I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.- Thomas Jefferson.

debt clock

Monday, March 28, 2011

Libertarians are called selfish, as we fight to keep the govt from stealing YOUR money.  Demoblicans and Repubicrats want the govt to steal YOUR money to do the things they are too LAZY and SELFISH to do themselves.

Sunday, March 27, 2011

How Bernanke May Become von Havenstein

by Martin Hutchinson

March 21, 2011



At the Federal Open Market Committee meeting last week, policy remained unchanged, and the accompanying statement made the extraordinary claim that “measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate.” The following day, the March Producer Price Index showed prices rising at 1.6% per month, equivalent to a rate of 21% per annum. Echoes of the German Weimar Republic inflation are getting louder, as do the chances for Ben Bernanke to turn into Reichsbank chairman Rudolf von Havenstein.



Von Havenstein took great pride in his work, bragging repeatedly about the Reichsbank’s success in gearing up physical note production to meet soaring market demand. Rather than practice or urge monetary restraint, he regarded the explosion of physical banknote production as a triumph of German efficiency. Such was the need for speed, in the fall of 1923 when prices were doubling every 3 days that he was forced to resort to airplanes to get the currency to the more distant economic centers. All he lacked was Ben Bernanke’s helicopter!



The conventional wisdom is that the worst the U.S. has to fear from Bernanke’s policies is a repeat of the 1970s. During that period, inflation proved impossible to contain, but it crept up gradually, with year-on-year inflation rising from 3.6% to 12.2% in 1973-74, then dropping back gradually to a low of 5% in December 1976. Even in the peak inflation year of 1980, year-on-year inflation topped out at only 14.6%, little higher than its level six years earlier. In that situation, while Bernanke might let inflation rise fairly rapidly as it had in 1973-74, there would be little chance of it getting out of control and the economic pain of the eventual Volcker-style squeeze would be manageable.



In such a situation, comparisons between Bernanke and von Havenstein would be ludicrous. I’m as fond of Bernanke-bashing as anyone, but if a period of inflation moderately above 10% were the worst we had to look forward to, I would disagree with the Bernankephile argument that his policies had on balance been worthwhile, but I would concede that they had considerable force. Bernanke himself, who grew up in the 1970s, probably restricts his moments of self-doubt to worrying whether the 1970s might return, which would make him look foolish but not catastrophic.



However, that is not the only possibility for the future track of U.S. inflation. It has to be remembered that both monetary and fiscal policies today are far more extreme than they were in the 1970s. Fiscally, the United States has run a deficit of more than 10% of GDP in both the year to September 2009 and the year to September 2011, while the country’s previous largest peacetime deficit was 6.3% of GDP in 1983. This is a bipartisan complaint; an administration that inherited a budget surplus and yet managed to end up running a substantial deficit even at the top of the next boom cannot claim fiscal rectitude.



Nevertheless, whoever is to blame, the result has been a deficit position that looks out of control even on the administration’s optimistic fiscal and economic projections. The actuarial deficit in social security is a genuine problem, made even worse by the dodgy “trust fund” accounting that has allowed the creation of a fictional trust fund whose assets consist of debt not counted in official statistics. The actuarial deficit in Medicare is less serious, because it principally rests on an assumption that medical cost increases will continue to outpace inflation ad infinitum, which won’t happen because it can’t. Nevertheless, the principal fiscal problem of the last few years, as distinct from that projected for the next decade, has been profligate domestic and international discretionary spending, a problem that is being tinkered with at the edges but appears increasingly unlikely to be addressed properly.



Bernanke cannot be blamed for U.S. fiscal follies, any more than von Havenstein could be blamed for the fiscal ineptitude of the Weimar governments of 1919-23. However monetary policy is his clear responsibility. In this context, the most alarming statistic is the monetary base, which has expended from $900 billion to $2.35 trillion in the 30 months since September 2008 and has been expanding at the extraordinary annual rate of 83% since December, as Bernanke’s QEII asset purchases have come into play. In this effort, the Fed’s balance sheet has swollen from $800 billion to $2.6 trillion, with $300 billion of that increase coming in the last four months through QEII purchases of Treasuries.



Bernanke’s problem is that the mix of gigantic deficits, interest rates below the rate of inflation and gigantic central bank purchases of government bonds is precisely that of the Weimar regime. Admittedly the Reichsbank by October 1923 was financing 99.9% of government spending and we haven’t got to that yet. Still the budget deficit represents more than 40% of government spending and during the QEII period the central bank is financing about 70% of the government deficit. That’s pretty close to the early Weimar period of 1919-22, when the Reichsbank was financing about 50% of the government’s expenditure compared to about 25% of expenditure in the United States today.



With both fiscal and monetary policy much more extreme than in the 1970s, there is no reason prices should merely creep up at 1970s rates. While the price indicator figures produced last week appeared fairly benign, with the CPI having risen only 2.1% over the past year, that relatively benign figure includes a significantly more rapid rise, at a 3.8% rate, in the last six months. What’s more, prices at an earlier stage of the production cycle have been rising much more rapidly, with the Producer Price Index rising at 10% in the last six months and import prices rising at 14.5% in the same period.



Keynesians would immediately claim that high unemployment dampens these price rises, and that a sharp rise in inflation is impossible while there is so much labor slack in the economy. However that view is belied by British experience in 1974-75 in which economic activity declined, unemployment rose and inflation rose to 25%. Unemployment is in any case well down on the last two years and the labor market in a state of mild expansion.



If Bernanke persists on his present course, there is thus a significant chance that consumer prices will join producer and import prices on their rapid upward trend, and that by the end of the year we shall be suffering from 10% consumer price inflation. Bernanke and his colleagues will at that stage be in state of deep denial, focusing on “core” consumer price inflation (distorted) or personal consumption expenditure inflation (available only several months after the event.) If by the end of 2011 inflation is running at rate of 10%, even though the year on year figure will not have reached this level, while Bernanke’s current monetary policies and the Obama administration fiscal policies have been little if at all modified, then the outcome is plainly clear: inflation won’t stop at 10%, as it did in the 1970s.



In that case, Bernanke’s chance of joining von Havenstein in the monetary Chamber of Horrors will be pretty high. The gap between interest rates and the inflation rate will be close to 10%; thus a 10% or more increase in interest rates will be needed to start getting inflation under control. Naturally, any such increase will be anathema to Bernanke; it would represent a repudiation of everything he believed in. He will thus remain relatively inactive while inflation accelerates further. Far from corralling the inflationary monster, the Fed will be reduced to running ineffectually behind it as it galumphs off into the distance. You can expect Bernanke at that stage to start issuing press releases about the Fed’s immense technical achievement in printing and distributing enough notes to satisfy the public’s insatiable demand for money. The transformation of Ben Bernanke to Rudolf von Havenstien will be complete, although the trillion percent inflation figures will have to wait until 2014 or so.



Is this fate avoidable, for Bernanke and the rest of us? Certainly. But it will require the Fed at its next meeting April 27 to reverse policy entirely, to admit that inflation, far from being “somewhat low” is an imminent danger to the U.S. economy, to stop buying Treasuries and to put the Federal Funds rate up to at least 2%, with a view to raising it to 6-7% by the end of the summer. It is thus not impossible. But given Bernanke’s outlook and the present composition of the FOMC, it must be regarded as extremely unlikely.



The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.

Wednesday, March 23, 2011

Senior Texting Code

Since more and more Seniors are texting and tweeting there


appears to be a need for a STC (Senior Texting Code). If you

qualify for Senior Discounts this is the code for you.



Please pass this on to your CHILDREN and Grandchildren so

they can understand your texts.



ATD: At The Doctor's



BFF: Best Friend Fainted



BTW: Bring The Wheelchair



BYOT: Bring Your Own Teeth



CBM: Covered By Medicare



CGU: Can't get up



CUATSC: See You At The Senior Center



DWI: Driving While Incontinent



FWB: Friend With Beta Blockers



FWIW: Forgot Where I Was



FYI: Found Your Insulin



GGPBL: Gotta Go, Pacemaker Battery Low!



GHA: Got Heartburn Again



HGBM: Had Good Bowel Movement



IMHO: Is My Hearing-Aid On?



LMDO: Laughing My Dentures Out



LOL: Living On Lipitor



LWO: Lawrence Welk's On



OMMR: On My Massage Recliner



OMSG: Oh My! Sorry, Gas.



ROFL... CGU: Rolling On The Floor Laughing... And Can't Get Up



TTYL: Talk To You Louder



WAITT: Who Am I Talking To?



WTFA: Wet The Furniture Again



WTP: Where's The Prunes ?



WWNO: Walker Wheels Need Oil



GGLKI: (Gotta Go, Laxative Kicking In)

Tuesday, March 22, 2011

Will the Fed Blow a Gold Bubble?

by Darren C. Pollock
March 15, 2011

More than five years ago our analysis of the housing and mortgage markets indicated the eventual bursting of the housing and credit bubbles would lead to a weakened economy, and the Government would seek to combat this economic malaise with massive monetary and fiscal stimuli that would decrease the value of the U.S. dollar (USD) and increase the value of precious metals relative to the USD.



The price of gold has appreciated significantly in relation to the USD in recent years. Some even wonder if gold is in a price bubble and if so it is a reasonable question whether we should make sales and take profits. We think not. Our view is that gold is in a long-term bull market, not a bubble. While the price of gold could decline in the near term, and we certainly expect volatility, we foresee higher prices over time.



Ideally, money is a medium of exchange, a unit of account, a store of value and may be readily exchanged for other assets without losing value. For thousands of years gold has been accepted as money. This is no quirk: it is portable, divisible, durable, and – other than through a process requiring both a supply of platinum and a controlled nuclear reaction – inimitable. It is widely accepted, noncorrosive and indestructible. Due to the aforementioned, plus its scarcity, gold retains its value over time, though its price fluctuates. Humans are eminently attracted to the yellow metal as if pre-programmed at birth, yet gold is weighty not just in the mind of man: one cubic foot of gold weighs close to 1,000 pounds (worth nearly $22,000,000 today). Small quantities – such as one ounce – can be stretched into a wire 60 miles long. Is it any wonder that gold is the traditional gift for the rare accomplishment of a couple's 50th wedding anniversary? On the other hand, the couple that reaches the easily attainable one year anniversary gets to celebrate with the gift of, you guessed it, paper.



And paper is the very material against which gold is most commonly measured. While gold might not be the perfect currency, those of "fiat" origin – that which is printed on paper and is backed by nothing more than faith in those doing the printing – are riddled with imperfections. Their lack of sustainability is just one example. In this country alone, currency arrangements have taken many forms in more than 200 years. Each form and the value thereof has evolved more or less based on the underlying health of the economy and the degree to which its value was either protected or debased by the U.S. dollar's governing body, the Federal Reserve.



Paper money is far easier to use than gold in personal and commercial transactions. However, compared to gold fiat money has not been a reliable store of value. For example, in 1932 an ounce of gold was worth about $20, while early this year an ounce of gold was worth nearly $1,400. In this measure of relative value, since 1932 the U.S. dollar (USD) has lost almost 99% of its value in relation to an ounce of gold.



Gold epitomizes faithfully, as it always has, the key monetary characteristic of being a reliable store of value. And unlike fiat paper money, gold cannot be created by printing or its electronic equivalent. There is no "central bank" for gold, and none is needed.



Our Federal Reserve is the steward of the USD, our nation's currency which has been the world's key currency for nearly 100 years. The current Chairman of the Fed, Ben Bernanke (as well as his predecessor, Alan Greenspan), displayed a lack of understanding of the troubles they were instrumental in creating for our economy that led to the great crash and financial crisis that erupted in 2008. We have little faith that the same central bankers at the Fed who did not see the financial crisis coming will be able to extricate us safely from the destructive aftermath of the crisis. This is among the reasons we believe gold will continue to rise vis-à-vis the USD.



An economic recession began in March 2001 and ended in November 2001. At the onset of the 2001 recession, the Federal Reserve immediately began lowering short-term interest rates, eventually taking rates down from 5% to 1%. The economic downturn of 2001 was considered the shallowest recession in nearly a century. Yet the stimulative response of the Fed was extraordinary: the Fed held rates as low as 1% until June 2004—two and a half years past the point the recession ended.



Rates held this low for this long motivated people to seek a better return anywhere they thought they could find it. This boosted asset prices in the stock market, but especially in the housing market which escalated into the biggest house price bubble in U.S. history. That should have ended confidence in the Federal Reserve.



Unconcerned about causing the previous bubbles in the stock market and real estate the Bernanke Fed met the onset of an "unprecedented" (to Bernanke) collapse in housing and financial markets with a truly unprecedented monetary stimulus. Within two years of the crisis erupting in September of 2008, Bernanke increased the monetary base by more than 10% of the size of the U.S. economy. This was over 3x as much monetary stimulus as the Fed provided during the Great Depression, and more than 10x as much monetary stimulus as in the average recession since World War II.



In the second half of 2007, when growing losses in the subprime mortgage market became apparent to Bernanke, the Fed began to lower interest rates. The Fed quickly pushed its short-term interest rates down to a range of 0.0% to 0.25% where they remain today.



With no more ability to cut short-term interest rates the Bernanke Fed turned to "quantitative easing" ("QE"), the euphemism given by the Fed for its creation of money out of thin air to purchase financial assets such as Treasury bonds and mortgage-backed securities. The dollar amount of money newly created by QE is staggering—roughly $1.7 trillion to date. Rather than stimulating the economy the new money stimulated stock markets across the globe and pushed up the price of nearly all other investment classes, too.



Knowing that this type of money creation was potentially dangerous in the long run, Bernanke reassured the markets by vowing to end his campaign of quantitative easing by April 2010. As with other stimulus measures such as cash for clunkers and tax credits doled out to first-time homebuyers, the withdrawal of the stimulus would likely cause a decline in the very markets it served temporarily to support. The Fed spoke strongly of an "exit strategy" from its initial QE program (QE 1), but we expected it to renew QE once the markets responded poorly to the end of QE 1.



When the QE crutch was pulled away in April, the S&P 500 fell 17% into July and fear gripped the financial markets. The Bernanke Fed was forced to pick its poison: either withdraw liquidity, reducing the monetary base causing the markets and economy to dive immediately, or resume QE and run the risk of devaluing the dollar and fostering future inflation. So, beginning in August, Bernanke hinted at what would become explicit policy in November: committing another $600 billion of money not yet in existence to what is dubbed "QE 2."

In an Op-Ed essay Mr. Bernanke said it was the aim of QE 2 to stimulate the stock market in the expectation that would encourage consumers to resume borrowing and buying as they had before the recession. However, that is what got so many people into financial trouble in the first place. Mr. Bernanke ought to be aware that such tactics failed to help the Japanese economy emerge from what has become over 20 years of economic stagnation.



In a recent "60 Minutes" TV interview, when asked for the level of his confidence about avoiding the high inflation that is considered a natural byproduct of such an immense increase in the monetary base through QE 1 and QE 2, Bernanke said that he was "100%" confident the Fed could avert high inflation. Bernanke must know that the only way to stop inflation from getting out of hand after too much money creation is to do what the Paul Volcker Fed did in 1979: raise interest rates to high levels and actually decrease the monetary base, thereby causing a sharp downturn in the economy. That was painful but it paved the way for an economic recovery coupled with lower inflation.



From Bernanke we expected nothing less than 100% confidence; catering to the financial markets while boasting of the ability to walk a monetary tightrope is a top priority for the Bernanke Fed. Yet given the Fed's unwillingness to raise interest rates and tighten monetary policy in a timely manner in the wake of the shallowest recession on record just ten years ago, is it realistic for investors to be 100% confident that during this Great Recession the Bernanke Fed will turn off the monetary spigot in time to avoid significant inflation? We think not. Bernanke believes that one of the worst policy missteps in handling the Great Depression was ending monetary stimulus too soon. By his previous actions and in currently stating a desire to increase the rate of inflation, he has made clear his intent to not repeat this supposed mistake. We believe precious metals offer protection against the continued dollar debasement that could come from this Fed's policies.



Increasing demand for gold is global due in part to the Fed's dollar devaluation policies as foreign governments and citizens move reserves out of the USD and into gold to protect their wealth from loss of value in the USD. Central banks of China, India, Russia and others have purchased large quantities of gold and other resources to diversify out of the Bernanke-backed dollar. In 2009, Chinese officials announced that China had increased its gold reserves by 76% since 2003. In 2010 through the end of October, China imported more than 200 additional tons of gold. Furthermore, China is keeping 100% of the gold produced within its borders while encouraging its citizenry to purchase gold as a means of protecting itself from worldwide currency debasement. Yet the central banks of most emerging nations maintain a very small – almost insignificant – amount of gold relative to their overall foreign exchange reserves.



Foreign governments have been quick to criticize Bernanke's plan for seemingly endless quantitative easing. Representatives from China, our largest trading partner, have been vociferous. Brazil was not to be outdone: "It's no use throwing dollars out a helicopter," said that country's finance minister, invoking the image painted by Bernanke himself in 2003 when discussing how a country could easily whip deflation and spur economic activity by overprinting its own currency.



While much of Asia pegs its currency to the U.S. dollar (buying or selling foreign currencies to dampen exchange rate fluctuation and keeping prices low for Asian goods), in recent months more than two dozen countries have intervened in the foreign exchange market to help ward off what they perceive as a currency attack by our Federal Reserve.



Other countries are devaluing their fiat money to protect their export industries from the disadvantage of a relatively over-valued domestic currency. Due to concern about an escalating "currency war" Robert Zoellick, President of the World Bank, recently suggested that leading economies should consider readopting a modified global gold standard. Critics denounce the gold standard as an ancient idea unsuitable for modern times. To be clear, the classical gold standard took place from 1880 through 1914. Until 1971, the U.S. would pay gold for foreign USD holdings. Compared to the act of debasing one's currency – monetary sleight of hand spanning millennia – the gold standard is a spring chicken. History proves, over time, that gold is stable while fiat currencies are volatile, illusory, and ultimately transitory.



Even with the nascent suggestion of returning to some form of gold standard, the market for gold has not yet entered bubble status. What we see eventually bursting is not a bubble in gold but rather the bubble in confidence that the markets have placed in the Bernanke Fed's ability to end safely its quantitative easing money creation.



If we are in a bubble for gold, it is a strange mania given the low prices of leading gold mining companies in relation to current and likely future earnings, cash flow, gold in reserves, production capacity, ability to increase dividends, etc.



This supposed gold bubble—a 400% rise over the past ten years—is unexceptional in comparison to the upward spikes of 1,324% in the Nasdaq stock market of the late 1990s, the 954% rise in housing stocks in the last decade and the 882% rise in the price of oil. Furthermore, it appears that many of the "experts" who now assert that gold is in a bubble failed to recognize the development of the stock market and housing bubbles. In fact, many well-known investors who like gold now are the ones who saw the stock and housing bubbles for what they were. We know of no financial mania that did not include both the general public and its financial advisors pouring money into an already over-priced market. That is not yet the case with precious metals.

Sunday, March 20, 2011

American Jobs, Factories and Investment: The Picture is Grim

By: Gerard Jackson Sun, Mar 20, 2011

The Washington Post recently published a story revealing that if the hidden jobless were included in the unemployment rate it would jump to 10.5 per cent. (Hidden workforce challenges domestic economic recovery) This is a damning indictment of Obama's economic policies and Bernanke's monetary mismanagement. Even more damning is the fact that Obama appears completely unfazed by the situation. Now he did not create this recession any more than Bush created the 2000 recession -- irrespective of what America's utterly corrupt media assert -- but his policies are responsible for making it worse. To say that America is in an even more frightful mess than would otherwise be the case because of this man's dogmatic leftism and mindless hostility to free markets would be a severe understatement. However, recriminations -- no matter how well deserved -- will not alleviate the situation.



The Post's article contained an interesting observation by Columbia University economist Till von Wachter who found that there was a 20 per cent difference in the wages of those laid off in 1982 recession with those who face the same situation today. In other words, today's unemployment and wage situation is much worse. In fact, it's far worse than this figure suggests.



The pattern of employment paints a dismal picture for males. Since 2000 there has been a net loss of more than 3 million jobs for men while during the same period net jobs for women rose by nearly a million. In addition, the average unemployment rate for men older than 25 rose to about 9 per cent from the 4.2 per cent that prevailed from 1960 to 2008, an increase of more than 100 per cent compared with 52 per cent for women.



It's easy to conclude from these figures that increased female participation in the workforce has driven down wages while raising the unemployment rate for men. Easy and very wrong. What we need to do is look at the previous pattern of employment. The average male worker got paid more than the female worker because he was employed in higher-productivity jobs. As a rule the physical nature of these jobs made it virtually impossible for any female to do them as effectively as men.



As you have probably gathered, most of these jobs were in manufacturing. For some years now manufacturing jobs have been shrinking with nearly 5 million being lost since 2000. Then there were the 1.5 million jobs or so that disappeared in the building trade. So where did all the jobs for females come from? About 3.5 million jobs were created in health and education with the remaining jobs appearing in retailing and other services.



A pattern now seems to be emerged where women are becoming dominant in the workforce. Now some free marketeers assure the public that there is nothing to worry about because the reduction in the manufacturing sector is only to be expected as the economy matures and the demand for services expand. In an effort to reassure a doubting public they sometimes refer to the experience of agriculture during the industrial revolution as evidence that there is nothing to fear.



Three points:



1. There is no economic law that says the absolute number of manufacturing jobs must fall as an economy grows over time. Economics is supposed to explain the situation, not rationalise it.



2. There is no such thing as a mature economy. This argument was used by some in the 1930s to try and explain the Great Depression. It was wrong then and it is wrong now.



3. These people do not know their economic history. They certainly do not really know anything about the Industrial Revolution.



When England was on the threshold of the industrial revolution about 75 per cent of the labour force was employed in agriculture. Two things should be self-evident here. So many are working in farming because agricultural productivity is very low. This means that 75 of the work force was also employed in largely growing food for itself. Agricultural employment didn't shrink because manufacturing expanded. It eventually shrank because productivity grew. What manufacturing did was to rapidly expand the capital stock which in turn gave the country a continual rise in real wages. So what we had was a progressing economy, in which the rate of accumulation grew at a faster rate than the population.



In 1982 approximately 3 per cent of the US workforce were directly engaged in agriculture, which seems to confirm the optimists' case. Yet a 1982 US Department of Agriculture report calculated that the food production structure employed a total of 28.4 million people. Just as the mass of manufacturing workers produce entirely for others -- instead of for 25 per cent of the population -- agricultural workers are doing likewise. But in order to achieve this miracle they require a highly complex manufacturing structure.



This throws an entirely different light on the optimists' belief that the growth of services will absorb factory workers and at the same wage rates if not higher. But for this to happen net investment must be growing faster than the population. This is not the case at the moment. The classical economists had a thorough understanding of this process and that is why they understood that the "increased demand for commodities [consumer goods] does not constitute demand for labor."(John Stuart Mill, Principles of Political Economy, University of Toronto Press, Routledge & Kegan Paul, 1965, p. 80).



In other words, economic activities that directly serve the public (the Austrian school of economics would call these activities the lowest stage of production because they are at the point of consumption) do nothing to raise productivity and hence real wage rates. This returns us to the millions of recently created jobs for women: nearly all of them are at the consumption end of the production structure. They do absolutely nothing to raise the value of the marginal product of labour. On the other hand, most of the men who lost their jobs worked in the higher states of production, those regions totally alien to politicians and bureaucrats that actually raise the general level of productivity and in doing so raise the wages of everyone.



So how does a situation like this come about? Several factors: monetary policy that skews investment to shorter production periods; a currency that has been overvalued for a lengthy period of time resulting in more and more manufacturing processes becoming unprofitable, perhaps even leaving the country; fiscal policies that encourage consumption at the expense of investment; levels of government borrowing, taxation and spending that reduces the supply of capital. These are the things that can put a brake on wages growth. If left unchecked, they would eventually force real wages down.



I don't know whether America is facing a period of capital consumption or not. What I do know is that the current rate of net capital accumulation is not sufficient to create a significant upward trend in real wages.



On a final note:



I have noticed the number of billionaires who donate heavily to the Democratic Party. (A misnomer if there was ever one.) Buffet and Bill Gross spring to mind. Both believe in more interventionism and higher taxes, with Gross even arguing that corporate taxes should be raised. As far as I know, all of these billionaires have one thing in common: they made their money in finance. None of them were ever directly engaged in manufacturing, unlike the Koch brothers. This suggest to me that they have no understanding of the difficulties that American manufacturers face. Readers could point to Steve Jobs as an exception. But last I heard he has Apple's products manufactured in China.



I learnt a long time ago that very smart people are capable of believing the most stupid things. If it were otherwise I would have to accuse these billionaires of being a bunch of malicious America-haters.

Gold vs. Guns and Badges

By Gary North


March 18, 2011

Do you trust men with guns and badges to provide long-term economic growth? Or do you trust the free market?



When push comes to shove — recession — most people trust guns and badges far more than they trust the free market.



Do you trust the Federal Reserve System to maintain prosperity? Or would you prefer to trust gold coins held by millions of Americans?



Most Americans and virtually all professors of economics trust the Federal Reserve System.



That was not true in 1913, the year Congress voted (just before the Christmas recess) to create the Federal Reserve System.



There is a way to avoid recessions, argued Ludwig von Mises in 1912: (1) the gold coin standard and (2) no government licensing of fractional reserve banks.



We never did have both. No nation did in modern times. Ever since World War I broke out in August 1914, we lost the gold coin standard in Europe. We lost it in the United States in 1933, when Roosevelt stole the nation’s gold coins by fiat decree. In short, the entire world has rejected Mises’ argument.

Gold-Hating Special Interest Groups



There are four main groups of critics of the gold coin standard: the greenbackers, the politicians, the academics, and the investment elite.



The “greenbackers” began their propaganda early, in the 1870s. They defend fiat money that is controlled by Congress. These self-taught promoters of government fiat money are monetary statists. They include lawyer Ellen Brown and Bill Still, producer of “The Money Masters” video. They have no influence in Congress or academia, because they oppose fractional reserve banking. But their system relies on people with guns and badges to support legal tender laws. In Brown’s case, she has now come out in favor of Bernanke’s QE2 policies. She is Bernanke’s major cheerleader on the Right.



What is their motive? They want big government. They come to the far Right and the far Left with the same argument: private fractional reserve banking is bad, because it makes big banks rich. They come with the same solution: “Trust Congress.” Trust it to do what? To spend fiat money to create a vast welfare state.



They are all Leftists, but they recruit on the Right by an appeal to the sin of envy: “Let’s bust the bankers by law!” They are statists. They parade as conservatives when they pitch the Right.



Just like the greenbackers, the politicians want cheap money, so that they can spend more than they take in by direct taxation, which is always unpopular. The central bank guarantees to buy government debt at low rates. This lets politicians borrow more money on behalf of taxpayers than would otherwise have been the case, since high rates make it more costly to go into debt. This is why politicians have universally created central banks with a monopoly of control over money.



Then there are the vast majority of academics all over the world. They are apologists for the prevailing system. They are paid to support it. They take the king’s shilling, and they do the king’s bidding.



Some of these academics are paid directly by the state as faculty members in tax-funded, state-licensed, accredited universities. Others are paid indirectly as faculty members in private universities that are protected from competition by means of accreditation systems that are backed up by laws against unaccredited institutions that use the word “university.”



Every accredited university is part of a cartel. This is why universities are not price competitive. This is why they can afford to grant tenure — a practice unknown in the private sector.



There is an army of academic critics of Mises’ argument that the free market should be trusted to provide economic planning, and that people backed up by other people carrying guns and badges should not be trusted. In this army are thousands of state-trained and state-accredited economists, who assert that they believe in the free market. When push comes to shove, they don’t.



In the entire academic profession, all over the world, there is not a single textbook in economics that says that central banking is conceptually and operationally a cartel-enforcement institution for privately owned large banks: an anti-free market institution. There never has been such a textbook. Every economics textbook separates the chapter on cartels from the chapter on central banks. Neither chapter refers the reader to the other chapter.



This is not random. This is a crucial part of the arrangement between the national government and the bankers’ cartel in every nation. The academic cartel joins with the bankers’ cartel to screen out any suggestion in a textbook that either of these state-licensed cartels is in fact a cartel. “You scratch my back, and I’ll scratch yours. You promote the right of my agents to carry guns and badges, and I’ll promote yours.”



Finally, there is the investment elite. They want a safety net for bad investments they have recommended. They also want leverage: debt-funded, high-return speculation. They want to be on the winning side of “moral hazard.” This is what central banking gives them.



Members of these four special-interest groups hate the gold coin standard. They hate it for the same reason: it transfers economic authority from the cartels to private citizens. In short, it offers no guns or badges to the government.





Friedman on the Fed



Consider academia. The archetype of the seemingly pro-free market professors was Milton Friedman. In a recent report, “Milton Friedman’s Contraption,” I went into detail about Friedman’s faith in central banking. His faith was misplaced. He trusted the banking cartel as a concept. He did not reject it as the creation of the United States government. He did not reject it as a cartel. On the contrary, he promoted it avidly and famously.



He recommended that the Federal Reserve System’s Federal Open Market Committee (FOMC) stop planning. He recommended a 3% to 5% per annum increase in fiat money. If the FOMC would just follow his advice, he assured us, there would be stable economic growth and stable prices.



Friedman was terminally naïve. To promote any system of central planning ignores the obvious: this is too much power to entrust to anyone. The bureaucrats always do the wrong thing. What is the wrong thing? This: to prohibit the free market from providing the solution to the problem at hand. The central planners hold power specifically to thwart the free market. This is why the state gives them guns and badges.



Friedman was viscerally committed to Federal Reserve Notes, as Mark Skousen and I learned at a dinner meeting with him back in the late 1990s. I don’t want to spoil your fun. Read about it halfway through this article. It’s about a $20 gold piece vs. a $20 Federal Reserve Note. I did not know what was coming. I was an innocent bystander, not an unindicted co-conspirator.



There are only two conceptual options in monetary theory: a full gold coin standard in which the citizens hold the golden hammers or a system of economic planning in which elite members of the planning bureaucracy hold the digital hammers. There is no third choice. A mixture always leads to inflation, recession, and centralization.



Professional gold-haters reject gold because they do not want the public to hold the hammers. They hate decentralized economic authority. They want people like themselves to have the final say.



The planners will always adopt a policy different from the correct one. What is the correct one? To revoke the legal authority of the nation’s central bank and let the free market replace it. As Ludwig von Mises said, when asked what the government should do to overcome a recession: “Nothing. Earlier.” Friedman spent his entire career advising economists and even the U.S. Treasury (in 1943) on how to plan more efficiently. They followed his advice only when this meant taxing more efficiently and regulating more efficiently. He never caught on to how they were using him.



Is this too harsh? Not at all. In 1942, when 20-year Rockefeller agent, Beardsley Ruml, who was then president of the New York Federal Reserve Bank, proposed Federal withholding taxes, Friedman went to work devising reasons. He was in the Treasury Department. Did the government accept these arguments? Yes. Did Ruml ever ask Friedman’s advice on Federal Reserve policy? No.



In 1963, Friedman offered his now-famous critique of the FED’s policies, 1930–33. He said the FED did not inflate enough. Did academia accept this argument? Of course. Did Bernanke accept it? Yes.



Friedman and Schwartz’s insight was that, if monetary contraction was in fact the source of economic depression, then countries tightly constrained by the gold standard to follow the United States into deflation should have suffered relatively more severe economic downturns. Although not conducting a formal statistical analysis, Friedman and Schwartz gave a number of salient examples to show that the more tightly constrained a country was by the gold standard (and, by default, the more closely bound to follow U.S. monetary policies), the more severe were both its monetary contraction and its declines in prices and output.



He got Friedman’s main message: “gold . . . bad.” Did Bernanke ever follow Friedman’s advice on 2% to 5% money growth? Yes: in 2006–7. Did this create a recession? Yes, just as Austrian economists publicly began saying in 2006, based on the Austrian theory of the business cycle. Did he then abandon Friedman’s slow growth rule and adopt Friedman’s economic crisis policy: a doubling of the monetary base? Yes.



On educational vouchers — his program for the more efficient use of confiscated property tax revenue — the Establishment never bothered to get around to implementing it. The teachers’ union opposes it. “Nice idea in theory, Milton,” academia said, “but it’s just too Utopian. We’ll get back to you on that.” They will, too: whenever private schools constitute a major threat to the teachers’ union, and the government decides to take over the private schools by providing “free” money, along with the regulations that always accompany free money from the government.



Conclusion: the ruling elite always trotted out Friedman when it was convenient, but it ignored him when it wasn’t. In short, it acted in its own self-interest. He was there to help where it counted most: taxation policy and a defense of the legitimacy of central banking and 100% fiat money.



Friedman and all economists other than Austrian School economists hate the idea of a gold coin standard. A lot of them carry this hatred into the financial markets. They hate gold as an investment, not just as a monetary policy. They hate it at all times. They tell people not to buy it when it is cheap. They tell them this after it has doubled, then tripled, then quadrupled.



Why? Because to buy gold is to vote against the Keynesian-planned economy. It is to vote against the Keynesian-dominated central bank. It is a vote against the high-tax, debt-funded government bureaucrats who think they are wiser than the decentralized planning of private citizens in a free market. They hate it because they are part of the self-appointed, self-regulated elite. They want to feather their nests by sending out people with guns and badges to extract wealth from the general public.



Those who own gold are able to evade some of the effects of laws enforced by people with guns and badges. This enrages the elite. It has enraged them in the United States ever since 1791. From Alexander Hamilton to James Madison to Daniel Webster to Henry Clay to Abraham Lincoln to Teddy Roosevelt to Woodrow Wilson to Herbert Hoover to Franklin Roosevelt to today, the gold coin standard has enraged them. They want the citizenry to submit to fiat money, guns, and badges. They want the citizenry to submit to their plans. They are monetary statists because they are statists. They want fiat money because they want guns and badges.




“But Gold Will Fall!”



After the central banks stop inflating, gold will indeed fall. So will everything else except currency, including Treasury bonds. Will this be before the central banks produce hyperinflation? I hope so. If not, gold will fall on the far side of a currency collapse, where the value of a dollar fell to zero value. Gold will never fall to zero value. The dollar could.



“But gold will fall,” the experts tell us. Fall from what? “Today’s unsustainable price.” Did you recommend buying gold before the price got unsustainable. “No.” Why not? “Because gold’s price is always unsustainable.” It was unsustainable at $257 back in 2001. “No, I mean it is unsustainable this high.” How high? “Whatever it is today.” So, gold will fall from where it is today. “Yes,” So, you have shorted gold on the futures market. “No.” Why not? “Because gold might go up.” Why? “Because gold may be sustainable for a while.” How long until it falls? “One of these days.”



Here is their rule: “Buy low, sell high, except when it’s gold. Never buy gold.”



Here is the meaning of this rule: “Believe in the power of the central bank to provide wealth, in good times and better times.”



What about bad times? “There will be no bad times, as long as central banks have the power to create money.”



But unemployed workers are having bad times. “They don’t count.” Why not? “Because they don’t work on Wall Street or in Washington.”



Underwater home owners are having bad times. “Only briefly. Home prices are unsustainable.” You mean they will fall further. “No, I mean they are unsustainable this low.” Why? “Because the Federal Reserve System is pumping in money.”



So, should I buy gold? “No.” Why not? “Because gold’s price is unsustainable.” You mean it will fall. “Yes.” But housing prices will not fall. “Correct.” But they have been falling this year. “This is a temporary correction.” Like the price of gold whenever it falls? “No. When the price of gold falls, it is a return to normal pricing.” So, when the price of gold rises, this is a temporary correction. “Correct.”



It has been rising for over nine years. “It’s a temporary correction.” How long is temporary? “However long it takes for gold to fall.”



Would you favor a policy of the government selling its gold? “No.” Why not? “Because that would require a full audit of the Federal Reserve System.” Why shouldn’t there be an audit of the Federal Reserve System? “Because we must maintain the independence of the Federal Reserve System.” Just as we do with respect to . . . to. . . . what other government agency? “The CIA.” You think the CIA should be independent. “I think the CIA has guns and badges and bombs and poisons, so I don’t mess with the CIA. The CIA gets what it wants.” But so does the Federal Reserve. “This is a good thing.” Why? “Because the Federal Reserve is the source of wealth.” So, digits are wealth. “Yes.”



Gold is wealth. “You can’t eat gold.” You can’t eat digits, either. “You can get people to accept digits in exchange for wealth.” How? “With badges and guns.” Like the CIA. “Now that you mention it, yes.”





Conclusion



There is an intellectual battle between the vast majority of experts and a handful of Austrian School economists. The battle is over which system to trust: one in which individuals buy and sell with their money of choice or with money issued by state-licensed banks that are under the control of the national government.



It is a debate over free market decentralized planning based on private ownership vs. central planning based on government coercion.



It is a debate over gold money or government digital money.



The next time you hear some expert spouting off on the evils or foolishness of gold, mentally imagine a bureaucrat with two uniformed goons with badges and pistols standing at your front door. The bureaucrat says, “I’m from the government, and I’m here to help you.”

The Lockup of Greenbacks

By Daniel Drew, in the late 1800s
We now set out on a Bear campaign – we three: Gould, Fisk and I.

It promised big returns. But it required a lot of nerve.

In fact, before it was through, it raised more excitement than I had bargained for. It was the Lock-up of greenbacks…

Steve's note: Today's DailyWealth is something different… a firsthand account from one of Wall Street's shadiest characters. While Daniel Drew apparently had no morals, he did know what causes stocks to go up and down on Wall Street.
It seemed a foolhardy thing to do – go short of stocks just at that particular time.

The Government reports showed that bumper crops were to be harvested in nearly all parts of the country. A big traffic from the West to the seaboard was promised. Money was easy as an old shoe. When money is easy, stocks go up.

It was about the last time in the world, one would have said, to begin a Bear campaign. But that's really just the time in which to begin it.

Because the way to make money in Wall Street, if you are an insider, is to calculate on what the common people are going to do, and then go and do just the opposite.
When everybody is Bullish, that is just the time when you can make the most money as a Bear, if you work it right. And we of our little clique thought we could work it right.

When money is easy the public buys stocks, and so the prices go up. The way to do, we calculated, would be to make money tight. Then people would sell, prices would go down, and we could cover our short contracts at a fine low figure.

In this work of making money tight, we made a pool of money to the amount of fourteen millions. Fisk and Gould provided ten millions, and I agreed to put in four millions.

The banks are required by law to keep as reserve twenty-five per cent of their deposits. This is in order to take care of their depositors.

When their cash on hand is over and above this twenty-five per cent margin, bankers loan money free and easy. As soon as their cash begins to creep down to the twenty-five per cent limit – which can almost be called the dead line – bankers begin to get the cold shivers; they tighten their rates, and if the need is urgent enough, call in their outstanding loans.

Knowing this we made our plans accordingly.

We would put all of our cash into the form of deposits in the banks. Against these deposits we would write checks and get the banks to certify them. The banks would have to tie up enough funds to take care of these certifications. With the certified checks as collateral we would borrow greenbacks – and then withdraw them suddenly from circulation.

When our arrangements were complete, we went onto the stock market and sold shares heavily short. People thought we were fools, because of all the signs pointing to a big revival of trade.

We decided that the time had come to explode our bomb. So all of a sudden we called upon the banks for our greenbacks.

I remember well the scared look that came over the face of one banker when I made the demand. At first he didn't understand. "Oh, yes," said he, after I had made my request; "you wish to withdraw your deposits from our bank? Of course, we can accommodate you. We shall take measures to get your account straightened up in the next few days."

"The next few days won't do," said I; "we must have it right away."

He began to turn white. "Do you understand that a sudden demand of this kind was altogether unlooked for, and will occasion a great deal of needless hardship? A wait on your part of only a very short time would permit us to straighten out the whole affair without injustice to our other depositors and clients."

"I'm not in business," I said, "for the benefit of your other depositors and clients."

As soon as he began to communicate with the other banks, his alarm increased. Because he found that their funds were being called on in the same way as his own (we were calling in the greenbacks from our chain of banks all to once).

Then he got to work in good earnest. Because our fourteen millions (through the working of that law of a twenty-five per cent reserve), meant a contracting of the currency to four times that amount, or fifty-six millions in all, besides the certifications.

He called a hasty council of the officers of the bank. Messengers were being sent out on the double-quick to all the stock brokers who were customers of the bank, notifying them they were to return their borrowings to the bank at once.

As each of these stock brokers found his loans being suddenly called by the banks, he sent word in turn to his clients that they must put up the money themselves to carry their holdings of stock.

The customers immediately sent back word to the brokers:

"We haven't anywheres near the cash to pay for our stocks outright. Borrow from the banks, even though you have to pay ten per cent interest."

But we can't get money at ten per cent," answered the brokers.

"Then pay fifteen," said the customers.

"But we can't get it at fifteen," came the answer.
"The rates for money have gone up to 160 per cent. There's a terrible tightening. No one was looking for it. We've got to have the cash, or we can't carry your stocks a moment longer."

"Then let the stocks go," came back the last answer; "throw them on the market, and do it before anybody else begins."

You can imagine, when a thousand people begin to sell, what a slump takes place.

The money market is the key to the stock market. They who control the money rate control also the stock rate.
Stocks began to tumble right and left. Many stop-loss orders were uncovered. Prices sagged point after point – thirty points in all. And every point meant one dollar in our pockets for every share we were dealing in.

People everywhere began to curse us. The air round about us three men was fire and sulphur. Men couldn't get money to carry on their business. Merchant princes, who had inherited the business from their fathers through several generations, lost it now in a night.

This was the time of the year when ordinarily money would flow out to the South and West to pay the farmers for the crops which they had been working all spring and summer to bring to harvest. But now that money couldn't flow, and so these farmers in a dozen states also began to hurl their curses at us.
Many of them had been counting on the money from their crops to pay off mortgages. Some were driven from their homes, and their houses sold. In fact, the curses got so loud after a while that I kind of got scared. I hadn't thought the thing would kick up such a rumpus.

It almost looked as though our lives weren't safe. They might burn down my house over my head, or stab me on a street corner.

So I got out of the thing.

I told Gould and Fisk that I wasn't going to be with them in this lock-up deal any longer. Even though I drew out of this lock-up deal, I got a good share of the blame. In fact, people seemed to curse me more than they did Gould and Fisk; because they said these other two were younger – were pupils of mine. And that I was chargeable for getting them into these plundersome habits, as they called it.

If I had ever cared much for the speech of people, I suppose I'd have taken the thing to heart. But I never cared what people were saying, so long as they didn't do anything but talk.

Talking doesn't hurt. You can pass it by. This locking-up of greenbacks had netted us so fine a penny that we could afford to stand a lot of abuse…



– Excerpted from The book of Daniel Drew: a glimpse of the Fisk-Gould-Tweed régime from the inside, by Bouck White, published 1913. Thanks to the University of Michigan Library for hosting the original.

Saturday, March 19, 2011

Quake Response Puts Yen on the Line

By: Peter Schiff Fri, Mar 18, 2011


One of the immediate financial consequences of the catastrophic Japanese earthquake is that Japan needs to call on its huge cache of foreign exchange reserves to rebuild its shattered infrastructure. To pay for domestic projects, Japan will require yen - not dollars, euros or Swiss francs. As a result of these conversions, the yen rallied considerably after the quake struck.



But a surging yen runs counter to the macro-economic currency plans favored by most global economists. In order to maintain Japan's position as a net-exporter of manufactured goods and net-buyer of US debt, the yen needs to stay down. So, the G-7 group of the world's leading economies has intervened in the foreign exchange market by selling yen holdings, thereby pushing the currency down. In the short-term, their efforts appear to have been "successful," with the yen dropping sharply today.



Theoretically, this action is being taken to preserve export earnings, but this is only a secondary effect. Primarily, in making this move, the G7 is saying that the key to rebuilding Japan's earthquake-ravaged economy is to raise the price of everything it needs to buy.



After all, absolute purchasing power is far more important than nominal export earnings.



When the yen gains in strength, Japan earns more dollars from its exports, which could now be used to purchase the raw materials necessary to rebuild its infrastructure.



However, by weakening the yen, Japan earns fewer dollars for its exports, increasing the economic burden of reconstruction.



Conventional wisdom is that a weakening currency is a boon for economic growth and exports; however, history does not support this view.



For example, during the 20-year period from 1971 to 1991 - often referred to now as an economic miracle - the Japanese yen tripled in value against the dollar, an average appreciation rate of about 10% per year. This increasing purchasing power enabled the Japanese to enjoy steady economic growth and rising living standards.



Over that time, Japan's GDP grew at an average rate of 4.5% and net exports increased fivefold. Government debt as a percentage of GDP fell slightly to about 20%.



Over the following 20 years, from 1991 - 2011, the Japanese economy has been dead in the water. Yen appreciation slowed considerably, with the currency rising by approximately 50% against the dollar, or about 2.5% per year. However, over that time, the Japanese economy and net export growth essentially stagnated, with GDP growing by less than 1% per annum and government debt exploding to over 120% of GDP.



The real problem for Japan is that in the aftermath of the bursting of the stock and real estate bubbles, the Japanese government refused to allow market forces to repair the damage. Instead, it based its foolish approach on restricting the rise in its currency to maintain exports to the United States. In this cart-before-the-horse worldview, Japan assumed its economic growth was a function of its exports. In reality, exports flow from economic growth.



So, in order to engineer an export-led recovery, Japan embarked on an era of central government planning, Keynesian style pump-priming, and nearly endless quantitative easing. The result was disaster. The only bright spot was that the underlying strength of the Japanese economy kept a lid on consumer prices despite all the inflation deliberately created by the Bank of Japan. So even while good jobs have become harder to find, ordinary consumers have had the benefit of falling prices. It is ironic that Japan's "deflation" is cited as the primary cause of its malaise. If Japan's economy had been less efficient, its 20-year malaise would have been accompanied by increasing consumer prices, a.k.a. stagflation. This would have caused much more suffering to the Japanese people.



Still, as a result of its enormous economic policy errors, much of Japan's efforts over the past 20 years have benefitted Americans rather than its own citizens. A tremendous share of their purchasing power was transferred across the Pacific, helping to inflate a bubble economy in the United States. Of course, as the Japanese economy struggled beneath the weight of this massive American subsidy, it gradually passed the baton to China, which for the same foolish reasons was happy to run with it.



The unfortunate reality is that the Japanese government is doing more economic damage to Japan than the earthquake and tsunami did. This new round of inflation will overwhelm the ability of the Japanese economy to offset upward pressure on consumer prices.



Combine that with the lost output associated with the quake and the expense of reconstruction, and it becomes evident that inflation will soon become a major threat to Japan.



As this realization forces interest rates higher, the cost to Japan of servicing its massive government debt will be crushing.



There is still time for Japan to rethink its self-destructive monetary policy, let its currency rise, and allow its economy to recover. If they do, the US will experience its own disaster as the dollar tanks.

Sunday, March 13, 2011

.Manning Prosecutors: The Enemy is Us

http://c4ss.org/content/6328



Posted by Thomas L. Knapp on Mar 3, 2011 in Commentary • Comments (12)



Having held Private First Class Bradley Manning prisoner for nine months, under conditions tantamount to torture and beyond doubt intended to break his will, the US Army recombobulated its allegations against him on Wednesday, adding 22 counts to an already lengthy charge sheet.



As a practical matter, these changes probably don’t make a lot of difference to Manning. He’s faced a likely life sentence for nearly a year now. Since the Army’s prosecutors claim they won’t seek the death penalty provided for in one of the new counts, the consequences for him, if convicted, remain pretty much the same.



That new count — “aiding the enemy” per in Article 104 of the Uniform Code of Military Justice — is really directed not at Manning, but at an assortment of other persons and parties: Wikileaks, Julian Assange, every foreign government and individual on earth … and you. And the act of filing that charge is, oddly enough, tantamount to insurrection against the United States itself.



Let’s unpack this “enemy” thing.



The power to declare war — and thereby to legally categorize a group of persons (historically on, but not necessarily constrained to, the basis of their allegiance to a particular state) as “the enemy” — is exclusively reserved, per the US Constitution, to Congress. Congress hasn’t exercised that power since 1941, and the wars it declared then have long since ended. The United States is not, legally speaking, at war. Thus the US has, legally speaking, no “enemy” to aid.



By charging Manning with “aiding the enemy,” the US Army is, in effect, attempting a coup d’etat. It is usurping Congress’s authority and claiming that authority for itself. Since the President of the United States is also Commander in Chief of the US armed forces, the Army is presumably merely the President’s instrument in this matter.



Not that executive power grabs are anything new, mind you — the Constitution has been broken in that respect for at least 150 years. The difference here is that historically executive usurpations under cover of “war powers” resembled cyclical tides: Flowing in, then receding, over fairly short periods.



The Civil War, Reconstruction and a slow fade back to business as usual. World War One, the first Red Scare, then “return to normalcy.” World War Two, the second Red Scare, and grudging reversion to the malignant but still nominally limited managerial state inaugurated in FDR’s New Deal.



This time, the tide has coursed in on us for most of a decade and shows no signs of ebbing. Not tide: Tsunami. The executive branch, led first by George W. Bush and now by Barack H. Obama, is playing for keeps. We’re long past the point where one can plausibly argue that anything short of full-on dictatorship will satisfy America’s new generation of emperors or their courtiers.



The proof of that lies not only in the fact of insurrection/coup with this charge of “aiding the enemy,” but in the logical conclusions that we can — indeed, must — draw from that charge.



Who is the “enemy?” Certainly not the (now long-deposed) regime of Saddam’s Iraq, nor the Taliban who ran (and mostly still run) Afghanistan. We can exclude these two as the designated “enemies” for two reasons.



First, not only did Congress (to the extent that the executive branch bothers even formally acknowledging that institution’s authority these days) not declare war on either of them, it specifically declared that it was not declaring war on them. If you don’t believe me, look at the “authorizations for use of force” yourself and read the “war powers reservations” sections. Recall that bills were introduced to declare war on both, and rejected.



Secondly, no one has said, with a straight face at least, that Manning intended his alleged releases of information for the eyes and ears of the Taliban, or of al Qaeda, or of whatever ragged remnant of the Ba’ath Party persists in Iraq.



On the contrary: The intended recipients seem to have been an Iceland-hosted web site, an Australian transparency activist, and the world (including the American) media and public. They (You! Me!) are the “enemy” to whom Manning allegedly disclosed the state’s embarrassing secrets.



QED, the US government considers you — whoever you are, wherever you may live, and to whatever extent you aren’t its active agent — its enemy and intends to treat you as such. Your freedom, perhaps even your very survival, depends on you recognizing this fact and acting accordingly.

Saturday, March 12, 2011

Claire McCaskill United States Senator

Dear Dr. Graviss,




Thank you for contacting me regarding the extension of the USA PATRIOT Act. I appreciate hearing from you, and I welcome the opportunity to respond.



In the aftermath of the terrorist attacks of September 11, 2001, the PATRIOT Act provided our government with powerful new tools to combat terrorism. In the past, some of those tools were unfortunately abused. Such abuse is entirely unacceptable to me.



I am unequivocally committed to preventing terrorist attacks on our homeland, and I am confident that we can protect our nation without violating the privacy rights and civil liberties that are at the foundation of our democracy and to which every American is entitled. That is why I am committed to holding those using the authorities provided in the PATRIOT Act accountable if the authorities are abused, but have not been prepared to rescind all of the authorities because, when used lawfully, they can prove important to keeping Americans safe from terror attacks.



Recently, the Senate passed and the President signed into law H.R. 514, extending three provisions of the PATRIOT Act until May 27, 2011. This legislation addresses the use of roving wiretaps of terrorism suspects, increased seizure of evidence against such suspects; and surveillance of non-U.S. suspects not yet linked to an identifiable terrorist organization. I supported this legislation because I believe it grants our intelligence officials the power to protect us from terrorism without infringing unlawfully on Americans' civil liberties.



Importantly, the government may not utilize any of the intelligence-gathering tools authorized by the PATRIOT Act without prior approval through courts set up by the Foreign Intelligence Surveillance Act (FISA). These courts, composed of eleven federal court judges appointed by the Chief Justice of the United States to serve single seven-year terms, receive and approve or reject requests from intelligence agencies to employ PATRIOT Act authorities against terrorism suspects. The submitted applications, though classified, ensure that there is a comprehensive prior review every time the government authorizes a multipoint wiretap, broadened evidence seizure, or surveillance of foreign terrorism suspects who may be acting alone. I am confident that the FISA court system enables our intelligence officials to gather intelligence without violating our constitutional rights.



As a former prosecutor, I understand that the Constitution places the burden on the State to establish a probable cause before any search or seizure of evidence. It is essential that intelligence agencies combat terrorism in a manner consistent with our laws and traditions. I look forward to providing necessary oversight, and I will keep your concerns in mind should further extensions of the Patriot Act reach the Senate floor.



Again, thank you for contacting me. Please do not hesitate to contact me in the future if I can be of further assistance to you on this or any other issue.

The Day of Gold-Plated Public Sector Pensions are Numbered

http://www.safehaven.com/article/20248/the-day-of-gold-plated-public-sector-pensions-are-numbered
By: Arnold Bock
Fri, Mar 11, 2011


Public sector employees, the workforce 'elite' led by state and municipal workers, are now storming legislative chambers to preserve their special status. Wisconsin is the current case study in what happens when the government, a monopoly service provider, confronts the fact that the taxpayer is tapped out and can't take it anymore - when there simply isn't enough money. Those realities are going to result in major adjustments in worker incomes, future pensions and benefits and their overall standard of living. Let me explain.





Why State and Municipal Governments are in Financial Trouble

As odd as it may seem, state and local governments, are in even worse financial shape than the federal government with its parabolic deficits and accumulated debt. The reasons are that:



a) States and municipalities don't have the franchise to create money through entering digits on a computer screen or running the printing press. 'Quantitative Easing' is the exclusive prerogative of the federal government. States and municipalities must, by law, balance their operating budgets although capital expenditures can be financed through the sale of bonds, assuming buyers can be found to accept the interest rates offered and the inherent risks of owning such securities.



The crisis in state and municipal debt is real with insolvency and financial collapse near for many. According to Northwestern University's Kellogg School of Management, pension underfunding of municipalities currently totals $574 Billion. States are much worse off in terms of their underfunded employee pensions to the tune of $3.3 Trillion.



b) States and municipalities are suffering from unrestrained spending on salaries and wages, health care benefits and pensions of their employees. The single largest component of budgets is the salaries and benefits of the employees. As a case in point, it costs the City of Milwaukee 74.2 cents extra for every single dollar of wages it pays its public school teachers and other employees as compared to the additional 24.3 cents that similar private sector employees receive... a whopping 205.3% more! With income disparity like that is it any wonder that the 'workforce elites' in America today are public sector employees?



Precious few coddled private sector workers remain who share the special status enjoyed by public sector workers. General Motors and Chrysler are recent examples of what happens to private sector workers whose total compensation package becomes bloated beyond reason. Predictably, they ultimately faced the realities and judgement of a marketplace where competitors with better products, services, price and choice prevail. While the federal government bailed out both the companies and their UAW employees, the magnitude of state and municipal debt is much more overwhelming.



Not all municipalities and states are the same and they are certainly different from their private sector counterparts. One obvious difference, for example, is that 36.8 percent of all government employees in the U.S. are unionized, while only 6.9 percent of private sector workers carry union credentials.





How Public Sector Salaries and Benefits Got So Over-the-Top

Government employees can credit their special status on:



■their monopoly position as service providers,

■their union muscle,

■the fact that their employer also had the deep pocketed taxpayer in its corner until now,

■the current electoral process, and

■the manner in which "fair and equitable" contract settlements have been negotiated.

Public sector unions have increasingly developed alliances with candidates and political parties. Vast quantities of campaign cash, as well as paid and volunteer help from public sector workers, have cemented mutually productive relationships with many of their elected employers. President Obama's election and recent intervention in the Wisconsin conflict pretty much explains which party has been the primary beneficiary this electoral grease. Hence the quid pro quo when wages and benefits are on the negotiating table.



Because of the multiplicity of state and municipal jurisdictions, all performing similar functions, it is only normal for salary and benefits to be compared. Pattern-setting settlements of salaries and benefits achieved by strong unions, among compliant employers, are regularly cited as the benchmark for 'fair and equitable' settlements in many other jurisdictions. Frequently, the pattern-setting leaders are those states and municipalities with histories of strong unions and 'established partnerships' with their elected decision makers.



Often a much more subtle set of circumstances prevail. Designated executives and managers excluded from the bargaining unit are usually in charge of 'negotiations' with representatives of the broader workforce. Since it would not be considered fair for the salary and benefit increases of the non-union and executive employees to be less, in percentage terms, than those awarded workers more junior in the pecking order, there is a built-in bias to higher wage and benefit settlements for the broader group of employees. Hard-nosed confrontational bargaining definitely isn't the norm. Yes, there is plenty of public posturing, but out of sight, the relationship is much more collegial - for mutual benefit.



Passively allowing union negotiators to 'win' at the bargaining table provides an automatic 'push' for the subsequent executive and management compensation package. Even more effective is designing and/or exploiting a process by which labour tribunals are used and 'acceptable' arbitrators are appointed to award favourable judgements to the employees. When decisions run counter to reason, common sense and are beyond the financial capacity of the state or municipality, politicians and executives in charge of the process throw their hands up in feigned dismay and frustration claiming that there was nothing that could be done to alter the outcome. The consequence is a 'sweetheart deal' to the benefit of everyone - except the taxpayer.





Why Many Public Sector Pension Plans are Under-funded

As the workforce ages, pensions and health care benefits have come to the fore, especially seriously underfunded and unfunded liabilities of pension plans. In the past, excessively favourable pension provisions and underfunding were seldom discussed. They were considered to be problems for the distant future to be dealt with on someone else's watch. But the future is now. No longer can decision makers extend and pretend. Delaying and praying won't help either. What is real is that many, maybe a majority, of public sector pensions are underfunded. Why?



a) Unwarranted Assumptions: The actuaries hired by fund managers and politicians made unwarranted and exceptionally optimistic assumptions about rates of inflation, investment returns, interest rates, salary levels and other relevant facts, which provided the answers the law demanded and the persons signing the consulting contract wanted to hear. This process is reminiscent of the prevailing practice of bond evaluators who placed AAA investment grade ratings on rancid Wall Street financial derivatives. The pension plans in the states of New Jersey and Illinois, among others, were regular beneficiaries of these deceptions.



b) Back-end Loading of Incomes: Another example of unprincipled self-dealing on the public sector pension front is the practice of 'spiking' one's income during the last year, or years, of employment. The intent is to build the base upon which the retirement pension is calculated. Obtaining generous overtime assignments and receiving payment for accumulated, but unused, sick pay has a similar and most salutary effect on the pension. Since many employees leave with a full pension after thirty years of employment and a minimum of fifty years of age, they can be expected to draw their pension for thirty years after which their spouse can draw approximately half of the pension for their remaining years.



c) Inflation Adjustments: There is another significant perk which most non-government employees, and those without defined benefit pensions, are unfamiliar. It is called 'inflation adjustment' or COLA (Cost Of Living Adjustment). It means that the public sector defined benefit pension is adjusted upwards each year to reflect increases in the Consumer Price Index. Aside from protection against price inflation, this provision allows much psychic certainty for the duration of the retirement period leading to considerable peace of mind for the lucky public sector pensioner.



d) Subsidized Contributions: Many, but definitely not all, government employee defined benefit pension provisions come almost free of charge - to the employee. During the years of employment many employee plans do not require the employee to pay for any or only part of their benefits, although others do. Many defined benefit pension plans use a matching formula where the employer and the employee make equal contributions.



e) Free Health Insurance Premiums: These are frequently treated in a similar manner as pensions whereby the employer pays the entire cost, or the contributions are matched equally between both employer and employee. After retiring, the benefits continue but without further contributions by the retiree. The period between a retirement age in the low 50's and the retiree's eligibility for Medicare at age 65 represents a very expensive period for the public sector employer.





What Under-funded Pensions Mean for the Future

Where does this discussion lead? What are the conclusions? What does it mean to state and local governments? What effect does it have on the taxpaying public?



Certain states and municipalities have demonstrated responsible long term financial planning, especially as it relates to funding pensions and benefits for their employees. They have funded their future obligations based on honest formulas and assumptions. The employee was an equal partner in contributing to the costs. Pension and benefit provisions - and enhancements - were not implemented without appreciating the essential role of the taxpayer in the period ahead. However, such prudent planning and management was not carried out across the board by many municipalities and states. As mentioned above, a massive financial brick wall of underfunded pensions lies directly ahead to the tune of $574 billion and $3.3 trillion respectively.



The fact of the matter is that the current weak economy, coupled with high unemployment, an annual federal deficit of $1.6 Trillion (three times what it was as recently as two years ago) and a balance sheet debt in excess of $14 Trillion, means that there is no federal money to bail out states and municipalities. In addition, unfunded federal obligations for Social Security and Medicare are somewhere north of $50 and up to $100 Trillion. The country is insolvent...as in broke! The economy can't grow enough and the government can't tax enough to make the deficit and debt crises disappear - or even become manageable.





Conclusion

The 'tough love' we are beginning to see in New Jersey, New York, Wisconsin and other states and municipalities is merely the tip of the proverbial iceberg. Externally imposed constraint by bondholders and especially the taxpaying and voting public will become the norm. Public sector workers everywhere will need to accept the reality of:



■lower incomes,

■lower pensions,

■lower benefits and

■lower living standards.

These new realities are coming our way in the near future. They cannot be circumvented. Public demonstrations by the aggrieved public sector elite will not alter the abovementioned financial and economic facts. Rather, they portray the end of gold-plated defined benefit pension plans which have no regard for the taxpayers who foot the bill. It is either that or a major revolution instigated by taxpayers.

Tuesday, March 1, 2011

Walker's World: Arab spring turns chill

Published: Feb. 28, 2011 at 5:51 AM, By MARTIN WALKER, UPI Editor Emeritus

PARIS, Feb. 28 (UPI) -- It took a while but it is becoming ever more clear that the North African revolutions are unlikely to unfold like a morality play in which good defeats evil, not like a fairy tale in which all live happily ever after.



Moammar Gadhafi's threat of civil war seems to be coming true in Libya, although it might be more accurate to call it an attempt at fight off revolution by Gadhafi's loyalists and mercenaries.



Three died in clashes in Tunisia Saturday after 100,000 protesters marched Friday demanding the resignation of the interim Prime Minister Mohamed Ghannouchi and his government of national unity. The main complaint seems to be that he hasn't delivered jobs, democracy and prosperity for all in the six weeks since the fall of President Zine el-Abidine Ben Ali.



Meanwhile in Egypt, the military used baton charges, tear gas and stun guns Saturday against demonstrators demanding the last colleagues of former President Hosni Mubarak be purged from the current interim government of Prime Minister Ahmed Shafiq. They also wanted the immediate release of all remaining "political" prisoners and the issuing of a general amnesty.



There were contradictory reports of the names of those they sought to free but some were believed to include Islamic militants who had been charged with violent offenses against Western tourists.



A confused situation developed on the Tunisian border with Libya Sunday, where Libyan guards held up Tunisian Islamists who wanted to enter the country with donations of medical supplies.



The World Food Program says the food supply chain in Libya "is at risk of collapsing". The Red Cross has launched an appeal for more than $6 million for medical assistance.



This is an unhappy mix, with Libya's food supplies starting to run out as the pro- and anti-Gadhafi forces brace for a showdown, Islamists become steadily more prominent, while the instability continues in both Tunisia and Egypt.



The U.N. Security Council has made clear its dislike of the Gadhafi regime and its ruthless way with its foes. But by freezing their assets and imposing travel bans on Gadhafi and his closest loyalists the United Nations may have made it more likely that Gadhafi stays to fight it out. The Chinese sage Sun Tzu said it was always wise to provide one's enemy with a golden bridge to help him retreat. The United Nations has cut off Gadhafi's possible retreats.



At the same time, the United Nations declined to impose a no-fly ban on Libyan airspace that might have deterred his air force loyalists and mercenary pilots.



So having forced Gadhafi to stay and fight for his life, the United Nations left him with his air power and the combat helicopters that make it easier for him to prevail. This doesn't seem sensible but the Security Council was evidently too intent on congratulating itself for reaching a unanimous vote to notice the real implication of its decisions.



That heady early talk of an Arab spring and a democratic flowering across the Arab world now seems distinctly premature. It is going to be much more difficult, and much more complicated, as the Europeans found when they started turning back thousands of Tunisians looking for jobs and opportunities in Europe rather than staying home to enjoy the new freedoms.



Beyond the unpleasant endgame of the Gadhafi regime, there are three predictable crises yet to come in North Africa. The first will be the question of food shortages and subsidies in Egypt, where the price of bread has been kept artificially low for decades at a cost of more than $3 billion a year. (The Mubarak government spent more on its various subsidies than it did on health and education.)



Egypt's new government faces a tough dilemma. It cannot afford the subsidies but nor can it afford the popular outrage among the poor if it tried to end them.



The second crisis will come when business returns to normal and 30 percent of Egyptians and Tunisians in their 20s remain unemployed and a new class of graduates emerges to join them. They will demand government jobs. The government will try to comply but the government has no money. Money will be borrowed and printed. Inflation will result.



The third crisis will be more a problem of U.S. domestic politics but it will have grave implications for Egypt. It concerns Israel. The new Egyptian government, whatever its politics, will find it difficult to be quite as accommodating to Israel as Mubarak used to be. In particular, it will find it politically very unpopular to maintain the siege of Gaza.



As goods start to flow, Egypt will find itself being blamed by the pro-Israel lobby for helping to "strengthen Hamas" in Gaza. The usual congressmen will make the usual Washington speeches about supporting Israel and questioning whether Egypt is still a reliable partner for peace and asking how to cut back on the U.S. subsidies for Egypt. This is predictable. And it is the way friends can turn into enemies.



The United States doesn't have sufficient goodwill in the Arab and Islamic worlds to navigate such crises easily. It is rather short of money to help see the new Egyptian government through its bread subsidy crisis. And the Europeans are unlikely to ease the pressure of youth unemployment by accepting more immigrants.



Those concerned that the "Arab Spring" isn't turning out quite as happily as hoped should brace themselves. It can get a great deal worse.







Read more: http://www.upi.com/Top_News/Analysis/Walker/2011/02/28/Walkers-World-Arab-spring-turns-chill/UPI-30471298890260/#ixzz1FLosb4Zv