Quote of the Day: The Entire Case for Keynesianism is Based on this Slogan

The Keynesians have no equivalent of this slogan: "There is no such thing as a free lunch." This is a powerful slogan. So is this one: "You can't get something for nothing." So is this one: "If it sounds too good to be true, it probably is." So is this one: "Honesty is the best policy." But, above all others, we have this one: "Thou shalt not steal."

The Keynesians have this slogan: "I'm from the government, and I'm here to help you." The entire case for Keynesianism is based on this slogan.

This is why it pays to defend freedom. Even when the overwhelming majority of voters do not want to hear the arguments, we should keep making them. We should keep pointing out that there will be horrendous negative repercussions for violations of the principle of voluntary exchange. We don't get a hearing, except during crises. I have good news. There will be plenty of crises in which we will get a hearing.

This excerpt is from Austrian economist Gary North from his (recommended  read) article "Have Hope: Our Opponents Are Economic Imbeciles"

Gary North: Inflation: The Economics of Addiction

I will start my 2014 post with a recommended read from Austrian economist Gary North on the economics of addiction to inflationism.

Inflation: of all the dangers to the free market economy, historically and theoretically, the greatest is this one, yet it is one of those subjects that remain wrapped in mystery for the average citizen. This elusive concept must be understood if we are to return to the free market, for without a thorough comprehension of inflation's mechanism and its dangers, we will continue to enslave ourselves to a principle of theft and destruction.

This essay is an attempt to compare the process of inflation to a more commonly recognized physiological phenomenon, that of drug addiction. The similarities between the two are remarkable, physically and psychologically. Nevertheless, it must be stressed from the outset that any analogy is never a precise scientific explanation. No analogy can claim to be so rigorously exact as to rival the accuracy of the original concept to which it is supposed to be analogous. It is, however, an excellent teaching device, and while it is no substitute for carefully reasoned economic analysis, it is still a surprisingly useful supplement, which can aid an individual in grasping the implications of the economic argument.

Before beginning the comparison, it is mandatory that a definition of inflation be presented, one which can serve as a working basis for the development of the analogy.

One workable definition has been offered by Murray N. Rothbard, who is perhaps the most reliable expert on monetary theory: inflation is "any increase in the economy's supply of money not consisting of an increase in the stock of the money metal." An even better definition might be this one, adopted for the purposes of exposition in this study: "any increase in the economy's supply of money, period." Thus, the level of prices is not the criterion in determining whether or not inflation is present. The only relevant factor is simply whether any new money is being injected into the system, be it gold, silver, credit, or paper.

Unfortunately, many economists and virtually the entire population define inflation as a rise in prices. The more careful person will add that this rise in prices is a rise in the overall price level of most goods in the economy, one which is not due to some national disaster, such as a war, in which the rise can be attributed to an increase in aggregate demand as a result of changed economic expectations. Other economists, even more precise, attempt to define inflation as an increase in the money supply greater than the increase of aggregate goods and services in the economy. Professor Mises himself, in his earliest study on monetary theory, employed a definition involving comparisons between the aggregate supply of money and the aggregate "need for money." But in later years, he abandoned this definition, and for very good reasons, as he has explained:

There is nowadays a very reprehensible, even dangerous, semantic confusion that makes it extremely difficult for the non-expert to grasp the true state of affairs. "Inflation," as this term was always used everywhere and especially also in this country, means increasing the quantity of money and bank notes in circulation and of bank deposits subject to check. But people today call inflation the phenomenon that is the inevitable consequence of inflation, that is, the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been up to now called "inflation." It follows that nobody cares about inflation in the traditional sense of the term. We cannot talk about something that has no name, and we cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy which which must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.

Read the rest here.

I strongly suspect that 2014 will be the year of the Black Swan (low probability, high impact events that have hardly been seen by the mainstream) or what in statistics is known as  the “fat tail distribution”. 

This stage will signify as the traumatic withdrawal syndrome phase for addicts of inflationism.

Mr. North describes this phase:

5. Shaking the Habit

Withdrawal -- the most frightening word in the addict's vocabulary. Depression -- the most horrible economic thought in the minds of today's citizens. Yet both come as the only remedies for the suicidal policies entered into.

To the addict, withdrawal means a return to the normal functioning of the body, a return to reality. The path to normalcy is a decidedly painful avenue. Withdrawal will not restore him to his pre-addiction condition, for too much has already been lost -- socially, physically, financially, spiritually. But he can live, he can survive, and he can make a decent life for himself.

For the inflationist economy, a cancellation, or even a reduction, of the inflation means depression, in one form or another. This is inevitable, and absolutely necessary. Prices must be permitted to seek their level, production must rearrange itself, and this will mean losses to some and gains for others. The inflationary effects of the monetization of debt, the pyramiding of credit, are then reversed. The man who deposited the $100 is pressed for payment by creditors, so he withdraws his money. The banks are faced with either heavy (and unfulfillable) specie demands, or at least with credit and currency withdrawals. The bank calls in its loans, sells its property, and begins to liquidate. The man who bad borrowed the $90 now must pay up, with interest. He goes to his bank, takes out the $90, and his bank has to call in the $81 it had loaned out. The $900 built on the original $100 disappears, again as if by magic. This is the process of demonetization of debt, and it is clear why there would be a drastic decline in prices, and why a lot of banks would be closed, some of them permanently.

The suffering imposed by depression is unfortunate, but it is the price which must be paid for survival. If the consequences of runaway inflation are to be avoided, then this discomfort must be borne. The depression, lest we forget, is not the product of a defunct capitalism, as the critics invariably charge. It is the restoration of capitalism. Free banking, even without the legally enforced one hundred percent reserve requirement, can never develop the rampant inflation described here. The inflation came as a direct result of State-enforced policies, and the State must bear the blame. Sadly, it never does. It accepts responsibility for the politically popular "boom" conditions, but the capitalists cause the "busts."

Such withdrawal phase, or the transitory phase where boom morphs into a bust, will be signaled by a progressive rise in interest rates (expressed via the tanking bond markets) which will greatly impact the incumbent deeply leveraged global financial and economic system.

Shutdown Politics: Defying Yorktown’s National Park Service

Bureaucrats use the recent government shutdown to send a message to Washington, particularly the Republicans, instead, they got a pushback from the public.

From Austrian economist Gary North at the LewRockwell.com

A restaurant owner in the Colonial National Historical Park in Yorktown was told by the National Park Service to close his restaurant. The Park Service does not own it. It leased the building to the owner. It unilaterally broke its lease.

He closed it for a few days. Then he re-opened it.

The Park Service now has a huge public relations problem. It can choose to enforce its order. It can send in armed men to force the closing. Or it can just ignore this act of defiance.

The media have picked up the story as a human interest story. In this story, the Park Service is the villain — a bureaucratic agency trying to force the Republicans in the House to raise the debt ceiling. “Shut it down!” This mentality led to the closing of various Washington monuments. It has backfired on the senior-level bureaucrats who came up with this policy. First, a bunch of World War II vets removed the barriers, and walked into the monument area. Now a restaurant owner is doing the same thing.

What’s a bureaucrat to do?

It is significant that the restaurant owner is taking his stand in Yorktown. This makes the Park Service’s PR problem even worse. Yorktown is where George Washington, with help from the French fleet, defeated General Cornwallis in October 1781. That defeat ended Great Britain’s resistance to the American Revolution. The Park Service wants to be seen as George Washington. Instead, it is being seen as Cornwallis. It is going to lose this PR battle. It’s the bureaucratic world turned upside down.

This confirms North’s law of bureaucracy: “Some bureaucrat will eventually enforce a regulation to the point of utter imbecility.”

Obamacare Adds 10,350 pages to Existing Regulations

From Austrian economist Gary North at the Tea Party Economist

When the government passes a law, it must be enforced. The executive branch of the government then makes up the actual enforcement rules. It interprets the law and translates it into actual regulations.

The ObamaCare law was 2,000 pages long. That is just the beginning. Now the executive branch is building on its foundations.

The specific interpretations are published in the Federal Register, which is published daily by the federal government. It publishes about 80,000 pages of regulations a year. Each page is three columns of rules that can be understood only by very specialized and very expensive lawyers in a particular field.

CNS news sent a reporter to interview Democrat Congressman Henry Waxman. He asked Waxman if he had read all 10,535 pages. Waxman refused to answer. He said it was a propaganda question. He refused to answer.

You owe it to yourself to see one page in the Federal Register. Few Americans ever have. Go here. You will see a highlighted link: Today’s Issue of the Federal Register. Click it. You will see articles. Click the PDF of any article.  Then read just one column. You will not have to read all three to get the picture. Multiply this one column by 240,000. That is one year’s output.

Burdens from more regulations or mandated social controls translates to higher costs of compliance, higher taxes, more restrictions of commerce and civil liberty, regulatory arbitrages (loopholes-shadow activities) and regulatory capture, redistribution of resources and power from markets to the political class and their cronies equals increased politicization and social tensions, corruption, and lesser commerce which all leads to a lower standards of living

The Symbiotic relationship between Crony Capitalism and the Welfare State

The welfare state has been built on the popular delusion that the major beneficiaries have been the underprivileged or the poor. 

In reality, such welfare programs favor the crony elitist class.

Austrian economist Gary North explains: (bold original)

October 1 is the day of the new fiscal year of the United States government. Little known to the general public, it is the supreme day of celebration for the American Establishment. Let me explain why. It has to do with government spending, specifically this: Who wins? Who pays?

The American welfare state is generally supported by the very rich. They clean up by means of the welfare state. Why? Because the welfare state is seen by political liberals as justifying the expansion of the federal government, and the federal government then protects the interests of the super rich. This has gone on for so long that it is astounding to me that the chattering class -- mostly Leftists -- does not understand it.

Leftist Democrats constantly lobby for more welfare state programs. They think the rich will pay for them. To see why this is silly, look at this pie chart on federal spending. Ask yourself: Who wins? Who pays?

Look at defense spending. Who wins? A handful of large defense firms. This is fat city for the rich. It always has been.

Look at net interest payments. Do you think that money goes to the rich? What does the U.S. government pay? Under 3% a year. The super rich do not buy such low-paying investments. Who does? Retirement funds, insurance companies, money market funds, and banks. This rate of return is for the middle-classe. The interest rate returns after taxes do not keep up with price inflation. Who pays? The rich pay a good chunk of it as taxpayers. They do not care. Why not? Because this level of federal debt guarantees a huge federal government. With the government-enforced restricted-access profits they make, it's just a cost of doing business.

Now let's look at the biggies: Social Security and Medicare/Medicaid. They constitute 45% of federal spending. Who pays? Working stiffs. The Social Security taxable salary cutoff is about $110,000 a year. So, the worker and his employer pay about $16,000 a year, max. For the super rich, this tax is irrelevant -- invisible.

Do you see what the voters have done? They have created two gigantic, politically untouchable welfare programs that the working class finances. These programs are so huge that no new major spending program will be imposed. They have put a ceiling on the growth of the welfare state. The welfare state cannot touch them. They are now immune.

ObamaCare? The workers will pay. Small business owners will pay.

How about food stamps, called SNAP? This costs $75 billion a year. Who gets this money? Agribusiness. In short, food stamps are a subsidy to the super rich in the name of helping the poor.

The income tax was a problem, which went from 25% in the 1920s to 63% in 1932, to 79% in 1936, to 94% in 1944. Truman took it back to 91% in 1948, where it stayed until Kennedy, who got Congress to drop it to 70%. Reagan got it lowered in stages to 28% in 1988. No President since has got it above 40%.

We know that Americans will not accept federal taxes above 20% of GDP. In 1944, in World War II, it got to 20.8%. That was the top. So, the voters have placed a ceiling on total taxation. The federal government is at that ceiling. New programs must come from borrowing. When that gets cut off at low rates, as it will at some point, the welfare state will go belly-up, except for payments to oldsters.

The Left has shot its wad politically. There is no extra federal money to tap. The oldsters lay claim to the federal government's biggest welfare programs, and these programs are paid for by the working class, not the rich.

More on the the Middle class as carrying the cross of the poor….(bold mine)

Crony capitalism favors the super rich. The super rich are willing to pay income taxes to fund a small portion of the welfare state, because the bulk of the welfare state is funded by taxes on the middle class. The super rich don't pay much into Social Security and Medicare/Medicaid. The working class pays: "regressive" taxation. These are the largest welfare programs there are. The super rich avoid having to pay much of anything into the two largest welfare state programs there are. It is a sweet deal for the super rich. The federal government's regulatory apparatus keeps growing, and the super rich's balance sheets keep growing.

Add to this Bernanke’s and or the central bank dogma of promoting quasi permanent booms (bubble cycles) or asset inflation

 

The welfare state as protectionist shield in favor of cronies. (bold mine)

Crony capitalism removes the most important threat to the Establishment, namely, the threat of free market competition. It makes certain that existing large firms have the advantage. The existing large firms can afford the high-powered and highly expensive legal talent to make the system work for them. This locks out competitors whose only advantage is that they can serve the customer more efficiently. That doesn't count, because federal regulation makes it illegal for these firms to serve the customer.

From the point of view of the Establishment, the cost of the welfare state is chump change. The two big kahunas of the welfare state, Social Security and Medicare/Medicaid, are financed by the working class. So, they are no sweat off the brows of the super rich. These two programs make it impossible to expand any other major welfare programs. Even if we think of ObamaCare as such a program, it still serves the interests of the super rich, because it will make it more difficult for smaller firms to compete. Once you've established the dominant position in the market, you can afford lots of regulation. Regulation becomes a gigantic barrier to entry that is placed in front of your potential competitors.

The political Left sees that the rich are getting richer, and its response is always the same: more welfare state. They don't understand that the federal government is what has created the existing distribution of income, which favors the super rich. They don't learn that welfare state politics makes things worse for the poor. They have been barking up the wrong tree ever since 1896, when William Jennings Bryan got his first nomination by the Democratic Party for President. His candidacy killed the old Democracy, best represented by Grover Cleveland, a limited-government vision of politics, and firmly committed to low tariffs and the gold standard. It did not survive Bryan's three runs for the presidency.

Oh by the way, who has been benefiting from America’s existing healthcare programs?

Again it is the rich, from Zero Hedge: (bold original)

According to the latest data compiled by the Agency for Healthcare Research and Quality, in 2010, just 1% of the population accounted for a whopping 21.4% of total health care expenditures with an annual mean expenditure of $87,570. Just below them, 5% of the population accounted for nearly 50% of all healthcare spending. Just as stunning is the "other" side: the lower 50 percent of the population ranked by their expenditures accounted for only 2.8% of the total for 2009 and 2010 respectively. Perhaps in addition to bashing the "1%" of wealth holders, a relatively straightforward and justified exercise in the current political climate, it is time for public attention to also turn to the chronic 1% (and 5%)-ers who are the primary issue when it comes to the debt-funding needed to preserve the US welfare state.

The spending distribution in chart format

see more charts here

Liberal media and their experts have served no more than mouthpieces for cronies. 

And another thing, this hasn't just been exclusively a US dynamic.

Quote of the Day: Government Shutdown Mean Boondoggle Shutdown

the words “government shutdown” do not mean “government shutdown.” They mean “boondoggle shutdown.” They mean “special-interest-group-subsidy shutdown.”

What about the Post Office? Will it get shut down? No.

What about the CIA? Will it get shut down? No.

What about the NSA? Will it get shut down? No.

What about the TSA? Will it get shut down? No.

What about the Department of Homeland Security? Will it get shut down? No.

My suggestion: stop worrying about a government shutdown. Instead, keep worrying about the government staying open . . . just like you did before.

From the Tea Party Economist Gary North

Misleading Housing Statistics on US Household Budget

Government  statistics should never be trusted as shown by the example below.

In questioning the U.S. Department of Agriculture’s (USDA) statistical treatment of the housing expenditure share of the household budget, Austrian economist Gary North writes:

What’s wrong with this? First, attributing 30% to the cost of housing. If a family puts three boys on one bedroom, and three girls in a second bedroom, the cost per child will plummet.

In fact, the housing expense for children is close to zero. Here’s why. All costs are marginal, economic theory teaches. What is the cost of those extra rooms? Almost zero.

When childless couples buy a home, do they buy a one-bedroom home? No. They buy at least a two-bedroom home. Most of them buy a three-bedroom home. But if the average American family buys extra bedrooms for show, the marginal cost of having a child live in that bedroom is zero. This is basic economics.

Do they immediately move out when the children depart? No. So, the marginal cost of the children’s occupancy was zero. Americans pay for bedrooms they don’t need. It’s aesthetic. It’s cultural. It’s the American dream.

I live in a three-bedroom home. Two of them are empty. I could easily convert two more rooms into bedrooms. I could adopt 10 children, and the housing costs would not rise much: the loss of one office, which could be moved into the basement, where there is another empty room. What did I pay for the house, plus the basement? About $225,000. I bought it in 2009. So, spare us the cries of high housing costs for children. These costs are marginal. The more kids you stick into a bedroom, the more marginal the costs are.

Read more here

Statistics have been designed to see society as one-size-fits-all phenomenon. Why? Because they are used as basis to justify interventionism. 

As the great dean of the Austrian school of economics, Murray N. Rothbard warned

Certainly, only by statistics, can the federal government make even a fitful attempt to plan, regulate, control, or reform various industries — or impose central planning and socialization on the entire economic system

Quote of the Day: The goal of Nixon Shock is to get foreign governments to hold US debts

Nixon unilaterally abolished the monetary agreement established in 1944 at Bretton Woods, New Hampshire. At that meeting, the United States, Great Britain, and other Western nations established a new monetary order. It would be supported by the United States Treasury. The United States Treasury would guarantee that any central bank or foreign government could buy gold from the Treasury at a price of $35 per ounce.

The goal of the Treasury was simple: to get foreign governments to hold Treasury debt instead of gold. Because Treasury debt was supposedly as good as gold, foreign governments and central banks could hold Treasury debt instead of holding gold. This enabled the United States government to run fiscal deficits, and foreign governments and central banks financed a portion of this debt. They did so by creating their own domestic currencies out of nothing, and then using these currencies to buy U.S. dollar-denominated debt, meaning U.S. Treasury debt. It was a nice arrangement. Foreign governments and foreign central banks gained an interest rate return on holding treasury debt, which they could not get by holding gold. Yet the dollars that they were being promised by the Treasury were supposedly as good as gold.

This is an extract from Austrian economist Gary North’s article in remembrance of the Nixon Shock or the closing of the Bretton Woods Gold Exchange Standard 42 years ago today.  

This shift towards the fiat money US dollar standard regime magnifies the Triffin Dilemma, where recent improvements in US trade and budget deficits could mean trouble ahead for global markets and economies.

Quote of the Day: Liberalism’s trifecta

The industry was liberalism’s trifecta: newspapers, television networks, and the school system. Two are bleeding red ink. The third soon will be, as online education enables students to live at home, take courses online, graduate with accredited degrees, and pay $15,000 in tuition, total. A widely accepted estimate is that half of all American universities will go under over the next five decades. It won’t take anywhere near that long. The no-name private colleges will go under first, Cutbacks in tax funding will complete the procedure. Legislators will figure out that they can fire two-thirds of the faculty and replace them with online lectures and low-paid, untenured professors and graduate students to grade written exams.

All that liberalism will have left is the public school system, K-12. This dinosaur has been caught trapped in the tar pit ever since 1963, when SAT scores peaked. Online education is invading today. The American Federation of Teachers is on the defensive. In 50 years, the suburban schools will be online. Competition will demonstrate that the public school bureaucracies cannot compete.

Liberalism made entrepreneurial decisions on where the future was headed. The World Wide Web is taking the world in a different direction. It is leaving liberalism behind.

Liberals call this process of ideological decentralization “Balkanization.” I call it the break-up of a cartel that can no longer compete on the free market.

This is from Austrian economist Gary North at the lewrockwell.com. Decentralization will likewise erode the 20th century top-down political institutions.

A Coming Change in North Korea’s Politics?

Starving North Koreans appear to be forcing changes in the political sphere.

From Austrian economist Gary North at the Tea Party Economist:

The last bastion has fallen. The last hold-out is no longer holding out.  North Korea now allows collective farms to lease land to peasants. The peasants pay 30% of the crop to the collective.

This is sharecropping.  This is what the USA had in the South after 1865. This is a move to capitalism.

We can be sure of this: output will rise. This is what Deng did in 1978. He freed up agriculture. The boom began within a year.

Starvation is the mother of political invention.

The peasants will buy into this if they believe they will really get to keep 70%. It may take a couple of years to persuade them. They have reasons to be skeptical. They are suspicious. But if the collectives abide by the rules, Communism is finished.

The experiment has failed.

Mayhem in the US Treasury Markets, No Problem, China to the Rescue!

When you're down and troubled and you need a helping hand and nothing, whoa, nothing is going right.

Close your eyes and think of me and soon I will be there to brighten up even your darkest nights. —James Taylor, You’ve got a friend

China’s government has played the role of “savior” to what could have been a US treasury market crash last May. 

As the US Treasury markets seized up, the Chinese government added $25.2 billion to its US treasury holdings which represents the highest hoard ever.

From China Daily USA:

China, the biggest creditor to the United States, increased its holdings of US Treasury bonds by 2 percent in May to $1.32 trillion, even as foreign demand for the bonds fell for a second consecutive month, according to the US Treasury.

China had increased its holdings of US bonds by 1.6 percent in April, which was revised higher after an initially 0.4 percent drop. Japan, the second-largest buyer, trimmed its holdings 0.2 percent to $1.11 trillion in May…

US residents increased their holdings of long-term foreign securities, with net purchases of $27.2 billion, while foreign investors decreased their holdings by $39.2 billion, said the Treasury report.

The sum total in May of all net foreign acquisitions of long-term securities, short-term US securities, and banking flows was a monthly net of $56.4 billion, said the Treasury Department. Net foreign private inflows were $46.6 billion, and net foreign official inflows were $10 billion.

TIC data shows that total foreign ownership of USTs reached a fresh record of $4097.9 billion in May, surpassing the February highs of $4097.4. 

China’s additional acquisition of $25.2 billion of USTs has been the swing factor. This implies that China’s actions played a crucial role in providing counterbalance to the resurfacing of the bond vigilantes. [The Philippines joined the "you've got a friend" movement adding $.2 billion last May]

This also demonstrates of the deepening dependency by the US government on her Chinese counterpart.

Austrian economist Gary North explains;

The U.S. government is running about a $650 billion deficit this fiscal year. The People’s Bank of China is doing its part to help out. It just bought another $25 billion of this deficit last month.

Why is it doing this? To hold up the value of the dollar.

Why is it holding up the value of the dollar? To make it less expensive for Americans to buy goods made in China.

But then protectionists in Congress scream bloody murder, because China is subsidizing exports to Americans. Then they vote for federal spending that runs a huge deficit. So, in order to hold down government interest rates, the Treasury Department must find buyers of this debt, other than the Federal Reserve System. The Chinese central bank is a large buyer.

So, every time Senator Chuck Schumer of New York insists that China must be stopped from rigging its currency, he is really saying that the Chinese central bank should stop buying IOUs issued by Congress. Then he votes for another spending program.

The Chinese central bank creates money out of nothing, just as the Federal Reserve does. Then it takes this newly counterfeited money and buys U.S. government debt, just as the Federal Reserve does. It bought $25 billion of this debt last month. The Federal Reserve bought $45 billion. So, when it comes to currency-rigging, which central bank is the greater culprit?

This is the race to the bottom. Which central bank will destroy its currency first? Or, if the central banks decide not to inflate any more, which central bank will cease counterfeiting money, thereby causing an economic depression?

The two economies, China’s and America’s, are addicted to the drug of fiat money. The first central bank to quit counterfeiting — the first one to “taper” — starts the international recession. Which will it be?  The first one to stop inflating permanently will turn the recession into a depression. Which will it be?

In May of 2012, the Chinese government has been given direct access to the US Treasury which basically bypasses the crony Wall Street. That reveals of the significance of the US-China relationship.

Such dependancy extrapolates to a Dr. Jekyll and Mr. Hyde relationship where on the financial front, the US and the Chinese government have been operating stealthily as staunchest allies, as against the geopolitical front, which media paints both parties as nemesis or adversaries.

The implication as I wrote a year ago:

Of course the inference from the above statement is that the Scarborough Shoal controversy has been mostly a false flag. What you see isn't really what has been. Politicians and media has taken the public for a ride at the circus.

I would add that not only has the media portrayed conflict between US-China been to promote the military industrial industrial complex, it serves as convenient pretext for the political class of these respective nations involved in territorial disputes, to expand control on their constituents via more financial repression, more taxes, more regulations and other forms of political control...all in the name of nationalism. 

At the end of the day, the world operates in a gamed system.

Quote of the Day: Inflation is music to the ears of stock market investors

Stock market investors care about the bad news in Europe, the United States, and China. They care deeply. The looming decline of all of these economies will let central bankers inflate with abandon, just as they have ever since 2008. Inflate! That is music to the ears of stock market investors.

Of course, it’s not called inflating. It’s called easing.

It’s not called counterfeiting. It’s called accommodation.

It’s not called debasement. It’s called active monetary policy.

The worse the economy gets, the better it is for Wall Street . . . until it gets really bad. Then Wall Street rolls over and plays dead.

Wall Street wants counterfeiting by the FED. So do Keynesians. The word “taper” terrifies Wall Street. It terrifies Keynesians, too. And as for “exit,” Wall Street and Keynesians unite: “No exit!”

That’s what the federal budget deficit offers: “No exit.”

That’s what the unfunded liabilities of Social Security and Medicare offer: “No exit.”

That’s why the Great Default is coming.

This is from Austrian economist Gary North at the TeaPartyEconomist.com

I would call this substance abuse only in the form of inflation.

The Hunt for Snowden US Foreign Policy Fiasco

Fatal conceit unmasked as exhibited by the US government’s hunt for the whistleblower Edward Snowden

From Austrian economist Gary North at his website: (hat tip lewrockwell.com) [bold mine]

Last week, some bonehead in the Obama administration -- the media did not bother to find out who -- decided that he would issue an order to France, Italy, Spain, and Portugal to forbid the overflight of the presidential jet the President of Bolivia.

Did he do this on his own authority? Bureaucrats do not put their careers on the line because some low-level political hack tells them to. They want orders from the top.

They got these orders.

That forced the pilot of the plane to land in Vienna. At that point, the next phase of the bonehead's plan involved the use of Austrian officials, meaning either the police or the military, to board the plane and search it to find Edward Snowden. The problem was, Edward Snowden was not on the plane.

That immediately caused a sensation around the world. Especially in Latin America, heads of state criticized the U.S. government's interference with the presidential jet of the Bolivian President. At that point, Venezuela's President finally jumped off the fence, and offered Snowden asylum. He had resisted doing this prior to the decision of the bonehead to interfere with the Bolivian jet. Not to be outdone, the President of Bolivia then offered him asylum, and then the President of Nicaragua did the same. The President of Nicaragua is Danny Ortega, the Sandinista.

So, before the bonehead made his decision, no country was willing to offer Snowden asylum. But, because the bonehead decided to risk making a fool of the United States government, Snowden now has three places he can flee to.

This is a classic political mistake. The hack had almost no understanding of the potential fallout from his decision. This particular hack never bothered to consider the fallout in Latin America from the decision of the United States to pressure its toadies in Europe to forbid the jet from flying over their air space. Next, the toadies in Europe were exposed as exactly what they are, namely, toadies of the United States, so they are much less likely to cooperate in any further interference with Snowden's travel plans. Third, the Austrian government looks even worse than the other four governments, because it sent armed officials onto the plane in a fruitless search for a man who was not there.

This makes leftists in Latin American look like courageous heroes, because they are standing up to the United States government. But they decided to do this only because of the bonehead's decision to make the United States government look bad in front of the whole world. Now they can present themselves as standing tall. But they only stood up because of the bonehead.

The bonehead should have been fired within hours. But that was not done. This indicates that the decision was made by a political advisor in the Obama administration. He is not some low-level twerp. He is somebody close to the President, which means close enough to have gotten official approval from Obama for what is now obviously a bonehead move.

The decision had to be implemented by the bureaucracy. No one is saying which one.

Once again, we see how power makes operational idiots out of smart people. They do not count the full costs of their decisions. They are protected by the system, and they make decisions throughout their careers in terms of these protections. Then, without warning, the protections collapse in the face of public reaction against the bonehead decision.

Read the rest here

Video: Ron Paul: NSA Seizing Phone Records Symptom of Failure of The State

Former Congressman Ron Paul interviewed by Fox's Neil Cavuto on the intensifying spying by the US government on her constituencies.

Austrian economist Gary North on the public's backlash from the fast expanding Orwellian Big Brother state (hat tip Bob Wenzel) (bold original)

This will in no way reverse the process. The cost of monitoring everyone continues to fall. Economics teaches that when the price of anything falls, more is demanded.

Only one thing can reverse this: budget cuts for the offending agencies. Congress never imposes budget cuts, especially on the NSA (No Such Agency).

Most voters know that this invasion of their privacy is illegitimate. They also know that Congress will do nothing about it. It will hold hearings — maybe even closed-door hearings. But nothing will change.

Nevertheless, headlines like these are always positive. They help lower the public’s assessment of the federal government’s legitimacy. Ultimately, civil government is about power, but legitimacy increases voluntary compliance by the public. Every time the government loses a little legitimacy, it’s positive.

Video: Gary North on the World's Transition to the Modern Economy

Via BBC's Hans Rosling, I have previously posted a video showing the modern economy's dramatic growth transformation which begun during the 18th century, from the agricultural age to the industrial era to today's post industrial information/digital epoch.

In the following video, Austrian economist Gary North expounds on Deidre McCloskey's theme that "ideas" or "rhetoric" or the "Bourgeois Dignity or Virtue" as the major force behind such monumental progress. 

As per Mr. North, Ms. McCloskey's theme signifies as, 

a change of attitude regarding entrepreneurship, and a change in attitude regarding innovation and personal wealth derived from innovation and entrepreneurship...

The argument is people’s attitude for the first time radically changed on the question of the legitimacy of personal wealth through entrepreneurial activities 

Mr. North adds two additional factors to the ideas or virtues of the pursuit of self-interests: one is ethics (view of right and wrong), which may have played a significant shift in the public's opinion, where acquisition of personal wealth became legitimate. Second is a shift of the view of the future (based on religious influences or what Mr. North calls as the "post millennialist eschatology"). 

In short, people's values and beliefs evolved overtime to reflect on the marginal changes on the course of actions undertaken which compounded to manifest on such progress.

Quote of the Day: The Religion of Democracy

Modern social theory clings to two ultimate presuppositions. First, men are motivated by economic self-interest. Second, democratic institutions can be used to limit the success of such special-interest groups. The ultimate special-interest group, which is not a special-interest group at all, but the general interest, namely, the democratic masses, will be victorious in history. This is the god of the modern world, and this god is defended by a priesthood. The priesthood is mostly academic, and what is not academic is embedded in the media. The professor and the anchorman are the high priests of this well-organized religion.

The professors and the anchorman resent any suggestion that there is a hidden group behind them that shapes their thinking. They resent the fact that some people say that they have been bought off. I think it is a mistake to imagine that buying off someone with money constitutes the whole story. They have not merely been bought off. They have bought in. They have bought into the outlook that democracy will triumph over the economic interests of special-interest capitalism.

The people who say that the priests of academia and the media have been bought off have not followed the money far enough. These priests have indeed been bought off, but they have been bought off in a very special way. They have been screened in terms of their confession of faith. Their confession of faith must be in favor of the religion of democracy. Anyone who deviates from this faith has not yet been promoted into the highest visible seats of priestly service.

These carefully screened spokesmen for the Establishment deeply resent any suggestion that behind the religion of democracy has always been a calculating group whose senior members believe that you can fool all of the people most of the time, and that you can fool most of the professors all of the time. They resent the fact that anybody would suggest that the way they attained their positions is based on crass payoffs. I agree. The payoffs are not at all crass. They are subtle. One of C.S. Lewis's greatest essays is "The Inner Ring." It describes the nature of the payoffs.

This is Austrian economist Gary North discussing conspiracy theories vs. the religion of democracy.

Applied to the Philippines, this reminds me of mainstream media networks whose slogan consists of claims of “walang pinapanigan” or “walang kinakampihan”—no biases.

Gary North on Irving Fisher: The Most Influential Economic Crank in American history

Austrian economist Gary North on a smackdown of the late Irving Fisher. (hat tip Bob Wenzel) 

Fisher was the most influential economic crank in American history. Fisher offered a simple formula that supposedly enables economists to understand the complexities of monetary policy and its effects on the price level: MV=PT. It relies on an intellectual construct, namely, the price level. This must be created by statisticians and economists. The formula does not explain cause-and-effect in terms of the transmission and spread of newly created money throughout the economy. It is totally an aggregate concept. It ignores individuals who make decisions: in government, central banks, commercial banks, and specific markets.

Ludwig von Mises' theory of money begins with real central banks, real borrowers, and the spread of fiat money over time: none of which is considered by Fisher or Friedman.

Fisher proved in 1929 that he was the most highly educated economic fool in the world. He went public with two predictions.

"There may be a recession in stock prices, but not anything in the nature of a crash." (i>New York Times, Sept. 5, 1929)

"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." (Oct. 17, 1929)

http://www.gold-eagle.com/editorials_01/seymour062001.html

Then, over the next four years, he lost his own personal fortune. He was so poor in 1933 that Yale University had to subsidize housing for him. Yet this consummate fool, whose economic theories not only led to a catastrophic personal error, but which to a great extent were responsible for the original monetary policies of the Federal Reserve, which it pursued in the late 1920s, is now heralded as some kind of economic genius. Friedman regarded him as "the greatest economist the United States has ever produced." (Money Mischief, p. 37).

Fisher was a crank, and Mises exposed him as a crank within a year of the publication of Fisher's 1911 book. If you want to get an idea of how different their theories are, read Mark Thornton's article. Fisher believed that we can safely trust the government or its central bank to formulate monetary policy. He opposed the gold coin standard, because he thought it is inefficient. That was also true of Friedman. Neither of them ever understood that the free market is capable of providing a sufficient quantity of money, by means of gold mining, for a market economy. Supply and demand for goods and services are regulated by means of a private currency system that itself is created by market processes. Neither Fisher nor Friedman ever believed this. They both believed that the government must intervene in order to create a reliable monetary system, so that there can be economic growth, market clearing processes, and individual liberty. They both believed in the wisdom and power of the state with respect to the central commodity in an economy, namely, the money supply.

Ironically Irving Fisher has been regarded as the “greatest economist of the last century” by some.

Nonetheless, I find Mr. Fisher’s sequential description of debt deflation as useful

Mr. North also points out that Mr. Fisher was also a eugenics crank

Read the rest here.

Quote of the Day: The Essence of the Ponzi Scheme is Not Statistical; it is Psychological

The essence of the Ponzi scheme is not simply its statistical unsustainability. The essence of the Ponzi scheme is that it is like an addictive drug. Once someone enters into it, he finds it psychologically impossible to face the reality of the unsustainable statistics of the program. He refuses to get out in time. His participation in the scheme fundamentally changes his outlook toward reality. He is no longer capable of being persuaded that he has made a fool of himself by entering into such a scheme. This includes the founder of the scheme.The essence of the Ponzi scheme is not statistical; it is psychological. It creates belief in that which is statistically impossible, and the degree of belief is so strong that anyone who points out the statistical impossibility of the scheme risks being cut off personally by the victim. Ponzi scheme economics creates the classic attitude: shoot the messenger.

(bold original)

This is from Austrian economist Gary North at his website on the Ponzi Welfare State economy. 

Let me add that financial bubbles are also Ponzi schemes which ultimately depends on unsustainable credit and monetary accelerated expansions that eventually backfires. This is why they are called bubble cycles.

A famous Wall Street idiom emblematic of this pathology is “left holding the empty bag”

In analyzing America’s Great Depression, dummies.com uses such phrase as description for the one of the major excruciating chapters of US economic and financial history

Many more had borrowed money from banks to buy stock, and when the stock market went belly-up, they couldn't repay their loans and the banks were left holding the empty bag.

The point is that market risks escalates when the public begins to manifest snowballing symptoms of espousing nirvana fallacies or delusions of grandeur by shunning economic reasoning and basic mathematical or even statistical realities, or at worst, common sense--or the Ponzi psychology. 

Quote of the Day: Golden Handcuffs

When the public had access to gold coins prior to 1914, individuals controlled banking policy. They also controlled government fiscal policy. They could take their coins out of commercial banks if they did not approve of government policy. This is why national governments annul or restrict gold-coin redeemability whenever a major war breaks out. They do not want to face the citizens' veto. 

With the repudiation of any gold-coin standard since 1914, citizens no longer understand the case for a gold-coin currency. They do not understand that widespread gold ownership was the number one restraining factor on the expansion of state power in the economy. The uncoordinated individual decisions of millions of people could overturn any government policy that required central bank inflation to fund it. The politicians resented this. So did the central bankers.

The politicians were under restraints: golden handcuffs. They decided that it was better to turn the money-creation power over to the bankers. The central bankers promised to buy government bonds at low rates: lender of last resort. This made the central bank the counterfeiter of last resort.

This is from author Gary North on the religion of inflationism-central planning versus free markets at the Mises.org.

Gary North on How to Gum Up Any Institutions

Well if governments can make a mess of society through immoral  statutes and regulations, people can reciprocate by goofing up the system through non-violent means.

Austrian economist and author Gary North offers how to gum up any institutions, not limited to the government.

Rules are about redirecting people’s behavior to assure compliance. And institutions rely on sets of rules for it to thrive.

Economist Gary North explains:

First, every institution assumes voluntary compliance in at least 95% of all cases. This may be a low-ball estimate. Most people comply, either out of fear or lack of concern or strong belief in the system and its goals.

Second, every institution has more rules than it can follow, let alone enforce. Some of these rules are self-contradictory. The more rules, the larger the number of contradictions. (There is probably a statistical pattern here – some variant of Parkinson's law.)

Third, every institution is built on this assumption: partial compliance. Not everyone will comply with any given procedural rule. There are negative sanctions to enforce compliance on the few who resist. They serve as examples to force compliance. Conversely, very few people under the institution's jurisdiction will attempt to force the institution to comply exactly with any procedural rule.

These three laws of institutions – and they really are laws – offer any resistance movement an opportunity to shut down any system.

Economist North provides an example of how Vladimir Bukovsky jammed the Soviet Union Gulag, along with other inmates, by sending daily letter of protests to the Soviet bureaucracy from which the latter had to legally respond. The result was bureaucratic chaos.

As the 75,000 complaints became part of the statistical record, the statistical record of the prison camp and the regional camps was spoiled. All bureaucrats suffered. There went the prizes, pennants, and other benefits. "The workers start seething with discontent, there is panic in the regional Party headquarters, and a senior commission of inquiry is dispatched to the prison."…

Finally, in 1977, they capitulated to several specific demands of the prisoners to improve the conditions of the camps. The governor of the prison was removed and pensioned off. Their ability to inflict death-producing punishments did them little good, once the prisoners learned of the Achilles' heel of the bureaucracy: paperwork.. The leaders of the Soviet Union could bear it no longer: they deported Bukovsky.

Economist North further discusses on American community organizer Saul Alinsky’s improvisation of Mahatma Gandhi’s non-violent means of protests:

Alinksy realized early that very few people will pay the price that Gandhi paid. So, he devised a system of resistance that lowered the risk, thereby lowering the cost. He understood the economists' law: "When the cost of producing anything falls, more will be supplied." More of what? Resistance.

His system involved at least one of two tactics: (1) violating a rule to which only a minimal negative sanction was attached, (2) follow the organization's procedural rules to the letter in a Bukovsky-like manner.

He tested his non-violent strategy and tactics in the 1960s in Chicago. He wrote a book on his system, Rules For Radicals (1972). He wrote this.

Let us in the name of radical pragmatism not forget that in our system with all its repressions we can still speak out and denounce the administration, attack its policies, work to build an opposition political base. True, there is still government harassment, but there still is that relative freedom to fight. I can attack my government, try to organize to change it. That's more than I can do in Moscow, Peking, or Havana. Remember the reaction of the Red Guard to the "cultural revolution" and the fate of the Chinese college students. Just a few of the violent episodes of bombings or a courtroom shootout that we have experienced here would have resulted in a sweeping purge and mass executions in Russia, China, or Cuba. Let us keep some perspective.

We will start with the system because there is no other place to start from except political lunacy. It is most important for those of us who want revolutionary change to understand that revolution must be preceded by reformation. To assume that a political revolution can survive without a supporting base of popular reformation is to ask for the impossible in politics. Men don't like to step abruptly out of the security of familiar experience; they need a bridge to cross from their own experience to a new way. A revolutionary organizer must shake up the prevailing patterns of their lives – agitate, create disenchantment and discontent with the current values, to produce, if not a passion for change, at least a passive, affirmative, non-challenging climate. "The revolution was effected before the war commenced; John Adams wrote. "The Revolution was in the hearts and minds of the people. . . . This radical change in the principles, opinions, sentiments and affections of the people was the real American Revolution." A revolution without a prior reformation would collapse or become a totalitarian tyranny.

Read the rest here 

Mr. Alinsky then devised of 13 tactical guidelines for the “gummit” model, again Mr. North:

1. Power is not only what you have but what the enemy thinks you have.
2. Never go outside the experience of your people.
3. Wherever possible go outside the experience of the enemy.
4. Make the enemy live up to their own book of rules.
5. Ridicule is man's most potent weapon.
6. A good tactic is one your people enjoy.
7. A tactic that drags on too long is a drag.
8. Keep the pressure on.
9. The threat is usually more terrifying than the thing itself.
10. The major premise for tactics is the development of operations that will maintain a constant pressure upon the opposition.
11. If you push a negative hard and deep enough it will break through into its counter side.
12. The price of a successful attack is a constructive alternative.
13. Pick the target, freeze it, personalize and polarize it.

The Gandhi Alinsky disobedience model reminds me of Etienne de la Boetie, French judge, writer and founder of modern philosophy and one of the early advocates of civil disobedience, who once wrote 

Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break into pieces

Gumming up a tyrannical institution is a way to re-establish or win back freedom.