Quote of the Day: Politicians are Inveterate Liars

Writes Robert Higgs, Senior Fellow in Political Economy at The Independent Institute (source of the below quote) and editor at Large of the Institute’s quarterly journal The Independent Review: (bold mine)

Between the would-be, public office-holder on the one hand and the citizen in general and voter in particular on the other, lies a huge barrier that precludes the establishment of any rational connection. Think of genuine “representative government” on anything other than a very small scale as a practical impossibility. Many reasons explain the existence of this barrier, including the logical impossibility of an agent’s accurately representing each member of a group of principals who do not agree among themselves, but certainly one of the most fundamental factors is that the office seekers often lie to the public, or at least obfuscate and hedge about their statements in a way that makes them de facto lies.

Thus, Mr. Blowhard promises that if you elect him, he will do X. After he is elected, however, he does not do X, but offers an endless litany of excuses for his misfeasance or malfeasance in office. In any case, the essential reality is that no one can hold the successful office seeker to account for his infidelity in carrying out his promises. Everyone is stuck with him until the next election, in anticipation of which he will spew out another ridiculous series of lies and worthless promises. The office-seekers’ lies cover pretty much the whole ground of their speech. Of course, they are not forthcoming about past defalcations, de jure and de facto bribe takings, and personal peccadilloes. They almost invariably misrepresent their true reasons for seeking office, putting the shiniest possible public-service gloss on their raw ambition and lust for power. And they rarely if ever reveal truthfully the actual coterie to which they will be ultimately beholden, normally the largest and most influential supporters in their electoral campaign. Instead, they ludicrously declare that they will invariably “serve all the people.”

In policy matters, they lie about everything, although some of their lies may actually spring at least in part from their ignorance of how the world works and from their ideological blindness, rather than from deliberate, knowing attempts to misrepresent themselves and situations they will have to deal with in office. The lies about domestic policy are perhaps somewhat less blatant because many members of the public have personal acquaintance or contact with various aspects of such government action, which limits how big a whopper a politician can hope to get away with, whereas in defense and foreign-policy policy the office-seekers, regardless of their personal preferences or knowledge, can always rely on the general public’s near-complete ignorance of foreign lands and the political, social, and economic conditions that prevail there, and hence there is no practical limit to the enormousness—and the enormity—of the lies they can tell in regard to these types of issues.

In the case of past presidents seeking reelection, it is a simple and oft-performed exercise to document the lies they told to gain reelection, usually by representing themselves in some fashion as “peace candidates,” even while in some cases they were actively maneuvering to involve the United States in foreign quarrels that might well have been avoided if the office-seekers/office-holders had been concerned with the nation’s genuine security and well-being, as opposed to their place in the history books as “great presidents” or “world saviors.” These cases are illustrative, too, of the uselessness of elections as checks on office-holders’ departures from their campaign promises. Voters who cast their ballots for Woodrow Wilson in 1916, for Franklin D. Roosevelt in 1940, and for Lyndon B. Johnson in 1964 in a quest to help elect the self-represented “peace candidate” must have been sorely disappointed by the actions these men took immediately after their reelections, but what could the voters do once so much fat was in the fire? By the time the next election came around, the world had been utterly transformed—and millions of lives had been lost, as well.

So, what possible intelligence can voters exercise in casting their ballots? They can vote in accordance with the appeal a particular candidate’s promises hold for them, but relying on candidates to carry out their promises would be childishly foolish. Anyone who pays the slightest attention to politics knows that politicians are inveterate liars; many would sooner lie than speak truthfully even if the truth did not thwart their purposes, because lying would be more congenial to their true, dishonest character. Thus, voters can do nothing more than throw ideological darts, casting their ballots for the candidate who makes the most appealing noises, has the handsomest face, or displays peacock-like the most fabulous partisan posturing.

To perceive any fixed and reliable link between what the candidates promise and what they deliver in office would be wildly counterfactual. Politicians have no more backbone than an earthworm. Even if they could not be bought—and most obviously can be—they are constantly at auction for rent, and the bidding never ceases. Thus, we can count on them with complete confidence in only one regard: their mendacious shilly-shallying.

Quote of the Day: Money Changed Everything

From Author and Agora Founder, Bill Bonner at his website: 

Not one person in 1,000 realizes it, but America’s money changed on August 15, 1971. After that, not even foreign governments could exchange their dollars for gold at a fixed rate.

The dollar still looked the same. It still acted the same. It still could be used to buy booze and cigarettes.

But it was flawed money. And it changed the whole world economy in a fundamental way… a way that is just now coming into focus.

The Old Testament tells us that God chased Adam and Eve from the Garden of Eden with this curse: “By the sweat of your brow, you will earn your food until you return to the ground.”

From then on, you worked… you earned money… you could buy bread. Or lend it out. Or invest it.

Dollars – or any form of real money – were compensation… for work, for risk taking, for accumulating knowledge and capital.

Money is information. It tells us how much reward we’ve earned… how much things cost… how much profit, how much loss, how much something is worth… how much we’ve saved, how much we’ve spent, how much we need, and how much we’ve got.

Money doesn’t have to be “hard” or “soft” or expensive or cheap. But it has to be honest. Otherwise, the whole system runs into a ditch.

But the new money was a phony. It put the cart ahead of the horse. This was money that no one ever had to break a sweat to get. It was based on credit – the anticipation of work, not work that had already been done.

Money no longer represented wealth. It now represented anti-wealth: debt. So, the economy stopped producing real wealth.

The Fed could create money that no one ever earned and no one ever saved. It was no longer the real thing, but a counterfeit.

In this way, effort and reward were cut off from one another. The working man still had to labor. But it was the banker, gambler, speculator, lender, financier, investor, politician, or inside operator who made the money.

And the nature of the economy changed. Instead of rewarding the productive Main Street economy, it rewarded insiders… and the financial sector.

The penthouses of Manhattan and the summer houses of the Hamptons changed owners. Gone were the scions of Detroit factories and the titans of New York commerce. Gone were the people who had added to the wealth of the nation.

In their place were the Wall Street hustlers… the people who moved money around… taking it from the people who made it and giving it to the financial industry, the money lenders, the insiders, and the Deep State.

This process is misunderstood. It is thought that Wall Street greed and deregulation caused the shift. But Wall Street was just as greedy as it always was… And financial regulations increased dramatically throughout the entire period.

It was not human nature that had changed; it was the money. And it changed everything.

Quote of the Day: The Euro, the EU and the European Central Bank are Doomed

From the legendary investor, author, libertarian philosopher, anarcho capitalist Doug Casey at the International Man:

The economy of the European Union is a constipated, sclerotic, malfunctioning entity that only registered real economic growth of 0.2% in the recent quarter—assuming you can credit their numbers at all. The continent is a giant monument to socialism, where everyone believes they can live at the expense of everyone else. As a result, the average European sees his government as a magic cornucopia, a source of unlimited wealth. When something goes wrong, Europeans look to their governments to “do something.” With this in mind, European Central Bank President Mario Draghi made the front pages by saying he is “ready to act” with a “whole menu of monetary policy instruments.”

This is central banker speak for “I’m willing to print an incredible amount of money in my attempt to keep my job and stimulate the economy by making people think they’re richer than they really are.”

Draghi’s money printing is a disastrously misguided attempt at creating prosperity. It will create bubbles, and cause people and companies to do all manner of things they’d never consider without the false economic signals he will send. If printing money were the path to prosperity, Zimbabwe and Venezuela would be the richest countries on earth instead of economic basket cases.

Traders who take positions based on the words of a central banker are naïve, and just asking for losses. Not only does the ECB believe printing money is a good thing, but they’re forced to do more, to keep the system from collapsing. This will send the value of the euro much lower; the currency will accelerate its descent toward its intrinsic value, namely zero.

The euro is a sure bet to join the ranks of many hundreds of defunct paper currencies. Not one currency in today’s world is backed by a commodity (like gold); they’re backed only by confidence (which can vanish like a pile of feathers in a hurricane). And, of course, the ability of governments to steal from the people. But the euro doesn’t even have that going for it. The European Union doesn’t have the power to tax. Right now, the Eurocrats in Brussels really only have the power to regulate. I’ve long said, “While the U.S. dollar is an ‘IOU nothing,’ the euro is a ‘who owes you nothing.’”

The EU itself is a completely artificial and dysfunctional union. The Swedes are very different from the Sicilians, and the Portuguese very different from the Austrians. These people have little in common besides a history of fighting with each other. Force them together into a phony union and they’ll become mutually resentful, the way the Germans and the Greeks now are. The EU was put together partly to avoid future wars, but it may turn out to be a war incubator.

The European Union itself makes no real sense. Its sole good aspect, the abolition of internal barriers to the free passage of goods and people, could have been had simply by dropping barriers. Setting up another huge, costly bureaucracy in Brussels was idiocy.

Incidentally, people think of these countries—Italy, France, Germany and so on—as though they are fixtures in the cosmos. But they aren’t. In their current forms, they’re all newcomers on the stage of history.

The average person doesn’t realize that the country we know as Italy today was only created in 1861, a consolidation of many completely independent and very different entities that had been separate states since the collapse of the Roman Empire. Germany was only unified in 1871, out of scores of principalities, dukedoms, baronies and whatnot. Both unifications were very bad ideas; World Wars I and II are just at the head of a long list of reasons why that’s true. Even today, there are separatist movements in big Western European countries, like the Basques and Catalans in Spain, and the Scots in the United Kingdom, who wish it weren’t quite so united. There are many others.

Centripetal force will eventually tear it apart, with the EU as a whole disintegrating long before its individual parts—France, Italy, Germany the U.K., etc.—fall apart. The colors of the map are always running.

The European continent reminds me of that poorly managed cruise ship that sank off the coast of Italy in 2012. It is dying financially, with all the debt bankrupting governments, businesses and individuals. It is sinking economically, weighted down with stifling regulations and taxes. It is being strangled demographically, with birth rates far below replacement. Except among African and Muslim immigrants, who are not integrating. And now, millions of migrants, who seem to expect free food, shelter, clothing and money to hang around coffee houses all day to complain. Europe has long been a hotbed of religious, ethnic and race wars—quite frankly, I see the next one building up right now.

So, I think the euro will reach its intrinsic value long before the dollar does. The euro, in anything like its present form, will likely cease to exist within a decade, and probably far sooner. If I had a lot of my wealth in euros, I would get it out ASAP.

Quote of the Day: The Texas Boom Bust Oil Economy

Writes analyst Wolf Richter at the Wolfstreet.com

This money was drilled into the ground. It was used to build office towers for the booming energy sector and everything that came along with it, such as law firms and engineering firms. It was used to build apartment towers. It drove technology forward and funded innovation. It bought equipment. It fed manufacturers that supplied the oil industry. It paid for the construction of hotels and temporary housing for oil workers even in small towns….

And along the way, the money paid for wages, salaries, bonuses, and royalties, and folks went out and spent this money.

The state government was ecstatic with this influx of cash. Retailers were even more ecstatic and opened new stores. Mall owners were happy. Banks bathed in bliss and extended huge loans to drive this miracle to the next level. Consumers were expressing their happiness by feeding retail profits and state coffers alike.

Retail sales recycled the money and contributed to the strong Texas economy. Everything went right – until the price of oil plunged.

Now oil and gas companies are going bankrupt. Manufacturers and service providers that supply the oil and gas industry are sinking into the mire. People are getting laid off, from retail workers to high-level engineers in the energy sector. And sagging retail sales indicate that these folks, and others around them, are closing their wallet or that they’ve maxed out their credit cards after losing their jobs.

Tax collections on motor vehicle sales and rentals had experienced an even greater boom. From the first half of 2010 to the first half of 2015, they’d soared 65%! Car dealers were on cloud nine! But that boom too is now imploding, with tax collections in January for December sales dropping 3.8% year over year!

And commercial real estate is getting hit. Debt is everything in the sector. So this is going to be a problem for banks. The entire math is based on high rental rates and low vacancy rates. But in Houston, rental rates are falling and vacancy rates are skyrocketing. Sublease space has spiked 69% and continues “to sit on the market,” even while new towers are being completed. “See-through buildings” are re-appearing — that infamous phenomenon of vacant and transparent buildings dotting Houston’s business district during the last oil bust. So watch the banks. 

Quote of the Day: The Phrase “Consumption-Based Economy” as Commonly Interpreted is Bass-ackwards

Professor Don Boudreaux at the Cafe Hayek debunks a populist myth used to justify state interventionism: 

The phrase “consumption-based economy” as commonly interpreted is bass-ackwards. Consumption in an economy no more fuels that economy than does success at driving a car fuel that car. Just as success at driving a car is the result of a working engine that is properly fueled with gasoline and accurately steered by a driver, success at consumption is the result of a working economy properly fueled by competition and accurately steered by market prices.

Put differently, ability to consume as lavishly as we Americans consume is the result rather than the cause of our prosperity. The economy must enable and encourage us first to produce things before we can consume things. Trying to consume greater quantities simply by increasing spending does no more to create the economic wherewithal to produce these greater quantities than does trying to travel further in a car simply by pressing harder on the accelerator create the fuel necessary for the longer journey.

Yet in a very important sense our economy is – and should be – consumption-based. It is and should be consumption-based in the sense that it is geared to satisfy the demands of consumers rather than the interests of producers. As Adam Smith said, “[c]onsumption is the sole end and purpose of all production; and the interests of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”* It follows that Mr. Trump and others who would forcibly obstruct consumers’ ability to trade with foreigners are enemies of the consumption-based economy, properly understood, and, hence, enemies also of the widespread prosperity that respect for such consumer sovereignty generates. 

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), Book IV, Chapter 8, para. 49.

Quote of the day: Property Rights Provide Their Owners And The Things They Own With a Lot of Additional Value

Property rights are a universal right enshrined in the US Constitution and the United Nations Charter. Indeed, it is in search of just such rights that many of the world’s poor are motivated to cross borders into countries like the US.

For those living in the richest parts of the world, it is easy to take clear property rights for granted. But the reality is that only 2.3 billion people have the documents to protect and leverage their rights – including approximately one billion people living in Japan, Singapore, and the democratic West, and another billion in certain developing countries and former Soviet states.

Documentation is not just a bureaucratic stamp on a piece of paper. It is crucial to economic progress and inclusion. The reason the undocumented have an interest in being properly documented – whether they know it or not – is that clear property rights provide their owners and the things they own with a lot of additional value.

In the US or Europe, for example, a house not only serves as a shelter; it is also an address that can identify people for commercial, judicial, or civic purposes, and a reliable terminal for services, such as energy, water, sewage, or telephone lines. Documentation also allows assets to be used as financial instruments, providing their owners with access to credit and capital. If you want to take out a loan – whether you are a mining company in Colorado or a Greek shoemaker in New York – you must first pledge documented property in one form or another as a guarantee.

As I have shown elsewhere, the poor of the world are in possession of some $18 trillion of undocumented assets in real estate alone. But those assets will never attain their full value if they are not documented. As it stands, they cannot be used to raise capital. Nor can they be joined with other assets to create more complex and valuable holdings.

This is from an essay authored by Hernando de Soto, President of the Institute for Liberty and Democracy, published at the Project Syndicate

Quote of the Day: Against Political Romanticism

At the Cafe Hayek, Professor Don J Boudreaux explains why he isn't a political romanticist

I’m afraid that I don’t share your enthusiasm for politics, be they democratic or not. Where you “see citizens [at the polls] selecting our leaders,” I see people voting on which power-mad person will crack the whip over those same people and brand and herd them like cattle. Where you are “inspired by candidates campaigning openly to win the election,” I am frightened to realize that one of those hubris-slathered men or women will actually come to possess such power that no man or woman is, or ever will be, fit to possess. Where you are “charged” by the “vigorous debates” among candidates, my stomach is sickened and my intelligence is insulted by the economics-free, fact-strained, and too-often-vacuous talking (and shouting) points that pass for a serious discussion of issues.

And where you say that you “trust voters” more than I trust them, that depends. You’re correct that I distrust people as voters, for in that capacity they largely express opinions on how other people’s (their fellow citizens’) money should be spent and on how other people’s lives should be led. But I trust – perhaps more than you do, and certainly more than do any of the candidates – those same voters as individuals each to spend his or her own money wisely and to lead his or her life well, each according to his or her own lights, without interference or direction from any of the officious, arrogant, and venal candidates seeking power over the lives of other people.

Quote Of The Day: What will Ruin Us? Is it What we Love or What we Hate?

Contrary to common belief even among the educated, Huxley and Orwell did not prophesy the same thing. Orwell warns that we will be overcome by an externally imposed oppression. But in Huxley's vision, no Big Brother is required to deprive people of their autonomy, maturity and history. As he saw it, people will come to love their oppression, to adore the technologies that undo their capacities to think. What Orwell feared were those who would ban books.

What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture.

Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny "failed to take into account man's almost infinite appetite for distractions." In 1984, Huxley added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we hate will ruin us. Huxley feared that what we love will ruin us.

This is from author and media theorist the late Neil Postman in his book Amusing Ourselves to Death Public Discourse in the Age of Show Business 1985

Have we become zombies? (hat tip zero hedge)

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"

Quote of the Day: The Global Bubble has Burst

Central banks around the world abused their newfound power and the power of financial markets. And for seven years egregious monetary inflation has been used specifically to inflate global securities markets. And “shock and awe,” “whatever it takes,” and “push back against a tightening of financial conditions” all worked to ensure the markets that central bankers would no longer tolerate crises, recessions or even a bear market.

For seven long years, risk misperceptions and market price distortions turned progressively more severe. Inflating securities markets around the globe became, as they do, self-reinforcing. “Money” flooded into the markets – especially through ETFs and derivatives. Trillions flowed into perceived safe equities index and corporate debt instruments. With central bankers providing a competitive advantage for leveraging and professional speculation, the hedge fund industry swelled to $3.0 TN (matching the $3 TN ETF complex). Wealth effects and the loosest financial conditions imaginable boosted spending, corporate profits, incomes, investment, tax receipts and GDP – not to mention M&A, stock repurchases and financial engineering.

But this historic wealth illusion has been built on a foundation of false premises – that central bank monetization can inflate price levels and spur system inflation necessary to grow out of debt problems; that securities markets should trade at higher multiples based upon contemporary central banker capacities to spur self-reinforcing economic recovery and liquid securities markets; that 2008 was “the hundred year flood.” In reality, central bankers inflated history’s greatest divergence between global securities prices and economic prospects.

Global markets have commenced what will be an extremely arduous adjustment process. Markets must now confront the harsh reality that central bankers don’t have things under control. Risk premiums must rise significantly – which means the destabilizing self-reinforcing dynamic of lower securities prices, faltering economic growth, uncertainty, fear and even higher risk premiums. This means major issues for global derivatives markets that have inflated to hundreds of Trillion on misperceptions and specious assumptions. I’ll assume Draghi, Kuroda, Yellen, the PBOC and others resort to more QE – and perhaps they prolong the adjustment period while holding severe global crisis at bay. But the global Bubble has burst. And if QE has been largely ineffective in the past, we’ll see how well it works as confidence in central banking withers. Perhaps this helps explain why global financial stocks now trade like death.

This excerpt is from the ever sagacious Doug Noland of the Credit Bubble Bulletin Blogspot

Quote of the Day: Why the Worst Get on Top

The great Austrian economist F. A. Hayek explained of why the worst people rise to become despots or totalitarians: (An excerpt from Chapter 10, Road to Serfdom (University of Chicago Press, 1944) as published by Fee.org (bold added)

It would, however, be highly unjust to regard the masses of the totalitarian people as devoid of moral fervor because they give unstinted support to a system which to us seems a denial of most moral values. For the great majority of them the opposite is probably true: the intensity of the moral emotions behind a movement like that of National-Socialism or communism can probably be compared only to those of the great religious movements of history. Once you admit that the individual is merely a means to serve the ends of the higher entity called society or the nation, most of those features of totalitarian regimes which horrify us follow of necessity.

From the collectivist standpoint intolerance and brutal suppression of dissent, the complete disregard of the life and happiness of the individual, are essential and unavoidable consequences of this basic premise, and the collectivist can admit this and at the same time claim that his system is superior to one in which the "selfish" interests of the individual are allowed to obstruct the full realisation of the ends the community pursues. When German philosophers again and again represent the striving for personal happiness as itself immoral and only the fulfilment of an imposed duty as praiseworthy, they are perfectly sincere, however difficult this may be to understand for those who have been brought up in a different tradition.

Where there is one common all-overriding end there is no room for any general morals or rules. To a limited extent we ourselves experience this in wartime. But even war and the greatest peril had led in this country only to a very moderate approach to totalitarianism, very little setting aside of all other values in the service of a single purpose. But where a few specific ends dominate the whole of society, it is inevitable that occasionally cruelty may become a duty, that acts which revolt all our feeling, such as the shooting of hostages or the killing of the old or sick, should be treated as mere matters of expediency, that the compulsory uprooting and transportation of hundreds of thousands should become an instrument of policy approved by almost everybody except the victims, or that suggestions like that of a "conscription of women for breeding purposes" can be seriously contemplated. There is always in the eyes of the collectivist a greater goal which these acts serve and which to him justifies them because the pursuit of the common end of society can know no limits in any rights or values of any individual.

But while for the mass of the citizens of the totalitarian state it is often unselfish devotion to an ideal, although one that is repellent to us, which makes them approve and even perform such deeds, this cannot be pleaded for those who guide its policy. To be a useful assistant in the running of a totalitarian state it is not enough that a man should be prepared to accept specious justification of vile deeds, he must himself be prepared actively to break every moral rule he has ever known if this seems necessary to achieve the end set for him. Since it is the supreme leader who alone determines the ends, his instruments must have no moral convictions of their own. They must, above all, be unreservedly committed to the person of the leader; but next to this the most important thing is that they should be completely unprincipled and literally capable of everything. They must have no ideals of their own which they want to realise, no ideas about right or wrong which might interfere with the intentions of the leader.

There is thus in the positions of power little to attract those who hold moral beliefs of the kind which in the past have guided the European peoples, little which could compensate for the distastefulness of many of the particular tasks, and little opportunity to gratify any more idealistic desires, to recompense for the undeniable risk, the sacrifice of most of the pleasures of private life and of personal independence which the posts of great responsibility involve. The only tastes which are satisfied are the taste for power as such, the pleasure of being obeyed and of being part of a well-functioning and immensely powerful machine to which everything else must give way. 

Yet while there is little that is likely to induce men who are good by our standards to aspire to leading positions in the totalitarian machine, and much to deter them, there will be special opportunities for the ruthless and unscrupulous. There will be jobs to be done about the badness of which taken by themselves nobody has any doubt, but which have to be done in the service of some higher end, and which have to be executed with the same expertness and efficiency as any others. And as there will be need for actions which are bad in themselves, and which all those still influenced by traditional morals will be reluctant to perform, the readiness to do bad things becomes a path to promotion and power. The positions in a totalitarian society in which it is necessary to practice cruelty and intimidation, deliberate deception and spying, are numerous.

Neither the Gestapo nor the administration of a concentration camp, neither the Ministry of Propaganda nor the SA or SS (or their Italian or Russian counterparts) are suitable places for the exercise of humanitarian feelings. Yet it is through positions like these that the road to the highest positions in the totalitarian state leads. It is only too true when a distinguished American economist concludes from a similar brief enumeration of the duties of the authorities of a collectivist state that they would have to do these things whether they wanted to or not: and the probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tenderhearted person would get the job of whipping-master in a slave plantation.

Quote of the Day: Man is Not Made for the State; the State is Made for Man

In communism, the individual ends up in subjection to the state. True, the Marxist would argue that the state is an “interim” reality which is to be eliminated when the classless society emerges; but the state is the end while it lasts, and man only a means to that end. And if any man’s so-called rights or liberties stand in the way of that end, they are simply swept aside. His liberties of expression, his freedom to vote, his freedom to listen to what news he likes or to choose his books are all restricted. Man becomes hardly more, in communism, than a depersonalized cog in the turning wheel of the state.

This deprecation of individual freedom was objectionable to me. I am convinced now, as I was then, that man is an end because he is a child of God. Man is not made for the state; the state is made for man. To deprive man of freedom is to relegate him to the status of a thing, rather than elevate him to the status of a person. Man must never be treated as a means to the end of the state, but always as an end within himself.

This is from Martin Luther King's 1958 paper “My Pilgrimage to Nonviolence” (hat tip AEI's Mark Perry)

Quote of the Day: How Fractional Reserve Banking System Causes Bank Runs

Economist Tim Worstall writing at the Forbes eloquently explains how the central bank- fractional reserve banking system causes bank runs and originated the 2008 crisis or the Great Financial Crisis

To explain this we need to take a step backwards: we can usefully, if not wholly accurately, divide investors into two types. Those who invest with their own money, those who are unleveraged, and those who invest with borrowed money, the leveraged investors. Further, among the leveraged investors we would want to distinguish between the banks who are doing this (at least, in a fractional reserve banking system we want to) and the others. And the danger comes when those banks, those people working with the deposits made into the banks, invest in either illiquid or volatile assets.

Liquidity is a problem because those depositors can come along at any time and ask for their money back. And banks borrow short and lend long: the things they invest in are notably more illiquid than the deposits they take to finance them. That’s how we get bank runs: people turn up for their money, the bank says that actually, they lent it to someone to buy a house, and then panic starts and everyone wants their money back right now.

Volatility is a problem because they’re using leverage: if prices move so much that the bank loses its capital then it still owes the same amount to depositors but it is also bust. Cue bank run again. What happened to Lehman Brothers was this second, what rocked the other Wall Street banks was the first.

Bottom line: liquidity and volatility problems are mainly symptoms of imbalances from highly leveraged systems brought about by the central bank fractional reserve banking. 

Quote of the Day: When Bubbles burst – and confidence turns to angst – it’s as if suddenly nothing can go right

As they say, “bull markets create genius” (unless you’re an analyst of Credit and Bubbles). And there’s also a reason they’re called “virtuous cycles” – though there’s nothing virtuous about Bubbles. But they sure look good and feel good – and inspire over-confidence (along with dreams and inflated ambitions). Things just seem to go right during booms. And it wasn’t long ago that the conventional view held that Brazil, after all these years, finally got it right. Brazilian politicians, central bankers, businessmen – and the nation’s economy – were held in high regard. Talk today is of corruption, inflation, depression, impeachment and mayhem. The Bubble burst and genius was in short order transformed to gross Incompetence. 

For years (decades), China was perceived to be doing all the right things. Their system of disciplined meritocracy ensured the best and brightest were in command of one of the greatest economic miracles (and enterprising and hard-working populations) the world has ever known. Today, history’s most spectacular Bubble is bursting. Genius has so rapidly morphed into Incompetence. When Bubbles burst – and confidence turns to angst – it’s as if suddenly nothing can go right

This insightful quote is from Doug Noland of the Credit Bubble Bulletin Blog. 

Many of today's "genius" will soon come to realize that they knew nothing at all.

Quote of the Day: The Government Can Not Only Evoke Fear But Also Superstitious Reverence

The government can not only evoke fear in its victims; it can also evoke a sort of superstitious reverence. It is thus both an army and a church, and with sharp weapons in both hands it is virtually irresistible. Its personnel, true enough, may be changed, and so may the external forms of the fraud it practises, but its inner nature is immutable.

This quote is from page 182 of H.L. Mencken’s essay “On Government,” as reprinted in the 1996 Johns Hopkins University Press collection of some of Mencken’s essays, Prejudices: A Selection

tip of the hat to Cafe Hayek

Quote of the Day: Monetary Policy Cannot Solve All Economic Problems That May Ail Our Economies; What happens When The Fed Stops Distorting Prices?

The authority of monetary policymakers to intervene in financial markets has come to be accepted and expected. Whether the purpose is to change the relative price of various assets, such as long vs. short dated Treasuries, or to alter the allocation of credit, such as Treasuries vs. mortgage-backed securities, the result has been a much more interventionist central bank. The belief is, of course, that central bankers know enough to control relative asset prices with sufficient precision and that the transmission mechanisms and consequences are sufficiently predictable that policymakers can better control real economic growth and employment, and now, financial stability.

I find this a dubious proposition at best. For central banks to act as if these conditions exist suggests to the public that monetary policy has great ability to fine tune economic outcomes. That means monetary policy makers may well be accepting more responsibility for managing economic outcomes than they, in fact, can deliver. This is a recipe for failure and can undermine the public’s trust and confidence in the central bank. So maybe a little more humility on the part of central bankers and the public regarding what they monetary policy can accomplish is in order and a little less intervening just because it can, or has the power or authority, may be prudent. Monetary policy simply cannot solve all economic problems that may ail our economies.

(bold added)

This quote is from Charles Plosser former President, Federal Reserve Bank of Philadelphia and former Dean, Graduate School of Business Administration, University of Rochester as interviewed by the Money and Banking blog

More juicy quotes (bold mine)

As I mentioned, no regulatory authority anywhere in the world, no central bank no financial supervisory agency, saw the crisis coming. What makes us think we will spot the next one? Whenever it arises it will surely come from somewhere the authorities were not looking.

We face a number of challenges. First we have the problem of defining financial stability. I know of no good definition. Without a definition how do we know if we have succeeded? How do we know if we have over compensated and reduced risks too much without some metric that tells us of the trade-offs? Implicit in the Dodd-Frank legislation is the view that if only we could write enough rules and prohibitions on the financial sector we could solve the problem. I believe this is a bit like the dog chasing its tail, and equally futile.

Second we should acknowledge that stability risks can move around. Where regulators look, those risks are unlikely to be found. The challenge is figuring out where they will show up next. Financial markets are adept at packaging and repackaging risks in forms that the market will buy. There is nothing inherently wrong with this except regulators will always be behind the market developments.

Finally, the central bank should be particularly vigilant in not artificially encouraging financial imbalances or stability risks through its monetary policy actions. Unfortunately, this may bring financial stability and the goals of monetary policy into stark conflict. There is an ongoing and important debate on this issue. That is, should monetary policy be used to address financial stability risks or not; what if it’s a source of the risks?

Today the stated goal of the interventions undertaken by the Fed such as the asset purchases or the maturity extension program have been intended to encourage risking-taking and alter the portfolio balances of economic agents. If successful, these actions distort market prices. One stability risk worth considering is: What happens when the Fed stops distorting prices?

Wow! Ambiguity in the definition of financial stability, stability risk in a state of perpetual flux (or also policy or political response as 'fighting the last war' or dealing with past rather then present evolving problems) and most importantly, treating symptoms while encouraging the disease (financial imbalances) seem as an implied rebuke on central banking's "macroprudential policies" and the Basel Standard!

Quote of the Day: Why not use spoons instead of shovels?

Milton Friedman was traveling in a developing Asian nation when his host took him to visit an excavation project that was part of a public works program. Instead of using earth-moving equipment, the workers were using shovels. Friedman asked why. His host told him the aim of the program was to employ as many workers as possible. Friedman quipped: "Why not use spoons instead of shovels?"

This is from financial journalist and author Caroline Baum in an article published at economics21.org

Quote of the Day: The Apex of Market Stupidity

In the last week, we have reached what is surely the apex of this stupidity. A bunch of algo traders programmed their computers expecting “Derivative Draghi” to be extremely dovish, as any proper Italian central banker should be. I am not sure I understand why, but some traders obviously decided that he had not been dovish enough. European stock markets plunged by -4%, while the euro went up by roughly the same amount in the space of a few minutes. What that means is simple: value in the financial markets is no longer a function of the discounted cash flow of future income, but instead is determined by the amount of money the central bank is printing, and especially by how much it intends to print in the coming months. So we are in a world where I can postulate the following economic and financial law: variations in the value of assets are a function of the expected changes in the quantity of money printed by the central bank. To put it in a format that today’s economists understand:

Delta (VA) = Delta * (M),

where VA is the value of assets and M is the monetary increase.

What we are seeing is in fact in one of the stupidest possible applications of the Cantillon effect, whereby those who are closest to the money-printing, i.e. the financial markets, are the biggest beneficiaries of that printing. This is exactly what happened in 1720 in France during the Mississippi Bubble inflated by John Law. The end results were not pretty.

What I find most hilarious is that some serious commentators have been pontificating at considerable length about what the market’s participants think. These days, some 70% of market orders are generated by computers, and many of the rest by indexers. And computers do not think. They simply calculate at light speed, which allows them to react to short term movements in market prices as they were programmed to do. And since they are all programmed the same way, the result is some big short term market moves. In essence, these computers act as machines that allow market participants to stop thinking. As a result, I cannot remember a time when less thinking has ever been done in the financial markets, which is why I find today’s financial markets infinitely boring.

We are swimming in an ocean of ignorance, just like France in 1720. It seems all the painful economics lessons learned over the last 300 years have been forgotten. I suppose that means we will just have to wait for another Adam Smith to appear. La vie est un éternel recommencement...

This excerpt is from an article written by Gavekal's Charles Gave published at ZeroHedge

Quote of the Day: The Best Way to Control a Populace is Through Fear and Discord

The strategy is simple yet effective: the best way to control a populace is through fear and discord.

Fear makes people stupid.

Confound them, distract them with mindless news chatter and entertainment, pit them against one another by turning minor disagreements into major skirmishes, and tie them up in knots over matters lacking in national significance.

Most importantly, divide the people into factions, persuade them to see each other as the enemy and keep them screaming at each other so that they drown out all other sounds. In this way, they will never reach consensus about anything and will be too distracted to notice the police state closing in on them until the final crushing curtain falls.

This is how free people enslave themselves and allow tyrants to prevail. 

This excerpt is from analyst John W. Whitehead published at the non-profit defender of civil liberties organization, The Rutherford Institute

Quote of the Day: Mark Zuckerberg's "Charity" as Tax Shield

Like any parent, they want their child to grow up in a better world.

And they outlined their vision to make this happen, including taking risks and making long-term investments, building technology, and backing strong, independent leaders and visionaries.

This sounds conspicuously like the mission statement for any number of high-end Silicon Valley venture capital firms.

In a way, this is what the Zuckerbergs have created.

At the end of the letter, they pledge to contribute 99% of their Facebook shares, currently worth about $45 billion, to “advance this mission”.

The New York Times jumped on this immediately: “Mark Zuckerberg vows to donate 99% of his Facebook shares for charity.”

Incorrect. This isn’t charity.

The Zuckerbergs formed a limited liability company (LLC). It’s not a non-profit or charitable trust.

The Chan Zuckerberg Initiative is a for-profit, privately held vehicle that’s intended to make investments that will advance their vision.

Over the course of their lives, they’ll transfer Facebook shares to the LLC.

But as that transfer is considered a donation, the Zuckerbergs will be able to completely eliminate capital gains tax from their Facebook shares.

Plus they’ll be able to shield billions of dollars of other income from tax by writing off the donation as a charitable contribution.

Perhaps the biggest benefit is that the Facebook shares could now entirely avoid US federal estate tax.

At the end of the day, Mr. Zuckerberg gets to retain -control- of his fortune and shares, directing funds as he sees fit into for-profit, private investments, while drastically reducing his tax bill.

This is no surprise. Zuckerberg has already proven tremendously adept at minimizing taxes.

Facebook paid $178 million in net tax on pre-tax profit of $4.91 billion in 2014, an effective tax rate of 3.6%.

And there is no shortage of critics who have a major problem with this.

These hopelessly delusional and misguided people still actually believe that the way to make the world a better place is to give incompetent, corrupt politicians more money.

And in a height of arrogance, they think they are entitled to some claim on Mark Zuckerberg’s wealth.

Sorry, but this is complete lunacy.

This excerpt is from Sovereign Man founder Simon Black's latest article at his website.

The establishment of the Chan-Zuckerberg Initiative charitable trust represents a deft and an ingenious move: conversion of the Zuchkerberg's Facebook assets to a tax shield which was publicized as charity. It's like hitting two birds with one stone: The move, through PR means, reduce the populist politically incorrect rap on them, as well as, to starve ever esurient Leviathan beast