An Inflationary Boom Powered Phisix Bullmarket

It is important, first, to distinguish between business cycles and ordinary business fluctuations. We live necessarily in a society of continual and unending change, change that can never be precisely charted in advance. People try to forecast and anticipate changes as best they can, but such forecasting can never be reduced to an exact science. Entrepreneurs are in the business of forecasting changes on the market, both for conditions of demand and of supply. The more successful ones make profits pari passus with their accuracy of judgment, while the unsuccessful forecasters fall by the wayside. As a result, the successful entrepreneurs on the free market will be the ones most adept at anticipating future business conditions. Yet, the forecasting can never be perfect, and entrepreneurs will continue to differ in the success of their judgments. If this were not so, no profits or losses would ever be made in business. Murray N. Rothbard

The mainstream view where the turbocharged performance by the Philippine Phisix is largely seen as representative of mainly a domestic affair and accounting for signs of economic “progress” is misguided.

The reality is what we observe as significant advances by the local stock market have instead signified as a global development.

Importantly, these magnificent gains account for as symptoms or illustrative of market’s reactions to easing policies adapted by global central bankers, whom has been promoting a negative real rate environment and has been engaged in massive interventions in the bond markets to provide political support to crisis afflicted governments and the banking system.

The Intensifying Rising Tide Phenomenon

The Phisix ranked an impressive second (based on nominal currency year to date returns) among the world’s top performers[1], last week. Not this time though. Bourses from developed economies to the BRICs to emerging markets and the frontier markets have advanced almost at a frenetic pace.

About 43% of the 72 global benchmarks I monitor posted year-to-date gains of 4% and above. That’s an incredible feat considering we are only 3 weeks into 2012.

Of course, these gains have distinct or individual stories to tell. While most of them seem to be in a recovery mode following last year’s pummelling, only a few bourses has broken into record highs or are within the ambit of previous record highs. The Philippines and slow starting Indonesia seem to fall into the latter two categories.

On the other hand, only about 20% of global equities have posted negative returns where many of them emanate from the MENA Middle East North African region.

While Argentina remains as the market leader on a year-to-date basis, the Philippine Phisix which posted an amazing 2.91% weekly gains this week, has been eclipsed by several major bourses.

Based on year-to-date nominal currency returns, aside from Argentina, the Phisix now trails Germany, Hungary, Brazil, Russia and Hong Kong. India’s BSE 30 is currently neck to neck with the Phisix.

And seen from the region’s performance, over the past 6 months the Philippine Phisix has dramatically displaced Indonesia and Thailand as the region’s trailblazer.

Chart from Bloomberg

It’s important to point out what you see depends on where you stand. Applied to the above, the 6 month perspective changes when we adjust for different time referenced starting points.

On a one year basis (not in chart) the Phisix has slightly surpassed Indonesia, while on a three month basis (not in chart) the Phisix still marginally trails Thailand.

The point is perspectives can be used to advance an observer’s subjective bias rather than to make an objective presentation.

Nevertheless in all three periods, the Phisix has either led the pack or has been slightly behind the leader. As to whether the Phisix can maintain such exemplary performance has yet to be ascertained. And as we have noted in the recent past, the leadership role among the ASEAN-4 bourses has been alternating.

And to give us a clue on what’s been driving the Phisix, we go to the year to date performance of each sector.

The property sector seems to have commanded the lead from last year’s run away leader, the mining sector which now ranks third. The service sector lead by the telecoms has taken the second spot while financials placed fourth.

Except for the service sector, the current rankings seem to fulfill my observations that capital intensive projects (mining, manufacturing, real estate related projects) are likely to benefit from artificially suppressed interest rates, whom will be financed mostly by loans via the banking sector (who will also account for as a beneficiary).

As I previously wrote[2],

Although I am not sure which sector should give the best returns over the short term, I am predisposed towards what Austrian economics calls as the higher order stages of production or the capital goods industries, which are likely the beneficiaries of the business cycle, specifically, mining, property-construction and energy, as well as financials whom are likely to serve as funding intermediaries for these projects.

Of course telecom companies are capital intensive projects too and became subject of an earlier boom bust cycles abroad—the dotcom bubble.

Yet the above dynamics looks like the interlocking and tessellating jigsaw puzzles all falling into their respective places, all of which seem to account for the business cycle.

And for a broader view of which issues from the Phisix basket has contributed much to the recent advances, the top ten largest free float market cap issues ranked according to their respective weights, based on year-to-date as of Friday’s close, can be seen in the above chart (largest to smallest market cap from left to right).

Combined, these issues account for about 61% weighting of the Phisix composite.

So far, the property majors have assumed the leadership role. Ayala Land (ALI) and SM Prime Holdings (SMPH), posted the best gains followed by holding firm Ayala Corporation (AC) and telecom titan PLDT (TEL). These firms have delivered the gist of the gains of the Phisix.

And it is further important to point out that the uptrend in net weekly foreign buying appears to support the case where foreign investors may have likely been loading up or has been providing a boost on these issues.

And as pointed out last week, it would be a mistake to ascribe current market actions as driven solely by corporate fundamentals or by micro factors when, in reality, general market sentiment has been revealing of a rising tide lifting all boats phenomenon.

Advance decline spread (weekly basis; upper window) has materially surged reflecting on broad bullishness of the marketplace. This has largely been due to the breakout of weekly advancing issues (lower window) from the consolidation phase. Given the limited number of issues listed, the ceiling or the maximum upside may have already been attained which means that we should expect rangebound actions but based on the current elevated levels.

What has essentially been happening on a global scene appears to parallel the developments being reflected on the internal market actions in the Philippine Stock Exchange (PSE).

Austrian Business Cycle In Progress

And as I have been reiterating, global central banks have slashing rates in near concert. The Philippines, this week, has joined the bandwagon of promoting policies which represents the euthanasia of the savers via a negative real rate environment[3].

Such policies are designed to stimulate aggregate demand, which have been couched and camouflaged in academic terms, when in reality, have been meant to advance the interests of the banking sector (as intermediaries of savers and borrowers) and the political class.

With nominal interest rates below consumer price inflation (CPI) levels, the public will be incented to shift money from fixed income instruments towards undertaking speculative activities and for entrepreneurs to invest on long range capital intensive projects.

Part of the effects of such policies, would be a boom in the stock market, which has already validated my thesis where negative rates will drive a stock market boom[4] as well as a boom in capital intensive projects such as in the real estate. I have been pointing out that we should expect a boom in the Philippine real estate industry[5].

And most of the funding of the latter’s project will likely be channelled through the banking sector (ergo expanding the latter’s profits).

As an aside, Philippine property sector has been showing signs of a vigorous recovery both in terms of annual price changes in Philippine housing and in luxury 3 bedroom units[6]

Also, at near record low rates, governments will be motivated to increase fiscal spending via more interventionists projects peddled or justified as “infrastructure” or “social” investments, which will be financed through the acquisition of more debts, and which subsequently will be sold and financed by the public through higher taxes or inflation.

Also, suppressed interest rates will impel consumers to spend more using credit cards and other credit programs or mechanism that leads to more consumptive activities.

Combined with higher government spending, and greater appetite for consumers to spend, not only does such activities lead to an overall growth in systemic leverage, thereby increasing fragility and risks, but likewise reduces the incentives for the local economy to produce more and tilts the balance of incentives towards greater consumption activities. Eventually this should unwieldy trade deficits.

Of course, adding to the systemic leverage will include entrepreneurs whom have been lured to invest in capital intensive projects.

Nonetheless, the initial burst of spending and speculation will be seen as a boom (as we are seeing today)

However, the competition for the use and consumption of resources (by government, consumers and entrepreneurs), as well as the misalignment between demand of consumers and investments in the production of capital goods will eventually get exposed through the interest rate channel.

As Professor Steve Horwitz explains[7]

The theory argues that the boom is generated by some exogenous factor that has caused market interest rates to diverge from the natural rate that accurately reflects the time preferences of consumers and producers. That exogenous factor is normally thought to be an excess supply of money, which is normally thought to be the product of bad central bank policy or problematic government regulations on the banking system. Once that bad interest rate signal is in place, intertemporal discoordination will result. The nature of money and the time-ladenness of production mean that we don't see that discoordination at first, as it is masked by the boom. The increased activity at both the higher orders of goods and the consumption level looks like growth until the fact that there is insufficient real savings to support the increased (now "mal") investment at the highest orders makes itself known.

Once interest rates level render many of these capital intensive projects unfeasible, the boom segues into a bust.

Yet countenanced with the prospects of depression, governments and their central banks has greater proclivity to resort to the same measures that has led to such problems—perhaps out of ideology, the interest to preserve the status quo, shared creed or dogma, groupthink, political pressures to apply policies that has immediate impact and path dependent actions—which ultimately becomes unsustainable.

As the great Nobel Prize winner Friedrich von Hayek wrote[8],

And since, if inflation has already lasted for some time, a great many activities will have become dependent on its continuance at a progressive rate, we will have a situation in which, in spite of rising prices, many firms will be making losses, and there may be substantial unemployment. Depression with rising prices is a typical consequence of a mere braking of the increase in the rate of inflation once the economy has become geared to a certain rate of inflation.

We don’t have to look far to identify where the global inflation cycle is being conducted. Since 2008, the balance sheets of major central banks of the world continues to balloon[9]! Inflation is being progressively compounded by through balance sheet inflation in order to keep asset prices afloat and to assure liquidity flows of the global banking sector.

And stepping on the brake by central bankers would extrapolate to a reversal of boom conditions in a disorderly manner.

Widespread Empirical Evidences

Over the past few years we have seen the same cycles being played out even outside the crisis afflicted developed economies, whether in Bangladesh[10], Brazil[11], India[12], Vietnam[13] or China[14].

Every time governments adapt easy money policies, we see booms in the stock market and or in real estate projects. And each time governments tightens the grip on monetary conditions in response to resurgence of consumer price inflation, we see the same weakness or discoodination pressures being reflected on the prices of their respective stock markets.

The great Ludwig von Mises reminds us that imbalances arising from policy intrusions can be reflected on the actions of the stock market[15]

The moderated interest rate is intended to stimulate production and not to cause a stock market boom. However, stock prices increase first of all. At the outset, commodity prices are not caught up in the boom. There are stock exchange booms and stock exchange profits. Yet, the “producer” is dissatisfied. He envies the “speculator” his “easy profit.” Those in power are not willing to accept this situation. They believe that production is being deprived of money which is flowing into the stock market. Besides, it is precisely in the stock market boom that the serious threat of a crisis lies hidden.

Yet it would seem bizarre for the public to bet on the stock market of a slackening economy, but that’s how these things play out, especially when the economy is seen to hit the proverbial wall.

A good example is China, where her stock markets have surged this year when economic figures has been revealing signs of marked deterioration.

Why the surge?

Because market participants have been conditioned or trained to react to signals where policymakers will likely resort to massive measures to reflate of the system, if and when the pace of deterioration reaches alarming levels that risks inciting political upheavals.

And indeed not only do we see a spike in the 3 month rate of change of China’s money supply late last year[16], but there has also been increasing reports, or say speculative expectations of planned stimulus in both financial[17] and fiscal dimensions[18].

While my concerns over a possible bubble implosion in China persist, which prompts me to remain vigilant, I would submit that a massive stimulus program, like her Western counterparts, could buy her time or defer on the day of reckoning.

Moreover rampaging money supply has been permeating into the US economy giving the impression of a ‘broad based recovery’

For instance analyst Ed Yardeni says that the recovery could be broad based[19].

This time, key sectors of the economy haven’t participated in the initial economic rebound, but finally may be on the verge of doing so. The second recovery could take off as the pace of hiring quickens, housing activity finally picks up, auto sales head higher, and state and local governments stop retrenching. If so, then the US would finally enjoy the benefits of a broader-based recovery.

Such appearance of a inflation induced time lag ‘recovery’ has been signalled by the US stocks markets.

Conclusion: Phisix Upside Momentum Should Continue Amidst Interim Corrections

In the face of economic slowdown and the risks of a contagion from the continuing crisis in Europe, global central bankers seems to have tactically implemented a defensive cordon or firewall by massively easing credit conditions partly in coordination with one another. This has led to near record low global interest rates[20] compounded by a surge in liquidity from the various asset purchasing programs being undertaken.

These measures, along with the hiatus in the Euro crisis and the noteworthy inflation induced economic recovery in the US—backed by a surge in money supply growth and recovering credit conditions—have been powering the recent gains of the global stock markets.

The Philippines has undertaken a similar policy route. And considering the still relatively low consumer price inflation, which has yet to trigger political outcry, negative real rates, which have been one of the key factors responsible for the recent monumental and historic breakout of the Phisix, will continue to influence the bullish momentum of the local bellwether, perhaps going into first semester.

But since no trend goes in a straight line, we should expect interim corrections which should serve as windows of opportunities to accumulate.

At the Philippine Stock Exchange, it is important to reiterate that the mining index has been outperforming other sectors in the PSE on a one year alternating interval basis[21]. And since 2011 was yet another stellar year for the sizzling hot sector, and if the alternating trend persists, then there could be another rotation process at work, partly away from the mines and into the broader market as the liquidity driven boom percolates.

But it is not necessary for the mining sector to register losses for a rotation to occur. What we are likely to see is that the variances in the distribution of returns will not likely be as distant as last year.

Since history may not repeat and may not serve as a useful guide in making predictions, and where the public’s recognition of the mining sector seemed to have reached a critical mass only at the current bullmarket cycle which began in 2009, I can’t discount the possibility that the alternating pattern might be rendered irrelevant. So diversifying could probably be the best solution under such scenarios.

Yet if there should be a rotation where gains will be spread out to the other sectors, I think that the best way to diversify would be to use the clues from the Austrian business cycle where capital intensive sectors (most likely property or real estate) and the finance industry could be the major beneficiaries of an inflationary boom (aside from the mines).

Finally, it is worth repeating that there has hardly been any sign of decoupling. As one would observe, local policies have been strongly influenced by policymaking trends in the developed world. We may call this globalization of central banking actions where central bankers not only seem to act in the same manner, but also coordinate or synchronize their activities and extend assistance to one another via swap facilities. And the transmission effect of the other factors of globalization—finance and capital flows, trade, labor and culture—remain as the other major force in shaping market conditions.

And as 2011 has shown, what has made the Phisix and ASEAN markets outperform has been the non-recessionary environment in the US, in spite of the Euro crisis, as well as, the relatively low debt levels compared with her western peers. This relationship is expected to continue through 2012 unless the world deglobalizes or adapts protectionist measures.

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[1] See Global Equity Markets: Philippine Phisix Grabs Second Spot January 14, 2012

[2] See Phisix-ASEAN Equities: Awaiting for the Confirmation of the Bullmarket November 13, 2011

[3] See Philippine Government Applies Keynesian Remedies, Boom Bust Cycle Ahead, January 20, 2012

[4] See Investing in the PSE: Will Negative Real Rates Generate Positive Real Returns? November 20, 2011

[5] See The Upcoming Boom In The Philippine Property Sector, September 12, 2010

[6] Global Property Guide Philippine property prices rising again!, December 5, 2011

[7] Horwitz Steve Austrian Cycle Theory is Not a Morality Play, March 3, 2011 CoordinationProblem.org

[8] Hayek Friedrich A. von Can We Still Avoid Inflation? The Austrian Theory of the Trade Cycle, p. 89 Mises.org

[9] Danske Bank A deal for Greece is near, Weekly Focus January 20, 2012

[10] See Bangladesh Stock Market Crash: Evidence of Inflation Driven Markets, January 11, 2011

[11] Moneycontrol.com Brazil cuts interest rates for 4th time to restore growth, January 19, 2012

[12] Wall Street Journal India Adviser: Monetary Tightening Can End as Inflation Is Cooling, December 20, 2011

[13] See Vietnam Stock Market Plunges on Monetary Tightening, May 24, 2011

[14] See Has China’s Bubble Popped? May 29, 2011

[15] Mises, Ludwig von 3. DRIVE FOR TIGHTER CONTROLS, CONTROL OF THE MONEY MARKET p.145 The Causes of the Economic Crisis

[16] Holmes Frank Investor Alert - It May Take a Dragon to Breathe Fire into Markets, January 20, 2012 US Global Investors

[17] Bloomberg.com Chinese Officials Said to Weigh Easing Constraints on Banks, January 19, 2012

[18] China Real Time Report China Eyes Stimulus Targeted at Boosting Consumption, January 20, 2012 Wall Street Journal Blog

[19] Yardeni Ed A Double Recovery? January 17, 2012 Blog.yardeni.com

[20] See Global Central Banks Ease the Most Since 2009 November 28, 2011

[21] See Graphic of the PSE’s Sectoral Performance: Mining Sector and the Rotational Process, July 10, 2011

Quote of the Day: Blaming Capitalism

It would be correct to describe this state of affairs in this way: Today many or some groups of business are no longer liberal; they do not advocate a pure market economy and free enterprise, but, on the contrary, are asking for various measures of government interference with business. But it is entirely misleading to say that the meaning of the concept of capitalism has changed and that "mature capitalism"--as the American Institutionalists call it--or "late capitalism"--as the Marxians call it--is characterized by restrictive policies to protect the vested interests of wage earners, farmers, shopkeepers, artisans, and sometimes also of capitalists and entrepreneurs.

The concept of capitalism is as an economic concept immutable; if it means anything, it means the market economy. One deprives oneself of the semantic tools to deal adequately with the problems of contemporary history and economic policies if one acquiesces in a different terminology. This faulty nomenclature becomes understandable only if we realize that the pseudo-economists and the politicians who apply it want to prevent people from knowing what the market economy really is. They want to make people believe that all the repulsive manifestations of restrictive government policies are produced by "capitalism."

The great Ludwig von Mises clarifies and defends what capitalism is all about.

And exactly as Prof von Mises describes, present day detractors equivocate and fudge on the terminology, and importantly, misrepresents on the causation of events. Critics usually point to effects of massive interventionisms, which they impute to as the cause of what for them constitutes as "market failures". They mistakenly imply that incumbent policies have had neutral effects on the markets.

All these signify as vain attempt to mislead people.

Infographics: The Big Mac Index

This is a neat infographics on the Big Mac index from onlinemba.com

(hat tip Scott Lincicome)

click on this link: onlinemba.com to see the original image

Marc Faber Predicts World War III in 5 years

Dr. Marc Faber sees World War III that features cyber warfare coming anytime during the 5 year horizon.

From Business Intelligence,

He sees a shift in economic and military power from West to East and is increasingly convinced that the end game will be war. But, so far, he had avoided giving a time frame to the war scenario. Not any longer.

Dr. Faber was amongst 10 investment experts assembled by Barron's last week at the Harvard Club of New York for the Barron’s 2012 Roundtable. The members of the Roundtable discussed the economy, China, Europe, market volatility, investment picks and World War III.

"On an optimistic note, World War III will occur in the next five years," Faber announced to the other members of the Roundtable, in his characteristic contrarian manner.

"That means the Middle East will blow up," he said, without providing any details about specific countries.

When this happens, "new regimes there will be less Western-friendly," he reckons.

"The West has figured out it can’t contain China, which is rising rapidly and will have more military and naval power in Southeast Asia," he explains.

The only way for the West to contain China is to control the oil tap in the Middle East, Faber argued.

The prelude to war will be a "big bust that will see the end of credit expansion," he said in a recent interview. But before this happens, "governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".

Cyber war?

"This war will be different from World War I where troops faced each other in trenches or World War II where tank divisions faced each other, he said. This will be Cyber War. A war where you can turn a switch and turn the London electricity supply off. This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt," Faber said in an August 2011 interview.

And during war times, "commodities go up strongly,” he argued.

"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he stressed.

But sees this as having a positive impact on equity prices,

Asked if war will be positive for stocks, Faber told the Baron's Roundtable it would be very positive for stocks and negative for bonds, "because debt will grow dramatically. There will be massive monetization of debt."

"When the U.S. entered World War II total credit equaled 140% of GDP, and there were no unfunded liabilities. Now total credit-market debt is 380% of GDP, and unfunded liabilities make that 800%," he added.

Speaking to CNBC Thursday Faber went further: "Relax. I don’t think that equities will collapse. I think we have major support going back to August 2010 when the S&P was at 1010," he said.

It would seem that the government’s or the nation state’s default option when countenanced with a decadent society emanating from failed policies has been to resort to war. That’s because war has the tendency to divert or distract the public’s attention which pushes the masses to rally around the flag in the name of patriotism.

As Nazi Germany’s Hermann Goering Commander-in-Chief of the Luftwaffe, President of the Reichstag, Prime Minister of Prussia and, as Hitler's designated successor once said in a conversation with Gustave Gilbert during the Nuremberg trial (an Allied appointed psychologist)

Why of course the people don't want war. Why should some poor slob on a farm want to risk his life in a war when the best he can get out of it is to come back to his farm in one piece? Naturally the common people don't want war neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country.

Although war is a possibility (I earlier noted that the risk of military confrontation with Iran seem to be increasing here and here), in my opinion, World War III may not be inevitable.

I think that nation states will likely suffer more from internal strife (e.g. revolutions or secessions) which eventually leads to their collapse than from a global war in the scale of World War II. But the latter is an option that cannot be written off.

And if in case this should happen, it is unclear if equity markets will remain unscathed by a warfare dominated by cyberspace engagements. To quote Dr. Faber’s conflicting points: “This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt”. [italics added]

Perhaps Dr. Faber refers to other countries but not the US. But what if the US is the object of such cyber assaults such as the recent case of the FBI and the Department of Justice along with the websites of the entertainment industry (which perhaps could partly reflect on the protest to censor the web)?

The fate of financial assets will entirely depend on how World War III plays out. Thus, there is no straight cut answer to Dr. Faber’s scenario.

Philippine Government Applies Keynesian Remedies, Boom Bust Cycle Ahead

The Philippine government will be applying Keynesian measures of “euthanasia of the rentier” and the “socialization of investments” to prop up economic “growth” (permanent quasi-booms)

The euthanasia of the rentier as reported by the Bloomberg

The Philippines cut interest rates for the first time since July 2009, joining emerging markets from Thailand to Indonesia in easing monetary policy as a deteriorating global economy threatens growth.

Bangko Sentral ng Pilipinas lowered the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4.25 percent, according to a statement in Manila today. The decision was predicted by 13 of 17 economists in a Bloomberg News survey, with the rest expecting no change. The central bank maintained the reserve requirement ratio at 21 percent.

“The Philippine economy is likely to face external headwinds in 2012,” Governor Amando Tetangco said in the statement. “The benign inflation outlook allowed some scope for a reduction in policy rates to help boost economic activity and support market confidence.”

Asian policy makers are under mounting pressure to protect growth after the World Bank cut its global economic forecast this week, saying a recession in the euro region could exacerbate a slowdown in countries such as India and China. Lower borrowing costs and slowing price gains may aid Philippine President Benigno Aquino’s efforts to boost expansion as he increases spending and seeks investment for roads and airports.

Socialization of Investments, again from the Bloomberg

President Aquino is increasing spending this year to a record 1.83 trillion pesos ($42 billion) to help bolster growth to as much as 8 percent annually. The government also plans to offer as many as 16 projects to investors this year, compared with one contract awarded in 2011.

Ayala Corp., leading a consortium that won a contract last month to build a four-kilometer, four-lane paved toll road leading to provinces south of the capital, may bid for two road projects and a contract to run an airport, Managing Director Eric Francia said Dec. 15.

Aquino has won sovereign-rating upgrades from Fitch Ratings and Moody’s Investors Service after intensifying efforts to narrow the budget gap from a record 314 billion pesos in 2010.Standard & Poor’s raised its outlook on the country’s debt rating last month.

Chart from Danske Bank

So the Philippine government via the BSP will push real interest rates deeper into negative territory (left window) that will punish the saving public and the average fixed income investors. This represents a policy which redistributes resources from creditors (again savers) to borrowers (I would guess would be mostly cronies), that benefits the politically privileged banking system (as intermediaries), aside from encouraging the public to take on speculative activities (stock market boom as previously predicted) and a misdirection of capital towards long range investments. Such policies also will promote consumption activities which will likely lead to trade deficits.

These are composite ingredients to the business cycle or boom bust cycle.

The BSP’s adapted measure rhetorically represents an appeal to the popular that has been ensconced by the herding or bandwagon effect, as central banks of major economies has embarked on a similar easing cycle. As earlier pointed out, global interest rates are now in 2009 levels. The other way to see the current global easing cycle is that central banks could be in coordination with one another, and or that this represents as the central bankers dogmatic approach in dealing with any perceived threats to statistical growth.

In addition, consumption of capital will only be amplified by the massive fiscal spending of the Aquino administration ($42 billion) which would mostly end up in inefficient use, wastage and in the pockets of politicians and bureaucrats and their cronies.

I would further that the BSP’s easing process could have been synchronized with the prospective fiscal policies, aimed at providing funds to cronies, who will undertake most of the private-public partnerships, and to the government whom will be requiring these funds that will probably be obtained from the local markets, as earmarked for boosting growth.

And I would propound a political spectrum in these actions—these could be meant to shore up the public’s support for the administration who currently has pushed for an impeachment trial of the Supreme Court Chief Justice.

Public support for the administration means pressure for the Senate, whom has been adjudicating the impeachment trial, to deliver a verdict that is favorable to the administration.

Nevertheless, while this would have temporal benefits for the stock market, and for the economy as measured by spending based statistics, the evil effects of high inflation and malinvestments point to an eventual bust sometime ahead (I can’t determine the exact frame, but we can observe this via interest rates).

For now profit from political folly.

Quote of the Day: Inconsistencies of Public Policies

Bureaucracies typically resist working with other bureaucracies for fear that their own power and budget might decline as a result. If high-ranking politicians wanted to, they could insist on coordinated policymaking. But they don’t, because coordinating does not matter to them. The ultimate goal for a politician running for office is to get elected. From that vantage point, politicians tend to consistently push for policies that will bring them votes, funds or both.

That’s from Chidem Kurdas at the ThinkMarkets, giving us a public choice perspective on the reasons why bureaucracies has the tendency to remain obstinately inefficient and inconsistent. The answer, in short, is all about the incentives guiding the actions of bureaucrats and politicians.

Andrew Napolitano on the Diminishing Economic Freedom in the US

As pointed out earlier, the US has swiftly been losing her reputational pedestal as “the land of the free” as evidenced by the fast expanding dependency culture that has been induced by a ballooning welfare state.

Yet the path towards fascism hasn’t been due to happenstance, but has accounted for gradualism or deliberate incremental efforts to achieve such an end.

Judge Andrew P. Napolitano below defines economic freedom

The root of economic freedom is the recognition of the right to own private property. That includes the right to utilize it unmolested, to dispose of it without anyone's permission and to exclude anyone from it, even the government. Suffice it to say, no American president since the advent of the income tax and the Federal Reserve 100 years ago has fully accepted or meaningfully defended that right. The more the government extracts in taxes and the more it inflates the money supply, the more it rejects and assaults property rights.

And further explains the reasons for the deteriorating trend in the US .

The absence of economic freedom today is nothing new and didn't come about overnight. It is the culmination of the Progressive Era, which gave us the Federal Reserve and the income tax; the New Deal, which gave us the beginning of entitlements; the Great Society, which enhanced the numbers of people who received entitlements; Ronald Reagan, who bashed entitlements during the six years he was running for president but did nothing to dismantle them; and every president from Dwight Eisenhower to George W. Bush, all of whom just accepted the welfare and warfare state as if the Constitution didn't exist.

Today, we have President Obama, committed to private ownership but government control of the means of production, who wants to enhance the welfare and warfare state by having socialized medicine and perpetual war at the same time.

The essence of the governmental assaults on freedom is presidentially proposed, congressionally engineered and judicially accepted redistribution of wealth via the central planning of the economy. And the consequence of all this is the present lamentable state of affairs where half the country is financially dependent on the other half. When this state of affairs was reached in Ayn Rand's great novel "Atlas Shrugged," she had the productive half stop working just to see what the government would do. It wasn't pretty.

Obama's beloved Dodd-Frank law is the latest act of government theft of freedom in the name of economic equality. It brings us one step closer to total government control of the means of producing wealth. With its unaccountable bureaucracy, Federal Reserve-generated funding, and standardless and appeal-proof rulemaking, it reposes into the hands of an unconfirmed-by-the-Senate nanny stater the power to monitor and to regulate virtually all economic activity in the U.S.

The path to societal prosperity can only be attained by economic freedom. It’s a cause worth fighting for not only in the US but wherever society exists.

Video: Salma Khan on How SOPA and PIPA May Kill the Internet

Salman Khan of the famed free education based Khan Academy explains the draconian, insidious and totalitarian implications of the SOPA and PIPA.
(hat tip Lew Rockwell Blog)

China’s Urbanization: City Population Surpasses Rural Population

China’s urban population has surpassed the rural population for the first time.

The Economist writes,

FOR a nation whose culture and society have been shaped over millennia by its rice-farming traditions, and whose ruling party rose to power in 1949 by mobilising its put-upon peasantry, China has just passed a remarkable milestone: its city-dwellers now outnumber its rural residents. New data from the National Bureau of Statistics show that of China’s 1.35 billion people, 51.3% lived in urban areas at the end of 2011. In 1980 less than a fifth of China’s population lived in cities, a smaller proportion than in India. Over the next ten years the government remained wary of free movement, even as it made its peace with free enterprise. Touting a policy of “leaving the land but not the villages, entering the factories but not cities”, it sought industrialisation without urbanisation, only to discover it could not have one without the other. Even now, its ratio of city-dwellers is, if anything, low for an economy at its stage of development. America reached the 50% mark before 1920. Britain passed it in the 19th century. Go further back, however, and China’s cities dazzled the world. It is likely that one thousand years ago, the Song Dynasty capital of Kaifeng was the world’s most populous city. Marco Polo, who visited China in the 13th century, claimed that Hangzhou was “the most splendid city in the world” with 13,000 bridges—although later estimates suggest the true number was 347.

Count me as a skeptic of the continuity of urbanization trends, a phenomenon derivative of the industrial age.

Basically urbanization has been driven by economic opportunities, the economies of scale and centralization of facilities all of which may be changing.

The dynamics of urbanization, according to Wikipedia.org (bold emphasis mine)

People move into cities to seek economic opportunities. A major contributing factor is known as "rural flight". In rural areas, often on small family farms, it is difficult to improve one's standard of living beyond basic sustenance. Farm living is dependent on unpredictable environmental conditions, and in times of drought, flood or pestilence, survival becomes extremely problematic. In modern times, industrialization of agriculture has negatively affected the economy of small and middle-sized farms and strongly reduced the size of the rural labor market.

Cities, in contrast, are known to be places where money, services and wealth are centralized. Cities are where fortunes are made and where social mobility is possible. Businesses, which generate jobs and capital, are usually located in urban areas. Whether the source is trade or tourism, it is also through the cities that foreign money flows into a country. It is easy to see why someone living on a farm might wish to take their chance moving to the city and trying to make enough money to send back home to their struggling family.

There are better basic services as well as other specialist services that aren't found in rural areas. There are more job opportunities and a greater variety of jobs. Health is another major factor. People, especially the elderly are often forced to move to cities where there are doctors and hospitals that can cater for their health needs. Other factors include a greater variety of entertainment (restaurants, movie theaters, theme parks, etc.) and a better quality of education, namely universities. Due to their high populations, urban areas can also have much more diverse social communities allowing others to find people like them when they might not be able to in rural areas.

These conditions are heightened during times of change from a pre-industrial society to an industrial one. It is at this time that many new commercial enterprises are made possible, thus creating new jobs in cities.

The transition to the information age extrapolates to more specialization, as commerce will evolve along with improvements in technology. This means reduced cost advantages of centralized organizations which simultaneously has been accelerating and deepening the trends of business outsourcing.

Moreover real time connectivity should enhance this process, which again reduces the motivation for commerce to congregate in specific areas—or cities.

Also business focus will increasingly be directed to specific needs (niche marketing) rather than mass production and also on where the consumers and markets are.

In the Philippines, shopping malls have sprouted not only in major cities but also in capitals of provinces or secondary cities. Take for example the largest shopping mall chain the SM Group which has 43 malls nationwide and growing. This is a noteworthy example of the deepening dispersion trends, where facilities have been mushrooming outside of mega cities.

Also this serves as an example of the evolving location based markets—businesses locating and providing goods and services where the consumers are.

On the supply side, the call center industry, whose firms have been looking for agents to fill up outsourcing jobs, has been spreading outside the metropolis (Metro Manila). According to Wikipedia.org, there are 788 call centers in over 20 locations, where growing number firms are being established again in secondary cities and in the provinces.

All these suggest that the snowballing forces of decentralization should dampen urbanization trends--that depends on the dynamics of centralization--over the long run.

Quote of the Day: The Internet is Not for the Government to Regulate

From Cato’s Jim Harper

The Internet is not the government’s to regulate. It is an agreement on a set of protocols—a language that computers use to talk to one another. That language is the envelope in which our communications—our First-Amendment-protected speech—travels in hundreds of different forms.

The Internet community is growing in power. (Let’s not be triumphal—government authorities will use every wile to maintain control.) Hopefully the people who get engaged to fight SOPA and PIPA will recognize the many ways that the government regulates and limits information flows through technical means. The federal government exercises tight control over electromagnetic spectrum, for example, and it claims authority to impose public-utility-style regulation of Internet service provision in the name of “net neutrality.”

Video: What's Wrong with Internet Censorship

Cato's Julian Sanchez explains what is wrong with internet censorship

From Cato:

Internet censorship is not the answer to problems of piracy online. Cato Institute research fellow Julian Sanchez explains that internet censorship won't effectively address the problem of piracy and will threaten innovation and the liberties of Americans by engaging in unconstitutional prior restraint.

By the way, after a furious backlash, bi partisan legislators are reportedly backing off from supporting the bill.

Bonus Quote of the Day: Internet as Engine for Free Speech and Innovation

The Internet is the greatest engine for free speech and innovation ever known to humankind. Certainly its power can be used for good as well as bad, but censoring content, jeopardizing the security of the Internet, and stifling innovation is not the answer for protecting intellectual property rights.

That’s from Mike Brownfield at the Heritage “Morning Bell” Blog.

I would add that the internet is the greatest medium for democraticizing knowledge.

Video: Art Carden on Government Intervention (The Story of Broke Response)

Professor Art Carden talks about the basics of government interventionism in the splendid educational video below.


From learnliberty

Prof. Art Carden responds to "The Story of Broke" (http://bit.ly/LLStoryOfBroke), a recent video by the creators of "The Story of Stuff." In "The Story of Broke," Annie Leonard claims that the government isn't actually broke. Rather, the government just wastes resources on the wrong things like subsidies to the dinosaur economy and war. She claims that the government should change its ways, and instead, subsidize firms that will bring us the future we really want.

Art Carden agrees with Leonard that war and subsidies are wasteful, but is skeptical of notion that there is one unified vision for the future. To Carden, everyone has a different vision for the future. Our path to the future, he argues, is determined by the interactions of billions of unique individuals pursuing their own objectives.

Additionally, Carden questions Leonard's distinction between bad subsidies and good subsidies. Every subsidy, deemed good or bad, must be allocated through the political process. Lobbyists and special interests exert a large degree of influence on political decisions, and they use this power to direct subsidies in their own favor at everyone else's expense.

Carden concludes that government spending won't buy a brighter future. A brighter future will emerge when people are allowed to spend money on things they care about. Put another way, positive change will come from billions of people cooperating freely and voluntarily with one another, not from pushing trillions of dollars through a broken political process.

War on the Internet: Freedom Wins Round One

Writes Mac Slavo

Amid significant pressure from tens of thousands of internet users and major web behemoths like Google, Facebook, and Reddit, the Stop Online Piracy Act (SOPA) is, in its current form, Dead on Arrival:

“Misguided efforts to combat online privacy have been threatening to stifle innovation, suppress free speech, and even, in some cases, undermine national security. As of yesterday, though, there’s a lot less to worry about.

“The first sign that the bills’ prospects were dwindling came Friday, when SOPA sponsors agreed to drop a key provision that would have required service providers to block access to international sites accused of piracy.

“The legislation ran into an even more significant problem yesterday when the White House announced its opposition to the bills. Though the administration’s chief technology officials officials acknowledged the problem of online privacy, the White House statement presented a fairly detailed critique of the measures and concluded, “We will not support legislation that reduces freedom of expression, increases cybersecurity risk or undermines the dynamic, innovative global Internet.” It added that any proposed legislation “must not tamper with the technical architecture of the Internet.”

…

“Though the administration did issue a formal veto threat, the White House’s opposition signaled the end of these bills, at least in their current form.

“A few hours later, Congress shelved SOPA, putting off action on the bill indefinitely.

“Sourced From Washington Monthly via The Daily Sheeple

Sponsored primarily by purported free speech advocates that include democrats and republicans alike, the SOPA would have fundamentally transformed the internet as we know it today. As Daisy Luther writes at Inalienably Yours, the bill was nothing short of a direct attack against the first Amendment and the right to free speech:

“On closer inspection, the legalese in the bill has the potential to eviscerate free speech….and like NDAA, without proof…only with suspicion of “wrong-doing”. It’s all about copyright infringement. If you tick off the powers that be, and you’ve quoted someone, somewhere, saying something, you may have infringed on their copyright. As a defendant, you are not even present at the legal proceeding allowing “them” to shut you down until you prove yourself innocent.

“How do they shut you down? Search engines are required to remove you from their listings. Internet Service Providers can be ordered to block access to your site. Advertising networks and payment providers can also be forced to cease doing business with you. This continues until you are proven INNOCENT. Wait – I thought it was innocent until proven guilty….oh….that was “before” the NDAA.

Source: The Internet: The Last Bastion of Free Speech

While this bill of goods was being sold to the American public as a way to reduce online piracy originating on foreign shores, in essence the legislation would have made it possible for any organization (with the financial assets and access to attorneys to do so) to target web sites (foreign or domestic) using excerpts, quotes, and videos without express permission of the authors or producers of such content. Furthermore, any web site linking to suspected copyrighted content would be guilty by association for fascilitating the infringement.

Read the rest here

In the growing realization that political power is being frayed by the ongoing information age revolution or the democratization of knowledge, the 20^th century welfare and warfare state will use anything, like Intellectual Property and copyright arguments, as pretext to rein control over the internet. Earlier they argued that the cyberspace can pose a threat to national security.

Today, Wikipedia and other websites has shut down to express their opposition to proposals over censorship masquerading as ‘foreign Internet Piracy’.

The above is just one of the other being actions undertaken such as Spying of Email and the harassment of Wikileaks

As I previously wrote

These actions represent “resistance to change”, whereby politicians will try to enforce information control or censorship in the way the industrial age used to operate.

The horizontal flow of information threatens the institutional centralized frameworks built upon the industrial age economy.

As I earlier wrote,

“Political and economic ideology latched on a vertical top-bottom flow of power will be on a collision course with horizontal real time flow of democratized knowledge.

“This would likely result to less applicability of ideologies based on centralization, which could substantially erode its support base and shift political capital to decentralized structure of political governance that would conform with the horizontal structure of information flows.

“People will know more therefore control from the top will be less an appealing idea.

But again these attempts to regulate the web are likely to fail.

Nevertheless the war on the internet accounts as part of the adjustment process away from the command and control structure of the industrial ages with the knowledge revolution taking place beyond the reach of politicians. Besides, technological advances will work around regulations.

Signifying the foundation of knowledge, the internet will serve as THE battleground between socialism and free markets, and this will be just one of the many series of skirmishes that are destined to occur. And as previously noted, many internet activists have already been preparing for the worst scenario.

Indexed’s Jessica Hagy has a nice graphical depiction of the ongoing war, which she calls: Dark Ages II: in discussion now!

Indeed, the left and vested interest groups wants us to remain in the Dark ages and as their serfs.

America’s Growing Dependency on the Welfare State

Proof that Americans have become less a representative of “the land of the free” has been the deepening trend of dependency on the welfare state.

From the Wall Street Journal Blog

The pool of Americans relying on government benefits rose to record highs last year as an increasing share of families tapped aid in a weak economy.

Some 48.6% of the population lived in a household receiving some type of government benefit in the second quarter of 2010, up a notch from 48.5% in the first quarter, according to Census data…

The largest chunk of benefits flowing to families came from means-tested programs. In the second quarter, 34.4% lived in a household benefiting from food stamps, subsidized housing or Medicaid, among others.

That number is up from 32.8% a year ago (when a total of 46.8% of the population lived in a home receiving benefits). The biggest increases came from an uptick in those turning to food stamps and Medicaid.

Nearly 15% of Americans lived in a household receiving food stamps in mid-2010; Almost 26% had access to Medicaid.

Only a small share of the population accessed cash welfare benefits as the 1990s overhaul made it more onerous in many cases to receive and maintain those payments. Some 1.9% of the population lived in a household that received welfare in the second quarter of 2010.

I previously had Robert Higgs perspicacious and highly relevant insight as my quote of the day. [bold emphasis added]

As the ranks of those dependent on the welfare state continue to grow, the need for the rulers to pay attention to the ruled population diminishes. The masters know full well that the sheep will not bolt the enclosure in which the shepherds are making it possible for them to survive. Every person who becomes dependent on the state simultaneously becomes one less person who might act in some way to oppose the existing regime. Thus have modern governments gone greatly beyond the bread and circuses with which the Roman Caesars purchased the common people’s allegiance. In these circumstances, it is hardly surprising that the only changes that occur in the makeup of the ruling elite resemble a shuffling of the occupants in the first-class cabins of a luxury liner. Never mind that this liner is the economic and moral equivalent of the Titanic and that its ultimate fate is no more propitious than was that of the “unsinkable” ship that went to the bottom a century ago.

Any wonder why US politicians has unflinchingly been pushing for many arbitrary laws?

S&P 500 Sector Performances: Technology Sector Remains the Leader

Another great insight from Bespoke Invest (which includes the charts below),

The Technology sector ended the year with a 19% weight in the S&P 500, and that is where it stands now as well. The Financial sector, which saw its weight bounce significantly from the March 2009 low through the end of 2010, suffered a drop in weight from 16.1% to 13.4% in 2011. It has, however, bounced by 0.7 percentage points over the first two weeks of 2012 as Financial stocks have gotten off to a good start to the year.

Health Care, Consumer Staples and Utilities saw their S&P 500 sector weightings jump the most in 2011 as investors flocked to high dividend paying defensive names. Along with the Financial sector, Industrials and Materials are the only two other sectors that saw their weights in the S&P 500 drop in 2011. Interestingly, both Industrials and Materials have already gained back all of their 2011 weighting losses in the first two weeks of the year.

My view is that the continuing dominance of technology, despite last year’s underperformance, has been a manifestation of the US economy’s transition to the information age.

A Tale of Riches to Rags: The Bankruptcy of Former Irish Billionaire Sean Quinn

From BusinessWeek/Bloomberg:

Sean Quinn, once Ireland’s richest man, was declared bankrupt after losing more than one billion euros ($1.3 billion) investing in Anglo Irish Bank Corp.

Judge Elizabeth Dunne ruled on the bankruptcy in Ireland’s High Court in Dublin today. Quinn didn’t contest the bankruptcy petition brought by Irish Bank Resolution Corp., formerly Anglo Irish Bank.

The IBRC estimates that Quinn, whose fortune was valued at around $6 billion by Forbes magazine in 2008, owes the bank almost 2.9 billion euros. The lender in April appointed a share receiver to take over the Quinn family’s equity interest in Quinn Group, a conglomerate whose businesses included building materials, insurance and real estate.

We would see many bankruptcies by rich bankers when governments stop supporting them. But this isn’t likely to happen anytime soon as the welfare state will continue with its laborious efforts to preserve the current system.

And this can be seen with many "too big to fail" banks in the EU, continuing to receive massive support from their governments via the ECB.

Quote of the Day: Why Intellectuals Promote Statism

Intellectuals have all too often promoted these envy and resentment ideologies. There are both psychic and material rewards for the intelligentsia in doing so, even when the supposed beneficiaries of these ideologies end up worse off. When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.

That’s from Professor and author Thomas Sowell writing about the selective focusing by mainstream intellectuals in dealing with disparities, where their major thrust has been to promote the politics of class warfare.

[Gosh, this resonates much to the Philippine setting]

Is the US Still the “Land of the Free”?

A law professor at the Washington Times enumerates incisively 10 reasons why the US has been losing its freedom. The law professor points out that despite such dynamics, paradoxically Americans still want to be seen as “the land of the free”.

Writes Jonathan Turley, which I quote in the entirety (bold emphasis mine; hat tip Bill Bonner)

Every year, the State Department issues reports on individual rights in other countries, monitoring the passage of restrictive laws and regulations around the world. Iran, for example, has been criticized for denying fair public trials and limiting privacy, while Russia has been taken to task for undermining due process. Other countries have been condemned for the use of secret evidence and torture.

Even as we pass judgment on countries we consider unfree, Americans remain confident that any definition of a free nation must include their own — the land of free. Yet, the laws and practices of the land should shake that confidence. In the decade since Sept. 11, 2001, this country has comprehensively reduced civil liberties in the name of an expanded security state. The most recent example of this was the National Defense Authorization Act, signed Dec. 31, which allows for the indefinite detention of citizens. At what point does the reduction of individual rights in our country change how we define ourselves?

While each new national security power Washington has embraced was controversial when enacted, they are often discussed in isolation. But they don’t operate in isolation. They form a mosaic of powers under which our country could be considered, at least in part, authoritarian. Americans often proclaim our nation as a symbol of freedom to the world while dismissing nations such as Cuba and China as categorically unfree. Yet, objectively, we may be only half right. Those countries do lack basic individual rights such as due process, placing them outside any reasonable definition of “free,” but the United States now has much more in common with such regimes than anyone may like to admit.

These countries also have constitutions that purport to guarantee freedoms and rights. But their governments have broad discretion in denying those rights and few real avenues for challenges by citizens — precisely the problem with the new laws in this country.

The list of powers acquired by the U.S. government since 9/11 puts us in rather troubling company.

1. Assassination of U.S. citizens

President Obama has claimed, as President George W. Bush did before him, the right to order the killing of any citizen considered a terrorist or an abettor of terrorism. Last year, he approved the killing of U.S. citizen Anwar al-Awlaqi and another citizen under this claimed inherent authority. Last month, administration officials affirmed that power, stating that the president can order the assassination of any citizen whom he considers allied with terrorists. (Nations such as Nigeria, Iran and Syria have been routinely criticized for extrajudicial killings of enemies of the state.)

2. Indefinite detention

Under the law signed last month, terrorism suspects are to be held by the military; the president also has the authority to indefinitely detain citizens accused of terrorism. While the administration claims that this provision only codified existing law, experts widely contest this view, and the administration has opposed efforts to challenge such authority in federal courts. The government continues to claim the right to strip citizens of legal protections based on its sole discretion. (China recently codified a more limited detention law for its citizens, while countries such as Cambodia have been singled out by the United States for “prolonged detention.”)

3. Arbitrary justice

The president now decides whether a person will receive a trial in the federal courts or in a military tribunal, a system that has been ridiculed around the world for lacking basic due process protections. Bush claimed this authority in 2001, and Obama has continued the practice. (Egypt and China have been denounced for maintaining separate military justice systems for selected defendants, including civilians.)

4. Warrantless searches

The president may now order warrantless surveillance, including a new capability to force companies and organizations to turn over information on citizens’ finances, communications and associations. Bush acquired this sweeping power under the Patriot Act in 2001, and in 2011, Obama extended the power, including searches of everything from business documents to library records. The government can use “national security letters” to demand, without probable cause, that organizations turn over information on citizens — and order them not to reveal the disclosure to the affected party. (Saudi Arabia and Pakistan operate under laws that allow the government to engage in widespread discretionary surveillance.)

5. Secret evidence

The government now routinely uses secret evidence to detain individuals and employs secret evidence in federal and military courts. It also forces the dismissal of cases against the United States by simply filing declarations that the cases would make the government reveal classified information that would harm national security — a claim made in a variety of privacy lawsuits and largely accepted by federal judges without question. Even legal opinions, cited as the basis for the government’s actions under the Bush and Obama administrations, have been classified. This allows the government to claim secret legal arguments to support secret proceedings using secret evidence. In addition, some cases never make it to court at all. The federal courts routinely deny constitutional challenges to policies and programs under a narrow definition of standing to bring a case.

6. War crimes

The world clamored for prosecutions of those responsible for waterboarding terrorism suspects during the Bush administration, but the Obama administration said in 2009 that it would not allow CIA employees to be investigated or prosecuted for such actions. This gutted not just treaty obligations but the Nuremberg principles of international law. When courts in countries such as Spain moved to investigate Bush officials for war crimes, the Obama administration reportedly urged foreign officials not to allow such cases to proceed, despite the fact that the United States has long claimed the same authority with regard to alleged war criminals in other countries. (Various nations have resisted investigations of officials accused of war crimes and torture. Some, such as Serbia and Chile, eventually relented to comply with international law; countries that have denied independent investigations include Iran, Syria and China.)

7. Secret court

The government has increased its use of the secret Foreign Intelligence Surveillance Court, which has expanded its secret warrants to include individuals deemed to be aiding or abetting hostile foreign governments or organizations. In 2011, Obama renewed these powers, including allowing secret searches of individuals who are not part of an identifiable terrorist group. The administration has asserted the right to ignore congressional limits on such surveillance. (Pakistan places national security surveillance under the unchecked powers of the military or intelligence services.)

8. Immunity from judicial review

Like the Bush administration, the Obama administration has successfully pushed for immunity for companies that assist in warrantless surveillance of citizens, blocking the ability of citizens to challenge the violation of privacy. (Similarly, China has maintained sweeping immunity claims both inside and outside the country and routinely blocks lawsuits against private companies.)

9. Continual monitoring of citizens

The Obama administration has successfully defended its claim that it can use GPS devices to monitor every move of targeted citizens without securing any court order or review. (Saudi Arabia has installed massive public surveillance systems, while Cuba is notorious for active monitoring of selected citizens.)

10. Extraordinary renditions

The government now has the ability to transfer both citizens and noncitizens to another country under a system known as extraordinary rendition, which has been denounced as using other countries, such as Syria, Saudi Arabia, Egypt and Pakistan, to torture suspects. The Obama administration says it is not continuing the abuses of this practice under Bush, but it insists on the unfettered right to order such transfers — including the possible transfer of U.S. citizens.

These new laws have come with an infusion of money into an expanded security system on the state and federal levels, including more public surveillance cameras, tens of thousands of security personnel and a massive expansion of a terrorist-chasing bureaucracy.

Some politicians shrug and say these increased powers are merely a response to the times we live in. Thus, Sen. Lindsey Graham (R-S.C.) could declare in an interview last spring without objection that “free speech is a great idea, but we’re in a war.” Of course, terrorism will never “surrender” and end this particular “war.”

Other politicians rationalize that, while such powers may exist, it really comes down to how they are used. This is a common response by liberals who cannot bring themselves to denounce Obama as they did Bush. Sen. Carl Levin (D-Mich.), for instance, has insisted that Congress is not making any decision on indefinite detention: “That is a decision which we leave where it belongs — in the executive branch.”

And in a signing statement with the defense authorization bill, Obama said he does not intend to use the latest power to indefinitely imprison citizens. Yet, he still accepted the power as a sort of regretful autocrat.

An authoritarian nation is defined not just by the use of authoritarian powers, but by the ability to use them. If a president can take away your freedom or your life on his own authority, all rights become little more than a discretionary grant subject to executive will.

The framers lived under autocratic rule and understood this danger better than we do. James Madison famously warned that we needed a system that did not depend on the good intentions or motivations of our rulers: “If men were angels, no government would be necessary.”

Benjamin Franklin was more direct. In 1787, a Mrs. Powel confronted Franklin after the signing of the Constitution and asked, “Well, Doctor, what have we got — a republic or a monarchy?” His response was a bit chilling: “A republic, Madam, if you can keep it.”

Since 9/11, we have created the very government the framers feared: a government with sweeping and largely unchecked powers resting on the hope that they will be used wisely.

The indefinite-detention provision in the defense authorization bill seemed to many civil libertarians like a betrayal by Obama. While the president had promised to veto the law over that provision, Levin, a sponsor of the bill, disclosed on the Senate floor that it was in fact the White House that approved the removal of any exception for citizens from indefinite detention.

Dishonesty from politicians is nothing new for Americans. The real question is whether we are lying to ourselves when we call this country the land of the free.

I would add that the increasing politicization of the lives of the average Americans and the curtailment of their civil liberties also covers much of commerce and the financial system where political concessions, bailouts, and inflationists policies seems to have become an imperative.

In short, the US has gradually been transitioning into a fascist state where repressive and arbitrary laws have been substituting the rule of law.

As the great Friedrich August von Hayek admonished in the classic "The Road to Serfdom"

It is one of the saddest spectacles of our time to see a great democratic movement support a policy which must lead to the destruction of democracy and which meanwhile can benefit only a minority of the masses who support it. Yet it is this support from the Left of the tendencies toward monopoly which make them so irresistible and the prospects of the future so dark.