Archive for November, 2011

Exponential Growth in Debt is Madness

November 30, 2011 Leave a comment

Like I’ve been saying for 10 years…


Nice. Someone else ‘gets it’

November 27, 2011 Leave a comment

From the mainstream Telegraph

What the economy is suffering from is not an insufficiency of overweening, fussy, bureaucratic initiatives that inevitably unleash an avalanche of unintended consequences, but a lack of cash in the hands of people who might spend it in ways that would actually create wealth and stimulate (in the proper sense of the word) economic growth.

How refreshing that someone else ‘gets it’.

This is all you need to know about the Fed

November 24, 2011 Leave a comment

From the NY Times:

The case against the New York Fed, a private corporation, was brought in Federal District Court for the Southern District of New York.

Categories: Miscellaneous Musings

When counterfeiting is legal

November 23, 2011 Leave a comment

From Eric Fry at Daily Reckoning:

If I told you that I had $1.6 trillion on deposit at a local bank, you’d think I was not merely a member of the “1%,” but a member of the “1%” of the “1%.” (Can’t you just imagine the bitter jealousy the other 99% of the 1% would feel?)

But if I then mentioned that — oh by the way — I also owed $1.6 trillion to a bunch of people, you’d realize that I probably belonged to the lowest cohorts of the 99%, rather than the very highest echelon of the 1%. In other words, you’d realize that I wasn’t über-rich; but über-poor.

But if I then told you, “Hey, don’t pity me. I can print as much money as I want. In fact, all of the $1.6 trillion I have in the bank is money I printed for myself.”

At that point, you wouldn’t know whether I belong to the 1% or the 99%, but you’d be pretty sure that I belonged in jail. And you’d be right…until you realized that even though counterfeiting is always criminal, it is not always illegal.

When the counterfeiters wear pinstriped suits, hold advanced degrees from Ivy League institutions, draw government paychecks and conduct their counterfeiting operations in government-sanctioned facilities like the Philadelphia mint, counterfeiting is not merely legal, it is financially sophisticated…or so we’re told.

The process is called “quantitative easing” (QE)…and it is not new news. Almost every investor on the planet has heard of this process by now and understands — more or less — what it is. It is counterfeiting, more or less. The Federal Reserve prints dollars and uses those dollars to buy mortgage-backed securities and/or Treasury bonds. At last count, the Fed owned more than $1.6 trillion worth of Treasurys.

Since late 2008, the Federal Reserve has been buying mortgage-backed securities and Treasuries with dollars it prints expressly for this purpose. Although the numbers are a bit murky, the Fed admits to having purchased at least $1.2 trillion worth of bonds under its publicly announced QE programs. Somewhat inexplicably, however, the Fed’s balance sheet has expanded by $2.2 trillion during the three-year QE operations, as this chart from the Cleveland Fed’s website clearly shows.

So is it $1.2 trillion or $2.2 trillion? Who cares? What’s an extra trillion dollars here or there?

Despite this overt and well-publicized counterfeiting operation, the Federal Reserve still manages to retain a semblance of legitimacy. Even more mystifyingly, the US dollar still manages to retain some semblance of strength and respectability.

For example, the dollar has not lost any value relative to the euro during the last three years. But that’s probably only because the dollar and the euro are both losing value at about the same pace. When compared to gold or most other non-governmental forms of money, the dollar has indeed been losing value during the last three years…lots of value.

Nevertheless, there is no palpable “dollar crisis,” like there is a very palpable euro crisis. But give it time, dear reader. The chart below presents a trend that should be worrisome to everyone who expects the dollar to hold its value over the long term.

US Fed Treasury Holdings vs. Chinese Treasury Holdings

“Over the past year,” reports, “as the Federal Reserve massively increased its holdings of US Treasury securities — and entities in China marginally decreased theirs — the Fed surpassed the Chinese as the top owner of publicly held US government debt…”

Thanks to quantitative easing, the Fed’s holdings of Treasury securities have soared to $1.66 trillion, which is well above the $1.15 trillion of Treasurys held by the Chinese.

“At the end of September 2010,” CNSNews explains, “the Chinese owned about $340 billion more in US Treasury securities than the Fed owned at that time. But by the end of September 2011, the Fed owned about $517 billion more in US Treasury securities than the Chinese owned.”

The whole-hog purchases of Treasurys by the Fed do not necessarily portend any impending doom for the US dollar, but they do at least suggest eventual doom. Large-scale counterfeiting does not enhance a currency’s value.

The Fed’s Treasury purchases may look and feel identical to China’s Treasury purchases…just like a counterfeit dollar may look and feel like the real thing. But they could not be more different.

The Chinese buy Treasuries with dollars they earn from commerce. The Fed buys Treasurys with dollars they create from paper and ink. Over the long term, commerce is a much more valuable source of capital than a printing press. Commerce, generally speaking, nurtures wealth creation. A printing press, generally speaking, nurtures wealth destruction.

Nevertheless, the temptation to print money is absolutely irresistible for a government in distress. It is so easy…and so “painless.” Ben Bernanke conjured $1.2 trillion (at least) into existence during the last three years without even breaking a sweat. Contrast that process with the “Super Committee’s” strenuous failure to raise $1.2 trillion of deficit reductions through the difficult, old-fashion processes of spending cuts and tax increases.

Counterfeiting is easier than austerity…just like fraud is easier than punching a time-clock. But since the Chairmen of the Federal Reserve and the other dirigistes of the US economy have little appetite for the austerity and time-clock-punching that builds national wealth, they have embraced expedient short-cuts to “prosperity.”

Categories: Miscellaneous Musings

Real austerity is NOT a death spiral

November 23, 2011 Leave a comment

This quote from Professor Bland:

We know austerity is a death spiral. But the lesson from Japan seems to be (to me anyway) that boosting spending isn’t the panacea many think. Clearing the decks of the bad investments in housing and the debt tied to it is a start, but then, what do we need to funnel resources into? What has been underinvested in? Those sectors need to be our focus next.

The debt jubilee would be the start to setting this all in motion. But are we ready to reconcile yet as a nation? I don’t think so. The negativity in social mood makes me think we’re still a ways off.

If this comes off sounding pensive, so be it. I just don’t see a solution that is powerful, fast-acting and effective. There’s no Maalox or Tums for this debt heartburn, or doctor’s prescription. Not until we at least figure out how to clear the decks of the malinvested wreckage that came before.

Not only is this guy an idiot who keeps qualifying and hesitating until he says nothing at all.  And he’s wrong on what he does say.

“Austerity” simply means lazy public serpents have to get off their butts and get real jobs.  Admittedly that’s difficult for many of them.  Unemployment will definitely rise.   Some bankers will also be unemployed or become fraudulent used car dealers, promising cars for immediate delivery when they have none – or promise them to multiple buyers.  Old habits no doubt die hard.


But the economy will be more stable and better off long term.

Yes, we need to clean up the financial sector.  Yes, this will cause pain.  There is no other way.  Resources need to be reallocated.  It will take time.  It will result in a recession/depression.  But people with savings and cash will benefit.  And those in debt will die.

There are homeless people everywhere, right now.  Good people.  Sad.

Let the public serpents and the bankers go homeless and the middle class survive.

If that’s austerity, bring it on.

Sage advice from ex-Australian who fled to South America

November 22, 2011 Leave a comment

From Aussie Joel Bowman:

11/21/11Buenos Aires, Argentina –

What if the “best of the States” is always on its way to becoming “the worst of States”?

It is true, of course, that certain forms of Statism are more overtly aggressive than others (though all seek to administer the ultimate punishment for political apostasy, one way or another). Some governments exercise control over their citizenry in subtle ways, like granting them the “privilege” of carrying an identifying document when said citizen chooses to exercise his natural right to travel freely.

Other regimes, however, are not so subtle in their use of coercion. They stone women to death for baring an inch of skin, force those of a certain race into internment camps, and/or execute political opponents at will…among many other atrocities.

This type of the State, according to most folks, constitutes the worst of all evils.

But what if the State, itself, is the “worst of all evils?” What if the State is genetically predisposed to malevolent mutations? What if even the “best State” – the one that begins its life, nobly, as a constitutionally constrained republic, dedicated to protecting and promoting “life, liberty and justice for all” – is really, at all times, on the road toward the most evil, militaristic expression possible?

What if force can only beget more force, in other words, coercion only more and greater coercion?

And, more importantly, where does that leave us, goose-stepping down the road to perdition?

Today, in the most powerful nation the planet has ever seen – a mighty behemoth with military arsenal capable of exterminating the entire human population many, many times over – more than 45 million of its own citizens live on food stamps, barely able to get by. That many again are supported directly by the State, that grand experiment we’ve devoted six thousand years to testing, but which we still don’t quite understand.

And how is that experiment, however noble its genesis, working out? Well, take a look around.

I’d like to cite just a few troublesome data points that appeared as part of a much longer list in a recent Daily Reckoning.

  • According to the US Census Bureau, the percentage of “very poor” rose in 300 out of the 360 largest metropolitan areas during 2010.
  • Last year, 2.6 million more Americans descended into poverty. That was the largest increase yet seen since the US government began keeping such statistics on back in 1959.
  • Today, 15.1% of all Americans are living in poverty.
  • The poverty rate for children living in the United States increased to 22% in 2010.
  • There are 314 counties in the United States where at least 30% of the children are facing food insecurity.
  • In Washington DC, the “child food insecurity rate” is 32.3%.
  • It is being projected that approximately 50 percent of all US children will be on food stamps at some point in their lives before they reach the age of 18.
  • And the situation is worsening at the other end of the demographic chart, too. One out of every six elderly Americans now lives below the federal poverty line.
  • More than 50 million Americans are now on Medicaid. Back in 1965, only one out of every 50 Americans was on Medicaid. Today, approximately one out of every 6 Americans is on Medicaid.
  • One out of every six Americans is now enrolled in at least one government anti-poverty program.
  • The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.

The Old Experiment is faltering, even as we sit here today, surrounded by the picturesque landscape of “Doug’s Gulch.”

I suspect it is for this very reason many of you are here today. You see the writing on the wall.

So, where to from here? Can we discount the State entirely?

There are, of course, those who argue that the solution rests in going back to a gold standard, or back to the constitution.

What these people are really saying is that they want to start the Old Experiment over, an experiment that, demonstrably, has not only failed, but will end in absolute disaster for those who cling to its now baron promise of redemption.

We had a gold standard. Did that stop the government from abandoning it the moment it needed to inflate the currency to pay for its military misadventures abroad?

We had a Constitution. Did that stop the government from abandoning it, from circumventing the restrictions therein? Where is operation “Shock and Awe” in the Constitution? How about the authority to carry out programs like “universal medicine” or “cash for clunkers.” Where is the amendment that empowers the Treasury Secretary to send billions of dollars to his former Wall Street employer?

Do presidents consult their worn, dog-eared copy of the Constitution when they decide to march off to war or to effectively nationalize this or that sector of the economy?

Of course not.

Murray Rothbard, the man who coined the phrase “anarcho-capitalist,” perhaps summed it up best in his work, For a New Liberty, when he wrote:

“The idea of a strictly limited constitutional State was a noble experiment that failed, even under the most favorable and propitious circumstances.” (And remember, this is from a book published back in 1973, almost forty years ago. Even then, the course of events was becoming obvious, if only to a few.)

“If it failed then,” he continues, “why should a similar experiment fare any better now? No, it is the conservative laissez-fairist, the man who puts all the guns and all the decision-making power into the hands of the central government and then says, ‘Limit yourself’; it is he who is truly the impractical utopian.”

Meanwhile, back in impractical utopia

Protesters are arrested by the hundreds in New York and elsewhere across the country.

Lemonade stands and bake sales across the nation are being shuttered and reams of rules and nosey-by-nature regulations are strangling small and medium businesses (and, along with them, any hope of genuine recovery).

You’re subject to indecent searches – “gate rapes” – at the airports and even now, I hear, on State highways and train systems.

You are guilty until proven innocent. Due process be damned.

The question, then, is how do we escape or avoid the State, this most vicious and insidious enemy to freedom?

How do we begin the New Experiment?

Well, first we must recognize that, like the monster under our beds when we’re children, the State only exists to the extent that we permit it to.

Without our continued support, both financially, through failing to protect our private property from expropriation at the hands of the State, the IRS, and politically, through our validating participation at the ballot box, the State ceases to exist.

It NEEDS us.

And it is up to us, therefore, to starve the monster, to take our own freedom back from the jaws of the beast.

How best to do this?

However tempting it might be to simply “lynch the bastards” (and, for the bloodthirsty among you, that might be coming anyway) we must realize that force and violence is not the answer, or at least not the best answer. You don’t fight fire with fire, unless you want an inferno.

In the same way, there’s little point in fighting violence with violence. For one thing, it’s stupid. It’s a no-win game. Violence is the State’s specialty. They have the guns, the jails, the cops, the first responders, the TSA goons, the DEA, SEC, FDA, EPA, IRS and all the rest.

They have cornered the sociopath market, in other words.

Fortunately, we can do much better than that. We can do better than to play right into their clenched fists.

Revolution of the kind brewing amid the Occupy Wall Street camp and the Tea Party movement is probably not the answer either.

What kind of freedom are we seeking if it may be only be granted by those who appoint themselves our masters? Are we really going to prostrate ourselves on the steps of Capitol Hill or in the foyer of Goldman Sachs like some servile zombie and beg for freedom? That kind of subservience only serves to strengthen and validate the perverse, master slave notion they want to perpetuate.

Actually, revolution, in any form, is not the answer at all. We’ve tried that. We try it when any State begins to falter…then we go and erect another State to replace it.

By definition, revolution simply means returning to the beginning, to the point of origin. No wonder they say history repeats itself, or that it at least rhymes…We’ve been running and re-running the same experiment over and over again, always expecting a different result – the very definition of insanity.

You’d think that, after 6,000 years – and a body count in the hundreds of millions – we’d give up on the State and try something different.

We don’t need to revolve, in other words, we need to evolve.

But that takes courage. It’s not easy to clap when everyone is booing. It’s not easy to stand up when everyone around you seems content to live their lives on their knees.

The good news is that the State is already falling apart. The bad news is that it will likely try to take you with it. That has been, and continues to be, the glaring lesson of history.

In Europe and the United States, the people are beginning to see that their emperors – and their empires – have no clothes. The welfare/warfare State is broke, broken and fast running out of options.

But these people, these occupiers and tea partiers, by and large, are not going after the State…they are going after each other! They are demanding more State power, not less.

As such, you ought to expect higher taxes. Expect capital controls. Expect more and greater restrictions on the freedom of your movement.

And expect riots, as we are already seeing, of growing intensity.

It is not an exaggeration to say your window of opportunity is already closing. And one cannot stress that point enough.

But there is a silver lining to this dark, statist cloud. And it comes, in large part, with the power of communication. It comes with the spread of ideas – ideas of freedom and of ways to achieve it.

In the same way that Gutenberg’s printing press of the late 1400s acted as an “agent of change” in Europe, the Internet is today providing opportunities for the dissemination of ideas like we have never before seen.

Love them or hate them, Internet-based, decentralized organizations like WikiLeaks and Anonymous are operating more and more brazenly by the day, exposing the lies and corruption of the State for millions to see.

The idea, again, is not to overwhelm with force and violence, but to undermine with truth and ideas.

It is true that the State has the guns, but we have the information and, with the advent of the Internet, the means to distribute it.

We live in an age where a child in sub-Saharan Africa can access information published on the other side of the world almost instantaneously…where groups of likeminded individuals can coordinate and share ideas in real time across artificial borders erected by warring, small-minded politicians, where young entrepreneurs in South America can do business with start-up companies across the Pacific, trading cyber currencies well beyond the reach of their respective governments, thereby denying these criminal organizations the financial lifeblood they need to exist.

Now, like perhaps no other time in history, we have a chance to spread the word of freedom quicker and further than any time before.

And freedom, you’ll notice by looking around the room, is a catchy tune. Once you’ve got that idea in your head, you can’t shake it. And the world begins to look very different indeed.

On a personal level then, what can you do, now…today.

You should begin, immediately, diversifying yourself across borders. You should open a bank account in a foreign country. You should do that immediately. Uruguay, sometimes know as the “Switzerland of South America,” is a reasonably good option that requires little paperwork. You can set up an account there in a few hours. Maybe that’s not ideal for your own circumstances but, in any case, you should look into moving funds abroad quickly.

You should also consider working towards obtaining a second passport.

And obviously, you should be holding a significant portion of your portfolio in precious metals – real money, in other words. They should be hard to get at. Not for you, but for anyone else, including, especially, anyone brandishing a government badge of some description.

How much? That depends on your individual circumstances, but I’m inclined to agree with Byron King, who writes Outstanding Investments, when he says between 15-20% of your portfolio in precious metals, more if your individual circumstances warrant it.

I’d also be looking at foreign real estate, mostly because it’s difficult, if not impossible, for your government to get its hands on. Plus, it provides you with a “Plan B” if things really go awry…and I think there’s a better-than-average chance they will, both in Europe and in the U.S.

Other than that, you want some of what my friend and colleague, Chris Mayer, calls “dry powder.” That’s cash on the sidelines – hedged across multiple currencies – that you can liquidate quickly to take advantage of deep value, crisis investments. And I do believe there will be many such opportunities for geographically nimble investors in the next 3-5 years.

And finally, a kind of quirky idea that I think is worth mentioning.

Get some mates.

I don’t mean people you know from work or second cousins…I mean people who are similarly, independently minded, who are curious and who ask questions, who are not prone to imbibe the bread and circus sideshows they see on television.

Get these people together and begin an informal meeting group where you can share ideas. They might be start up businesses ideas, investment opportunities or just good book recommendations. Doesn’t matter. Find some kindred spirits. You’ll see they are an invaluable resource during times of crisis.

I’m part of such a group in Buenos Aires, founded, in large part, at Doug’s suggestion and introductions.

We have doctors, engineers, software technicians, artists, writers, energy consultants, entrepreneurs and a whole host of talented people all sharing ideas and trying to figure ways to live freer, better lives.

You can do this at home, in your local communities, online, here in La Estancia, wherever…but I can’t recommend the activity highly enough.

It’s sad to have to say that…but…

In a world where violence is the norm, peaceful assembly and voluntarism have become extremist positions. I encourage you, in this respect, to become an extremist.

In a world ruled by guns and brute force, ideas of liberty and freedom are indeed our greatest tools. It’s time we started sharing them.

Thank you.

Joel Bowman,


November 10, 2011 Leave a comment

“I plan to get my student debt up to a level that forces the IMF to bail me out.”

Categories: Miscellaneous Musings