Monday, December 20, 2010

Unintended Consequences

I personally don't believe the country will see hyperinflation. I see deflation. We have 53 trillion in total debt in the system both public and private. 100 trillion in unfunded liabilities which will be reduced drastically(Medicare/Social Security). There's actually over 600 trillion in derivative contracts in the system. Most derivatives are on the books of the international banks and brokerage houses. The derivative contracts need ripped up or a clearing house that has transparency needs to be created to reserve for losses. JP Morgan Chase has over 80 trillion in derivative contracts which is greater than the world's collective GDP estimated at 60 trillion. Anytime you have the supply of credit decreasing faster than the supply of money is growing, the net result is deflation.

Quote of The Day

Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.
— US Treasury Secretary Andrew Mellon to Hoover, 1931

Thursday, December 9, 2010

Saturday, December 4, 2010

Interesting Statistics

On August 15th 1971,President Richard Nixon closed the "gold window" which allowed foriegn holders of United States dollars to redeem their holdings for physical gold. If you look at any money supply chart from 1970 to the present the line is parabolic. I hate to be an alarmist because life will always moves forward one day at a time. I have to wonder if the United States dollar is a good store of value? The international investment community has been questioning the United States dollar as the world's reserve currency and they are taking action by moving out of this fiat currency.

Now to the interesting statistics. In the mid 1970's the top 1% of the population made 8% of the national income. In the mid 1980's the top 1% of the population made 15% of the national income. In the mid 1990's the top 1% of the population made 19% of the national income. In the mid 2000's the top 1% of the population made 23.5% of the national income which is more than the bottom 50%. If that statistic isn't alarming enough, the top one tenth of 1% earns 12 cents of every dollar earned. The United States of America was a great country when the wealth was distributed broadly and big corporations made their products domestically not in China. I hope this trend is reversed. The country needs tariffs on imports, plus balanced budgets, plus a dollar back by gold and other real commodities, plus taxes need to be kept low, this will equal a better standard of living for the masses.

Has the case been made to buy gold? The case for gold is made if you don't think the future will have the 3 P's. The experts say you shouldn't own gold during times of peace, prosperity, and price stability, you decide what you see today and in the future?

Friday, December 3, 2010

Niall Ferguson: U.S. Empire in Decline, on Collision Course with China

The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money.
"People have predicted the end of America in the past and been wrong," Ferguson concedes. "But let's face it: If you're trying to borrow $9 trillion to save your financial system...and already half your public debt held by foreigners, it's not really the conduct of rising empires, is it?"

Given its massive deficits and overseas military adventures, America today is similar to the Spanish Empire in the 17th century and Britain's in the 20th, he says. "Excessive debt is usually a predictor of subsequent trouble."

Putting a finer point on it, Ferguson says America today is comparable to Britain circa 1900: a dominant empire underestimating the rise of a new power. In Britain's case back then it was Germany; in America's case today, it's China.

"When China's economy is equal in size to that of the U.S., which could come as early as means China becomes not only a major economic competitor - it's that already, it then becomes a diplomatic competitor and a military competitor," the history professor declares.

The most obvious sign of this is China's major naval construction program, featuring next generation submarines and up to three aircraft carriers, Ferguson says. "There's no other way of interpreting this than as a challenge to the hegemony of the U.S. in the Asia-Pacific region."

As to analysts like Stratfor's George Friedman, who downplay China's naval ambitions, Ferguson notes British experts - including Winston Churchill - were similarly complacent about Germany at the dawn of the 20th century.

"I'm not predicting World War III but we have to recognize...China is becoming more assertive, a rival not a partner," he says, adding that China's navy doesn't have to be as large as America's to pose a problem. "They don't have to have an equally large navy, just big enough to pose a strategic threat [and] cause trouble" for the U.S. Navy.

Thursday, December 2, 2010

It's Just That Simple Folks

We prop up this system of debt, taxation, and inflation. Eliminate the Federal Reserve and punch back against the financial terrorists we bank with. Move your funds to your local banks.

Saturday, October 16, 2010

QE2? What did QE1 Accomplish

QE1 or Quantitative Easing one did nothing to decrease unemployment. QE1 boosted the stock market roughly 80% if you look at the S&P 500 averages going from 666 to 1220. The S&P 500 is a broad measure of the stock market because you have 500 of the biggest companies which comprise the average. The S&P 500 topped out at 1,576 in October 2007 and would still have to go up another 30% to make a new high. QE2 would give the stock market another boost before it's eventual fall to lows below the October 2009 low of 666. QE2 might even send Apple to new highs, maybe even $400 a share or more. QE2 is an extend and pretend practice which is really just electronic money printing. Deflation is baked into the cake. Debt can only be repaid or defaulted on. We can just hope that we don't have a full scale US dollar collapse. I don't think a dollar collapse will happen. I do feel the S&P 500 will go below 500 before bottoming out.

Saturday, September 18, 2010

Up Next...Bear and Bull Option Spreads

Another City Same Reason, Fort Worth, Texas Insolvent

The Star-Telegram reports Fort Worth pension bubble will blow up in our faces.

To understand why Fort Worth's pension system is such a financial disaster, look at one month's list of recent retirements.

In January, a 53-year-old policeman retired with an annual benefit of $90,312 for life, plus $256,000 in a lump sum payment. Another policeman, 57, got almost $74,000 annually, plus $313,000 in a lump sum. A 54-year-old firefighter got an annual pension of $90,130, plus $178,000 in cash.

With an average age of 50 for the police and 54 for the firemen in this group, they're likely to spend more years in retirement than they worked. An analysis for the City Council, presented in July, projected that the retiring policemen would collect $3.1 million in pension pay.

You don't have to be an actuary to know that this pension plan will end badly. The technical phrase is "trending toward insolvency."

Except that the city is on the hook for all the promised benefits. Taxpayers will have to pony up hefty contributions for years, even generations, and the city may have to cut services to afford it. The pension for city employees is currently projected to pay out $432 million more than it brings in over the next 30 years.

And that's the optimistic scenario. If investment returns average 7 percent, rather than the dreamy 8.5 percent in the assumptions, the unfunded liability could approach $1 billion.

The pension will require $60 million in city funds next year, and it's already a drag on a strapped city budget that has to close swimming pools and libraries and impose furloughs. Every year, the pension hole grows, because the benefits keep piling up.

"This is the elephant in the room," Mayor Mike Moncrief told the council in late July. "Not only for this budget, but for all the budgets to come."

The city manager appointed an ad hoc committee to look at the pension problem. It had a few businessmen, but most were employees -- a mix of police, fire and general workers. Imagine they had a little conflict?

They recommended that the city contribute an additional 6 percent of employee pay into the plan

Just like the City of Vallejo , California, police and fire were costing the taxpayers too much. City went bankrupt and the issues were resolved in court. Just like social security these benefits are just promises to pay and we all know promises can be broken. The argument is always the same. We will cut services not have a broad based pay freeze or cut and allow everyone to keep their jobs and do what's best for the community. I know this idea is collectivist but the other option is a volunteer police and fire department which I fully support. This country needs to stop sending our jobs outside the country and we need to produce here at home. These big time CEOs promote synergies and economies of scale at whose expense? My answer in the common man and they pay themselves lavish bonuses and live in gated communities so they never see the common man's struggle. Really these rich people don't care about anyone but themselves.

Wednesday, September 1, 2010


I thought this video series was interesting on how the press creates false realities, or at least they try to. Google Operation Mockingbird which started I think in the early 1960's. This video series covers a lot more but you should get my point. Very few people watch this sort of lecture they are too consumed with their jobs, family, and pop culture. The USA's intelligence community has always tried these techniques in other countries and on their own home soil. Very interesting to hear this from a Soviet Union defector. The media keeps preaching recovery except we never got out of the first downturn. The manipulation of the financial markets gives the illusion that the economy has gotten better but not for the average person on main street. Once you study history you see that all financial downturns and depressions are caused by the banksters.

Friday, August 20, 2010

Hindenburg Omen...We'll Wait and See

So yesterday, depending on exactly who's numbers you use, we got either a confirmed Hindenburg observation or a "rounded" one.

When I checked it earlier in the evening, it was clearly "on." The criteria, for those who don't follow it closely, are:

•At least 2.2% of the issues traded on the NYSE in that day must reach new 52 week highs and new 52 week lows. This currently stands at either 69 or 70, depending on the day (it rounds slightly.)

•There cannot be more than twice the number of new lows in new highs. (It is ok for the new lows number to be more than double the new highs, but not the other way around.)

•The 10 week moving average must be positive. It is, right up until today (when the week closes), at which point it won't be any more. (A weekly moving average doesn't change it's signal until the week closes - this has nailed some people with one of my other longer-term signals, the 13/34 WEMA, in the last couple weeks.)

•The McClellan Oscillator must be negative on that day.
If all three occur, we're said to have a Hindenburg Observation. Two or more within 40 days trigger a confirmed Hindenburg Omen.

Note that the Hindenburg is not a warning of an imminent crash, even though every market crash in the modern era has been preceded by one.

However, the probability of a greater than 5% move to the downside (from the date of the confirmation) exceeds 70% within the next 120 days (four months); the odds of a panic selloff (defined as a rapid 10% or greater decline) is about 40%, and the odds of a crash (defined as a 20% or greater rapid decline) is approximately 20%.

There are, however, a couple of flies in the ointment. The first is that the timing of the panic is highly-uncertain. It has occurred as soon as the next day and as far out as four months in the future. In the present case this puts the predicted event anywhere between now and roughly Christmas.

Second, note that while a confirmed Omen has only failed to predict a significant move about 10% of the time, crashes are still relatively rare - that is, it's still about four out of five times that the market does not crash.

For this reason it is best called an "Omen" rather than a "marker" or "predictor."

Then again, when you see a green sky most of the time your home is not destroyed by a tornado. However, most tornadoes are immediately preceded by a green sky.

Put another way, walking to the mailbox this afternoon to get your mail there is a tiny (1 in 100,000 or less) chance that you will be struck by lightning. This is an act you commit daily and think nothing of it.

But if someone was able to tell you that if you went today, there is a 20% chance you will struck dead by a "bolt from the blue", you might think about taking precautions - or waiting until tomorrow.

Thus, this signal tells us that the wise man walks in the market with his shields up for the next few months.

What that means to you will vary. For some people, "shields up" means buying some downside protection - PUTs, for example - as insurance against their portfolio (although yesterday early was the time to be doing that with the VIX up big yesterday.) For others, having ridden the market up from 666 and not wishing to see if Beelzebub is coming to visit once again, it is time to sell. For still others who are extremely aggressive it may be time to get significantly short the market.

Just remember, before doing the short the phone book deal, that there's anywhere from a three in four to four in five chance that a crash will not happen.

But since a market crash is such a life-altering event if you are long the market when it occurs, it is my considered opinion that being unguarded against such a possibility is exceedingly unwise.

This is amplified by the general technical posture. We have a high "fractal" correlation with the last crash in 2008 today (which I've posted a couple of short Youtube videos on) and there is a pattern known as a "head and shoulders top" that also completed yesterday:

That targets 1010. The bad news is that if the target is reached it will confirm the following:

That latter chart is one I've been showing in the nightly videos now for over a month, when it first came into play. I left the price lines and targets alone (so as to deflect criticism that I'm "editing things after the fact".) While the bounce that I expected from under the neckline was longer and stronger than expected, the overhead resistance "warning level" stopped the bounce dead, exactly as I pointed out it should when the pattern first appeared.

This larger pattern is confirmed and targets SPX 880, which by most people's definition will come dangerously close to being a "crash", approaching 20% down from here.

I won't show you the last and most-ominous pattern - but if you pull up a monthly 20 year chart you should see it, given the previous two. No, 880 won't confirm that - we will have to violate the March 2009 lows to confirm that pattern. But if we do...... well, you do the math.

Monday, July 19, 2010

Bankrupt Borrowing From Bankrupt

Bankrupt countries borrowing from other bankrupt countries in the euro zone. The whole euro zone is insolvent and the solution is to layer more debt on top of the already unpayable current debt. I read the book
Confessions of an Economic Hitman
by John Perkins and he discusses how the IMF and the World Bank got third world countries like Ecuador and Indonesia in austerity type situations. John Perkins worked for a company called Chas T. Main and they would go into these countries and sell IMF and World Bank loans to develop infrastructure. The infrastructure was for power plants and water treatment plants along with the pipelines. John Perkins would sell pie in the sky power utilization rates which would drive economic activity to pay back the loans. Of course these countries wouldn't be able to pay and the loans would be restructured at even more egregious terms. Eventually the country's natural resources like oil would pay back the loans. If the country's leadership wouldn't comply then the US military would be called and the CIA would organize a coup d'etat or a presidential assassinations. John Perkins felt compelled to write this book after 911. Where does the loan money come from? It comes from the IMF and World bank and gives the appearance of a solution. The banks caused the problem by issuing too many bad loans to uncreditworthy people. The countries and the people react to the austerity measures and the solution is to issue more debt at longer terms. Where's the failure when you take bad risks that every other person has to realize when the credit card is maxed out? Mayer Amscel Rothchild said "give me the power to issue a nations currency and I care not who makes the laws." The politicians will be beholden to the banksters and the people will get the short end of the stick.

Wednesday, July 7, 2010

Thursday, July 1, 2010

The Socialist Sweedish Model is Capitalist

Reason TV is a great youtube channel. Bottom line is that free market capitalism works. Make sure not to confuse fascism, crony capitalism, and corporatism as the real deal. The political leaders will say that capitalism failed. Obviously Sweeden is doing well because of their free market based economy. In the United States we have government subsidies and other corporate welfare programs for the rich. This is not capitalism.

Tuesday, June 29, 2010

1975 Robert Welch of John Birch Society

I can't disagree with any of his major points based on my studies. I wonder if I'm related to the John Birch of which this society bears his name?

Saturday, June 26, 2010

Milton on Medicine

Global Financial Crisis for Dummies: Why the Abandonment of the Gold Standard is Responsible for the World's Sovereign Debt Crises

The below article is an extremely well written, thoughtful and lucid article written by Hugo Salinas Price, a Mexican businessman that has argued for the necessity of Mexico to return silver to a monetary status as well as returning to the use of a gold standard. I am submitting this important piece for those that have been re-educated at the world's top economic schools and consequently disseminate thoughtless propaganda regarding the reasons for massive unemployment worldwide and today's global sovereign debt crises. I am also posting this article for the unthinkers out there that fulfill the role of the "loyal dutiful wife" (this applies to both men and women out there) and always believe only what they are instructed to believe by bankers and governments. I consider the below a MUST READ for anyone that wishes to avoid wealth destruction within the next five years as the fiat currency game of musical chairs will undoubtedly result in the world's citizens left as the odd man out, standing without a chair, when the music ends.

The Gold Standard: Generator and Protector of Jobs, by Hugo Salinas Price

The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years; Mexico, even with a lower level of industrialization than the developed countries, has also lost jobs due to the closing of industries; in recent years, the creation of new jobs in productive activities has been anemic at best.

The world’s financial press, in which leading economists and analysts publish their work, never examines the relationship between the abandonment of the gold standard and unemployment, de-industrialization, and the huge chronic export deficits of the Western world powers. Might it be due to ignorance? We are reluctant to think so, given that the articles appearing in the world’s leading financial publications are written by quite intelligent analysts. Rather, in our opinion, it is an act of self-censorship to avoid incurring the displeasure of the important financial and geopolitical interests that are behind the financial press.

In this article we discuss the relationship between loss of the gold standard and the present financial chaos, which is accompanied by severe “structural imbalances” between the historically dominant industrial powers and their new rivals in Asia.

World trade before 1971

From the end of World War II through the 1960s, all well-governed nations in the world sought to maintain a constant balance between their exports and imports. They all wanted to maintain a situation where they exported more than they imported, so that they could accumulate growing Treasury reserves of gold, or in its defect dollars, which, under the terms of the United States (US) promise in the Bretton Woods Agreements of 1944, could be redeemed by any Central Bank that requested gold in exchange for its dollars.

To be precise, we cannot fail to mention one exception. The exception to the rule was none other than the US. All well-governed countries sought to export more than they imported, except the US.

The US was not overly concerned with maintaining a balance between exports and imports, because – according to Bretton Woods – the US could pay its export deficits by the simple expedient of sending more dollars to pay its creditors. As the sole source of dollars, the US had a clear advantage over the rest of the world; they could pay their debts in (redeemable) dollars that they themselves printed.

Economists of the day warned of the danger of this practice, which resulted in a constant loss of American gold. From over 20,000 tons at the end of World War II, US gold reserves dropped year by year as certain countries, notably France, insisted on redeeming their dollars for gold at a rate of 35 dollars per ounce of gold. France incurred intense displeasure in Washington and New York due to its demands for gold in exchange for dollars; some analysts attribute the unrest in France in the spring of 1968 to covert operations by the US intelligence services, in a show of America’s disapproval of the behavior of France, led at the time by General Charles de Gaulle.

The US did nothing to slow the loss of gold. In the early months of 1971, Henry Hazlitt, a solid classical economist, predicted that the dollar would have to be devalued; he said it would be necessary to increase the number of dollars that would be needed to obtain an ounce of gold from the United States Treasury. Only months after his warning, the dam burst, and in August 1971 the US was forced to devalue its currency, because the amount of gold in its reserves had fallen to a dangerous level. (Today, many doubt that the US has the 8,000 tons of gold it claims to have in its vaults at Fort Knox and the US Military Academy at West Point, N.Y.)

What Henry Hazlitt never imagined was that instead of devaluing the currency – the recommendation of Paul Samuelson, Nobel Prize Winner in Economics, published the week before August 15, 1971 – President Nixon took the advice of Milton Friedman and declared that from that time forward the US would no longer redeem dollars held by the world’s central banks at any price. The US unilaterally violated the terms of Bretton Woods. In effect, it was actually financial bankruptcy.

Since then, all world trade – or most of it, as the euro, the pound sterling, and to a lesser extent the yen all compete with the dollar – is conducted using dollars that are nothing more than fiat money, fake money. Because all the world’s other currencies were bound to gold through the dollar, the immediate consequence was that simultaneously they also became fiat money, fake money with no backing.

Consequences of abandoning the gold standard

The consequences of that fateful day have overthrown all order and harmony in economic relations among the nations of the world, while facilitating and expediting the global expansion of credit because part of the dollars exported by the US ended up in the reserves of Central Banks around the world.

Countries began to accumulate dollars as the expansion of credit in the US advanced inexorably, now free of the restraint formerly imposed by Bretton Woods. The rest of the world was forced to accumulate dollars in reserves, because having insufficient dollar reserves, or having reserves that did not grow, or worse, having falling reserves, was a clear sign for monetary speculators to attack a country’s currency and destroy it with devaluation.

As the loss of gold ceased to be a limiting factor, the last restrictions on the expansion of credit were stripped away. A heavy flow of dollars to all parts of the world spurred the expansion of global credit, which did not stop until 2007. The international banking elite always strive to obtain greater profits and to that end always seek to expand credit. Starting in 1971, freed of the restraint of being required to pay international accounts in gold, or with dollars redeemable for gold, the constant unfettered creation of credit and still more credit ensued. It was boom time in the US.

The US, which paid the rest of the world with its own irredeemable dollars of no intrinsic value, lauded the adoption of “free trade” and “globalization”. The US could buy whatever it wanted, anywhere in the world, in any quantity, and at any price. Starting in the 1990s, its export deficits became alarming, but nothing was done to reduce them; on the contrary, they grew year by year.

Mexico, following the US example, joined NAFTA – the North American Free Trade Association. Down with import tariffs! Free trade with the world! The new vision offered the enthralling, seductive picture of a globalized world without borders, where everyone could buy and sell where they liked, with no limits. The 90’s were years of unbridled optimism for globalization!

Free Trade is unquestionably beneficial for humanity at large. It is good to be able to buy goods where they are cheapest; some countries enjoy conditions that favor them in production of certain things; each country should produce those things in which it has an advantage over other countries. Thus, the whole world can benefit from the good things each country has to offer. It is an appealing and sound doctrine, but… there is a crucial catch: the doctrine of Free Trade was conceived for a world where the sole means of payment was gold. When the doctrines of “Free Trade” and the “Comparative Advantages of Nations” were developed, the economists of the day could not imagine a world that did not use gold, but instead relied on a fiat money that could be created at will by a single country.

The “globalization” of the 1980s and 1990s and to date is based on the ideas of “Free Trade”. HOWEVER, IN THE ABSENCE OF THE GOLD STANDARD THAT EXISTED WHEN THE DOCTRINE WAS CONCEIVED, "GLOBALIZATION" HAD COMPLETELY DESTRUCTIVE RESULTS, which have caused the de-industrialization of the West and the rise to power of Asia. [JS Kim's Editorial Note: Again, though Western bankers are responsible for the downfall of economies in Europe and the US, they cleverly foster antagonism against China and its "strong yuan" policy as the reason for the downfall of Western economies though Western bankers are entirely to blame. This again is an example of the clever game of blaming foreigners that they use to distract people's attention away from the true culprits of today's crisis to tie up and waste people's energies against the false enemy of immigrants and foreigners. The Banksters' goal is to keep people's energies focused on the symptoms and to heap blame on undeserving parties to prevent people from understanding the cause of the symptoms.]

In the decades prior to 2007 a massive fleet of cargo ships was created, which sailed for the US and Europe – the West in general, Mexico included – bearing all kinds of inexpensive, quality products made in Asia. The flood was so great that local factories in the Western World were forced to move to Asia, to employ cheaper labor and continue to sell their products in the West.

My readers will know how many industries, large and small, have ceased to exist in the US and the West in general, because Chinese competition killed them. They will know as well how hard it is to find a product that can be produced at a profit in the developed countries. It is very difficult to find a niche for any product to be manufactured locally. The flight of factories to Asia to take advantage of lower wages caused unemployment where local factories were closed. For the same reason job creation is slow or non-existent.

A taxi driver in Barcelona told us: “Spain is a service economy. Industry is no longer our foundation. If tourists stop coming, we’ll die.” By the same token, it has been said of Greece: “It produces olive oil and tourism, and nothing more.” The US, industrial colossus of the post-war world, has been de-industrialized. Now, what are developed countries to do to create jobs? [JS Kim's Editorial Note: Again, the unemployment issue is another example of how politicians and bankers once again distract the people from their culpability in this matter by blaming the loss of jobs on immigrants when it is the BANKERS and their implementation of unsound money that has created the problem of massive unemployment around the world today. Kick all the immigrants out of all Western countries and all Western countries' job situations may improve temporarily, but the unemployment problem will rear its ugly head not long after, as long as we accept fiat currencies as the means of purchasing goods and services.]

Diagnosis of the evils of de-industrialization and unemployment

These evils appeared because gold was eliminated as a) a constraint on the expansion of credit and the creation of money, and b) the only form of payment of international debt.

Under the gold standard all players in international trade knew that it was only possible to sell to a country that sold something else in turn. It was not possible to buy from a country that did not buy in turn. Trade was naturally balanced by this restriction. The “structural imbalances” so commonplace today were unheard of.

For example, in 1900, Mexico could export coffee to Germany because Germany, in turn, exported machinery to Mexico. Germany could buy coffee from Mexico because Mexico, in turn, bought machinery from Germany. Each transaction was denominated in gold, and as a result there was a balance based on an economic reality. Because there was balance in world commercial relationships, a relatively small amount of gold sufficed to adjust the international balance. The world financial center which acted as a “Global Clearing House” was London. A few hundred tons of gold were sufficient to meet the needs of that Clearing House. For further reading on the function of London as a clearing centre for world commerce, see “Real Bills” and associated articles by Antal E. Fekete at

Another example: In 1930, the US could sell very little to China, because the Chinese were poor and lacked purchasing power. Because the US sold very little to China, at the same time it could buy very little from China. Although prices of Chinese products were very low, the US could not buy much from China, because China did not buy from the US – China was poor and could not afford American products. Thus, trade between China and the US was balanced by the need to pay the balance of their transactions in gold. Balance was imperative. There was no chance of “structural imbalance”.

Under Free Trade with the gold standard, the great majority of transactions did not require movement of gold to complete the exchange. The goods exchanged paid for each other. Only small remainders had to be paid in gold. Consequently, international trade was limited by the volume of mutual purchases between parties; for example, Chinese silk paid for imports of American machinery, and vice-versa.

The gold standard imposed order and harmony. If President Nixon had not “closed the gold window” in 1971, the world would be radically different today. China would have taken a century or more to reach its present level. China could not buy much from the US, because it was poor; therefore, China could not sell much to the US.

All this changed radically with the abolition of the gold standard.

Everything changed because the United States, having removed gold from the world monetary system, could “pay” everything in dollars, and without the gold standard as a limiting institution, it could print dollars ad libitum - without limit. Thus, in the 1970s the United States started to buy huge amounts of high quality products from Japan, while the Japanese boasted: “Japan sells; Japan does not buy.” A SITUATION THAT WAS IMPOSSIBLE UNDER THE GOLD STANDARD BECOME PERFECTLY POSSIBLE UNDER THE FIAT DOLLAR STANDARD. The Japanese became gigantic producers, their country an island transformed into a factory. Japan accumulated vast reserves of dollars sent from the US in exchange for Japanese products. This in turn triggered the de-industrialization of the US.

Take for example the US manufacturers of T.V. Some of the famous US factories that built TV receivers by the millions were “Philco”, “Admiral”, “Zenith”, and “Motorola”. The Japanese had better and cheaper products, and since the abandonment of the gold standard allowed Japan to sell without buying in turn, and allowed the US to buy without selling in turn, the result was that all the huge factories producing these TV’s in the US were closed down. That’s how “going off gold” closed down US industry.

Unlimited purchases from Japan flowed to the US and the world, because they were paid in dollars, which could be created in unlimited quantities. The balance the gold standard had imposed disappeared and imbalance took its place.

After 1971, the US embarked on a protracted, large-scale expansion of credit. As the nation was de-industrialized and high-paying jobs in industry disappeared, a lack of disposable income for the population was replaced with easy and cheap credit, to conceal the stagnation in per capita income. Consumer credit drove imports from Asia and furthered de-industrialization even more. The great expansion of American credit was made possible because the gold standard, which restrained the expansion of credit by the banking system, had been abandoned. It is no coincidence that some analysts have observed that in real terms, American workers have had no real increase in their income since 1970.

All mainstream economists consider the elimination of the gold standard perfectly acceptable. They still do not see, or do not want to see, that the “Law of Unforeseen Consequences” is at work: the enormous advantage the US gained by being able to pay unlimited amounts in irredeemable dollars has become the fatal cause of the industrial destruction of the US – and of the West in general. A Mexican saying applies: en el pecado llevas la penitencia – “sin brings with it its own punishment”.

The current malaise: financial crisis, industrial crisis, crisis of unemployment

Today the situation is far worse. China, with a population of 1.3 billion, has become a formidable power. No one can compete with China in price. China sells vast quantities of goods to the rest of the world, without the rest of the world having any chance of selling similar quantities to China, and China can do so, because today trade deficits are “paid” not in gold, but in dollars or euros or pounds sterling or yen, which will never be scarce: they are created at will by the USA, the European Central Bank, the Bank of England, or the Bank of Japan.

A fearful monster has been created as a consequence of the elimination of the gold standard, which imposed a limit: “You can only sell to those who sell to you; you can only buy from those who buy from you.” This limit no longer applies; everything is disarray, inequality, imbalance; “structural imbalance” prevails because we no longer have the gold standard.

The credit expansion boom has ended, and in its place we have a global financial crisis. Today the problem of “structural imbalance” and the de-industrialization and unemployment it has produced in formerly industrialized countries acquires greater relevance with every passing day. What is to be done with the masses of jobless men and women? No one knows the answer, because the answer is not acceptable to the thinkers of today: the correction of “structural imbalances” and re-industrialization, in other words the creation of new jobs, lies in restoring the gold standard worldwide.

The “globalization” so highly praised by the financial press in recent years, has become the worst imaginable nightmare. [JS Kim's editorial note: Again, this is another instance in which bankers used one of their tools in their toolkit, the paid-off mass media, to disseminate their lies that globalization was good for all citizens of the world, when in reality, globalization as the bankers implemented it, harmed nearly everyone and benefited only them.] It is no longer possible to support the unemployed with government handouts. The Sovereign State is close to bankruptcy. Thus, nature takes its revenge on those who dared violate its laws by seeking to impose false money on the world.

Richard Nixon’s elimination of the gold standard has proven to be the US’s best possible strategic gift to China and the rest of Asia. Today, China has a colossal industrial base that might have taken centuries to build, while the US is to a great extent devoid of factories and incapable of reclaiming its former glory. How tragic a fate for the US!

International and National Commerce

The word “commerce” is defined in the Concise Oxford English Dictionary as “Exchange of merchandise or services, esp. on a large scale [ French or from Latin COM(mercium from merx mercis merchandise)]

Note that the “exchange of merchandise or services” cannot include as a complement to that exchange a fictitious payment with fiat money, which is neither merchandise nor a service, but rather a paper note or digital entry denoting a debt payable in nothing. In the case of the dollar, the debt is a debt of the Federal Reserve and registered accordingly on its balance sheet. A debt cannot be settled by tendering a debt instrument (which is payable in nothing in any case) and in effect, Balance of Payments debts have not, by any means, been settled in international commerce since 1971.

The non-settlement of international balance of payments debts has produced the accumulation of huge fictitious dollar reserves on the part of exporting countries, since 1971. The same holds for fictitious payments of export deficit debts with euros, pounds, yen or any other present-day currency. See the following graph:

Gold, up until the Bretton Woods Agreements of 1944, figured as the complement to the international exchange of merchandise or services and did settle outstanding balance of payments deficits, because it was a merchandise or commodity used as money.

According to the Bretton Woods Agreements, the fiduciary dollar was accepted as being as good as gold, with trust on the part of Central Banks upon the ability to redeem the dollar into gold. From 1944 up until 1971 then, these fiduciary dollars were held in Central Bank reserves as a credit call upon US gold; the final payment had not been effected and was delayed as a credit granted to the US until the dollars held in reserves were to be cashed in for gold at some future date.

As it turned out, the “fiducia” or “trust” was misplaced, for in 1971 the US reneged on the Bretton Woods Agreements of 1944, “closed the gold window” and stiffed the creditor countries. No final settlement of international commerce debts took place in 1971, nor has any taken place since then; the truth of this statement is obscured by the mistaken idea that tendering a fiat currency in payment of an international debt constitutes settlement of that debt.

Once that false idea – that fiat money can settle a debt - is accepted as valid, then the problem of the enormous “imbalances” in world trade becomes an insoluble enigma. The best and brightest of today’s accredited economists attempt in vain to find a solution to a problem that cannot be solved except by the renewed use of gold as the international medium of commerce.

Regarding national commerce, the same reasoning applies. In reality, no one engaging in commerce in any country in the world today is actually paying for purchases, that is to say, there is no any actual settlement of any debt. All individuals, corporations and government entities are merely shuffling debts (payable in nothing) between themselves, in the form of either paper bills or digital banking money, whether in dollars or any other currency in the world.

For internal national commerce the smaller value of the silver coin was convenient for day-to-day transactions at the popular level and did constitute settlement of debt when tendered in payment, for silver is a merchandise or commodity which, like gold, can participate in commercial exchange.

Today, China and the other great Asian exporters have belatedly realized that the dollars they received as “payment” for their mass exports are nothing more than digits in American computers. If the Chinese do not cooperate, the bankers in New York can erase those digits in half an hour, and leave China with no reserves. For this reason, the Chinese and Asians in general are buying gold, and will continue to buy it indefinitely: computers cannot erase gold reserves.

The awful truth about China is that the Chinese acquired their formidable industrial power in the short span of thirty years at a tremendous cost: for thirty years they worked for nothing. China has $2.5 Trillion of reserves; China does not have any use for these reserves, they have no intrinsic value and China does not know how to get rid of them in exchange for something tangible of value; these reserves are nothing more than digits in computers in the Western world. Net, net, net: China worked for thirty years to provide the world with a vast quantity of merchandise, in return for: nothing! Thirty years of slavery, to build an industrial empire!

Mexico: forced to use the protectionist “Band-Aid”

Mexico has its oil, perhaps more than we are told. Let’s hope so! Our economy is less complex, less sophisticated, than the US’s. According to a Mexican Treasury study carried out in 2007, 85% of Mexicans have no bank accounts – a good sign that they can get by on paper money and are not getting into trouble with credit card debt. The Mexican economy, as we see it, is like a broad, low pyramid. It is more stable than the American “skyscraper” economy, a highly complex economy. Mexico is better equipped to survive the present crisis than the USA.

In today’s great world financial crisis of false money, we are likely to see countries around the world resort to protectionism: the leaders will be the same countries that so recently sang the praises of “globalization”. [JS Kim's Editorial Note: Is this not great irony?] In this probable case, Mexico will have to do the same. It is a far from ideal scenario, but it is imperative for lack of the gold standard. Protectionism limits productive efficiency in any country because it limits the market for its protected products to its own national market. A limited market hampers efficiency. The supply of goods available to the population will be more limited and probably of lower quality at higher prices. (Protectionism will have similar effects in the US.)

Mexico will have to restrict imports in the near future. Otherwise, we will suffer serial currency devaluations. Protectionism is not the best policy, but Mexico will probably be forced to resort to it, for lack of the gold standard, which would be the best means of creating jobs in the US, in the rest of the “developed” world and here.

The effective cure

If Mexico aspires to anything more, we shall have to wait for the restoration of the gold standard worldwide. In the meantime, neither demagogy nor Socialism will solve our problems. Only the gold standard can do that.

For our industrial capacity to gain access to international markets – and for Mexicans to gain access to products from international markets – it will be necessary to restore the gold standard. Bilateral trade agreements are not optimum. The optimum is to have the world as a market, where payment for exports is balanced by imports and residual balances are paid in gold. Payment in gold of export deficits and collection in gold of export surpluses is sine qua non. Under the gold standard, Mexico would achieve sustainable prosperity and full employment for our admirable workforce.

Products from China and Asia in general, which today undermine our industrial capacity and create unemployment because we cannot compete with the extremely low wages of the Asian countries, would cease to be a problem under the gold standard; if the Asian countries, which today invade our markets, do not buy similar quantities of Mexican products – which today they do not – they would not be able to export their products to Mexico. The gold standard would fairly balance exports with imports; it would prevent the strategic destruction of our industry and protect us naturally, without the need for protectionist barriers.

The same therapy Mexico needs – the restoration of the gold standard – is what the world requires to regain economic health and sustainable prosperity.

Under a restored gold standard, Americans will not be able to purchase goods from China, unless China purchases American goods with a similar value. If the Chinese find nothing of value to purchase in the US, then Americans will be unable to purchase Chinese goods. It’s as simple as that! To continue selling to the West, China will have to open wide its doors to imports!

If Americans find they simply cannot purchase Chinese goods, Americans will manufacture those goods themselves. Industries and new jobs will spring up like mushrooms immediately, to satisfy American demand. International balance will be restored, unemployment will disappear.

Protectionism is not a cure, it is a Band-Aid. Mexico will not achieve the prosperity of which it is capable through protectionism nor by resorting to Socialist measures that crush the creative spirit of the individual. Nor can we succumb to renouncing our nationality and accepting absorption by the US, imitating all the (very costly) measures the current US administration imposes on its citizens. The ideal combination for Mexico includes a moderate dose of nationalism, a government that does not incur deficits, the institution of a monetized one-ounce silver coin, the “Libertad”, to stimulate and protect savings, and eventual participation in a new global gold standard, in which our nation can find the opportunity to fulfill its destiny.

“The gold standard is the generator and protector of jobs.”

1975 to 2025 USA Not Getting off Foriegn Oil Anytime Soon!

Guest Post: Is the U.S. a Fascist Police-State?

Submitted by Tyler Durden on 06/25/2010 22:12 -0500

Gonzalo LiraGuest PostNew York TimesTotalitarianism

Submitted by Gonzalo Lira

But with yesterday’s Holder v. Humanitarian Law Project decision (No. 08-1498, also 09-89) of the Supreme Court, coupled with last week’s Arar v. Ashcroft denial of certiorari (No. 09-923), the case for claiming that the U.S. is a fascist police-state just got a whole lot stronger.

First of all, what is a “fascist police-state”?

A police-state uses the law as a mechanism to control any challenges to its power by the citizenry, rather than as a mechanism to insure a civil society among the individuals. The state decides the laws, is the sole arbiter of the law, and can selectively (and capriciously) decide to enforce the law to the benefit or detriment of one individual or group or another.

In a police-state, the citizens are “free” only so long as their actions remain within the confines of the law as dictated by the state. If the individual’s claims of rights or freedoms conflict with the state, or if the individual acts in ways deemed detrimental to the state, then the state will repress the citizenry, by force if necessary. (And in the end, it’s always necessary.)

What’s key to the definition of a police-state is the lack of redress: If there is no justice system which can compel the state to cede to the citizenry, then there is a police-state. If there exists apro forma justice system, but which in practice is unavailable to the ordinary citizen because of systemic obstacles (for instance, cost or bureaucratic hindrance), or which against all logic or reason consistently finds in favor of the state—even in the most egregious and obviously contradictory cases—then that pro forma judiciary system is nothing but a sham: A tool of the state’s repression against its citizens. Consider the Soviet court system the classic example.

A police-state is not necessarily a dictatorship. On the contrary, it can even take the form of a representative democracy. A police-state is not defined by its leadership structure, but rather, by its self-protection against the individual.

A definition of “fascism” is tougher to come by—it’s almost as tough to come up with as a definition of “pornography”.

The sloppy definition is simply totalitarianism of the Right, “communism” being the sloppy definition of totalitarianism of the Left. But that doesn’t help much.

For our purposes, I think we should use the syndicalist-corporatist definition as practiced by Mussolini: Society as a collection of corporate and union interests, where the state is one more competing interest among many, albeit the most powerful of them all, and thus as a virtue of its size and power, taking precedence over all other factions. In other words, society is a “street-gang” model that I discussed before. The individual has power only as derived from his belonging to a particular faction or group—individuals do not have inherent worth, value or standing.

Now then! Having gotten that out of the way, where were we?

Holder v. Humanitarian Law Project: The Humanitarian Law Project was advising groups deemed “terrorists” on how to negotiate non-violently with various political agencies, including the UN. In this 6-3 decision by the U.S. Supreme Court, the Court ruled that that speech constituted “aiding and abetting” a terrorist organization, as the Court determined that speech was “material support”. Therefore, the Executive and/or Congress had the right to prohibit anyone from speaking to any terrorist organization if that speech embodied “material support” to the terrorist organization.

The decision is being noted by the New York Times as a Freedom of Speech issue; other commentators seem to be viewing it in those terms as well.

My own take is, Holder v. Humanitarian Law Project is not about limiting free speech—it's about the state expanding it power to repress. The decision limits free speech in passing, because what it is really doing is expanding the state’s power to repress whomever it unilaterally determines is a terrorist.

In the decision, the Court explicitly ruled that “Congress and the Executive are uniquely positioned to make principled distinctions between activities that will further terrorist conduct and undermine United States foreign policy, and those that will not.” In other words, the Court makes it clear that Congress and/or the Executive can solely and unilaterally determine who is a “terrorist threat”, and who is not—without recourse to judicial review of this decision. And if the Executive and/or Congress determines that this group here or that group there is a “terrorist organization”, then their free speech is curtailed—as is the free speech of anyone associating with them, no matter how demonstrably peaceful that speech or interaction is.

For example, if the Executive—in the form of the Secretary of State—decides that, say, WikiLeaks or Amnesty International is a terrorist organization, well then by golly, it is a terrorist organization. It no longer has any right to free speech—nor can anyone else speak to them or associate with them, for risk of being charged with providing “material support” to this heinous terrorist organization known as Amnesty International.

But furthermore, as per Holder v. Humanitarian Law Project, anyone associating with WikiLeaks—including, presumably, those who read it, and most certainly those who give it information about government abuses—would be guilty of aiding and abetting terrorism. In other words, giving WikiLeaks “material support” by providing primary evidence of government abuse would render one a terrorist.

This form of repression does seem to fit the above definition of a police-state. The state determines—unilaterally—who is detrimental to its interests. The state then represses that person or group.

By a 6-3 majority, the Supreme Court has explicitly stated that Congress and/or the Executive is “uniquely positioned” to determine who is a terrorist and who is not—and therefore has the right to silence not just the terrorist organization, but anyone trying to speak to them, or hear them.

And let's just say that, after jumping through years of judicial hoops, one finally manages to prove that one wasn’t then and isn’t now a terrorist, the Arar denial of certiorari makes it irrelevant. Even if it turns out that a person is definitely and unequivocally not a terrorist, he cannot get legal redress for this mistake by the state.

So! To sum up: The U.S. government can decide unilaterally who is a terrorist organization and who is not. Anyone speaking to such a designated terrorist group is “providing material support” to the terrorists—and is therefore subject to prosecution at the discretion of the U.S. government. And if, in the end, it turns out that one definitely was not involved in terrorist activities, there is no way to receive redress by the state.

Sounds like a fascist police-state to me.

Monday, May 31, 2010

Flash Crash 1962

On May 28, there was a "flash crash." If you didn't notice it, that is because it occurred not in 2010, but in 1962. Its aftermath offers some clues on what might happen in the wake of this year's flash crash on May 6.

"The stock market careened downward yesterday," reported The Wall Street Journal on May 29, 1962, "leaving traders shaken and exhausted." The Dow Jones Industrial Average fell 5.7% that day, down 34.95, the second-largest point decline then on record.

"The drop took place on volume so heavy," added the Journal, that the "ticker wasn't able to finish reporting floor transactions until 5:59 p.m., two hours and 29 minutes after the market closed."

Like this year's flash crash, the "market break" of 1962 came after a run-up in the market that had led many investors into complacency. In 1961, stocks had risen 27%, with leading technology stocks like Texas Instruments and Polaroid trading at up to 115 times earnings.

Then, without warning, stocks "broke."

Some blue chips, like AT&T, came down relentlessly all day. But others broke with a snap that terrified investors unaccustomed to volatility. Around 2:48 p.m., International Business Machines Corp. crashed like a boulder pushed from a cliff. IBM, which had closed the day before at $398.50, fell from $375 to $365 on four sickening downticks within two minutes, hit $360 six minutes later and bottomed at $355 at 3:17 p.m. The shares had fallen 5.3% in 19 minutes. Less than six months earlier, IBM had traded at $607.

The plunge in smaller stocks like Brunswick Corp. was even sharper. At 3:08 p.m., the company traded at $24. By 3:20 p.m., it had hit $21.75, down 9.3% in 12 minutes. That was 22.3% down from its opening price.

Some of the parallels between the two flash crashes are uncanny.

In this year's crash, many trades, especially in exchange-traded funds, went off at prices wildly different from the orders investors had placed. Likewise, in 1962, "some orders were executed at prices substantially different from those which prevailed when the order was entered," an investigative report by the Securities and Exchange Commission noted the following year.

Some high-frequency traders, which use powerful computers to make markets in stocks, stopped trading in this year's flash crash at the very moments when the market needed liquidity most urgently.

In 1962, high-frequency trading didn't exist, but "specialists" did. By law, specialists were obligated to try to maintain a fair and orderly market for each stock on the floor of the exchange. However, concluded the SEC's report, "At no time during the day did the specialist intervene in sufficient volume to slow the rapid deterioration of the market in IBM."

Even without the Internet, fear spread quickly in 1962. Investors piled into brokerage firms' "board rooms," where wall-mounted boards displayed market prices. "It was standing room only at Merrill Lynch, Pierce, Fenner & Smith," reported the Journal, "with spectators lined up three or four deep in the customers' gallery there."

As the SEC report noted a year later, "The markets' erratic behavior prompted concern and caused bewilderment at home and abroad. The frenetic activity of the break resulted in large and sudden losses for many and gains for some … this break had a strong and immediate psychological impact upon the Nation."

Traumatized investors bombarded the White House with complaints and pleas for help. And they voted with their feet, in what the SEC called a "general public disenchantment with the market." As households slashed their purchases of stocks, 8% of stockbrokers left the business throughout 1962, and "the pinch was felt" even by giant firms like Merrill Lynch, whose net earnings fell by half from the year before.

While investors didn't bail out of mutual funds en masse, they sharply cut back on their new fund investments. It took two years for fund sales to regain their former level.

The 1962 flash crash stepped up public pressure on the SEC and Wall Street to clean up trading procedures. But by the summer of 1968, billions of dollars' worth of trades were going astray every month, and the major stock exchanges had to close down on Wednesdays so brokers could get a midweek breather to catch up on processing delays.

The crash of 1962 is a reminder that markets always have been messy and that investors' morale always has been fragile. What's more, the problems the regulators sought to solve nearly a half-century ago are still with us today. They probably will be tomorrow, too.

Motivational Truths

Friday, May 14, 2010

My Thoughts on the Market

I feel we are in a secular bear market just like 1929-1949 and 1965-1982 where the stock market traded in a range and didn't consistently make new highs. I also believe that if the US government keeps printing money and bailing out people then we could end up like Japan where the stock market stays depressed for two plus decades. The current secular bear market started in 2000 after the dot com crash and is still running its course presently. We are currently in a cyclical bull market during a long term secular bear market fueled totally by the Federal Reserve Bank via the bailout plans.
The S&P 500 stock market index made a high on October 9th, 2007 at 1565 and made a low on March 9th, 2009 at 676. The total decline was 889 points or roughly 57%.
Using Fibonacci retracements which are a very popular tool among technical traders and is based on the key numbers identified by mathematician Leonardo Fibonacci in the thirteenth century. However, Fibonacci's sequence of numbers is not as important as the mathematical relationships, expressed as ratios, between the numbers in the series. In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels. Using the Fibonacci method would give you potential price targets of a 23.6% retracement at 886, a 38.2% retracement at 1015, a 50% retracement at 1120, and a 61.8% retracement at 1225. The S&P 500 has topped at roughly 1220 on April 26th, 2010 which is roughly a 61.8% retracement. Only time will tell if the market moves higher than 1220. I'm not opptomistic. I think the market stays highly correlated to the price of crude oil and the dollar index over the long term. Attached below is the hyperlink to the Chart of the S&P 500.^gspc;range=6m;indicator=psar+bollinger;charttype=candlestick;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Thursday, May 13, 2010

Traders Audio from the Crash on May 6th

That's great audio from the futures trading pit at the Chicago Mercantile Exchange. The activity definitely cleared out some stops below and now the market should move to around 1300 before collapsing again. That's complete speculation on my part using a 68% Fibonacci retracement of the market move off the March 2009 lows. Of course Goldman Sachs has reported no losing trading days last quarter which is statistically impossible! Who says the market isn't rigged. You only have no losing trading days if you are holding a illegal competitive edge.'-expense-485282.html?tickers=xlf,%5Edji,%5Egspc,gs,jpm,bac,c

Friday, May 7, 2010

Cognitive Bias Song

You might have friends who are guilty of many of these biases. In trading many professionals are guilty of these biases. I'm guilty of a representative bias because I feel most trading professionals are always bullish on the market. I've been guilty of many of these. Right now I'm completely guilty of anchoring bias and I feel the market will crash down below the March 2009 lows. Today should be an interesting day in the market.

Tuesday, April 27, 2010

Milton Freidman on Greed

Capitalism is the only system that's ever worked in history. Remember we're talking about true capitalism with regulation that allows people to compete fairly and freely. Capitalism is not to be confused with Fascism, Corporatism, Crony Capitalism, or LBL Wrangler Capitalism! Milton Friedman is from the Chicago School of Economics and many of his theories were put into practice throughout the world. Google Chile and Boliva to get the details.

Monday, April 26, 2010

Sheehan on Boskin

You can thank Slick Willy for the manipulation of the statistics and H.W. Bush. You can't have politicians looking bad. It's a recovery based on the statistics?

Frederick Sheehan is the co-author of Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.

His new book, Panderer for Power: The True Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, was published by McGraw-Hill in November 2009. He was Director of Asset Allocation Services at John Hancock Financial Services in Boston. In this capacity, he set investment policy and asset allocation for institutional pension plans.


On January 14, 2010, an academic economist took a rare stance. Tenured professors rarely lift the veil from numbers that governments invent. In “Don’t Like the Numbers? Change ‘Em,” Michael J. Boskin, Ph.D., formerly, an economics professor at Harvard and Yale; formerly, chairman of the Counsel of Economic Advisers in the George H.W. Bush administration; currently, T. M. Friedman Professor of Economics at Stanford University; research associate at the National Bureau of Economic Research; senior fellow at the Hoover Institution; and board member of the Exxon Mobil Corporation, Oracle Corporation and Vodafone PLC (among others), wielded his sword.

The Wall Street Journal devoted a half page to Boskin’s list of offenders. Politicians are interfering with the Gross Domestic Product calculations in France and Venezuela. They have toyed with the inflation rate in Argentina. In the U.S., the Obama administration has taken the phony numbers game “to a new level.” Here, Boskin is writing of the current adminstration’s calculations of jobs “created or saved” from its stimulus bill.

The “created or saved” job calculation is nonsense, but the very last person one would expect to decry the miscarriages is Michael J. Boskin.

In the early 1990s, Senator Patrick Moynihan from New York warned his fellow legislators about rising social security commitments. Then the worm crawled out of his hole, so to speak. Federal Reserve Chairman Alan Greenspan testified before the Senate and House Budget Committee on January 10, 1995. He told the Committee the inflation rate was probably overestimated by 0.5% to 1.5%.

If Greenspan was correct, this was a godsend. Social security payments are increased each year at an inflation rate calculated by the federal government: the change in the Consumer Price Index (CPI). If the CPI could be increased at a lower rate in the future, benefits would rise more slowly, without Congressional action. This would reduce government spending and delight politicians, who knew of the looming crisis in social security but did not want to imperil their careers by reducing benefits, or, in this case, by cutting the rate at which social security benefits were raised each year.

The Boskin Commission was duly formed. Michael Boskin was the right man for the job. He had served as chairman of the President’s Council of Economic Advisers (CEA) from 1989 to 1993, a post previously held by such government functionaries as Arthur Burns and Alan Greenspan.

Jumping to the conclusion, the Boskin Commission’s Report, as it was known (formally, the “Advisory Commission to Study the Consumer Price Index”) found that inflation was overstated by 1.1%. Several recommendations were made by the Commission to the Budget Committee. These were instituted with great efficiency by the Bureau of Labor Statistics.

The changes have lopped off far more than 1.1% in most years since 1997. From the time the changes were instituted through 2008, the compounding of an artificially low Consumer Price Index reduced payments to social security recipients by about half (according to John Williams, author of the newsletter Shadow Government Statistics).

How the CPI calculation was changed is not important here. (Chapter 12 of my book Panderer to Power is devoted to the Boskin Commission.) One adjustment may help to understand Boskin’s contribution to the impoverishment of older Americans. “Hedonic adjustments” by government number crunchers substitute imaginary prices for prices actually paid. Hedonic adjustments (purportedly, the “quality improvement” of an item) reduce the CPI. (Hedonic adjustments had been employed before the Boskin Commission, but sparingly. Afterwards, even the prices of textbooks – if they had color graphics – were adjusted for quality.)

Steve Leuthold, founder and chief investment officer of the Leuthold Group, calculated the price of a new car in the U.S. had risen from $6,847 in 1979 to $27,940 in 2004. Using hedonic adjustments, the government calculated the price of a new car had risen from $6,847 in 1979 to $11,708 in 2004.

The Boskin Commission was one scandal that economists actually denounced. Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, said at the time “the debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”

Barry Bosworth of the Brookings Institute called the revised CPI an “ ‘immaculate conception‘ version of deficit reduction in which spending is cut without Congress taking the blame.”

Jack Triplett of the Brookings Institute extended the argument: “What I liked least about the Commission Report was exactly what made it so influential – its guesstimate of 1.1 percentage points of bias….The Commission (and others that have followed) used ad hoc reasoning to come up with a number….”

Jacob Ryten, from the Canadian statistical office, wrote in the same vein: “Without the guesstimates, the Commission Report was just another dry, academic study to be perused by professionals… Conversations with Committee members suggest that some, at least, were ill at ease themselves with guesstimates…. My personal preference is to resist the seductive blandishments of politics and politicians….”

Jack Triplett chided the Report as succumbing “to the lure of political statements in its choice of language to describe the effect of CPI measurement errors on Social Security expenditures…. Professionals at any rate, should understand that improving the accuracy of the CPI is not the same thing as improving the basis for allocation to the dependent population….”

Professionals, at any rate, have seen fit to keep Michael Boskin at the summit after he succumbed to “seductive blandishments of politics and politicians.” It cannot be said that Boskin dishonored his profession, since he is still a superstar. Other professions institute bodies such as the American Bar Association and the American Medical Association that take action against negligence.

Federal Reserve Chairman Ben S. Bernanke, another pliant alumnus of the CEA, sits before the Senate claiming there is no inflation in the economy. He uses the CPI as his measure, taking the additional step of removing food and energy costs.

Near the end of his Wall Street Journal effort, Boskin wrote of the Obama job numbers: “One piece of good news: The public isn’t believing much of this out-of-control spin.” He’s probably correct, but spinning the number of jobs “created or saved” has no consequence, other than to increase the public’s distrust of government. The distortion of the CPI should have been censured by his profession, if it is that.

Frederick Sheehan is the author of Panderer for Power: The True Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession

Wednesday, April 21, 2010

Healthcare Unsustainable Period.

Go to 5:20 in the video. 45 trillion in unfunded liabilities relating to healthcare costs. If you look at the Obama plan it's a pipe dream given the GDP growth rates. With made up government statistics we will probably hit the projected numbers but in the real economy things won't get better. Just google Boskin study if you want to see how these government figures are manipulated.
How are programs called entitlement programs when you pay into Social Security and Medicare your whole life? Money printing ends ugly!

Blunt Bill Black Hits the Nail on the Head!

Bill Black is the only person calling people out by name. Hopefully it's only a matter of time before people start going to jail. Social justice needs to be served.

Taxes: The Price We Pay For Civilization

"Taxes are the price we pay for a civilized society," said legendary Supreme Court Justice Oliver Wendell Holmes, Jr. As students of Buck v. Bell could tell you, Holmes had a habit of being monstrously wrong, but if he's right about taxes and civilization, it's certainly worth asking whether we're getting what we pay for.

Carrie Buck a poor girl who came from a very under privileged upbringing. Dr. James Hendren Bell was on the case. The Board of Directors issued an order for the sterilization of Buck, and her guardian appealed the case to the Circuit Court of Amherst County, which sustained the decision of the Board. The case then moved to the Supreme Court of Appeals of Virginia.

The appellate court sustained the sterilization law as compliant with both the state and federal constitutions, and it then went to the United States Supreme Court. The plaintiff's lawyers argued that this procedure ran counter to the protections of the 14th Amendment and 5th Amendment. They contended that the due process clause guarantees all adults the right to procreate which was being violated. They also made the argument that the equal protection clause in the 14th Amendment was being violated since not all similarly situated people were being treated the same. The sterilization law was only for the "feeble-minded" at certain state institutions and made no mention of other state institutions or those who were not in an institution.

On 2 May 1927, in an 8-1 decision, the Court accepted that she, her mother and her daughter were "feeble-minded" and "promiscuous," and that it was in the state's interest to have her sterilized. The ruling legitimized Virginia's sterilization procedures until they were repealed in 1974.

The ruling was written by Justice Oliver Wendell Holmes, Jr. In support of his argument that the interest of the states in a "pure" gene pool outweighed the interest of individuals in their bodily integrity, he argued:

“ We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices, often not felt to be such by those concerned, in order to prevent our being swamped with incompetence. It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind. The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes. ”

Holmes concluded his argument by infamously declaring that "Three generations of imbeciles are enough". The sole dissenter in the court, Justice Pierce Butler, declined to write a minority opinion.

Carrie Buck was operated upon, receiving a compulsory salpingectomy (a form of tubal ligation). She was later paroled from the institution as a domestic worker to a family in Bland, Virginia. She was an avid reader of coloring books until her death in 1983. Her daughter Vivian had been pronounced "feeble minded" after a cursory examination by ERO field worker Dr. Arthur Estabrook, thus the "three generations" of the majority opinion. It is worthy of noting that the child did very well in school for the two years that she attended (she died of complications from measles in 1932), even being listed on her school's honor roll in April 1931.

Historian Paul A. Lombardo argued in 1985 that Buck was not "feeble-minded" at all, but that she had been put away to hide her rape, perpetrated by the nephew of her adoptive mother. He also asserted that Buck's lawyer, Irving Whitehead, poorly argued her case, failed to call important witnesses, and was remarked by commentators to often not know what side he was on. It is now thought that this was not because of incompetence, but deliberate. Whitehead had close connections to the counsel for the institution and to Priddy. Whitehead was a member of the governing board of the state institution in which Buck resided, and had personally authorized Priddy's sterilization requests and was a strong supporter of eugenic sterilization.

Wow and we give this government the power to do these things. We aren't getting what we are paying for. Over 700 billion a year to interest on the national debt which is paid via income taxes to the bankers. Over 700 billion paid to fight wars which are illegal and could be avoided. Over 800 billion in Medicare and health care programs which will be increased with the new health care bill. Over 700 billion paid for social security which everyone has paid into yet our government has already spent this money. Yes this country is dead broke. Fortunately people are waking up and we the people will put a stop to this nonsensical spending. I'm really amazed at how many smart people approve of these policies.

Saturday, April 10, 2010

Steve Keen Debt Repudiation

Now here's a good idea that you never here from banks. Best solution I've heard yet.

1968 Minnesota Credit River Case

The most cynical (but not necessarily inaccurate) view of debt I've seen is that banks loan out imaginary money they don't really have, which was "collateralized" by capital they did not really have, based upon central bank printing presses which create money out of thin air which they don't really have. But then when debtors have trouble repaying onerous loans, the bankers seize real assets.

In First National Bank v. Daly (often referred to as the "Credit River" case) the court found that the bank created money "out of thin air":

[The president of the First National Bank of Montgomery] admitted that all of the money or credit which was used as a consideration [for the mortgage loan given to the defendant] was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneaopolis, another private bank, further that he knew of no United States statute or law that gave the Plaintiff [bank] the authority to do this.
The court also held:

The money and credit first came into existence when they [the bank] created it.

Justice courts are just local courts, and not as powerful or prestigious as state supreme courts, for example. And it was not a judge, but a justice of the peace who made the decision.

But what is important is that the president of the First National Bank of Montgomery apparently admitted that his bank created money by simply making an entry in its book ...
The judge voided the mortgage, since he found that the bank hadn't given any real consideration, but simply created money out of thin air.

In other words, according to the most cynical view, the entire debt-money system is a scam ... and should be repudiated.

Austrian economist Murray Rothbard wrote in 1992:

I propose ... out-right debt repudiation. Consider this question: why should the poor, battered citizens of Russia or Poland or the other ex-Communist countries be bound by the debts contracted by their former Communist masters? In the Communist situation, the injustice is clear: that citizens struggling for freedom and for a free-market economy should be taxed to pay for debts contracted by the monstrous former ruling class. But this injustice only differs by degree from "normal" public debt. For, conversely, why should the Communist government of the Soviet Union have been bound by debts contracted by the Czarist government they hated and overthrew? And why should we, struggling American citizens of today, be bound by debts created by a ... ruling elite who contracted these debts at our expense?
Although largely forgotten by historians and by the public, repudiation of public debt is a solid part of the American tradition. The first wave of repudiation of state debt came during the 1840's, after the panics of 1837 and 1839. Those panics were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States. Riding the wave of inflationary credit, numerous state governments, largely those run by the Whigs, floated an enormous amount of debt, most of which went into wasteful public works (euphemistically called "internal improvements"), and into the creation of inflationary banks. Outstanding public debt by state governments rose from $26 million to $170 million during the decade of the 1830's. Most of these securities were financed by British and Dutch investors.

During the deflationary 1840's succeeding the panics, state governments faced repayment of their debt in dollars that were now more valuable than the ones they had borrowed. Many states, now largely in Democratic hands, met the crisis by repudiating these debts, either totally or partially by scaling down the amount in "readjustments." Specifically, of the 28 American states in the 1840's, nine were in the glorious position of having no public debt, and one (Missouri's) was negligible; of the 18 remaining, nine paid the interest on their public debt without interruption, while another nine (Maryland, Pennsylvania, Indiana, Illinois, Michigan, Arkansas, Louisiana, Mississippi, and Florida) repudiated part or all of their liabilities. Of these states, four defaulted for several years in their interest payments, whereas the other five (Michigan, Mississippi, Arkansas, Louisiana, and Florida) totally and permanently repudiated their entire outstanding public debt. As in every debt repudiation, the result was to lift a great burden from the backs of the taxpayers in the defaulting and repudiating states.
The next great wave of state debt repudiation came in the South after the blight of Northern occupation and Reconstruction had been lifted from them. Eight Southern states (Alabama, Arkansas, Florida, Louisiana, North Carolina, South Carolina, Tennessee, and Virginia) proceeded, during the late 1870's and early 1880's under Democratic regimes, to repudiate the debt foisted upon their taxpayers by the corrupt and wasteful carpetbag Radical Republican governments under Reconstruction.

As always the Austian School of Economics makes the most sense!

Friday, April 9, 2010

If Ron Paul Wins Another Straw Poll Republicans May Stop Using Them!

If Ron Paul Wins Another Straw Poll Republicans May Stop Using Them!

The people are speaking of real change! Both Democrats and Republicans are out of touch. Lindsey Graham says "George Bush is the Winston Churchill of our time". More like the Henry Kissinger of our time.