Archive for December, 2010

Zombies project their own walking dead ideas

December 31, 2010 Leave a comment

From Neeraj Chaudhary another hit to the zombie cranium of insane socialist zealot Krugman.  And a nice defence of Austrian School economics to go with it:

Here we go again. This week, Paul Krugman, the 2008 Nobel Prize winner in economics and the go-to guy for progressives who need a morale boost, launched another misguided attack on Austrian School economists. From his New York Times soapbox, he referred to the free-market Austrian “hard money” philosophy as a “zombie idea” that is inexplicably eating the brains of the voting public.

The attack would hardly be worth a reaction if it weren’t for the fact that the column did create a buzz. In the piece, he repeated a refrain that has become common for the empirically defeated Keynesians. Said Krugman, “many economists, myself included, warned from the beginning that [President Obama’s original stimulus plan] was grossly inadequate.” He continued, “[a] policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.”

When looking for zombies, the first place Mr. Krugman should look is in the mirror. He has one answer to every problem: eat more taxpayers. He isn’t even a true Keynesian. Mr. Krugman is the guardian of a system that died a long time ago. He is the walking undead of the New Deal era.

What Keynes actually said about government spending is that during recessions, governments should run budget deficits to boost aggregate demand, and during expansions, governments should run budget surpluses in order to save up for the inevitable recession years.

Now, whether you agree with this or not – and I happen to disagree with this approach – what we have actually done is run deficits, year-in, year-out, almost every single year for 40 years! And, as a result, we have accumulated a national debt approaching 100% of our annual gross domestic product.

This level of indebtedness has been shown to reduce the level of growth in an economy, no matter how advanced. Yet, Mr. Krugman argues that we should spend more money and run even higher deficits. So, who are the real zombies: those economists who mindlessly favor more and more government deficits in perpetuity, or those who have struggled to warn their fellow man that we are approaching a point of no return?

In the 1990s, the Austrians warned of a tech bubble. The Krugmanites urged lower interest rates and more government spending. In the 2000s, the Austrians warned of a housing bubble. The Krugmanites urged lower interest rates and more government spending. Today, the Austrians warn of a bond bubble that will lead to potential sovereign default. And, with the terrifying zeal of a flesh-eating corpse, Krugman urges lower interest rates and more government spending.

To me, it’s very clear: just as a family or a business cannot continuously spend more than it earns, governments must live within their means as well. The US government has had special privileges since 1944 because our currency serves as the international reserve. But we are not behaving as good stewards of this responsibility, and, if we are not careful, the world is going to dump the dollar. If that happens, the trillions of dollars that are held by foreign central banks could come flooding back into the U.S. economy, causing an inflationary period that dwarfs the stagflation era of the 1970s. It certainly won’t help that our nation is more dependent than ever on foreign oil.

Austrians believe foremost in sound money – the idea that the amount of currency in the economy should be relatively stable, so that its purchasing power is maintained over time. This minimizes inflation, and allows consumers, businesses, and lenders to make efficient financial decisions. It also keeps government in check, because the Treasury cannot run perpetual deficits and simply print new money when the bills come due. It is no coincidence that our nation’s descent into near-constant annual deficits took place right around the same time as President Nixon took us off the gold standard.

Austrians believe that free markets are largely self-regulating. This means that people will tend to make choices in what they perceive to be their own best interest. Government interventions are almost always meant to override individual choice because politicians think they know better. This is not only personally offensive, but leaves us with an economy that can provide less of what people actually want and too much of what they don’t want. Look at the housing bubble. Government incentives caused miles and miles of McMansions to be built across the country – houses that most people could not actually afford. In the meantime, productivity was diverted from producing things people actually need and can afford. The result is an economic depression and heart-breaking dislocation for millions of Americans.

Austrian School economists are not zombies. Our philosophy promotes life, liberty, and prosperity – last time I checked these are not the goals that get zombies up in the morning. Meanwhile, economists such as Mr. Krugman continue to argue for lower interest rates, more intervention, more spending, and larger deficits. He advocates for an economic system that feeds off the productive strata of society to support the unproductive. Now there’s a philosophy that any self-respecting zombie could support!

Where does it end, Mr. Krugman? At what point do we stop running our deficits and start to pay back the money that we have borrowed? At what point will enough wealth be extracted from producers to support your voracious appetite for spending? Perhaps you think we should we mindlessly devour the purchasing power of our fellow nations until there is nothing left, but what happens when they take a shotgun to our heads?

Categories: Uncategorized

The lazy way to refute insane Fabian socialist zealot Paul Krugman

December 27, 2010 Leave a comment

I’m genuinely bored attacking Paul Krugman’s insane rants against sound money, against reduced deficit spending, against removing moral hazard from the banking system.

He was laughing out loud about the ‘crazy’ Ron Paul fearing inflation.

Now he’s trying to explain the explosion in commodity prices.  And failing.

I now let others do the dirty work.  There are so many Krugman bashers, they’re lining up to smash the little shyster in the head.

Weekend funny

December 25, 2010 Leave a comment

Merry Christmas to all.

Categories: Miscellaneous Musings

Glenn Stevens

December 16, 2010 Leave a comment

I saw Glenn Stevens today at Martin Place, Sydney.  He had the hagged, worried look of a man trying to ride a tiger, suddenly realizing he’d lost control.

The weight of the world was on his shoulders. 

He was trying to walk ‘tall’, but he had the slow gait of a man who knows he’s a public pariah.

Poor little (short) central planner.

He must be so confused.

Categories: Miscellaneous Musings

Why silver

December 16, 2010 2 comments

I’m a silver bug, much more than a gold bug.

Here’s why:

What The Silver Vigilantes Understand That You Probably Don’t (Arithmetic, Human Nature and other Stuff)

Sorry about the insulting headline, but every last shred of evidence I can find suggests that the most people remain utterly clueless about silver, despite the efforts of the silver vigilantes, led by Max Keiser and Mike Kreiger.  Their brilliantly simple plan (go get some physical silver) promises to topple the criminally insane fraud that has become US economy.  It doesn’t require politicians or regulators to lift a finger either, you simply take advantage of what is undoubtedly an artificially low price.  I can completely understand anyone who is skeptical of that last statement; I’m sure you’ve been burned before, but that doesn’t mean you should stop seeking truth.  

Part 1. A little math.

I’m not sure when performing basic arithmetic made you a conspiracy theorist, but here we are.  

The 2009 World’s population was about 6.8 Billion.  According to the Silver Institute, total silver supply in 2009 was 889 million ounces.  That means there was .13 ounces of silver produced for every human being on the planet.  That looks like this:

Yep, your fair share of Worldwide silver production is a little less than the silver content of two pre-1965 dimes.  That’s all.  A bargain at about four bucks when you consider the amazing properties of this element.  FYI: World oil production per capita is 190 gallons. 


 …represents more than ten years of  worldwide silver mining production divided by 2009 population.  Less than $35, and hell of lot easier to transport than 7,600 quarts of Quaker State.  Please note that so-called “World production” includes government sales and scrap.  Government sales and “scrap” have accounted for more than 25% of  “World Silver Production” from 2000 to 2009.  I’m not sure I believe that one out of every four ounces of silver gets recycled, but understand that without that bonus production, demand exceeds supply by 37%. 

Part 2. Who needs silver?

Just about everybody, it turns out.  Sadly, another way to get yourself labeled a conspiracy theorist is by reading government documents like the Constitution, or the Department of the Interior’s 2009 U.S. Geological Survey which states:

The physical properties of silver include ductility, electrical conductivity, malleability, and reflectivity. The demand for silver in industrial applications continues to increase and includes use of silver in bandages for wound care, batteries, brazing and soldering, in catalytic converters in automobiles, in cell phone covers to reduce the spread of bacteria, in clothing to minimize odor, electronics and circuit boards, electroplating, hardening bearings, inks, mirrors, solar cells, water purification, and wood treatment to resist mold. Silver was used for miniature antennas in Radio Frequency Identification Devices (RFIDs) that were used in casino chips, freeway toll transponders, gasoline speed purchase devices, passports, and on packages to keep track of inventory shipments. Mercury and silver, the main components of dental amalgam, are biocides and their use in amalgam inhibits recurrent decay.

 Yet you can actually find dunces out there claiming the digital cameras have made silver obsolete.  You should live so long…

Fun Fact:  Silver (not gold, copper or anything else) is the element with the highest electrical conductivity.

Part 3. People lie…..

“…I want to make it equally clear that this nation will maintain the dollar as good as gold, freely interchangeable with gold at $35 an ounce, the foundation-stone of the free world’s trade and payments system.”

John F. Kennedy, July 18, 1963 

“That we stand ready to use our gold to meet our international obligations–down to the last bar of gold, if that be necessary–should be crystal clear to all.”

William McChesney Martin, Jr. (Federal Reserve Chairman) December 9, 1963


Lesson:  When someone says you can exchange paper for precious metals – make the swap before they change the rules.

Since the invention of paper, people have been writing bogus notes, and if there are two time-tested methods to become wealthy beyond your wildest dreams, they are:  1)Selling stuff that doesn’t exist and 2) Selling stuff you don’t actually own.  Unless you believe there has been a sudden outbreak of integrity in the banking industry, there’s no reason to believe these dynamics are not still in play, is there?  As recently as 2007, Morgan Stanley settled a class-action lawsuit with 22,000 clients who bought and paid storage on “phantom” silver (check out the Ted Butler article Money for Nothing).

At today’s prices, a million dollars in gold weighs less than fifty pounds, but a million dollars in silver weighs more than 2,300 pounds!  So ask yourself, how many rich people are storing their own silver?  How many hedge funds hold physical silver in their own storage facility?  Or have they entrusted the storage to the big banks?

JP Morgan is the custodian of the ishares Silver Trust (SLV), which now holds over 350 million ounces of silver, provides  sovereign and corporate investors with precious metals solutions (JP’s website), and is the largest short seller of silver in the history of the world.  Berkshire Asset Management’s  Eric Fry writes:

Based on some of the latest conjecture, Morgan’s short position totals a whopping 3.3 billion ounces. If, therefore, the buzz about J.P. Morgan and silver is even half true, the prestigious investment bank could be cruisin’ for bruisin’.

For perspective, 3.3 billion ounces is roughly equal to:

1) One third of all the world’s known silver deposits;

2) Two times the world’s approximate stockpiles of silver bullion;

3) Four times the annual mined supply of silver;

4) 30 times the inventory of silver at the COMEX.

If you can, forget about the conflict of interest, and ponder the enormity of the explosion.

Part 4. A little more math. 

 Estimates of total silver production since the dawn of man range from 46 to 53 billion ounces (roughly 11x gold production), but unlike gold, we’ve used pretty much all of it (although squandered might be a better word).  It’s in our cemeteries (fillings) and scattered throughout our landfills.  There hasn’t been a significant surplus since 1990.  Ted Butler and others estimate that there is far less silver bullion in the world than gold bullion and they back up their case with numbers  that the paperbugs have never even bothered to refute.  So why does gold trade at more than 45 times the price of silver?  Because JP Morgan, the US government, and every other psuedo-capitalist parasite wants it that way.  But that’s a truth for another day.

Part 5. Other things you should know.

 The Treasury has sold 34 million one ounce American Eagles so far in 2010.  Those sales total less than one Billion dollars. Apple (AAPL) trades about that much every hour the market is open.  Meanwhile the Treasury has issued more than 1.5 Trillion in new debt (1,500 times more) in 2010.  Just for fun, let’s multiply 1500 by 34 million.  A transaction of that size would have equaled every last bit of silver ever discovered at $30 an ounce.    Yet you can actually find people who believe silver is the bubble.

Treasury doesn’t make it easy to buy silver.  They’ll sell you bills, bonds and notes directly online, but not precious metals at anything close to market price.   The mint only does business with  11 Authorized Purchasers (a list can be found here),  Why the lack of savvy?

China can blow up the COMEXs silver market in the blink of an eye, at any moment.  They can do it with their pocket change, as a goof.  And if we piss them off enough, they will.

Part 6. So what’s silver worth.

The short answer is: more.  If silver were priced based on its occurrence relative to gold, it would be over $125/oz.  If it were priced on its availability – somewhere around $2,000.  But if you are content to let the likes of Blythe Masters dictate the value based on truckloads of worthless paper promises, you can expect ultra-low prices until the whole thing blows up.  Of course at that point, we’ll be so busy killing each other for food no one will have time to say, “I told you so.”

The silver vigilantes just want you to re-learn what the phrases like, “cold, hard cash,”  and “payment in full” are supposed to mean.  There not asking you to sink everything you have into physical silver,  just a little.  Silver can’t be printed into oblivion, or stolen by a cyber attack.  Why wouldn’t you want to own some of your very own? 

A paper dollar from 1960 is worth exactly the same as a paper dollar in 2010, but  four quarters from 1960 are worth more than $21.  Given the fiscal insanity of the US government, I can’t imagine the US dollar surviving another 50 years, but I’m quite sure that silver will still be useful.  Please consider getting some while you still can.

Categories: Uncategorized

What do central banks do exactly?

December 16, 2010 Leave a comment

They counterfeit on behalf of the oligarch-banks in a crisis.


WikiLeaks is grabbing the headlines, but your California editor considers the “Icky-Leaks” issuing from the Federal Reserve to be much more intriguing – like the icky leak that the Fed doled out trillions of dollars in clandestine bailouts and guarantees during the crisis of 2008 and early 2009.

Thanks to a nifty little provision in the Dodd-Frank reform bill, the Fed was forced to come clean with these embarrassing details. On December 1, the Fed published an exhaustive and detailed list of bailout recipients, along with the sums each received.

The document dump confirms,” The Nation reports, “that the $700 billion Treasury Department bank bailout…signed into law under President George W. Bush in 2008 was a small down payment on an secretive ‘backdoor bailout’ that saw the Fed provide roughly $3.3 trillion in liquidity and more than $9 trillion in short-term loans and other financial arrangements.”

Bernanke vehemently resisted making these disclosures…for obvious reasons. The disclosures reveal the Fed’s too-cozy relationship with Wall Street. They also reveal a kind of institutionalized arrogance: the Federal Reserve knows what’s best for us, even if we don’t know it ourselves…or believe it.

During the last several months, Chairman Bernanke frequently and persistently asserted the need for secrecy at the Federal Reserve. Transparency, he argued, would compromise the Fed’s independence. The argument is ridiculous. Secrecy facilitates corruption and abuse. Transparency prevents it. A couple of free-thinking politicians recognized this reality early in the credit crisis.

As early as February, 2009, Senator Bernard Sanders, the Vermont Independent, complained to Bernanke, “Given the size of the [Fed’s] commitments, it is incomprehensible that the American people have not received specific details about them.”

Bernanke tersely replied: “The Federal Reserve does not release specific information regarding the borrowings of individual institutions from our lending facilities. The approach is completely consistent with the long-standing practice of central banks.”

As it turns out, this approach is also completely consistent with promoting deceptions and conducting crony capitalism…like doling out enormous bailout checks to Wall Street banks without ever disclosing the timing or size of these bailouts to the general public.

This is not a healthy circumstance for an economy that purports to practice “free-market capitalism.”

“Since its inception,” Congressman Ron Paul griped in a February 2009 speech, “the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations. While the conventional excuse is that this is intended to reduce the Fed’s susceptibility to political pressures, the reality is that the Fed acts as a foil for the government…”

But now that the Fed has lost its “right” to non-disclosure, the American public is learning some very ugly truths, like the ugly truth that several large Wall Street banks received much greater assistance from the Fed than anyone had ever disclosed during the crisis of 2008-9. The bailout recipients and the Fed were both as silent as starfish about the spectacular scale of the Fed’s bailout activities.

“Almost two years ago,” Senator Sanders recalled recently. “I asked Chairman Bernanke to tell the American people which financial institutions and corporations received trillions of dollars as part of the Wall Street bailout. He refused. [But now], as a result of an audit-the-Fed provision I put into the financial reform bill, we finally learn the truth – and it is astounding.”

During the crisis, most Wall Street banks admitted to receiving a few billion dollars in TARP lending (after which they all made a big to-do about re-paying it). But they never uttered a peep about the billions of dollars they obtained secretly.

Goldman Sachs borrowed billions from the Fed’s Primary Dealer Credit Facility, but never bothered to mention this fact in any of its SEC filings. Goldman was equally silent about its borrowings from the Fed’s Term Securities Lending Facility. Only now – nearly two years later – do we learn what really happened.

“Morgan Stanley sold the Fed more than $205 billion in mortgage securities from January 2009 to July 2010,” The Huffington Post reports, “while it’s much bigger rival, Goldman Sachs, sold $159 billion. Citigroup, the nation’s third-largest bank by assets, sold the Fed nearly $185 billion in mortgage bonds. Merrill Lynch/Bank of America sold about $174 billion. It’s not clear how much these firms profited, but it’s abundantly clear that they did turn a profit.”

These obscenely large taxpayer-funded bailouts are not merely reprehensible for being conducted secretly; they are reprehensible for having deceived taxpayers, dollar-holders, investors and all other individuals who deserve honest and transparent financial markets.

Why gold

December 15, 2010 Leave a comment

Simple, practical arguments for a return to the gold standard appear below.  I’ve tried to explain it and no one I know understands or agrees with me.  So I now leave it to others to explain.  Perhaps I’m too ‘theoretical’ in my approach.

Keynesianism has reached its natural extreme. The floating-currency status quo, in place since 1971, is becoming more and more intolerable. Before too long, the soft money fanatics will give way in disgrace, and the hard money traditionalists will begin to get the respect they deserve. We are already on the path to a new gold standard.

At this point, I ask myself: what is the biggest barrier between us today and that happy conclusion? What is the limiting factor? Is it the criminal instincts of today’s politicians? The cow-like acquiescence of the masses? The immense gains still being enjoyed by the bankster class? The endless prevarication of academia’s high priests of Keynesianism? The sycophantic parroting of the establishment spin by the mainstream media?

All of these are important factors. But they are not the most important factor.

The biggest barrier today is – us! The gold standard advocates themselves.

Their motives are pure and their ideals are high. But can they deliver the goods? Do they have the practical, technical knowledge that would allow them to build a world monetary system that could last for a thousand years, and could be implemented with no disruption?

Unfortunately, the answer is “no.” This condition can be remedied. However, it had better be remedied quick, because we don’t have that much time left.

If you had twenty minutes with Barack Obama, Angela Merkel, or Hu Jintao – we will assume they know little about monetary economics – and were asked to explain the basic tenets of a gold standard system, what would you say? Here is what I would say.

Tenet #1: Stable Money is superior to Unstable Money. “Stable Money” is money that is stable in value. Capitalist economies work best with conditions of stable money. “Discretionary” monetary policy doesn’t really solve any problems, and actually causes new ones.

Tenet #2: Gold is stable in value. Unlike other commodities, gold does not go up and down in value. For this reason, it is the premier monetary commodity, and has been for literally thousands of years. Although it is a bit of a stretch to assume that gold is perfectly unchanging in value, nevertheless, after centuries of experience, we have established that it is sufficiently stable in value to serve its purpose as a monetary benchmark. Also, gold is a better measure of stable value than any other available reference or statistical concoction.

Tenet #3: Therefore, if your currency’s value is pegged to gold, that currency will be as stable as gold. A gold-value peg is the best means to accomplish our goal of stable currency value. For the last 500 years, every government that has wished to implement a stable-currency policy has used some variant of a gold standard. It is proven, it works, and there is no need to invent another, inferior solution.

Tenet #4: A token currency, whether coins or notes, can be pegged to gold via the adjustment of supply. “Supply” is technically known as “base money,” which consists of notes, coins, and bank reserves. If the currency’s value sags below its gold peg, then supply is reduced. If the currency’s value is higher than its gold peg, supply is increased. No gold bullion is needed to maintain this peg – only a mechanism to increase and decrease the supply of base money. Central banks accomplish this today by buying and selling government bonds in “unsterilized” transactions. This is effectively the same as currency board systems in use today.

Tenet #5: A “lender of last resort” can be provided within the context of a gold standard. The original “lender of last resort,” or what we today call a central bank, was the Bank of England during the 19th century. The Bank of England was also the world’s premier champion of the gold standard. The Federal Reserve was originally constituted in 1913 to serve as a “lender of last resort” within the context of a gold standard system, and did so for 58 years until 1971. Central banks’ original purpose was perverted during the 20th century due to the rise of Keynesian soft-money ideology, causing them to come into conflict with the proper operation of a gold standard system.

These tenets probably seem familiar, and, except perhaps for the last one, not very controversial. However, in my view, today’s gold standard advocates have not properly internalized and mastered these core concepts. I suggest that they do so as quickly as possible.

When people who are unfamiliar with monetary economics listen to the speech and arguments of today’s gold standard advocates, I think they get the impression that the gold standard advocates have a tendency towards ideology, and a rather poor grasp of practical issues. They might not be able to explain why, but for some reason, it seems like the gold-standard advocates don’t have all their ducks in a row.

There’s a simple reason for this: it’s true! However, once the gold standard advocates expand their understanding and master the core concepts, this quality would also become apparent in their speech. The lay observer would have a different impression – that the gold standard advocates have a viable alternative, and are able to deliver on their promises with complete expertise and understanding.

We need a small group – perhaps twenty people, in the English-speaking world – who have achieved this level of mastery. We fall somewhat short of that today, but this problem is easy to remedy.

It’s hard to change the world. But, it is not too hard to change yourself. Start with this, and the rest will follow.