Despite Bankruptcy Case, “Rich Dad, Poor Dad” Author Remains a RICH Dad

Popular author Robert Kiyosaki of “Rich Dad Poor Dad” fame seems under assault from mainstream media. While it has been true that Mr.Kiyosaki has indeed filed for bankruptcy, the guy has been insinuated as personally ‘bankrupt’.

[disclosure: I am no fan of Robert Kiyosaki. Mr. Kiyosaki was wrong about the real estate bubble in 2005. But has been right about the currency bubble and being bullish in precious metals. Nevertheless,  this terse commentary has been meant to put Mr. Kiyosaki’s case in perspective]

From ABS-CBN,

In an ironic twist, the author of the bestselling financial help book “Rich Dad Poor Dad,” Robert Kiyosaki, has filed for bankruptcy.

This after one of his companies lost a $24-million court judgment, according to a report from the New York Post.

“Kiyosaki’s Rich Global LLC filed for bankruptcy after being ordered to pay nearly $24 million to the Learning Annex and its founder and chairman, Bill Zanker,” the report said.

“US district judge Shira A. Scheindlin in April ordered Rich Global to pay up $23,687,957.21 after a jury ruled Kiyosaki must give the Learning Annex a percentage of his profits after using their platform for speaking engagements, including a 2002 gig at Madison Square Garden,” it added.

In reality, the reason behind Kiyosaki’s Rich Global LLC filing for bankruptcy has been about legal maneuvering

The same article quotes Mike Sullivan, chief executive officer of Kiyosaki’s Rich Dad Co as saying:

“Robert and [wife] Kim are not paying out of personal assets. We have a few million dollars in his company, but not 16 or 20. I can’t do anything about a $20-million judgment… We got hit for what we think is a completely outlandish figure.”

Mainstream media never explains this or at least gives an effort to make news objective or balanced.

Fundamentally, the case stems from charges of breach of contract by an aggrieved party whom was awarded in the court case.

From Business Insider,

But apparently the fame went to his head because according to court papers obtained by the Post, Kiyosaki, who published his first "Rich Dad" book in 1994, never paid the Annex its rightful share. Said founder and chairman Bill Zanker: "Oprah believed in him, and Will Smith believed in him, but he didn't keep his promise to us."

Yet Mr. Kiyosaki remains solvent in spite of the bankruptcy filing. Again from Business Insider:

Despite the blow to the personal finance guru's reputation, Kiyosaki probably won't feel the pinch in his wallet. Forbes pegs his net worth around a cool $80 million, and Kiyosaki, who's written 11 books, operates as many as ten other companies. Rich Global was said to be worth a few million when it went under.

Again, legal maneuvering from a bankruptcy procedure has been about the potential to discharge debts through the bankruptcy court.

According to bankrate.com, debts that are usually discharged from bankruptcy covers the following:

I think Mr. Kiyosaki’s decision to file for bankruptcy means that his case will fall under

Lawsuits and judgments: These result from creditors or collection agencies suing you for failing to pay. With few exceptions, you may eliminate the lawsuit even after it has begun or the judgment that results from the lawsuit.

So despite the bankruptcy proceedings and the implied media slur, Mr. Kiyosaki remains a RICH Dad!!! This serves as one neat example of why you shouldn't trust the mainstream media.

Bill Bonner: Why Statistical Numbers are a Scam

Agora Publishing’s Bill Bonner explains at the Daily Reckoning why relying on aggregate statistics can be misleading

I’ve always been especially suspicious of the zero. It is a number. But a number is ‘something.’ The zero, on the other hand, is supposed to represent nothing. Well, which is it? Something or nothing? Nothing, right? But how can something be nothing? You say you have zero tomatoes. And you tell me zero is a number, used for counting. But how can you count tomatoes that aren’t there? You’ve either got tomatoes or you don’t. Zero tomatoes is a contradiction. It’s oxymoronic.

And if the zero is actually nothing, how come you can put it after a number…and suddenly you have 10 times as much? Or, put it in front of a number…and you have 1/10 as much. How can nothing do all that?

Now if I have 3 tomatoes and I add zero tomatoes, I have done nothing. I still have three tomatoes. But if I multiply my 3 tomatoes by zero, suddenly, I don’t have any tomatoes. If zero is nothing, I want to know what happened to my tomatoes.

We didn’t have the zero for thousands of years. As far as I know, we got along fine without it.

Numbers are a trap for economists. They make it look like science, but it is not science. Far from it. Initial conditions can never been controlled or fully understood. Instead, they are infinitely complex. Nor can results be reproduced. Nor can hypotheses ever be disproven. That’s why economists can cling to dopey ideas for centuries — they can never be disproven.

Using numbers, economists pretend to tell you something they don’t really tell you, often something they can’t possibly tell you.

How GDP numbers are not only unreliable but vulnerable to manipulation:

GDP numbers are a complete scam. They don’t tell you if you’re coming or going. They don’t tell you if you’re getting richer or poorer. This is another way that numbers fail. They can only measure quantity. Or speed. Here’s an example. An article ran in the Wall Street Journal last month. It explained how Italy’s economic growth was retarded by strong family attachments. Half the young children in Italy are raised by their grandparents — their ‘nonni’ — while their parents work. Instead of going to day care centers, the kids go to their grandparents.

How does this affect an economy? There is no exchange of money when the grandparents do the day care. So, it doesn’t register in the GDP. No exchange of money, no ‘growth.’ The article also went on to say that people were reluctant to leave their hometowns to seek work elsewhere because they relied on the family for childcare. Theoretically, a mobile population increases GDP too…GDP increases when people take new jobs, move, buy houses and furniture, sign up for health clubs, day care and so forth. All these things add to GDP growth, even though they do nothing to really increase quality of life. They are a kind of phony growth. GDP looks only at the quantity and velocity of money transactions, not the quality of them…nor the quality of life they produce…nor the real wealth of the people in an economy.

I cut your lawn. You mow my lawn. We pay each other. The GDP goes up. The more transactions per person per year — the greater the GDP of a country.

Is anybody better off? What really have the numbers told us? Has one single extra lawn been mowed? One single extra blade of grass cut down?

No, right? So, if a number…the GDP growth number…tells you that you’re growing…and you’re not really growing…what good is the number? It’s a flimflam. An empty number. There’s no good information in it. It’s like the unemployment number. Empty. Hollow. A zero. And so are almost all the compound, formula-driven numbers used by economists. They are dishonest. Their only role is to tart up economists’ confections and make it appear that they can do things they can’t really do. They are designed to make economics look like engineers, working on the economy as though they were real technicians preparing a moon launch.

But if these guys were building a bridge, none of us would want to drive over it. If they were building cars, we wouldn’t buy them. And if they were running the phone company, and we needed a telephone number, we could call “Directory Information;” they’d estimate it for us.

Easy to understand lesson for the layman

IMF’s Christine Lagarde Inflationist Delusions

From the Deutsche Borse Group: (bold added)

International Monetary Fund Managing Director Christine Lagarde praised monetary stimulus efforts of the world's major central banks Thursday, but said non-monetary authorities in Europe, the United States and elsewhere need to build on those steps to improve growth in a slowing world economy.

Lagarde, at a press conference ahead of the annual meetings of the IMF and World Bank, said she "expects courageous, cooperative action" at the meetings.

She also aimed criticism at China, whose top economic policymakers declined to attend the meetings because of territorial disputes with host Japan. China needs to be more of a global partner and increase demand for foreign products, not just concentrate on exporting its own products, she said, after pointedly noting its officials' absence.

Lagarde vowed the IMF "will spare no time and effort" to help Greece, but said the objective is to ultimately free that country from dependence on outside assistance.

Noting that the IMF has downgraded its projections of global growth, Lagarde said, "we are not expecting a very strong recovery." Indeed, she called high unemployment rates in advanced countries "terrifying and unacceptable."

The Federal Reserve, the European Central Bank and the Bank of Japan have all adopted additional easing measures, and she praised their moves, but said that by themselves those actions are "not sufficient." 

The "momentum" imparted by monetary easing "should be seized as an opportunity," she said.

Ms, Lagarde’s “momentum” remarks essentially echoes former President Obama’s chief of staff and current Mayor of Chicago Emanuel Rahm’s infamous sly quote on establishing political controls over society…

You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.

And emerging market central banks have fawningly embraced Ms. Lagarde’s recommendations.

This from Reuters:

Emerging market central banks have clearly taken to heart the recent IMF warning that there is “an alarmingly high risk”  of a deeper global growth slump.

Two central banks have cut interest rates in the past 24 hours: Brazil  extended its year-long policy easing campaign with a quarter point cut to bring interest rates to a record low 7.25 percent and the Bank of Korea (BoK) also delivered a 25 basis point cut to 2.75 percent.  All eyes now are on Singapore which is expected to ease monetary policy on Friday while Turkey could do so next week and a Polish rate cut is looking a foregone conclusion for November.

South Africa, Hungary, Colombia, China and Turkey have eased policy in recent months while India has cut bank reserve ratios to spur lending.

The BoK’s explanation for its move shows how alarmed policymakers are becoming by the gloom  all around them. Its decision did not surprise markets but its (extremely dovish) post-meeting rhetoric did.  The bank said both exports and domestic demand were “lacklustre”.  (A change from July when it admitted exports were flagging but said domestic demand was resilient) But consumption has clearly failed to pick up after July’s surprise rate cut — retail sales disappointed even during September’s festival season.  BoK clearly expects things to get worse: it noted that ” a cut now is better than later to help the economy”.

Ms. Lagarde’s comments, which gives emphasis on the short term at greater costs of the future, can be summed up into two types of casuistry: 

The delusion of central planning: 

From the great Ludwig von Mises (Omnipotent Government),

It is a delusion to believe that planning and free enterprise can be reconciled. No compromise is possible between the two methods. Where the various enterprises are free to decide what to produce and how, there is capitalism. Where, on the other hand, the government authorities do the directing, there is socialist planning. Then the various firms are no longer capitalist enterprises; they are subordinate state organs bound to obey orders. The former en­trepreneur becomes a shop manager like the Betriebsführer in Nazi Germany.

As well as the delusions of the elixir of inflationism or perhaps a stealth scheme being employed by the cabal of central bankers to demolish what remains of laissez faire capitalism 

From the deity or icon of inflationism, Lord John Maynard Keynes (PBS.org) [bold added]

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Inflationists are either aware of the evils their policies create but nevertheless insidiously impose them for covert political reasons, or have been too blinded by their possession of power.

I Told You So Moment: Philippine Exports Hit in August

From Wall Street Journal, 

The Philippines' August exports fell 9% from a year earlier, making the country the latest in Asia to take a hit from sluggish demand from Europe and the U.S.

The decline, to $3.798 billion, was the largest percentage drop since December. The National Statistics Office said August was the first month since December that export value dropped below $4 billion.

Electronics shipments, the country's biggest export category, fell 14.9% from a year earlier to $1.765 billion, though they rose 5.4% from July.

Shipments of clothing, coconut oil and bananas also saw double-digit declines.

Exports for the first eight months of 2012 rose 5.4% to $35.28 billion, lagging the pace needed to meet the government's full-year growth target of 10%.

The country's central bank said it would consider the August export data when it reviews its monetary policy later this month, but economists doubt the figures will prompt an immediate rate cut.

Here is what I wrote last July, 

Again while it is true that Asia has been less dependent on the West, there is no guarantee that other sectors will not be affected from slomo diffusing or spreading of the global debt crisis.

A slowdown in electronic exports incidentally constitutes about half of Philippine exports

So those dreaming of immunity from a global slowdown will likely be refuted.

Bottom line: The contagion risk is real.

Sweet vindication especially against the clueless mainstream who then had been predicting economic paradise from the populist charade of supposed political salvation.

Oh by the way, contra policy signaling being transmitted by monetary authorities, slashing interest rates (or even doing local version of QE) will do no magic for exports. 

What this does instead is to fuel rampant speculations and malinvestments.

(chart from tradingeconomics.com)

Proof?

Philippine asset markets  (Peso Stocks), like her global counterparts, have been defying gravity—yeah we live in a parallel universe—where asset prices and the real economy seem to be moving in opposite directions.

Has the Swedish Recovery from the Banking Crisis of the 90s been due to Devaluation?

Here is another claim by an advocate of inflationism: Devaluation kickstarted the recovery of the Swedish economy from the banking crisis of 1990s.

I will quote mainstream references as rejoinder, so as to assume neutrality.

From Wikipedia.org (bold emphasis mine)   

In the 1980s, a real estate and financial bubble formed, driven by a rapid increase in lending. A restructuring of the tax system, in order to emphasize low inflation combined with an international economic slowdown in the early 1990s, caused the bubble to burst. Between 1990 and 1993 GDP went down by 5% and unemployment skyrocketed, causing the worst economic crisis in Sweden since the 1930s. According to an analysis by George Berglund published in Computer Sweden in 1992, the investment level decreased drastically for information technology and computing equipment, except in the financial and banking sector, the part of the industry that created the crisis. The investment levels for IT and computers were restored as early as 1993. In 1992 there was a run on the currency, the central bank briefly jacking up interest to 500% in an unsuccessful effort to defend the currency's fixed exchange rate. Total employment fell by almost 10% during the crisis.

A real estate boom ended in a bust. The government took over nearly a quarter of banking assets at a cost of about 4% of the nation's GDP. This was known colloquially as the "Stockholm Solution". The United States Federal Reserve remarked in 2007, that "In the early 1970s, Sweden had one of the highest income levels in Europe; today, its lead has all but disappeared... So, even well-managed financial crises don't really have a happy ending."

The welfare system that had been growing rapidly since the 1970s could not be sustained with a falling GDP, lower employment and larger welfare payments. In 1994 the government budget deficit exceeded 15% of GDP. The response of the government was to cut spending and institute a multitude of reforms to improve Sweden's competitiveness. When the international economic outlook improved combined with a rapid growth in the IT sector, which Sweden was well positioned to capitalize on, the country was able to emerge from the crisis.

The crisis of the 1990s was by some viewed as the end of the much buzzed welfare model called "Svenska modellen", literally "The Swedish Model", as it proved that governmental spending at the levels previously experienced in Sweden was not long term sustainable in a global open economy. Much of the Swedish Model's acclaimed advantages actually had to be viewed as a result of the post WWII special situation, which left Sweden untouched when competitors' economies were comparatively weak.

The allegation of devaluation as having jumpstarted the recovery seems materially misplaced.

Instead, the devaluation looks to be part of the bubble forming process which ultimately ended with a “run” on the currency.

While “restructuring of taxes” served as the likely catalyst for the ensuing bust, I think this has been more about central bank tightening (whom jacked up rates up to 500%). 

While the Swedish government did intervene to rescue the banking system, overall, the general economic recovery has been mostly the result of the much maligned "AUSTERITY" defined here as cuts in government spending as shown by Sweden’s material decline in government’s debt to GDP, as well as, Sweden’s government’s budget which turned into surpluses, the restoration of trade COMPETITIVENESS and the DECLINE of Sweden’s “Svenska modellen” welfare state. [charts from tradingeconomics.com]

More anecdotal evidence from Johnny Munkhammar, a member of the Moderate Party of the Swedish Parliament, and the author of "The Guide to Reform" (Timbro/IEA 2007)at the Wall Street Journal in January 26, 2012 [bold added] 

But Socialism was fashionable in post-War Europe and Sweden was not immune. The 1970s were a decade of radical government intervention in society and in markets, during which Sweden doubled its overall tax burden, socialized a slew of industries, re-regulated its markets, expanded its public systems, and shuttered its borders. In 1970, Sweden had the world's fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages in Sweden increased by only one percentage point.

Remnants of its earlier success remained, and the idea of following "the Swedish model" had already caught hold around the world. Fine, except the roots of this success were confused with Stockholm's more recent big-government policies, which in fact were destroying the country's enviable prosperity. This confusion also played into domestic debates, stalling reform for too long.

By the late 1980s, though, Sweden had started de-regulating its markets once again, decreased its marginal tax rates, and opted for a sound-money, low-inflation policy. In the early 1990s, the pace quickened, and most markets except for labor and housing were liberalized. The state sold its shares in a number of companies, granted independence to its central bank, and introduced school vouchers that improved choice and competition in education. Stockholm slashed public pensions and introduced private retirement schemes, keeping the system demographically sustainable.

These decisive economic liberalizations, and not socialism, are what laid the foundations for Sweden's success over the last 15 years. After the reforms of the early 1990s, Swedes' real wages increased by roughly 35% in a decade. And, as businesses have become more productive and people's incomes have risen, living standards improved. More people eat at restaurants now, more people travel abroad, more people buy DVDs and new cars. More people get more.

It’s funny or bizarre to see political zealots mistake symptoms of the diseases for medical treatment (which in reality are snake oil nostrums).

Video: G. Edward Griffin: The Fed's Sole Purpose: To Keep the Banks Afloat

The following video from Casey Research presents Casey Summit speaker G. Edward Griffin, author of The Creature from Jekyll Island, on the Fed's real role in the US economy and why – contrary to common belief – it is not this banking cartel's mission to act in the best interest of the American public.

More Financial Repression in Europe: Tobin’s Tax

Well Europe seems to see only taxation as a way out of their problems which are meant at preserving the status quo.

Eleven countries in the EU have proposed to impose a Tobin’s Tax or Financial Transaction Tax

From Reuters.com, 

A plan by a group of euro zone countries to introduce a tax on financial transactions threatens to drive more trading to London from centres such as Frankfurt, exacerbating divisions in Europe as it struggles to overcome an economic crisis. 

On Tuesday, 11 countries agreed to press ahead with a tax set to fall on the trading of shares, bonds and derivatives, although it may take up to two years before the necessary legislation is in place and the scheme starts.

Commonly known as a "Tobin tax" after Nobel-prize winning U.S. economist James Tobin, who proposed one in 1972 as a way of reducing financial market volatility, it has become a political symbol to make banks, hedge funds and high-frequency traders pay towards cleaning up a debt crisis shaking the continent.

But the EU has not been unanimous. To the contrary, such tax may even threaten escalation of political rifts among the member states that could undermine the already fragile relationships. 

More from the same article:

But the move threatens to open yet another rift in Europe, where countries already diverge in their regulation of finance and politicians have long argued over how best to control the banks blamed for triggering financial turmoil in 2007.

Proponents first tried to introduce the tax worldwide in 2008 via the Group of 20 major economies. Faced with U.S., Swiss and Chinese opposition, they tried to persuade the 27-member European Union to lead the way, or even the 17-nation euro zone. But each organisation had its sceptics.

Following an aborted attempt to introduce its own such levy in the mid-1980s, Sweden has repeatedly warned that introducing the tax will simply drive trading elsewhere. Britain, home to the region's biggest financial centre, London, will not join.

The group of Tobin taxers:

Germany, France, Italy and Spain have made it clear, however, they will be among a group that will impose the charge that is set to be 0.1 percent on the trading of bonds and shares and 0.01 percent for derivatives deals.

But the move by the group, which includes Austria, Belgium, Slovenia, Portugal, Greece, Estonia and Slovakia, has been greeted with scepticism by analysts and industry, who believe it fragments Europe's approach to regulating finance at a time when a separate plan tries to unify euro zone banking supervision.

If transaction costs rise enough due to these taxes, compounded by intensifying regulations, particularly capital controls, we should expect to see capital move away from these Europe nations and seek out places where money is treated best or is welcomed.

Asia should take this opportunity to liberalize more her financial markets in order to attract investors looking for capital friendly environments.

US States: High Debts and Labor Unionism

Some debt crisis stricken US states could be facing debt downgrades soon.

From Businessweek/Bloomberg,

The debt of 30 California cities, including Oakland, Fresno and Sacramento, has been placed under review for downgrades because of economic pressures in the state, Moody’s Investors Service said.

The examinations may affect $14.3 billion in lease-backed and general-obligation debt issued by the municipalities, the New York-based company said yesterday in a statement.

“California cities operate under more rigid revenue- raising constraints than cities in many other parts of the country,” Eric Hoffmann, who heads Moody’s California local government ratings team, said in a statement. “Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state’s economic recovery tracks the nation’s.”

Communities in California have struggled to stay afloat by cutting staff and services to make up for a drop in sales and property tax revenue in the wake of the recession. Stockton, San Bernardino and Mammoth Lakes have gone into bankruptcy court since June.

Moody’s said it identified the credits as part of a broader review started in August of 95 rated cities in California.

The general-obligation bond ratings of Los Angeles, now Aa3, fourth-highest,and San Francisco, Aa2, third-highest, are on review for upgrades, Moody’s said.

Such developments merely reminds us that the US remains highly fragile to lingering debt problems.

Also, the prospective downgrades reminds me of an article that I recently came across which associates high levels of debt with high levels of ‘forced’ unionization.

From DScoundrels.com (hat tip Charleston Voice)

After discovering that the Top 10 states with the highest tax rates were all Forced Union states, it comes as no surprise that the top states with the worst debt trouble are also Forced Union states. Back in January Forbes tallied up several factors to identify which states were in the worst debt trouble (50 being the worst). The ‘Debt Per Capita and Unfunded Pensions Per Capita’ number is how much is owed per person in the state. Forbes looked at the following:

The metrics we looked at for each state included unfunded pension liabilities, changes in tax revenue, credit agency ratings, debt as a percentage of Gross State Product, debt per capita, growth expectations for employment and the state economy, net migrations and a moocher ratio that compares government employees, pension burdens and Medicaid enrollees to private-sector employment.

Forced Union vs Right-to-Work States:

Of the top 15 states with the worst debt troubles every one listed is a Forced Union state other than Mississippi and Louisiana. These states are outliers because they have assumed larger debt due to rebuilding after the devastation of Hurricane Katrina. Of the top 15 states with the least debt troubles, all but 4 (New Hampshire, Montana, Colorado and Indiana) are Right-to-Work states. Note that in 2005 Governor Daniels of Indiana revokedthe collective bargaining rights of public sector unions.  It is also notable that the Forced Union states have a higher percentage of unionized government workers than the Right-to-Work states.

Read the rest here.

Due to the mass production and centralized organization structure which characterized the industrial age, labor unions used to represent highly influential vested groups. 

Chart from the conservative Heritage Foundation 

They still are politically influential but a lot less than what had been.

Proof of this is that some of President Obama’s policies have been conspicuously pro-union e.g. auto bailouts.

However due to globalization and the deepening of the information age, labor union trends have been on a decline worldwide.

Governments in the past has implemented inflationism to pacify US labor union groups.

As the great Ludwig von Mises narrated,

The very essence of the interventionist politicians' wisdom is to raise the price of labor either by government decree or by violent action on the part of labor unions. To raise wage rates above the height at which the unhampered market would determine them is considered a postulate of the eternal laws of morality as well as indispensable from the economic point of view. Whoever dares to challenge this ethical and economic dogma is scorned both as depraved and ignorant. Many of our contemporaries look upon people who are foolhardy enough "to cross a picket line" as primitive tribesmen looked upon those who violated the precepts of taboo conceptions. Millions are jubilant if such scabs receive their well-deserved punishment from the hands of the strikers while the police, the public attorneys, and the penal courts preserve a lofty neutrality…

Firmly committed to the principles of interventionism, governments try to check this undesired result of their interference by resorting to those measures which are nowadays called full-employment policy: unemployment doles, arbitration of labor disputes, public works by means of lavish public spending, inflation, and credit expansion. All these remedies are worse than the evil they are designed to remove.

I believe that a lot of the advocates for the mercantilist-inflationists dogma are those bearing a nostalgia for big labor union days.

Unfortunately for them, today’s political priorities have shifted. Governments, along with their central banks, have been supporting mostly the crony banking system (through asset prices) whom has served as key financier to welfare-warfare based political institutions.

Worse, the era of labor union, welfare-warfare and big government are being seriously challenged by growing forces of decentralization and by internal atrophy from unsustainable government spending-debt dynamics.

30,000 Drones to Patrol US Skies for Public Safety

The transition towards a police state in the US seems now in progress.

Drones will become the next airborne police surveillance vehicles in the name of “Public Safety”.

From RT.com (italic original)

Don’t be surprised if you catch a federal fleet of sneaky spy drones soaring over your head in the near future, but don’t be too terrified — it’s all in the name of public safety.

The US Department of Homeland Security is asking the makers of small unmanned aerial vehicles to submit their crafts for consideration as the agency ramps up the construction of a full-fledged surveillance state across America. The DHS plans to soon conduct drone tests over the Fort Sill, Oklahoma US Army base, and they’re already soliciting spy planes from the private sector so they can select what kind of UAV to use.

According to a request for information published on the Federal Business Opportunities website recently, the DHS is determined to begin drone tests over the military base soon and is seeking submissions from drone makers that don’t mind making a few bucks by having their products put into the US airspace to conduct sweeping surveillance.

The Borders and Maritime Security Division of the DHS “will conduct flight testing and evaluation of airborne sensors and small unmanned aerial systems,” the request reads, and now invites vendors to submit drones to be tested “under a wide variety of simulated but realistic and relevant real-world operation scenarios.”… 

The Federal Aviation Administration is working towards putting the finishing touches on rules and regulations for widespread domestic drone use, and the agency expects as many as 30,000 UAVs will be in America’s airspace by the decade’s end.

As America's founding father and principal author of the Declaration of Independence and third president of the United States Thomas Jefferson said, 

Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one

Bastiat on Why Protectionism is a Philosophy of War

Protectionism is a philosophy of war, partly through conquest.

The great classical liberal Frédéric Bastiat destroys the supposed moral high ground of mercantilism which are based on blatant self contradictions. (source Mises Institute, all bold mine)

There is one thing that confounds me, and it is this. Sincere publicists, studying the economy of society from the producer's point of view, have laid down this double formula:

1. "Governments should order the interests of consumers who are subject to their laws, in such a way as to be favorable to national industry."
2. "They should bring distant consumers under subjection to their laws, for the purpose of ordering their interests in a way favorable to national industry."

The first of these formulas gets the name of protection; the second we call outlets, or the creating of markets, or vents, for our produce.

Both are founded on what we call the balance of trade: "A nation is impoverished when it imports; enriched when it exports."

For if every purchase from a foreign country is a tribute paid and a national loss, it follows, of course, that it is right to restrain, and even prohibit, importations.

And if every sale to a foreign country is a tribute received, and a national profit, it is quite right and natural to create markets for our products even by force.

The system of protection and the colonial system are, then, only two aspects of one and the same theory. To hinder our fellow citizens from buying from foreigners, and to force foreigners to buy from our fellow citizens, are only two consequences of one and the same principle.

Now, it is impossible not to admit that this doctrine, if true, makes general utility to repose on monopoly or internal spoliation, and on conquest or external spoliation.

I enter a cottage on the French side of the Pyrenees.

The father of the family has received but slender wages. His half-naked children shiver in the icy north wind; the fire is extinguished, and there is nothing on the table. There are wool, firewood, and corn on the other side of the mountain; but these good things are forbidden to the poor day-laborer, for the other side of the mountain is not in France. Foreign firewood is not allowed to warm the cottage hearth; and the shepherd's children can never know the taste of Biscayan wheat, and the wool of Navarre can never warm their benumbed limbs. General utility has so ordered it. Be it so; but let us agree that all this is in direct opposition to the first principles of justice. To dispose legislatively of the interests of consumers, and postpone them to the supposed interests of national industry, is to encroach upon their liberty — it is to prohibit an act; namely, the act of exchange, that has in it nothing contrary to good morals; in a word, it is to do them an act of injustice.

And yet this is necessary, we are told, unless we wish to see national labor at a standstill, and public prosperity sustain a fatal shock.

Writers of the protectionist school, then, have arrived at the melancholy conclusion that there is a radical incompatibility between justice and utility. 

On the other hand, if it be the interest of each nation to sell, and not to buy, the natural state of their relations must consist in a violent action and reaction, for each will seek to impose its products on all, and all will endeavor to repel the products of each.

A sale, in fact, implies a purchase, and since, according to this doctrine, to sell is beneficial, and to buy is the reverse, every international transaction would imply the amelioration of one people and the deterioration of another.

But if men are, on the one hand, irresistibly impelled toward what is for their profit, and if, on the other, they resist instinctively what is hurtful, we are forced to conclude that each nation carries in its bosom a natural force of expansion, and a not less natural force of resistance, which forces are equally injurious to all other nations; or, in other words, that antagonism and war are the natural state of human society.

Thus the theory we are discussing may be summed up in these two axioms: 

Utility is incompatible with justice at home.

Utility is incompatible with peace abroad.

Now, what astonishes and confounds me is that a publicist, a statesman, who sincerely holds an economical doctrine that runs so violently counter to other principles that are incontestable, should be able to enjoy one moment of calm or peace of mind.

For my own part, it seems to me that if I had entered the precincts of the science by the same gate, if I had failed to perceive clearly that liberty, utility, justice, peace, are things not only compatible, but strictly allied with each other, and, so to speak, identical, I should have endeavored to forget what I had learned, and I should have asked,

"How God could have willed that men should attain prosperity only through injustice and war? How He could have willed that they should be unable to avoid Injustice and War except by renouncing the possibility of attaining prosperity?

"Dare I adopt, as the basis of the legislation of a great nation, a science that thus misleads me by false lights, that has conducted me to this horrible blasphemy, and landed me in so dreadful an alternative? And when a long train of illustrious philosophers have been conducted by this science, to which they have devoted their lives, to more consoling results — when they affirm that liberty and utility are perfectly reconcilable with justice and peace — that all these great principles run in infinitely extended parallels, and will do so to all eternity, without running counter to each other — I would ask, Have they not in their favor that presumption which results from all that we know of the goodness and wisdom of God, as manifested in the sublime harmony of the material creation? In the face of such a presumption, and of so many reliable authorities, ought I to believe lightly that God has been pleased to implant antagonism and dissonance in the laws of the moral world? No; before I should venture to conclude that the principles of social order run counter to and neutralize each other, and are in eternal and irreconcilable opposition — before I should venture to impose on my fellow citizens a system so impious as that to which my reasonings would appear to lead — I should set myself to re-examine the whole chain of these reasonings, and assure myself that at this stage of the journey I had not missed my way."

But if, after a candid and searching examination, 20 times repeated, I arrived always at this frightful conclusion, that we must choose between the right and the good, discouraged, I should reject the science, and bury myself in voluntary ignorance; above all, I should decline all participation in public affairs, leaving to men of another temper and constitution the burden and responsibility of a choice so painful.

Beware of their hypocrisies

The US Dollar Renminbi Standard Myth

Another bizarre mercantilist claim today is that the world monetary system operates on a supposed “USD-Renminbi” standard.

(From Tradingeconomics.com)

Such claim has been anchored on supposed “trade imbalances”, particularly US trade deficits, from where the world evolves only around only two nations, the United States and China. From such premise it is easy to dismiss this as false choice.

A further assumption is that central bankers of both nations have only been fixated on each other’s economy while ignoring the rest of world.

Nevertheless here a few charts to dispel such myths

Based on merchandise trade, it would be a mistake to assume that both these countries equally been trade oriented.

The fact is that the US despite the deficits, external trade in goods account for only a little over 20% of the economy. This makes the US essentially relatively a closed economy.

Meanwhile China’s merchandise trade is about half their economy. In contrast Germany’s external trade accounts for more than 70%. 

Germany largest share among the three squares with the EU’s position as the largest trading bloc. (Wikipedia)

To further add, China accounts as the second largest trading partner to the United States. (US Bureau of Commerce)

Also in terms of trade deficit with the US, while it is true that China has the largest surplus, there are many other countries that maintains where the US has a deficit. (US Bureau of Commerce) Add all to the 9 largest trading partners with surpluses these will easily overshadow China. A further implication is that should protectionist measures be imposed on China, US deficits will only shift to these countries.

Yet for those blinded by deficits, they fail to also account that China’s exports have been (51%) owned by foreign owned companies based on China.

In reality, the obsession towards trade deficits are misleading for the simple reason that trade deficits are balanced out by capital account (Mark Perry)

To quote Professor Mark Perry (bold original)

As a direct consequence of our current account deficits, the U.S. economy has been the beneficiary of more than $8 trillion worth of capital inflows from foreigners since 1980. Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis.

The other side of the coin is that China’s ownership of US debts has been overstated.

In reality, foreign ownership as a total of US treasuries account for only 25% (Wikipedia)…

…where China owns about 8% share of total foreign ownership as shown by the breakdown above. 

In terms of international currency reserves…

The Euro-USD constitutes 90% of global foreign exchange reserves. Add the pound sterling, yen and the swiss franc such would account for 95% of foreign reserves. (Wikipedia) In other words, global trade and banking reserves have hardly been about the Chinese yuan yet. Although China has been making inroads with other emerging markets (e.g. ASEAN, Brazil India Russia, Chile and even Africa) to use her currency as an international reserve.

China’s fixed currency has partly been accused for such relationship. But China’s currency has been fixed since 1994. If fixing currency to the US dollar has been about stealing jobs…

…then all these countries have been guilty

But then again, currency fixing or pegging has been adapted by these countries mostly to promote stability.

According to Investopedia.com

The reasons to peg a currency are linked to stability. Especially in today's developing nations, a country may decide to peg its currency to create a stable atmosphere for foreign investment. With a peg, the investor will always know what his or her investment's value is, and therefore will not have to worry about daily fluctuations. A pegged currency can also help to lower inflation rates and generate demand, which results from greater confidence in the stability of the currency.

Other reasons have been for expanding trade network externalities and importing policy credibility, (University of California) aside from lack of depth in their respective domestic and sophistication in domestic financial markets. 

Bottom line: As I have been pointing out, US trade balance, aside from the conditions of the US dollar has mostly been a function of domestic boom bust cycles, the Triffin dilemma (frictions arising from the collision of international and domestic interests based on short and long term objectives) and many other domestic interventionists policies. 

There has not been a single factor. (Fallacy of a single cause)

Financialization of the US has been an outgrowth of these from which trade deficits have been funded through the growth of financial industry. Wikipedia points to the “greater role arising from the issuance of fiat currency untethered to gold or other commodities, as well as the “end of the post-World War Two Bretton Woods system of fixed international exchange rates and the dollar peg to gold in August 1971”. 

Neither has supposed trade imbalances been deliberately caused by China.

Boom bust cycles, for instance, draw in lots of resources and labor to malinvested areas where during a booming phase distorts the price mechanism and distribution and production process via overvaluing wages, the domestic currency, asset prices, welfare (pensions), fake profits and etc....

Once a bust arrives these policies induced boom becomes key sources of retrenchment.

Mercantilists have been flagrantly blind to this.

Finally as I pointed out, Ben Bernanke has not been targeting the exchange rate for his latest QE. This means, if you believe his uprightness, then he acknowledges that the issue has been local, particularly putting a floor on asset prices and hardly about foreign (devaluation).

Seeing things from reality (than from political biases) gives us a better chance at being right in our investment positions.