are many other factors involved in the shrinking middle class but the main message is government creates inequalities in society while professing to be for a “fair playing field” for all.

The result of government intervention in the marketplace is almost always a concentration of wealth into the hands of a few and the creation of a large protected highly educated upper middle class of government workers. Both groups work in unison to extract wealth from the less educated middle and poorer classes of private sector workers.

There are two Americas, to quote John Edwards, the rich and upper middle classes of government workers, and the exploited middle and poorer classes of mostly private sector workers. Since 1971 this trend has accelerated alarmingly.

America, and Europe, got caught up in the illusion that government could provide for the masses. Government sold America on this promise. What people forgot is some very simple rules of economics, if you are not in the private sector producing something other people want then you have a negative drag on the economy. A parasite. Much like parasites invading a health host, sooner or later if there is no intervention the healthy host will get sick and die. We need to realize the problem is government and force government to go bankrupt and reorganize. Its not the politicians, its the system. Only when the federal system is reorganized will we become economically healthy as a nation.
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America’s Unique Fascism

2011-09-10T22:28:00.001-07:00

The following appeared in Lew Rockwell on 9-6-2011

Five years ago, antiwar liberals calling the Bush administration fascist were labeled as kooks, marginalized by their own party leadership, accused by conservatives of treasonous thoughts worthy of federal punishment, even deportation. A few years pass, the policies hardly change, and the political dynamic turns upside down: Tea Party conservatives accusing the Obama regime of fascist impulses are compared to terrorists, accused of being racists, told that their hyperbole is a real threat to the country’s security.

Fascist Democrats Protest in Wisconsin

The establishment derides both groups for their fringe outlook on America, convinced that the United States is anything but a fascist country. After all, isn’t America the nation that defeated fascism in the 1940s? Sensible conservatives and liberals agree with that.

The unappreciated reality is that when the patriot right and radical left refer to the U.S. system as fascistic, they have part of the truth but not the whole analysis. This is due to the blinders both sides wear as it concerns state power. Moreover, the criticisms sometimes fail to take account of America’s very unique strain of fascism. This political program is distinct in every nation, always taking a different form but with some general themes in common. U.S. fascism is a most insidious mixture of the key ingredients while maintaining the necessary nuance to snooker the masses, the media, and the respectable folks across the spectrum.

The FDR-Bush Program of Economic Corporatism

First, and this is key, we must look at the economic system. The liberals are proud to have had a role in creating its socially democratic elements. The conservatives are proud of America’s towering financial and military institutions. Republicans and Democrats all pretend America has a free enterprise system, attacking greedy profiteers while crediting themselves for the benefits of capitalism, blaming laissez faire for all our problems while dissonantly congratulating themselves for having supplanted it with sensible regulation and safety nets once and for all.

Steel workers and unions have a long history of communist and fascist affiliations

The dirty little secret is that there has been a bipartisan project of corporatism, the economic underpinning of fascism, for almost a century. The regulatory bureaus, the banking establishment, agricultural policy, telecommunications planning, even the welfare state all enrich corporate interests, but at the ultimate direction of the state. One could say this arrangement was foreshadowed in Lincoln or even Hamilton. But it was during the World Wars and New Deal that the nation embarked upon something decisively fascistic.

Hitler, Mussolini, and the other fascists all employed a general approach of co-opting the market through huge governmental takeovers of industry while maintaining the pretense of private property. Along with this came interventions that would be considered socialistic in other contexts. Lew Rockwell very nicely summed up the economic programs of Hitler, which mirror the great prides of Progressive politics of the 20th century:

He suspended the gold standard, embarked on huge public works programs like Autobahns, protected industry from foreign competition, expanded credit, instituted jobs programs, bullied the private sector on prices and production decisions, vastly expanded the military, enforced capital controls, instituted family planning, penalized smoking, brought about national health care and unemployment insurance, imposed education standards, and eventually ran huge deficits. The Nazi interventionist program was essential to the regime’s rejection of the market economy and its embrace of socialism in one country.

Much of this agenda was adopted in the United States during World War I, and then brought back to life in the New Deal. John T. Flynn, a leftist who initially supported Franklin Roosevelt then became disenchanted with the president’s program of central planning, described the 1930s atmosphere of political ideology in his seminal work, The Roosevelt Myth:

There was indeed a good deal of tolerance for the idea of planning our capitalist system even in the most conservative circles. And a man could support publicly and with vehemence this system of the Planned Economy without incurring the odium of being too much of a radical for polite and practical society.

There was only one trouble with it. This was what Mussolini had adopted – the Planned Capitalist State. And he gave it a name – fascism. Then came Hitler and adopted the same idea. His party was called the Nazi party, which was derived from the initials of its true name, but it was dedicated to fascism. . . .

Whatever it was, it was the direct opposite of liberalism. It was an attempt, somewhere between Communism and capitalism, to organize a stable society and to do it by setting up a State equipped with massive powers over the lives and fortunes of the citizens. . . . Yet this curiously un-American doctrine was being peddled in America as the bright flower of the liberals. Of course they did not call it fascism, because that had a bad name. . . . They called in the Planned economy. But it was and is fascism by whatever name it is known.

Where are the antiwar protesters today?

In specific, FDR’s National Recovery Administration was fashioned after the industrial policy of Mussolini. Flynn explains:

[Mussolini] organized each trade or industrial group or professional group into a state-supervised trade association. He called it a corporative. These corporatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc. The NRA provided that in America each industry should be organized into a federally supervised trade association. It was not called a corporative. It was called a Code Authority. But it was essentially the same thing. These code authorities could regulate production, quantities, qualities, prices, distribution methods, etc., under the supervision of the NRA. This was fascism.

Such an analysis of the New Deal as fascism is not only found in the Old Right or their libertarian successors. Historian Thaddeus Russell’s great chapter “Behold a Dictator: Fascism and the New Deal” in his new book A Renegade History of the United States comes from a leftist perspective and arrives at much the same conclusions. Many of the greatest progressive intellectuals and business elites of Roosevelt’s time were especially enamored of Mussolini’s regime. “The men who made the New Deal were driven by dreams of a machinelike society, in which all members, from the leaders of government to the lowliest workers, would be parts designed, built, and employed entirely for their function within the whole apparatus. But to their dismay, these men found that most Americans rejected such dreams, except during times of crisis. The First World War was the first such crisis. . . . But then came the peace and prosperity of the 1920s, a long time of waiting for another national emergency that could make their fantasies of social order come true.”

This mirrors Robert Higgs’s ratchet effect thesis and the insights found in his books Crisis and Leviathan and Depression, War, and Cold War, in regard both to the general expansion of state power during crises and the particular ways World War I and the New Deal solidified a state that Higgs has, with a nod to Charlotte Twight, referred to as “participatory fascism.”

Mob rule

What makes FDR’s role in American fascism so insidious is that as the greatest 20th century liberal president who led America to war with the Nazis, he is often characterized as the prototypical U.S. anti-fascist. The great Smedley Butler, a brilliant critic of America’s merchants of death, was very concerned that reactionary forces along with the military came close to dethroning FDR and creating a fascist regime. But one must ask, could anyone tell the difference? What would the anti-FDR fascists do – wage total war? Nationalize the economy? Put American citizens into concentration camps based on race? Create a permanent military-corporate establishment? To discuss a possible fascist coup in the years of Franklin Roosevelt is to ignore that it in fact happened – a “revolution within the form,” as Garet Garrett described it.

Also insidious is the great respect most Republicans have for FDR, whether it’s acknowledged or not. Reagan was a devout New Dealer who never abandoned this orientation when he became governor or president. George W. Bush’s entire economic program was also thoroughly Rooseveltian – expanding Medicare to the benefit of the pharmaceutical companies, an Ownership Society (how fascist does that sound!?) intended to shore up the real estate and finance sectors, an attempt to corporatize Social Security (thereby saving FDR’s domestic triumph, itself a copy from a Prussian program of the 19th century), the bipartisan bailouts of financial institutions, steel tariffs, further nationalization of education, and all the rest.

The Democrats, for their part, continue with the fascist economics they adopted four generations ago, and it leads to a good deal of confusion as they are the “liberal” party. Yet when Obama plans to force individuals to buy private health insurance, picks corporate giants to head up regulatory offices, schemes to create a phony market in carbon credits, and widens the revolving door between Wall Street and the Oval Office, he along with his party is only continuing down the road of their Mussolinian predecessors.

One of the most horrifying parts of fascist economics, autarky, has even been mimicked by all presidents since Nixon in their crazed calls for “energy independence.” We also see it in the hysteria about jobs being oursourced. Today it often has an environmental spin, and there is not the beating on the podium and screaming of Lebensraum, but the protectionism and codependency between favored American businesses and the omnipotent state, all with a nationalist focus, are nevertheless there for anyone to see.

It could be countered that many other nations have corporate states as well. Perhaps they too have fascist tendencies. Yet there are a few corporatist features singular to the United States. As the holder of the world’s reserve currency, and given that money is half of most economic transactions, the United States boasts one of the most significant corporatist arrangements in the world in its alliance between the Federal Reserve and the big banks. The U.S. government, in absolute terms, claims the largest of all regressive welfare programs in the form of Social Security. It is likely the global leader in intellectual property enforcement, both in domestic and international terms, with most nations trailing considerably behind in this increasingly draconian form of corporate privilege. As the grandest leviathan preying over the world’s richest nation, the U.S. corporate state is in its own class.

Flynn’s insight that the economic structure of America’s planned economy is fascist whatever label we affix to it is echoed in a much more recent and popular authority. In an episode of South Park, Kyle the idiosyncratically precocious kid has this great exchange with his father:

Kyle’s dad: “You see Kyle, we live in a liberal-democratic society, and democrats make sexual harassment laws, these laws tell us what we can and can’t say in the work place, and what we can and can’t do in the work place.”

Kyle: “Isn’t that Fascism?”

Kyle’s dad: “No, because we don’t call it Fascism.”

Up and down the economy, at all levels of government, bureaucrats and planners dictate details in nearly all areas of economic behavior, with the principle that some sectors should simply be free of government intrusion having been totally discarded. If we have large swaths of economic liberty in America, and we do, this is by accident, or merely due to the state’s institutional limits in being able to run everything. The ideological thrust of U.S. economic policy is that we may live our commercial lives freer than in many places, but all upon the good graces of the state, its cartels, licensing boards, and regulatory apparatuses. Even our homes are private property only insofar as it serves the interest of the state, which claims the right to seize anything we own if it bolsters the tax receipts garnered through the state-business nexus. The business environment adheres to a rapidly expanding litany of commercial codes, many of them designed not even by legislature but by executive or judicial fiat. Taken together, this is the essence of economic fascism.

Warmongering Nationalism

A major feature of the fascist powers in the 1930s and 1940s was their belligerence. Without the militarism and war making, these regimes may have never drawn the ire of the U.S. and its allies, we are often told, and it’s probably true. It is thus bizarre to hear conservatives voice concern about America’s slide toward fascism without acknowledging this central aspect. The United States is the most militarily belligerent nation since World War II, with a very competitive résumé from decades before that. The U.S. appears to have been at war with more nations than any other. The U.S. has dominated the world in bombings, with no other nation coming close, certainly not in the last six decades. Taking the estimates of civilians killed due to U.S. wars of aggression, strategic bombings, and sanctions on food and medicine, the death toll easily surpasses ten million.

Fascist countries like to go to war a lot

The U.S. spends more on national offense than the rest of the world combined. There are now five wars raging – in Afghanistan, Pakistan, Iraq, Yemen, and Libya – and it is treated as normal, not an extraordinary state of affairs at all. And it isn’t one. About every generation the U.S. has had a major war – 1812, Mexico, Lincoln’s War, Spanish-American, World War I, World War II, Korea, Vietnam, the Gulf War and war on terrorism.

In the overwhelming majority of the world’s nations we can find U.S. bases. Virtually no state is treated neutrally; all are favored and bribed, bullied and manipulated, or invaded with the goal of conquest. Many of the most bloody regimes and insurgent forces in the world have been allied to the U.S. government, from Stalin’s Russia to Pol Pot’s Cambodia, from the proto-Taliban in Afghanistan to Saddam Hussein’s Iraq. The U.S. has trained dozens of states and armies in the arts of torture and terror. One year the U.S. will opportunistically side with a ruthless dictator, only to backstab him often at the very moment he is least menacing to the rest of the world. These foreign activities are all characteristic of a fascist power.

At home, American culture is saturated by militarism, and it is not a modern anomaly. The flag, national anthem, presidency, Constitution, relationship between the federal government and the states, the major welfare programs, prohibition, police policies, weaponry and conduct, the very territory that defines U.S. boundaries – it can all be clearly traced to war. America is not the only state infected by this militarist taint, but it is the most prominent such nation today with pretensions of peace-loving to have an undisturbed history of war making, virtually none of which the current national culture looks upon with shame.

Although the U.S. has long had a militaristic fever, we have seen it reach absurd proportions in recent years. Robert Higgs, in his recent interview with Jeff Tucker, put it very well:

One hears lately, unfortunately, at sporting events, at baseball games, at football games, certain interludes of worship for the Armed Forces. I find it disgusting myself because I like baseball and I don’t want my baseball to be spoiled by intrusions of nationalistic fervor and worship of the Armed Forces. To me baseball is glorious for being a peaceful activity. We don’t have to kill people to find excitement in life.

It is the same way in the churches, in the media, in the business sector. The Armed Forces are honored and privileged, enjoying a very high official status, even as the injured who return from war are typically mistreated by the very institutions on whose behalf they risked their lives. A returning soldier is a higher form of life than a common citizen. But in the midst of the state’s institutions, he is still just a used-up cog, the repair of which is often not worth it to the machine.

Militarism is not as nakedly on display as in Germany at the height of the Nazi invasion of the Soviet Union, yet we must also consider the continuity. The U.S. has been steadily militaristic for most of the last century, and much of the previous one. It is unapologetically so, even when there is some subtlety to it. Although the cultural right is much more militaristic, the left is also dominated by love of the Armed Forces. Franklin Roosevelt, hero to most of the left, was father of the modern military industrial complex as well as nuclear weaponry. Liberals love claiming the legacy of America’s most beloved war, and they love the myths that surround that state undertaking for having unified the culture and brought America out of the Depression. World War II supposedly demonstrates the efficacy of central planning, as well as the necessity to kill untold numbers of innocent people, on occasion, which is why both statist wings of the American political class love it so dearly.

It is almost impossible to get very high in the national culture with a radically antiwar outlook, to say nothing of an anti-military one. There is much that is taboo to say in American life, but principled critiques of war making, based on the common-sense morality concerning questions about the taking of innocent life, are probably at the top of the list.

Economically, the so-called defense industry stands as a giant. Major defense contractors have infrastructure in nearly every state, and their hands in virtually every sector of government – from TSA and the Department of Agriculture to the IRS and Homeland Security, from NASA and the Food and Drug Administration down to the New York police department. Very few critics of this regime get very far in the mainstream.

The Leader Principle with a Twist

In the United States, any natural-born citizen can grow up to be the president, we are often reminded, demonstrating once more, as if any more evidence were needed, that America is the greatest nation in history, its people the chosen people to lead the world. America is proud to advertise itself as the king of democracies. There is no religious test to be president. There is no familial restriction. Every four or eight years, we see the peaceful transfer of power – unprecedented, demonic power – and Americans can thus say with pride that more than any other nation in the world, “the people here really are the government – the greatest government there ever was.”

Public schools indoctrinate our children

Yet when that American citizen is in office, he (or she, as I’m sure we’ll see soon enough) is basically god on Earth. Is there a minor or major problem with America’s economy, or the world’s? The president shall respond. Is school violence or sex on television becoming a problem? The president will send one of his officials to fix it. Is injustice transpiring overseas? The president shall see to it immediately. Health care, energy, immigration, social peace, crime, marriage, international trade – nothing is to be tackled without the consultation or active involvement of the president.

One would think the president works a 75-hour day, given his supposed capacity to heal the sick, fix the market, bring democracy to Afghanistan, stamp out drugs in Mexico, secure the auto industry, stand as a role model, unify the nation, end racism, teach all children – not a one left behind – to read, decide when to launch nuclear weapons and which other nations are worthy of having them, save Americans from natural disasters, fix the weather, and get everyone into homes with ever increasing sale values at ever declining costs.

This is such an important, holy office, that the president never travels anywhere without a vast legion of bodyguards, medical personnel, executive officials, and dozens if not hundreds of others. No one else in the world has ever had such a personal army. Wherever the president travels, the local population must surrender its petty business and witness entire neighborhoods overtaken by the head of state’s coterie of pampering assistants and armed guardians.

Americans are enamored of the flawed, everyday persona of the president. They loved Reagan for losing his temper. They adored Clinton for his foibles. They liked it that Bush was a guy with whom you could have a beer, that Obama listens to the same music that they do. They love the idea that, unlike in other fascist regimes, the president can be anybody. And that person can then opt to torture and kill anyone on Earth, or destroy any Third World nation on his (or her – it must be emphasized) say so.

When it comes to power – the actual control the president has over resources and his capacity to destroy human life – no other fascist leader has ever approached what is at the president’s fingertips. No other political office has lasted so long with so much Caesarian prerogative. No other political position was ever credibly believed by so many to have the power to do so much good. In America, the president is a deity – which, paradoxically, is why so many political opponents take it so personally when someone they dislike has the office. Some Americans don’t want to see the greatness of their country tarnished by a perjurer like Clinton or a doofus like Bush. They might even question the officeholder’s legitimacy, as with Obama. But this is because the office is so revered. The presidency itself is upheld as the commanding office of the nation, the secular savior of the world. It is the godhead of America’s democratic omnipotence. It is a sacred position. The fact it is an elected office occupied by imperfect souls only bolsters its unparalleled grandeur. To say the Leader Principle isn’t alive and well in this country is to define the concept too narrowly.

But the United States doesn’t round people up on the basis of ethnicity and gas them, the protests come, and so surely it is not fascist. The U.S. isn’t based around the concept of racial superiority. Although the Nazis were surely obsessed with racist nationalism, not all fascist systems are. Nevertheless, fascism has been associated with racism and so it is important to acknowledge how this plays into our analysis.

In the United States, PC multiculturalism can at times be as overbearing as old-fashioned bigotry. People have lost their jobs for harmless comments. Others are denied opportunities in academia because they don’t have minority status. This does not arise to the level of Nazi hatred, for sure, although we can remember that the anti-Jewish crusade began as an affirmative action program, based on the concern that Jews were overrepresented in places of influence.

More important in U.S. fascism is the role multiculturalism plays in guarding against the accusations of violent prejudice. The U.S. government already addressed racial strife, our textbooks say. If racism remains, it is a problem with the culture and private sector – not the egalitarian state. The war machine and federal government were the saviors of blacks. LBJ, the same man who slaughtered millions of Asians, signed the Civil Rights Act, and so the federal government has been elevated to the status of being the Final Solution to racism, the redemption of America’s past sins. The all-out assault on property rights involved in Civil Rights legislation is itself a form of anti-racist fascism, yet to say so is to be met with incredulous perplexity, at best.

Under the official code of American ideology, almost nothing is worse than being a racist, which is why the Tea Party is smeared this way and why Al Gore is comparing global warming skeptics to the racists of a previous generations. It is why the conservatives, too, try to use racism accusations to discredit liberals who dare criticize Clarence Thomas, Condoleezza Rice, or Herman Cain.

At the same time, the American state continues to divide people by race. It imprisons blacks at an alarming rate so that there are now more black men in the correctional system than there were enslaved in 1850. The state is still the greatest oppressor of ethnic minorities, who still get the worst of the police state’s violence. Because much of the state’s war on blacks and other minorities is in the form of regulatory and welfare practices wrongly thought to help the poor and minorities – welfare, public housing, government schools, licensing, minimum wage laws, coercive unionism and so on – very few Americans identify the problem of racist statism comprehensively. Leviathan is a bad deal for whites as well as blacks, only elevating the political class at the expense of all.

Although the U.S. is more culturally tolerant of immigrants than most nations, here too we see racial politics mixed with statism to produce violence against individual rights. Indeed, the specter of mass deportation of peaceful people, the effort to crack down on all business relationships involving an illegal, and the underlying nationalism involved in the demarcation between the rights of legal residents and aliens all speak to the fascism involved in the U.S. system. Immigration was once a much more locally handled, market-regulated matter. With the central state in charge of racial politics and the creation of national identity, liberty for all suffers.

It is the warfare state, however, where American racism is the worst, the most sanctioned, and the most dangerous. Interestingly, the empire uses both political correctness and racism to enhance its power: for example, criticizing U.S. ties with Israel is smeared as anti-Semitism while disregard for the rights of Arabs feeds U.S. wars abroad. Although anti-colonialism and even anti-racism have long been part of war propaganda, the outright hate of foreigners has always served the interests of the militarists, from the vilification of the Spanish and the dehumanization of the Filipinos to the demonization of the Germans in World War I to the gruesome caricatures of Japanese found everywhere in the 1940s and today’s disgusting treatment of Muslims.

Americans actually take seriously ideas to forbid the construction of mosques in some areas, proving that intolerance of groups based on race and religion is a very real threat. On a related note, religion plays a fascinating part of American fascism, as both devout Christians and secular liberals see the state as a divine institution. For the fascist left the state is its secular God. For the fascist right the U.S. government is an arm of God’s holy will. Fear of godlessness was key in the Cold War, just as fear of fundamentalist Muslims fuels the war on terror and fear of unusual Christian sects has led to their deprivation of rights at Waco and elsewhere.

The worst is seen in the U.S. treatment of foreigners, blown apart in war as if they are vermin. An important point here is the other fascist regimes have been historically discredited, and the modern incarnations of these nation-states don’t speak with pride about their past. Modern Germany is not at all boastful of its National Socialist era. With America it is different. This is the state and statist culture that wiped out the Indians, kept blacks enslaved, dropped atoms bombs on Japanese civilians and put their American counterparts in concentration camps – and yet these historical injustices, however much lamented today, do not bring into question the overall legitimacy of the American state that boasts an uninterrupted lineage of sovereignty that encompassed all these atrocities. The U.S. smacks of pride for its centuries of governance, despite the many millions enslaved and crushed under its boot. We should not be surprised that modern American political culture continues to treat foreigners as though they are subhuman. When Pakistani children die in U.S. drone wars, or Mexicans die by the tens of thousands purely because of U.S. drug policy, it is all seen as a price well worth paying – if even it is acknowledged at all. The prevailing dichotomy that there are Americans, worthy of rights, and there are others, totally dispensable in achieving U.S. goals, is a construct easily befitting of national socialism.

American fascism has managed a wondrous trick, using old-fashioned racism as well as officially defined anti-racism to shore up its power. Washington’s Civil Rights crusade as well as inhuman disregard for “the other” in perpetuating its totalitarian violence overseas reinforce each other in a most nefarious way, blinding people to the danger of mixing racial politics with total power no matter what the aim. Its wars abroad are always for equality, democracy, humanity. Its domestic state balloons with power to combat social strife. But from Wounded Knee to Guantánamo, the truly disenfranchised have another story to tell.

Social conservatives generally find accusations of U.S. fascism to be preposterous – offensive when Republicans reign and absurd when Democrats rule – partly because from their perspective almost all manner of cultural liberalism, decadence, political correctness, sexual permissiveness, and so forth cannot be escaped, not in the public schools, the FCC-licensed big media, the government-endorsed view of mainstream society. They see Christianity pushed out of the schools and public sphere, including in local city Christmas events, and believe if there is any tyranny in America it is of a leftwing variety.

Although bourgeois American culture has been co-opted by state institutions, particularly through militarism, it is true that the counterculture too has been absorbed by American civic ideology. It is a good thing that state harassment of people outside the mainstream of sexuality has been minimized, but it is important to note that just because the U.S. is more “socially tolerant” than in past times doesn’t mean it’s freer, even when it comes to personal rights. It is crucial to note that just because presidents admit to trying pot and the government finances condoms for students and museums devoted to rock music does not mean liberalism of a genuine sort has triumphed.

The public schools are a microcosm of the issue. Many see in them cesspools of deviancy, libertinism, a total disrespect for old culture, conventionally defined family values and hierarchy, or even the traditional conception of the role for schooling: reading, writing, arithmetic. Yet these institutions are thoroughly fascistic, hierarchical according to ageism and an arbitrary placement of authority in teachers and administrators. They have come to resemble low-security prisons, complete with metal detectors, armed guards, and summary searches. Students are spied upon and regulated even in their time away from class. Young children are suspended and punished over the smallest of offenses, even handcuffed and told they’re heading to prison, never to see their parents again. It is no coincidence, probably, that America’s school system and the Nazi regime both had vital origins in Bismarck’s Prussia. The right looks at our schools and sees decadence and debauchery. Yet there is also spirit-crushing authoritarianism.

To emphasize the socially liberal flavor of the American police state is not to say that the fringe is always tolerated by society, much less government. The persecution of sex workers continues and those involved in certain verboten consensual sexual activities – such as teenagers caught sending each other nude photos in class – can face years of jail and the institutional shame of being labeled “sex offenders” for their victimless behavior. The greatest cause of prison growth and one of the worst abuses of liberty in America has been the war on drugs. Although America prides itself for being more liberal than its Muslim enemies on the question of alcohol, it incarcerates hundreds of thousands of people whose only substantive offense was against the state-imposed norms of pharmacologically induced brain chemistry. And even as the prospect of marijuana legalization seems bright, those who continue to be marginalized – psychedelic, heroin, and illegal stimulant users – will continue to be subjected to imprisonment, which in America often effectively means frequent beatings, inter-inmate slavery, and rape. Moreover, the reach of the U.S. drug war is global – there is nothing really like an international crusade against victimless crimes akin to America’s bullying of most of the world to go along with its drug policy, as it has done in increasing levels of intensity for a century.

Drug oppression doesn’t stop at recreational users and outcast addicts, either. The Food and Drug Administration has devastated millions of families with its totalitarian dictates, depriving hundreds of thousands of needed and effective medicines, cutting countless lives short. Its cozy relationship with some of the big pharmaceutical firms reminds us of the economic component of this fascist arm of the American state. But the underlying principle that in America you do not own your body sufficiently to decide whether to take a substance, whether cocaine or experimental cancer medications, is a fascist pretension if ever there was one. Meanwhile, those deemed “mentally ill” also face numerous severe restrictions on their civil liberties, although Thomas Szasz has done a wonderful thing in greatly reducing this element of American fascism.

The state doesn’t break down our doors to lock up all political dissidents or liquidate racial minorities by the thousands, so it is sometimes assumed our system is nothing like fascism, although we should remember that Mussolini’s state wasn’t as bad as Hitler’s, and even Hitler’s regime didn’t develop into an exterminationist project right away. Although the U.S. government isn’t as totalitarian in practice as some states have been, we must look at the potential power just waiting to be unleashed. In a mundane sense, America’s police state tentacles are indeed more ubiquitous and grandiose than anything that has ever existed on the planet.

The surveillance state is unprecedented, without even the façade of due process involved in spying that existed before 9/11. The government seeks to monitor all. Anti-government critics are indeed tracked and at times arrested. Whistleblowers are detained and mistreated. Torture is normalized. Indefinite detention without cause is a bipartisan, unchallenged policy. America boasts the largest incarcerated population, both per capita and in absolute terms, on Earth. The death penalty persists, rare among industrialized, modern nations, and a policy without which, we must remember, industrial-style genocide is essentially impossible.

The police presence increases year by year, and becomes ever more dangerous. Thousands of American citizens have been killed by police in the last decade alone. Ethnic minorities, the youth, illegal immigrants, and other classically alienated groups are especially vulnerable. But no one is safe. There are a hundred SWAT raids a day. No matter what someone’s station in life, there is the threat of being jailed for an unbelievably petty offense, injured during a traffic stop, or shot by a police officer. No matter how wealthy someone is, there is a threat that a regulatory technicality or contrived offense like “Obstruction of Justice” can land one in a federal pen. Incidents such as the Waco massacre and the round-up of weapons at Katrina reminds us of how universal the threat to liberty is, regardless of demographics.

Just because you can watch half-nude women on afternoon television or gay men kissing on the streets of nearly any major city does not mean America is free, as complacent liberals might think, much less too free, as conservatives often suggest. Just because most dissidents are left alone doesn’t mean there is no police state, for that would be convenient indeed for the police statists: the idea that people ought not complain so long as they have the right to do so.

American fascism is one of a kind. Its economic system is neither free enterprise nor pure egalitarian socialism, but more akin to a buffed-up, modernized, globally dominant Mussolinian corporate state. Its militarism rivals and in many senses exceeds any of history’s fascist regimes, in power, uninterrupted belligerence, and sheer size. Its presidency is the most revered and powerful Fuhrer in world history, despite and actually due to its democratic nature. America’s racial nationalism is unusual but very real, combined with pretensions of anti-racism. Its police state enslaves and punishes, at home and abroad, in ways that would make Franco or Perón envious, even as it allows for a relatively wide range of social liberty.

When Keith Olbermann called Bush a fascist in 2008, the conservatives thought it seditious and threatening. When Glenn Beck began sounding the alarm in 2009 that America was moving toward fascism, the progressives thought it crazy and dangerous. Both of these statements were not hyperbole, however. If anything, antiwar lefties and populist rightists only know the half of it when they use the dread “F” word, since they fail to note how intimately much of their own favored agenda falls in line with what they despise.

Ford building $1 billion manufacturing complex in India

2011-09-10T22:27:00.000-07:00

The following appeared in AFP on 9-6-2011.

An child walks on a plot of land acquired by Ford India for its new automobile manufacturing plant near Sanand, some 60 kms from Ahmedabad. Ford has started construction on a $1 billion manufacturing and engineering complex on the site. The complex will create 5,000 jobs and be able initially to produce 240,000 vehicles and 270,000 engines a year from 2014, Ford says.

AFP – US auto giant Ford has started construction on a $1 billion manufacturing and engineering complex in India as it bets on the country to help drive global growth, a company statement said on Tuesday.

The new manufacturing facilities in Sanand in the western state of Gujarat will create 5,000 jobs, and will be able initially to produce 240,000 vehicles and 270,000 engines a year, Ford said.

The first vehicles and engines are due to come off the line in 2014.

The complex highlights the automaker’s plan “to aggressively grow the Ford brand in India,” said Ford India president Michael Boneham.

The new manufacturing facilities are targeted at helping Ford reach its goal of increasing worldwide sales by nearly 50 percent by the middle of the decade to eight million vehicles a year.

“We are aggressively expanding in markets around the world that have the most growth potential,” said Joe Hinrichs, president of Ford Asia Pacific and Africa.

Ford has made several moves to support its aggressive expansion plan in India, with the company’s total investment in the country to date now at $2 billion.

The economy is not the only thing looking up in India

Rising incomes and rapidly expanding young populations have turned Asia into a battleground for global car manufacturers such as Ford, GM and Toyota, which hope to grow revenues by steering towards the Asia-Pacific region and Africa.

Ford began selling its cars in 1996 in India and in China one year later, but it only recently stepped up its game as it emerged from recession and restructuring in the United States.

Last year, Ford announced it will bring eight new vehicles to India by mid-decade, the first one being the Fiesta, launched in July.

The Detroit firm still has a long way to go to make the region a significant revenue generator. Ford is a comparative minnow in China and India with only three percent of the markets — the two fastest-growing globally.

Left Wing Propaganda Exposed

2011-09-04T19:02:00.001-07:00

The right has Alex Jones and his conspiracy theories and on the left enters Dave Johnson telling his readers that Obama is a fiscal conservative. In his blog, “Three Charts to e-mail to Your Right-Wing Brother in Law”he arrived at his numbers in a very vulgar manner.

Left Wing Blogger Dave Johnson, will he be the lefts version of Alex Jones?

His first chart shows spending increased 88% under Bush and 7.2% under Obama. I wish this was so. As one would suspect with the federal government there are several ways and departments that calculate spending. Let us look at a few of them.

First is the White House numbers on spending. In the year 2000 (Clinton’s last year in office) the federal government spent $1.788950 trillion dollars and in 2008 Bush spent $2.982544 trillion. This represents a 66.7% increase in federal spending.

Using the 2008 spending number of $2.982544 trillion as a baseline Obama increased federal spending to a 2011 estimated number of $3.818819 trillion. A 28% increase in spending. Certainly not anywhere near the 7.2% Johnson claims.

I would speculate that Johnson is comparing the increase in budget from 2009 to 2011 or $3.517677 trillion to $3.818819 trillion, which yields an 8.6% increase in spending, certainly close to the 7.2% Johnson claims. The only problem with this analysis is 2009 was the beginning of the Obama/Keynesian massive stimulus programs pass into law under his watch.

Briefly there was the $787 billion “shovel ready” stimulus, cash for clinkers, cash for calking, mortgage refinancing, and other gimmicks designed to stimulate the economy. Johnson wants his readers to believe Obama had nothing to do with the jump in federal spending from $2.982544 trillion in 2008 to $3.517677 trillion in 2009. Really?

Spending increased 7.2% under Obama according to Johnson.

By moving the “base” year of comparison of the spending from 2008 to 2009 Johnson makes Obama’s massive spending increases seam less objectionable. I think we all would like to omit that $535 billion in additional spending.

Yes we would, but it serves no useful propose but propaganda.

Doing the same trick for Bush lowers his spending increase to 60.1%. Counting the Bush years as 2001 to 2009 yields the 88.8% figure Johnson reports.

Although 2009 was technically a 2008 FY budget the Obama stimulus was passed in February 2009 and partially spent in 2009. Obama, and Johnson, need to take ownership for the federal increase in spending from 2008 to 2009. “Shovel ready,” remember?

The next table is bizarre showing Obama is reducing the deficit out to 2015. Just a little bit of a stretch. The White House numbers show the deficit was 0.160701 trillion for 2007, 0.458533 trillion for 2008, 1.412688 trillion for 2009, 1.293489 trillion for 2010, and estimated $1.645119 trillion for 2011.

Breaking it down as a percentage of the Gross Domestic Product (GDP) shows the deficit was 1.2% in 2007, 3.2% in 2008, 10.0% in 2009, 8.9% in 2010, and estimated 10.9% in 2011. This huge increases as a percentage of the GDP from the “traditional” deficit of 3% of the GDP or less, to more than 8.9% is what has Austrian economist predicting disaster. When a country moves from borrowing less than 3% of their GDP by the federal government to more than 10% that country risk serious financial instability and the possibility of a Argentina type financial collapse. Simply put the government should not grow faster than the private sector.

The White House projections for the budget deficit out to 2016. The same White House that missed the 2009 to 2010 budget deficit by $400 billion.

Johnson assumes the White House budget estimates of deficit reduction out to 2016 are accurate.

Is this reliable?

From 2009 to 2010 the White House missed the budget deficit estimate by $400 billion. If the White House staff cannot get closer than $400 billion in one-year why anyone would take seriously a rosy projection of 5% economic growth rates out to 2016? Your guess is as good as mine.

Finally Johnson claims that job growth under Obama is rosy. “Private employers added 1.8 million jobs in the last year.” While the other claims at least have a shred of credibility this one is a pure flat out lie. Here are a few sobering statistic from the St. Louis Federal Reserve website.

Since Obama was inaugurated the:

Labor force participation rate has declined from 65.7 to a 29-year low of 63.9%.

The civilian employment-population ration has declined from 60.6% to 58.1%.

The civilian labor force has declined from 154,185,000 to 153,288,000, -0.6%, while the population has increased from 306,208,000 to 311,256,000, 1.6%. This represents more mouths to feed and fewer people participating in the labor market.

Jobs, jobs, and more jobs according to Johnson. 1.8 million new jobs. And 1.9 million lost jobs?

Total nonfarm payrolls have declined from 131,555,000 to 130,920,000 or a decline of 0.5%.

I could continue but of the absurd claims Johnson makes this one is just plain cruel and mean in these harsh economic times.

The bottom line is while Johnson is quite playful with numbers they do not reflect any reality in Washington or Main Street and are useless.

The reality is Obama spent trillions artificially stimulating the economy and masking the damage done by the housing boom. We are going into a recession again because Obama ran up the credit card and the credit card is maxed out. The proper course of action would have been to liquidate the banks on Wall Street as well as letting the housing market bottom out.

Obama, Federal Reserve Chairman Bernanke, and the Democrats thought they had the Keynesian solution to fix the economy. They were wrong just like Bush and Greenspan were wrong to pump up the housing market.

Bernanke will almost certainly do QE III in September and that will create yet another damaging blow to the economy. QE III will give us liberal doses of inflation to go with our unemployment.

What Johnson, and Americans, need to understand is that this is not a “D” and “R” problem. The problem is our politicians, and Federal Reserve bankers, have leveraged themselves into a box with Ponzi schemes like Social Security and Medicare. The Federal Reserve is leveraged 56-1 with essentially billions worth of crap low interest junk on its portfolio.

Playing stupid 2008, 2009 base year games does utterly nothing to educate the public on the authentic economic problem facing America, bankruptcy.

The insolvency of the federal government and reorganization, or liquidation, is the real issue America will face in the coming decade. Those of us in the “Tea Party,” and even an occasional Libertarian, need to understand the real problems facing America and ignore the mindless riff raff noises coming from the left.

Note: For younger readers what Johnson does is typical propaganda. Dishonest writers start off with hard, plausible numbers that could be argued to be accurate, and then typically deviate into the surreal world of propaganda and lies. This technique has been around since the written language was developed. Hard facts, a little twisting of the facts, finally the propaganda and lies.

Black Unemployment Up 25.2% Since Obama Became President

2011-09-04T19:01:00.002-07:00

Now just pause for a moment. Look at the headline of this blog. Can you imagine for a second if it was 2003 and George Bush was president. Imagine the New York Times reporting “Black Unemployment Up 25.2% Since Bush Became President.”

The NAACP, Annenburg Foundation, Chuck Schumer, Maxine Waters, Barney Frank, ADL, Jessie Jackson, and the rest of the race hustlers and parasite organizations would be howling to the high heavens “Bush is a racist” and “Bush hates black people.” Every paper in the country would run a version of the above headline. Yet today when blacks are devastated by Obamanomics not a peep out of the nations news outlets. As long as the news media agrees with the politics of the president devastating unemployment is fine with them. Its not their jobs they are lost.

And where are the black leaders screaming about how the black man is bearing the brunt of Obamanomics? All we get is Maxine Waters telling Obama to make more stops in black communities on his next bus tour and then reverting back to calling white people racist. It all comas back to white people being racist to black leaders. Like a lab experiment where the subjects have access to a button that injects them with cocaine, they keep pushing and pushing that race button. They simply do not understand that while they may get a short term high, in the long run that button will kill them.

Black unemployment has increased 25.2% since Obama was inaugurated

This is reality for millions of black people. Ineffectual black leaders educated in communism, socialism, and hating white people. Some would refer to them as racist bastards. Economic illiterates who have no clue how wealth is created and dispersed. Incapable of understanding the plantation has a new master, and it is them, not the white man, running the plantation.

If you take into account the drop in the labor force participation rate from 65.7% to 63.9% from when Obama was inaugurated the 25.2% does not capture the true devastation Obamanomics has had on the black community. The actual black labor force participation rate is 62.2% or 1.7% LOWER than the national average. This means that the unemployment rates for blacks is UNDERSTATED and is in fact worse than the official data.

Some would estimate 33% higher or 18.7% if all former black workers dropped from the calculations because they have not been actively seeking employment for the last four weeks were induced in the Department of Labor calculations. The unemployment rate peaked at 24.9% during the Great Depression. Hmmmm.

Sticking with the facts when Obama was inaugurated the black unemployment rate was 12.7% and is now 15.9%. Black unemployment has reached as high as 16.5% under Obama, the highest since July 1984.

Hope and Change is turning into a socialist nightmare for millions of black workers. Obamanomics has devastated the black community more than white and Latino communities. The prospects of a Obama re-election and the implication of Obamacare that will kill millions of jobs and further devastate the black community is daunting. Blacks should not walk, but run to the nearest capitalist candidate running for president.

Black teen unemployment breaking new records

As for black teen unemployment the Department of Labor sums it up best “As Chart 2 also illustrates, black youth (aged 16-19) have significantly higher unemployment rates than black adults. The unemployment rate for black youth reached a high of 49.2 percent in September 2010 and as of June 2011 had fallen to 39.9 percent. Not only has the unemployment rate remained high, but a large number of black teens are no longer in the labor force — either working or looking for work. In 2007, black teens participated in the labor force at a rate of 30.3 percent. By 2010, that rate had declined to 25.5 percent. Labor force participation of black men and women aged 20-54 declined by 1.2 percentage points from 78.2 percent in 2007 to 77.0 percent in 2010, while older black workers (aged 55 and older) increased by 1.4 percentage points — 35.3 percent in 2007 to 36.7 percent in 2010.”

Many unemployed are flocking to education for a source of financial aid and fulfillment. With the budget crisis that will have to be dealt with sooner or later the days of hiding out at the local college collecting financial aid are numbered. This generation of youthful idleness will put down the video games one day and wake up unemployed, unfulfilled, bitter, and looking for some payback. They have been betrayed by their leaders for some obscure political philosophy that is nothing but garbage designed to help the elites subjugate the peasants and enslave them. Unemployed, no prospects, bitter, and years older.

It could end very badly for the United States with our diverse background when our country goes bankrupt

Unlike the Great Depression when unemployment hit 24.9% we were a homogeneous nation. Now we are many separate groups. We are very diverse educationally, ethnically, socially, politically, and the potential for a Yugoslavia type ethnic war increases the longer Obama stays in power. It should be clear to all but the dullest and most ideologically dedicated that Obama is incapable of uniting America.

The politicians in Washington feed this separation daily. Black leaders regularly call whites racist. Obama mocks Republicans on a regular basis. Words have meaning. Words have impact. One flash point event, another depression, and it would be Yugoslavia 1990 here in America.

Black leaders would be wise to moderate their comments and accept that their political philosophy has lead to the complete destruction of the black community. New black leaders who understand capitalism need to replace the tired old socialist and communist who currently wield power.

Those who have studied the Civil War know that it was not Fort Sumter that just happened. It was years of divisiveness over tariffs, states rights, western expansion, Supreme Court rulings, debates, politics, and finally hundreds of thousands of dead. Our bloodiest conflict. It did not happen overnight.

When I hear black leaders calling me a racist all the time, everyday, Yugoslavia comes to mind. Ethnic tensions in Yugoslavia were suppressed for decades by the brutal communist regime, and then one day the communist were gone.

Be careful what you wish for, it might come true.

Economy Going Back into Recession

2011-09-04T19:01:00.001-07:00

Here is a outstanding blog by John P Hussman for those who would like a more detailed explanation of the coming recession and how to predict one using accurate, textbook analysis.

Keynesian economic policies are so predictable for a Austrian economist. Spend a lot of money, print a lot of money, enjoy some fake economic growth for a year or two, and then the money runs out. Not much different than some low life getting laid off and running up his credit cards. That is pretty much the economic policy of Keynesians like new Obama Counsel of Economics Advisers Alan Krueger from Princeton.

Alan B. Krueger, Princeton elitist Keynesian. Predictable shrill for the elites and government

At least Alan Krueger did his homework. He knows that with a personal tax, no matter what the tax rate is, collections will never exceed much more than 20% of the GDP. To get around this and fleece the peasants more to benefit his elites at Harvard, Princeton, Wall Street, and Washington he has proposed a Value Added Tax (VAT). This “5%” tax would soon become 30% or even 50% and tax collections would follow the path of Europe, killing economic growth. Also very predicable and guaranteeing that the elites stay the elites for generations, which of course is the game plan.

Why do the elites support economic policies that intentionally hurt the rest of America? Selfish bastards, ethnocentric assholes, and the usual reasons one group of people place their needs above the rest. There is no justification for economic policies that intentionally enslave and create unemployment other than the evilness of mankind. People like Alan Krueger should be placed in the evil bastard category.

Below is the M2 money velocity. As you can see when the “Great Recession” hit in 2007 the velocity went down. The Federal Reserve printed a lot of money, the money was spent, and velocity went up during the Obama “growth” years. Now the banks are full of “liquidity” and the money is spent, or sitting idle, and the velocity is going back down. Similar to the low life maxing out his credit cards.

The irresponsibility of our politicians for the last 76 years, starting with Social Security, will cause this generation to relive the Great Depression, unless we as a nation decide to go bankrupt and reorganize.

The Federal Reserve can print more money, and we can have inflation along side our unemployment, but they realize that being leveraged 56-1 puts the Federal Reserve in unforeseen crisis mode. Of course they could print themselves out of any financial hole they dig, but the political fall out would be cacophonous.

Keynesian economic policies are so predicable

One Man Can Make a Difference: Jay Beeber’s Successful Battle Against Revenue Cameras in Los Angeles

2011-09-04T19:00:00.004-07:00

The following appeared in International Liberty on 8-29-2011.

In a decision that is overwhelmingly the result of the hard work and dedication of one person, Los Angeles is ending its revenue-generating red-light camera scheme.

Here’s Jay Beeber’s interview with Reason TV.

If you’re interested, this post has more information about how red-light cameras make intersections more dangerous.

It’s probably an exaggeration to say that Jay Beeber is an American hero, but he definitely deserves accolades of some kind.

Let’s not forget, though, that the voters of Houston also deserve some applause.

European Endgame

2011-09-04T19:00:00.003-07:00

The following appeared in CATO on 8-24-2011 by Johan Norberg.

If you owe your bank a hundred dollars, you have a problem. But if you owe it a million, it has a problem, the saying goes. Today we can add that if the governments of Italy, Spain, Portugal, Greece and Ireland owe your banks one trillion dollars, we’re all dead. And that might be where the Euro-zone is headed.

CATO Scholar Johan Norberg

Instead of fixing the financial crisis, the EU postponed it with a get-poor-quick pyramid scheme, by sending the debts of households to banks, who sent it to governments, and governments passed it on to the Euro-zone. Now the Euro governments find that they are at the end of the chain, with a crushing burden. Markets are beginning to price in a small risk that the entire European financial system can collapse — and reacting accordingly.

Debts that were unsustainable in 2008 aren’t more sustainable just because they were transferred from banks to governments. Especially when those governments overspent in good times, and have few reserves to deal with bad times when the budget of big welfare states suffer more than others when tax revenue is down and benefits expand automatically.

Sooner or later Europe has to stop throwing bad euros after good euros.
In a way this is 2008 again, with the same toxic mix of misguided regulation and moral hazard at work. Back then, it was banks and mortgage securities; this time, it’s euro states and government bonds.

Basel regulations categorizes sovereign debt as risk-free, and a bank’s exposure to sovereign debt in its own currency has zero risk weights when capital requirements are calculated. And right now, banks are actually preparing themselves for Basel III, which forces them to build bigger liquidity buffers, and most of it has to come in the form of sovereign debt.

The ECB also subsidized government debt because banks could buy short-term government bonds from weak states and deposit them with ECB as collateral for loans. It was a way to make a decent profit from the margin between bond yields and lending rates — which they invested in more bonds.

Poor Euro economies used the implicit guarantee that Germany would bail them out, to lend cheaply and increase spending and wages as competitiveness collapsed. This is what made it seem like a good idea to retire at 55 and give Greek engine-drivers a bonus of $5,000 a year if they washed their hands.

The Euro-zone has now had to bail out Greece, Portugal and Ireland, but this just creates larger problems in the future. If someone can’t pay his debts, you don’t help him by giving him a larger loan. It expands the total debt burden and creates a need for more bailouts.

It also undermines the strong economies that have to pay up. Italy and Spain have already gone from being trusted life-savers to becoming potential drowning victims. The â‚¬440 bn European Financial Stability Facility (EFSF) was enough to deal with small, peripheral countries. But it will be difficult to bailout Spain, and impossible to deal with Italy. Hence the proposals to double its size.

But the EFSF can only borrow cheaply on capital markets as long as it is backed by rich triple-A countries. The second biggest is France, but after more than 35 years of deficit spending, bigger guarantees could result in a downgrade. If France goes, the whole burden ends up with Germany, which would have to contribute with guarantees amounting to a quarter of its GDP. We think of Germany as indestructible, but it already has a public debt of 82 percent and growth of 0.1 percent in the second quarter of 2011. Trying to save more drowning victims could end up sinking the life boat.

The assumption that the European Central Bank can always step in is dangerously flawed. It has already lent around $700 billion to weak Euro countries and their banks. It is grossly leveraged and it wouldn’t take large losses on those loans for the central bank’s capital base to be wiped out — and in need of a bailout itself.

Hope is fighting a losing battle against arithmetic. Sooner or later Europe has to stop throwing bad euros after good euros. Hopefully it can be done in an orderly way, with debt-restructuring, far-reaching long-term debt reduction plans and reforms to get back to growth.

The alternative is a chaotic end game, where reforms are postponed and more money is sent to mismanaged economies until strong economies are also on the brink. Sooner or later the bailouts will end — either when states are out of money or when voters are out of patience. Then the markets would also flee big euro economies and we would see a series of defaults and banking crises around Europe.

That would probably end with the ECB abandoning all the pretense of being a strong, independent central bank, and starting to print money on a massive scale, and erase debts by also erasing savings and retirement funds. One day, Europeans might wake up and realize that the euro did not become the new D-mark, it became the new Italian lira.

Unemployment 11.9% not 9.1%

2011-09-04T19:00:00.001-07:00

There are several ways to calculate unemployment. The current way that the U.S. Department of Labor (DOL) uses drops people from the unemployment rolls after four weeks of not looking for a job. There are literally millions of people out there who want employment but have given up.

There are also several bloggers who have calculated the “real” unemployment rate to be 15%, 20%, 25%, whatever. I have little faith in others but I am fortunate enough to where I have the education and background to dig myself.

The method I like to use is to compare today’s economy to the April 2000 economy when the civilian participation rate (CPR) peaked at 67.3%. This is realistic and does not assume economic performance that has never been achieved. We have achieved a 67.3% CPR and federal consumption of 18.2% of the GDP (it is currently 25%) and benefited from it under the Gingrich/Clinton regime.

Using conservative numbers comparing 2000 to 2011 the DOL is not including 2,679,733 people in its calculations. This is very conservative and does not attempt to include underemployed workers. Giving the benefit of the doubt to the DOL the true unemployment rate, using April 2000 as a base line, is 11.9%.

Perhaps the most disturbing look at this is the labor force growth rate of 1.45% since 2000, or about 0.1% a year. Clearly the Keynesian economic policies of Greenspan, Bush, Obama, and Bernanke have not delivered.

Civilian employment taking a giant leap backwards

Obama: Whites need not apply

2011-09-04T18:59:00.002-07:00

The following appeared in the Washington Times on 8-19-2011. This web site tried to imbed the advertisement, unsuccessfully.

The White House issued an executive order on Thursday titled “Establishing a Coordinated Government-wide Initiative to Promote Diversity and Inclusion in the Federal Workforce.” The purpose of the order is “to promote the federal workplace as a model of equal opportunity, diversity and inclusion.” In other words, it would be better for the government if public-spirited white workers sought employment elsewhere. Lost amid all the politically correct box-checking is the principle that the most qualified person should be hired for a job.

President Obama pandering to the black racist in America

President Obama’s new order instructs federal agencies to design new strategies for hiring, promoting and keeping workers of “diverse” backgrounds. The diversity the government is seeking is not diversity of ideas, outlooks or work experiences. In contemporary political parlance, “diversity” refers primarily to the color of one’s skin and not the content of one’s character. The executive order says the federal government “must create a culture that encourages collaboration, flexibility and fairness to enable individuals to participate to their full potential.” In the name of “fairness,” however, the government will intensify programs that discriminate against white Americans by extending special privileges to everyone else. The order also says that “attaining a diverse, qualified workforce is one of the cornerstones of the merit-based civil service,” though merit and ability are not the metrics of choice when measuring success in diversity-driven career programs.

The order states that by law, the federal government’s recruitment policies should “endeavor to achieve a workforce from all segments of society” and that “as the nation’s largest employer, the federal government has a special obligation to lead by example.” In that respect, the government could largely declare mission accomplished. A quick look at the demographic breakdown of the federal payroll shows that “diversity” goals have been more than met. According to the Office of Personnel Management, federal employees in fiscal 2010 were 66.2 percent white, 17.7 percent black, 8 percent Hispanic, 5.6 percent Asian and Pacific Islander and 1.8 percent American Indian. Compared to the general U.S. population, the federal force is a bit too diverse. Blacks are overrepresented by 6.9 percent compared to the civilian work force, Asians and Pacific Islanders by 1.2 percent, and American Indians are more than double their proportion of the population at large. White Americans, who make up about 70 percent of the work force, are underrepresented by around 4 percent. Hispanics are also underrepresented despite the Clinton-era executive order 13171, “Hispanic Employment in the Federal Government.”

During the 2008 presidential campaign and in the initial months of the Obama presidency, there was great enthusiasm for the concept of post-racial America. Mr. Obama’s historic election was viewed as a watershed for the issue of race relations. People thought that finally a national dialogue could be commenced on the issue free of guilt and recriminations. This promise stumbled with the July 2009 Rose Garden “beer summit” between Mr. Obama, black Harvard professor Henry Louis Gates Jr., and white Cambridge, Mass., police Sgt. James Crowley, who had arrested Mr. Gates for disorderly conduct. At the time, Mr. Obama called it a “teachable moment,” but that White House photo-op was the last anyone heard about the national dialogue on race. Mr. Obama has squandered his chance to lead America away from the divisive racial politics of the past. This executive order tells America that in the Obama administration, race-based preferences are still business as usual.

Why the United States Will Go Bankrupt

2011-09-04T18:59:00.001-07:00

I find it somewhat amusing in 2011 that there are still Keynesians (and their Samuelson clones) economist who are taken seriously. Combined with the boorish economic idiots are press columnist and politicians who still have no clue the game is over for them. I will skip beating a dead horse and move on to the clueless press and politicians.

Keynesian worshiping economist and Nobel Prize winner Paul Samuelson wasted his intellect on useless economic models that are garbage and lead to the current monetary expansion of credit and money

Why will the United States go bankrupt?

The federal debt per citizen is $46,914.

The state debt per citizen is $3,870.

The local debt per citizen is $5,480.

The personal debt per citizen is $51,418.

And other debts not listed here.

Add it all up and the average citizen owes $175,900 or $667,598 per family. 371% of personal purchasing power parity for those counting.

Add in the Social Security unfunded liability of $49,000 per citizen.

Add in the prescription drug unfunded liability of $64,830 per citizen.

Add in the unfunded Medicare liability of $257,826 per citizen.

Add it all up and the liability is $1,028,885 per citizen.

Add up the current debt and unfunded liability and the average 23 year old citizen just entering the work force will have to pay $1,204,785.00 to meet the obligations of both family and government.

Does this seem realistic?

Citigroup said that no country with a debt-to-GDP ratio of over 150 percent has “ever avoided a default.”
According to the CIA World Factbook we are at 62.3% in 2010 but that does not include our “soft” internal federal debt which brings the total to 98.6%. That would be the Social Security IOU’s.

Barney Frank exemplifies the dishonest politicians that infest Washington

Our public and private debt is 371% of GDP. Can the average United States citizen pay off this debt?

If only current federal debt is counted the average citizen would have to pay $432 per month for 10 years at the current 2% yield on a 10-year bond, for the government debt. This does not include the 15.3% taken out for Social Security and Medicare. This does not include federal taxes, state taxes, or local taxes.

The average citizen owes $4,453 per month, at 2%, for 30 years if you include the unfunded liabilities.

Does this seem reasonable that for the next 30 years our citizens will be able to afford $4,500 per month?

George W. Bush proposed Social Security reform in 2004 and was repudiated by both political parties

Does it seem reasonable that the federal government will be able to obtain financing at 2% for 30 years?

At 5% the payment increases to $6,467 per month. Shorten the terms down to a more realistic 10 year term, at 2%, and the monthly obligation increases to $11,085. Increase the financing to 5% and the monthly obligation increases to $12,778. Is any of this a reasonable sum to expect new workers to pay?

Does any rational person think Social Security and Medicaid will be around ten years from now?

If the government takes over medicine two things will happen, cost will increase and supply will decrease.

When you make something free, anything, people demand more of it. When you are a monopoly you supply less of it. The baby boomers will pay a huge price for the selfishness of politicians and today’s elderly population.

Currently the federal government pays extremely low interest rates for their deficit borrowing mostly with short term T-Bills. The debt portion of the federal budget is about 9% of the budget. What happens in the short run if inflation forces the Federal Reserve to raise interest rates?

Besides the obvious that the money bubble will deflate, the federal government will have to devote more of its budget to pay higher interest rates. 9% will become 15% overnight. This means less services provided.

There is a reason the founding fathers abhorred debt, it limits your options and enslaves the citizens and benefits the elites.

What happens if the Federal Reserve keeps interest rates low and pursues Quantitative Easing III?

Weimar Republic, Germany 1920s.

To any sane banker it is obvious the United States, and much of Europe, has leveraged themselves into a box. The Federal Reserve is leveraged 56 to 1. The Federal Reserve is in a box and cannot be counted on in the future to act in a rational manner. The only rational decision for the people is bankruptcy.

The discussion that needs to start happening among “Tea Party” people is to first recognize that entitlement programs are not sustainable, and second the debt is unsustainable. When we get over the grieving process and understand our politicians are playing for another two, four, or six years on the gravy train we can move on to the substantive subjects.

First, do we want to remain together as the United States or dissolve the union?

Be honest, there are two visions of government in America, one fascist, socialist and communist, the other libertarian, capitalist, and free.

Second, how will we care for the elderly who will not be receiving the benefits they were promised by dishonest politicians?

The coming bankruptcy of America does not have to be a horrible event. We can overcome our own folly if we have leaders that understand the problem and act in a rational manner to peacefully resolve the differences between citizens of different political desires. It can be done.

If we refuse to face the reality of our situation we can look forward to more totalitarian government, rationing for medicine, financial enslavement of a generation that had no say in the politics of the last 50 years, possible secession movements and war, movements towards a fascist national government.

Sooner or latter the people and governments of the world will realize the United States is broke, when that day comes we need to be prepared.

Nonfarm Payrolls Down 11.3% Annual Rate in July

2011-09-04T18:58:00.002-07:00

The economy shed 1,231,000 nonfarm jobs in July 2011. The part of the economy that produces goods and services. This combined with the European economic melt down has the DJIA plummeting again.

Any economist who understood economics, and does not believe in models, foretasted this years ago. We lost our economy in the housing boom and bust. We failed to suffer through the recession, because the economist and politicians in Washington believed in fairy tale models, and artificially pumped up the economy with fiat computer generated cash. Now the cash is gone. The spending is over either through economic collapse or hyperinflation. It is that simple.

We spent trillions to create economic distortions in the economy and misallocate resources on a scale never seen before. Now we will suffer the consequences of our folly. People think economics is a bunch of models that are up for debate among wise men. This has never been true. If you violate the laws of economics you pay sooner or latter. We choose latter and that day is arriving sooner than we anticipated.

We Need Higher Interest Rates

2011-09-04T18:58:00.001-07:00

This post by Peter Schiff is similar to mine with the exception that Schiff does not call out the biggest consumer of cheap money and the most guilty party in the misallocation of resources, the federal government. This needs to be posted and explained to the general public. Without a concrete understanding of monetary policy and economics the United States could go in the direction of the French Revolution in the coming years. If we are to have a peaceful American Revolution we need to support a debt default and not get dragged down like the French did with constant battles to prop up a failed currency.

The following appeared in Lew Rockwell on 8-15-2011 by Peter Schiff of Euro Pacific Capital.

This week’s wild actions on Wall Street should serve as a stark reminder that few investors have any clue as to what is really going on beneath the surface of America’s troubled economy. But this week did bring startling clarity on at least one front. In its August policy statement the Federal Reserve took the highly unusual step of putting a specific time frame for the continuation of its near zero interest rate policy.

Peter Schiff of Euro Pacific Capital

Moving past the previously uncertain pronouncements that they would “keep interest rates low for an extended period,” the Fed now tells us that rates will not budge from rock bottom for at least two years. Although the markets rallied on the news (at least for a few minutes) in reality the policy will inflict untold harm on the U.S. economy. The move was so dangerous and misguided that three members of the Fed’s Open Market Committee actually voted against it. This level of dissent within the Fed hasn’t been seen for years.

Many economists have short-sightedly concluded that ultra low interest rates are a sure fire way to spur economic growth. The easier and cheaper it is to borrow, they argue, the more likely business and consumers are to spend. And because spending spurs growth, in their calculation, low rates are always good. But, as is typical, they have it backwards.

I believe that ultra-low interest rates are among the biggest impediments currently preventing genuine economic growth in the US economy. By committing to keep them near zero for the next two years, the Fed has actually lengthened the time Americans will now have to wait before a real recovery begins. Low rates are the root cause of the misallocation of resources that define the modern American economy. As a direct result, Americans borrow, consume, and speculate too much, while we save, produce, and invest too little.

It may come as a shock to some, but just like everything else in a free market, interest rate levels are best determined by the freely interacting forces of supply and demand. In the case of interest rates, the determinative factors should be the supply of savings available to lend and the demand for money by people and business who want to borrow. Many of the beneficial elements of market determined rates are explained in my book How an Economy Grows and Why it Crashes. But allowing the government to determine interest rates as a matter of policy creates a number of distortions.

It was bad enough that the Fed held rates far too low, but at least a fig leaf of uncertainty kept the most brazen speculators in partial paralysis. But by specifically telegraphing policy, the Fed has now given cover to the most parasitic elements of the financial sector to undertake transactions that offer no economic benefit to the nation. Specifically, it will simply encourage banks to borrow money at zero percent from the Fed, and then use significant leverage to buy low yielding treasuries at 2 to 4 percent. The result is a banker’s dream: guaranteed low risk profit. In other words it will encourage banks to lend to the government, which already borrows too much, and not lend to private borrowers, whose activity could actually benefit the economy.

This reckless policy, designed to facilitate government spending and appease Wall Street financiers, will continue to starve Main Street of the capital it needs to make real productivity-enhancing investments. American investment capital will continue to flow abroad, denying local business the means to expand and hire. It also destroys interest rates paid to holders of bank savings deposits which traditionally had been a financial pillar of retirees. In addition, such an inflationary policy drives real wages lower, robbing Americans of their purchasing power. The consequence is a dollar in free-fall, dragging down with it the standard of living of average Americans.

Until interest rates are allowed to rise to appropriate levels, more resources will be misallocated, additional jobs will be lost, government spending and deficits will continue to grow, the dollar will keep falling, consumer prices will keep rising, and the government will keep blaming our problems on external factors beyond its control. As the old adage goes, “insanity is doing the same thing over and over again and expecting different results.”

August 15, 2011

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is How an Economy Grows and Why It Crashes.

Food Prices up 5.9% Since Debt Ceiling Raised

2011-09-04T18:57:00.004-07:00

In a informal survey I performed of Sams and Wal Mart food prices this week, 8-7-11 to 8-13-11, increased 5.9%. It did not take retailers long to price in the inflation that adding $2.4 trillion to the debt will create. Was this directly related to the $2.4 trillion increase in the debt ceiling? No, but inflation is becoming a bigger part of the consumers budget with or without the official CPI number of 3.4%.

When everyone is watching the monetary base sometimes you have to produce billions of dollars the old fashion way, print it

A 5.9% inflation rate over one year is a cool $885 billion out of consumers pocket and into the Federal Reserve, Wall Street, Washington money pit. The annual rate of a monthly 5.9% inflation rate is 70.8%.

Officially the producer price index is up 13.7% annually from last September and our consumer price index is up 4.4% at a annual rate since last September. Officially inflation is not a problem at 3.4% but even at that understated rate it is a problem for our economy with interest rates held down to artificially low rates.

We know China has recorded food price increases of 14.6% recently and a overall inflation rate of 6.5%. Is the Chinese government just more accurate and honest in their data collection and analyzing efforts than their US counterparts?

In the last month the Money Zero Maturity, MZM represents all money in M2 less the time deposits, plus all money market funds, has increased at a annual rate of 15.7%. M2 has increased at a annual rate of 20.5% from July to August. M1 has increased the last month a astonishing 92.1% annual rate.

Ben Bernanke creating inflation the old fashion way, printing dollars

Meanwhile the monetary base, the one key indicator the press and bloggers look at for monetary expansion, has declined 9.2% annual rate this last month.

What does this mean?

If you were the Federal Reserve and there was plenty of liquidity, any more would be inflationary, and you wanted to “inject more liquidity” aka pay the guys off on Wall Street, how would you do it?

How do drug dealers hide transactions?

Cash, cash, and lots of cash. 101.2 billion in the last month. One sixth of the QE II stimulus in just the last month. Hmmmmm.

There is simply no way the United States will escape the inflation that we have exported to the rest of the world in the coming months. If the Federal Reserve fails to acknowledged the inflation officially our dollar will continue to plunge, we will continue to suffer a lack of savings due to the historic low interest rates, even possibly negative interest rates, and economic conditions for Americas will worsen.

One of the lessons that history has taught us is that when the United States was in a severe downturn the Federal Reserve Chairman’s during the Reagan Administration and Obama Administration reacted completely different in the face of adversity.

Former Federal Reserve Chairman (1979-87) Paul Volcker raised the Federal Funds rate to 19.10% in the early 1980s

In the early 80s when the inflation rate was 14.6% Federal Reserve Chairman Paul Volcker raised the Federal funds rate to 19.10%. Most people would think Reagan got a bum deal from the Chairman. Raising the rate 4.5% above the inflation rate would surly damage the economy, right?

No. Volcker was helping Reagan by making the cost of money so expensive that all the mis-allocated previous investments were liquidated and purged from the economy. Also by having a 4.5% spread, or real interest rate, Volcker increased the profitability of savings in America. This attracted investment from domestic savers as well as investors from around the globe.

Because money was so expensive only the best and most productive projects had any hope of being financed. As savings increased so did investment. Reagan, and the economy, went on to some good years and Reagan left office a economic success and with a 5.4% unemployment rate.

Contrast this with Bernanke’s approach to the economic slump. Bernanke cheapen money by printing it for QE I and QE II, increasing the monetary base to 18% of the GDP, and lowering the Federal Funds rate to essentially zero. The completely opposite approach of Volcker. Bernanke would argue the inflation rate was negative for 2009, and that is true, but this is 2011 and the “official” inflation rate is 3.4% and the Shadow Statistics guru claims the real inflation rate is 10.4% using 1980 statistical methods.

Any banker loaning out money at 4.5% knows that there is no margin for error, only the most credit worthy costumers will get a loan, and there is a very good possibility the loan will lose money in the long run due to inflation.

Obama does not have the education or knowledge to understand the person that will cost him the 2012 election is not Bachmann but Federal Reserve Chairman Ben Bernanke

Cheap money also means that it is easier to continue bad economic investments. A good example would be the absolute horrible waste of resources being spent on our federal government and their appetite for cheap money. If money was more expensive our federal government could not afford to waste billions of dollars on frivolous pursuits. As the portion of the federal budget devoted to interest payments increasing from 9% of the budget to 12%, 15% or 20%, federal agencies would develop a new found respect for money and not waste it. The alternative would be to lay off federal workers and cut budgets, every bureaucrats worst nightmare. Expensive money would discipline the wasteful federal bureaucracy.

Finally with a spread rate of only 1.1% versus the Volcker spread of 4.5% + there is no incentive to invest other than to protect money in the short run, and this is exactly how the markets are reacting. All the worlds capital is running from one short term T-Bill to the next 10-year bond, to gold, francs, and anything to protect investments. None of this solves the long term problem of savings. Raising the interest rate to allow bankers to loan funds at 6.4% or even 7.0% would increased the amount of savings and eventually investment into productive projects in the economy.

Bernanke is following the Keynesian playbook but he is destroying the economy. If he wanted to improve economic performance in the long run he would raise the FF rate to 3% overnight and continue to raise the rate until the government stopped wasting money and the silly malinvestments disappeared.

Obama blames Bush for his economic problems but once again his poor education he received at Harvard and Columbia is coming back to haunt him. He simply has no clue how the economy works other than the Keynesian one trick remedy of printing more money. The guy who has assured Obama’s defeat in 2012 is none other than Ben Bernanke.

Who Are The Real Economists?

2011-09-04T18:57:00.003-07:00

The world of economics is divided between 16th century blood sucking practitioners who believe in Keynesian economics and Austrian economics. There are some other schools in the mix that are variations of the monetarist or Chicago School but in today’s environment center stage is dominated by the Austrians and Keynesians, and we vehemently disagree on everything.

Some might argue for the classical economist and their standard bearer Irving Fisher, but who cares. The big fight is the Keynesians and Austrians. So who is the winner?

UCF Economics Professor Sean Snaith is a economic "forecaster" but he missed the biggest money bubble in the history of mankind. Like most Keynesians he collects a government paycheck and baffles students with BS

To be a economist is similar to being a weatherman. You will never get it 100% but if there is a God damn hurricane 100 miles off the fricking coast you better pick it up on your radar. If you cannot pick up the biggest financial storm in the history of mankind then you need to find another line of work.

So who were the idiots with their head in the sand and who picked up on the financial storm 500 miles off the coast?

A little background first. Any good economist on top of their game that understands the fundamentals of economics can pick up economic storms, usually three years out. Crazy? Alan Greenspan did it with his “irrational exuberance” speech complaining that the NASDAQ was overvalued three years and five months before the bust.

Greenspan’s comment was made on December 5, 1996:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

Federal Reserve Chairman (1987-06) Alan Greenspan gave his "irrational exuberance" speech three years plus before the NASDAQ crash

NASDAQ peaked March 10, 2000 at 5132, then rapidly lost almost 80% of its value. Today the NASDAQ is at 2381 some 11 plus years latter. Greenspan, love him or hate him, was on top of his game in 1996.

Peter Schiff of Euro Pacific Capital called out the housing boom and bust as soon as Greenspan lowered the Federal Funds rate to 1% in 2003 AFTER the 9-11 recession was over. Schiff had previous experience with the NASDAQ bubble and made the call almost immediately. Later as the housing boom progressed Schiff was even more forceful on several business shows finally resulting in several classic “Peter Schiff was Right” videos available on YouTube.

And now we have had another bubble that is bursting. Before August most of the main stream economist believed we were out of the recession and all was well, except that 9% unemployment rate. The Keynesian stimulus programs of Bush and Obama had saved the economy from disaster and there was economic growth since 2009. All was well in the Keynesian bubble world, all that was needed was more stimulus applied and that pesky unemployment problem would disappear.

UCF professor and “forecaster” for the Institute for Economic Competitiveness, Sean Snaith, gave a speech for a Orange County, Florida economic summit May 13, 2011 in which he talked the usual Keynesian gibberish and saw steady future growth for the economy. The only problem he saw was the “oil shock” that had temporarily slowed the economy like a speed bump in the road. Soon the economy would be back up and running full speed. From his July 2011 forecast we see he predicted Florida’s GDP to be up 2.1% in 2011, 2.8% for 2012, 3.3% for 2013 and 4.1% for 2014 when Obamacare was scheduled to kick in. He predicted “much stronger” retail growth for 2011 and a 5.2% growth rate for 2012-14. Personal income was predicted to grow 3% peaking out at 4.8% in 2014.

After he delivered his speech I was absolutely livid that he could be so callous and blatantly wrong in front of Orange County, Florida Mayor Teresa Jacobs. I confronted him as forcefully as I could, without knocking him the fruck out, and asked him point blank if he did not see a problem with the Federal Reserve expanding the monetary base 200% or the producer price index showing signs of inflation. He reassured me that Bernanke was a student of history and had it all under control. He disparagingly referred to the monetary base as “power money,” which it is sometimes referred to, as if I was some idiot who did not know shirt. Cocky ignorant bastard is how I would characterize him. Completely negligent in his duties as a consultant to Mayor Jacobs.

Euro Pacific Capital President and former Connecticut Senate candidate Peter Schiff was warning about the housing bubble three years before it happened

No problems foretasted whatsoever. Just a “oil shock” speed bump. But WTF the guy looks good and gives a good speech. Other than that he is completely clueless. If it was just some professor being a idiot it would not be so bad. The problem is he has Mayor Jacobs ear, real estate developers ear, and was even on Fox News today (8-10-2011) pretending he knew what the hell was happening criticizing Bernanke for setting the interest rate the same till 2013. The only way this idiot new what the hell was happening was if he read my blog, because looking at his July 2011 forecast off his web site he is clueless.

Did Mayor Jacobs decide to build the Orlando Performing Arts Center based on his recommendations that all was well? Y = C + I + G + NX Mayor Jacobs. “Spend, spend, spend, because in the end we are all dead.” JMK.

I would compare him, and all Keynesians, as a bunch of hired intellectual guns. These pretenders suck up to government elites and whisper encouragement to rip off the peasants. Nothing more than hired stiff that will justify whatever the government wants to devour, and entertain the students at the university with English fairy tales. The same breed of progressive thugs Wilson found useful to justify the movement of the United States away from gold, the constitution, and toward progressive goals such as the Federal Reserve and the income tax.

Sean Snaith is a example of a villain but who were the real economist?

There is Frank Shostak’s “Is Deleveraging Bad for the Economy?” from August 20, 2008:

“It is … futile to urge banks to lend more if real savings are not there. Likewise it doesn’t make much sense to suggest that the Fed can somehow replace nonexistent real savings … by printing more money. (It is also an exercise in futility to raise government spending to fix the problem. After all if a government spends more it means that somebody else will have less resources left.) All that adding more money to the economy will do is to weaken wealth generators and thereby reduce the future supply of real savings and weaken future real economic growth.”

There is Scott Kjar’s “Henry Hazlitt on the Bailout” from October 15, 2008:

The argument that the government is somehow pumping new capital into the market is absurd. Government is actually borrowing the money from the capital markets that it is in turn injecting into the capital markets. There is no additional source of funding; there is only a diversion of funds from more-productive outlets to less-productive outlets, with government acting as the middleman.

Austrian Economist Lew Rockwell predicted the economic crisis three years before it happened

“After all, this Keynesian nonsense has had many trial runs, and it has failed every single time.”

So when Henry Paulson argues that it is necessary to pump money into credit markets to prevent them from freezing up, he doesn’t bother to realize that the money he pumps into the credit markets is coming directly out of the very same credit markets. He is doing little more than rearranging the deck chairs on the Titanic.

Kevin Duffy was bang on with his “Looting the Responsible” from October 8, 2008:

Government has no resources of its own, no elves working overtime to produce something of value, just promoters who espouse Santa Clause economics. It can only transfer wealth from one group to another (skimming a nominal transaction fee in the process). The current … $700 $800 billion bailout (sorry, rescue) package is nothing more than a looting of the responsible and productive by the reckless and profligate. Call it reverse Darwinism: survival of the least fit.…

[T]ransferring more blood from the productive host to the parasite does not in the long run make either healthier. For the economy and country to begin healing, we need capital, credibility, and authority to move from the wasteful to the productive. The power elite, predictably, is attempting to achieve the exact opposite.

Consider Christopher Westley’s “Bailout Blame Game” from October 7, 2008:

As a student of the Depression I know that Congress and the executive can do much damage before the long term gets here, and indeed, they can delay its arrival indefinitely. Will the conservatives who supported this legislation lay into a President Obama two or three years hence, in the event that the economy devolves into a repeat of the 1970s, thanks in large part to government’s attempt to forestall market forces over the last two weeks? This seems likely. Our current problems resulted from the infusion of credit in the past. To think that infusion today will not have the same effect in the future is to challenge pesky things like natural and economic laws.

From Doug French we have “History Is Clear,” published on November 13, 2008:

Austrian Economist Doug French predicted the financial storm three years out

Is it any wonder that Treasury Secretary Henry Paulson’s plan has morphed into the federal government taking equity stakes in banks, mortgage companies, and at least one insurance company? … But history is clear: more fiat money won’t solve this crisis; a return to sounder money will.

Robert Murphy’s “Consumers Don’t Cause Recessions” slashed through Krugman’s theory on November 11, 2008:

When the recession is the result of a central-bank-induced artificial boom (such as the recent housing boom), the downturn is a period of readjustment, when misallocated resources are channeled back into more appropriate lines, consistent with consumer preferences and technological realities. When the government steps in and tries to prevent this readjustment, it simply maintains an unsustainable deployment of scarce resources.

Poignant comments from Frank Shostak’s “The Rescue Package Will Delay Recovery” from September 29, 2008:

It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.…

“I want to be sympathetic to those who were deceived — and grant the best of intentions to those who favor stupid policy — but it is really hard.”

The government package is not going to rescue the economy, but it will rescue activities that the economy cannot afford and that consumers do not want. It will sustain waste and promote inefficiency, draining resources from growth and efficiency.

Llewellyn H. Rockwell’s “Don’t Bail Them Out” from September 10, 2008:

Austrian Economist Robert Murphy predicted the financial storm three years out

The government should completely remove itself from the course of action and let the market reevaluate resource values. That means bankruptcies, yes. That means bank closures, yes. But these are part of the capitalistic system. They are part of the free-market economy. What is regrettable is not the readjustment process, but that the process was ever made necessary by the preceding interventions.…

We need to let the market handle the entire process, come what may. I guarantee that this solution is a better one than creating another trillion or so to bail out failing enterprises.

And mine on this web site from December 28, 2008:

“Now the Federal Reserve is increasing stocks of money faster than ever. What is the next housing bubble? Most likely our currency. Our monetary base has gone up from $824 billion to $1,435 billion in 2008! Normally this change is from 0% to at the most 15% from year to year. This year it has grown an astonishing 80%! We are in very serious times.

If the congress fails to cut taxes or better yet scrap the current tax code and adopt the fair tax we will have a dollar collapse similar to third world countries like Argentina, Venezuela and the former USSR. Congress needs to cut taxes now; Congress needs to take away the power of the Federal Reserve to set interest rates. The Federal Reserve needs to quit increasing the money supply. Congress needs to quit bailing out everyone. But none of this will happen. When it all collapses we will once again need to rely on each other to get through this. As we have for centuries.”

There are hundreds, even thousands, of such articles and statements from 2008 to the present. They appear every few days, and the message is the same: This stuff is not going to work. Their green shoots are an illusion. There will be no stimulus. Let the market liquidate. Government should stop looting the private economy. The Fed should stop the money creation. No more bailouts. Let interest rates rise. Let bad banks fail. Above all: stop fighting the market! Only at that point can we have solid recovery.

And now that some of the bust has arrived we can finally separate the real economist from the pretenders. The government intellectual thugs from the honest concerned economist. Next time I want Mayor Jacobs ear. The pretenders need to find other employment.

Who Are The Real Economists?

2011-09-04T18:57:00.001-07:00