Iranian Terror Plot: US Government’s Imaginary Hobgoblins

From Judge Andrew P. Napolitano (bold emphasis mine)

Since the tragedy of 9/11, numerous crazies and low-level copy-cats have engaged in criminal behavior which they hoped would result in the deaths of innocent Americans and somehow advance the cause of jihad. If you ask the leadership of the FBI, most of whose field agents are tireless, dedicated, Constitution-supporting professionals, it will tell you that it has foiled about seventeen plots to kill Americans during the past ten years. What it will not tell you is that there have been twenty foiled plots; and of them, three were interrupted by members of the public. The seventeen that were interrupted by the feds were created by them.

We all remember the three that were foiled by diligent Americans: The shoe bomber, the underwear bomber, and the Times Square bomber. In all of these cases, the crimes charged were those of attempting to kill and conspiring with others to do so. In all three of those cases, alert Americans on transcontinental flights on or the streets of New York told authorities of bizarre behavior, or actually subdued the threats themselves. There was no foiling by the FBI. The plotters were – thankfully – bumbling fools who had poorly planned their criminal behavior, and who ended up harming no one. All three are serving life terms.

But the more curious cases are the remaining seventeen for which the federal government has taken credit. They all have a common and reprehensible thread. They were planned, plotted, controlled, and carried out by the federal government itself. In all of these seventeen cases – from the Ft. Dix Six to the Lackawanna Seven to the Portland Parade Bomber – the feds found young men of Muslim backgrounds; loners who were bitter at America. They befriended them, cajoled them, and persuaded them that they could change the world by killing Americans. In all these cases, agents worked undercover and portrayed themselves to the targets as Arabs of like un-American mind. In some cases, the federal agents used third parties to act as middlemen. The third parties are typically persons who have been convicted of crimes and who, in return for leniency at their sentencings, were willing to work with the same feds who prosecuted them in order to help entrap whomever else those feds are pursuing.

Thus, in all seventeen of these cases, because of the command and control of federal agents, no one was ever in danger, no one was harmed, no bomb went off, and no property was damaged. But in all those cases, the losers whom the feds targeted each believed that they were interacting with real plotters who would really bring them cash and bombs. As we know, sometimes the cash arrived, but the bombs never did. The defendants were essentially charged and convicted for playing a game with federal agents.

The most recent of those government-generated plots was revealed yesterday. It has a new twist as it allegedly involves agents of the intelligence apparatus of the government of Iran. It, too, was destined to go nowhere, as the feds monitored and taped every move made by the target as he interacted with federal agents whom he stupidly believed to be drug dealers and co-conspirators. Today, the feds themselves revealed that high officials of Iran's government knew nothing of this. Of course, the neocons have demanded bombs on Tehran, no matter what the government there knew. And this plot came to light the day before the Attorney General himself was subpoenaed by Congress in the Fast and Furious case.

Read the rest here

Creating something from nothing isn’t just about the money printing; essentially this represents the fundamental precept guiding today’s modern political institutions. It’s the politics of free lunch.

So in order to justify the existence, the continued funding and the expansion of the warfare-anti terror state, credits on political ‘achievement’ targets has to be demonstrated. Hence if there have been no actual terror threats, then, as shown above, just engineer one.

With the help of mainstream media and the sundry apologists for the establishment, our civil liberties would then be diminished in the name of the security.

The great libertarian H. L. Mencken was darned right,

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

Why Shale Gas is the Future of Energy

So argues the ever stimulating author Matt Ridley

A chap called George Mitchell turned the gas industry on its head. Using just the right combination of horizontal drilling and hydraulic fracturing (fracking) – both well established technologies -- he worked out how to get gas out of shale where most of it is, rather than just out of (conventional) porous rocks, where it sometimes pools. The Barnett shale in Texas, where Mitchell worked, turned into one of the biggest gas reserves in America. Then the Haynesville shale in Louisiana dwarfed it. The Marcellus shale mainly in Pennsylvania then trumped that with a barely believable 500 trillion cubic feet of gas, as big as any oil field ever found, on the doorstep of the biggest market in the world.

The impact of shale gas in America is already huge. Gas prices have decoupled from oil prices and are half what they are in Europe. Chemical companies, which use gas as a feedstock, are rushing back from the Persian Gulf to the Gulf of Mexico. Cities are converting their bus fleets to gas. Coal projects are being shelved; nuclear ones abandoned.

Rural Pennsylvania is being transformed by the royalties that shale gas pays (Lancashire take note). Drive around the hills near Pittsburgh and you see new fences, repainted barns and – in the local towns – thriving car dealerships and upmarket shops. The one thing you barely see is gas rigs. The one I visited was hidden in a hollow in the woods, invisible till I came round the last corner where a flock of wild turkeys was crossing the road. Drilling rigs are on site for about five weeks, fracking trucks a few weeks after that, and when they are gone all that is left is a “Christmas tree” wellhead and a few small storage tanks.

The International Energy Agency reckons there is quarter of a millennium’s worth of cheap shale gas in the world. A company called Cuadrilla drilled a hole in Blackpool, hoping to find a few trillion cubic feet of gas. Last month it announced 200 trillion cubic feet, nearly half the size of the giant Marcellus field. That’s enough to keep the entire British economy going for many decades. And it’s just the first field to have been drilled.

Read the rest here

Natural Gas prics shown in the 3 year chart above from stockcharts.com appears to have indeed decoupled from Oil (WTIC)

I would even suppose that the current prices of oil have also been affected by conversions or the expanded use of natural gas.

Shale gas is not only abundant and economically feasible but also environmental friendly and importantly representative of market’s preference as energy alternative over the favorites of politicians: renewables

Professor Mark Perry adds,

The chart above is from the Energy Information Administration and illustrates graphically the significant increases in natural gas production in recent years from increased drilling activity in the Marcellus Shale region of Pennsylvania. In only about a three-year period, natural gas production in the northeast United States has tripled from 1.5 billion cubic feet per day in July 2008 to more than 4.5 billion cubic feet per day by July 2011, with almost all of the increase coming from new drilling in Pennsylvania. The shale gas revolution in Pennsylvania has been responsible for America going from the ninth largest producer in the world ten year ago to the No. 1 producer in the world starting last year.

I would guess that the shale gas revolution will be a worldwide phenomenon which should wean away our dependence on oil. The net effect outside manipulation of money by governments should be to materially bring down or lower prices of energy.

On an investment perspective, prices of listed shale gas companies may reflect on such sanguine dynamic overtime.

War on Commodities: Eurozone Threatens to Impose Derivative Trading Curbs

Once again politicians in the Eurozone are pinning the blame on the financial markets for the current crisis, which consequently, they threaten to apply price controls through trading curbs.

From Bloomberg

The European Union may impose position limits for commodities derivatives and curbs on high- frequency trading as part of plans to overhaul the region’s financial-market rules.

The European Commission, the 27-nation EU’s executive arm, is seeking limits on the number of commodity derivative contracts “any given market members or participants can enter into over a specified period of time, or alternative arrangements” with the same impact, according to copies of proposals set for release on Oct. 20 that were obtained by Bloomberg News.

French President Nicolas Sarkozy has demanded steps to curb commodity derivatives speculation, which he blames for driving up world food prices. He has made the issue a priority of France’s presidency this year of the Group of 20 nations.

Earlier, one even ridiculously accused traders for being influenced by cocaine, which for him, caused the recent excess market volatility.

Yet such represents a reckless assumption that money printing has no effects on the goods and services and that trading curbs will successfully suppress prices of commodities.

What politicians decry of, instead, reflects on their unstated intentions—to continue the looting of the taxpayers and to keep printing money to sustain and expand on their privileges.

In the world of politics, distortion of the truth is a not only the norm, but regarded by the public as moral.

As Professor Butler Shaffer rightly argues

Because the state is grounded in such a network of lies, contradictions, deceptions, and conflicts, it is safe to say that political systems are inherently in conflict with reality and must resort to intentional distortions of truth as a way of trying to appear coherent to a gullible public.

Politics contributes significantly to the dumbing down of the way people think.

Obama’s Presidential Re-Election Campaign: Has the Strategy of the Politics of Divide been working?

I recently observed that Occupy Wall Street seem to be a part of President Obama’s re-election campaign strategy which fundamentally revolves around the groupthink “us against them” gimmickry.

Has this been working?

Current evidence indicates that there has been little impact in swaying the tide to favor President Obama.

Professor Brad Smith at the Division of Labor writes

In a column today in the Washington Post, Charles Krauthammer excoriates President Obama's new style of more aggressively "scapegoating" Republicans and "the rich," and giving succor to the OWS crowd. But while Krauthammer calls it "dangerous," he concludes, "it's working."

Is it? In it's August monthly poll, Gallup showed the President leading a generic Republican by 45-39%. On September 8, the President kicked off his re-election campaign with his call for the "American Jobs Act," (the AJA) and spent the next several days pushing for it. Gallup conducted its September monthly from September 8 through the 11th. The result: Generic Republican led the President by 46% to 38%. In late September, Occupy Wall Street began to garner attention - it crowded the Brooklyn Bridge on the last weekend of the month and has been almost non-stop in the news since. But Gallup's October poll, released today, shows a generic Republican leading the President by 46-38% - exactly the same as a month before.

Amongst Independent voters, the generic Republican edge has grown from 40-35% in August to 43-30% in October (though down slightly from September).

When he gave his AJA speech in September, Obama's average approval was 43.8, per Real Clear Politics. Today it stands at 43.6, though with a slight uptick in the last week - almost entirely the result of a surprisingly strong (for the President) poll from Rasmussen, the pollster liberals love to hate. The most recent polls from other pollsters in the field since OWS briefly seized the Brooklyn Bridge, compared to their prior poll, show him down in Gallup, flat in Ipsos/Reuters, down in ABC/Washington Post, and down in Fox New.

The politics of promoting guilt, envy, hate, blame and anger will unlikely help advance Mr. Obama’s re-election chances, unless this has been more than just a re-election agenda.

Maybe sowing social divisiveness has been meant to promote a popular revolution that would justify the imposition of socialism, if not despotism.

As Ludwig von Mises wrote,

The worst consequence of the antidemocratic spirit is that it divides the nation into hostile camps. The citizenry lose confidence in the working of democratic government. They fear that some day one of the antidemocratic minority groups may actually succeed in seizing power. Thus they think it necessary to arm and defend their rights against the menace of an armed minority.

Chart of the Day: Stock Market Returns from 20th Century Boom Bust Cycles

From the Economist

For the world, the best returns can be seen during the era of post war II recovery and the expansionary decade of the 80s and 90s which had been fueled by the deepening trend of globalization.

The worst returns had been during the Great Depression of the 30s and the stagflation decade of the 70s.

Video: America's Declining Economic Freedom

A revealing video of how declining economic freedom the US has been affecting the performance of the US economy (hat tip Dan Mitchell)

Chart of the Day: Bernanke’s Ineffective policies

Chart above and the following quote from Bespoke Invest

following each of the prior two announcements, the yield on the 10-year rose by more than 100 basis points (bps) in just a matter of months. Following its most recent announcement in September, the yield on the 10-year is already up 36 bps.

While one could argue that yield declined ahead of each of the prior announcements due to the fact that each move was widely telegraphed, at face value it appears that the Fed's attempts to lower long-term interest rates have been futile.

Economic Policy Journal’s Bob Wenzel seems validated, Bernanke looks like a mad scientist who keeps failing with his faulty ‘econometric’ models, nevertheless the relentless attitude to keep trying—at everyone’s expense, of course.

The great F. A Hayek called this Fatal conceit.

Quote of the Day: Sargent-Sims knees the groin of Hayek

From Professor Arnold Kling on the 2011 Nobel Prize winners Thomas J. Sargent and Christopher A. Sims, (bold emphasis mine)

Rational expectations in the Sargent-Sims tradition treats everyone as having the same model with which to form expectations. As Frydman and Goldberg point out in Imperfect Knowledge Economics, this assumes away the local knowledge and tacit knowledge that Hayek correctly identified as being very important in the economy.

Indeed, if Sargent and Sims represent a slap in the face to Keynes, they must be regarded as a knee to the groin of Hayek. Hayek coined the term "scientism" to describe the pretentious pose that economists strike when they equate mathematics with rigor. If scientism is a germ that infects economics, then Sargent and Sims were responsible for unleashing some of the most virulent strains.

Slovakia ratifies Euro Bailout Fund (EFSF)

As expected, Slovakian politicians have closed ranks to save global elite bankers meant to preserve the current political welfare based institutions, despite the valiant last stand to oppose the EFSF by the Slovakia’s classical liberal party, the Freedom and Solidarity (SaS) led by Richard Sulik

From Bloomberg,

Slovakia approved Europe’s enhanced bailout fund, completing ratification across the 17 euro countries as the region’s leaders prepare for a summit.

Lawmakers voted 114 to 30 with three abstentions to support the European Financial Stability Facility in the second attempt this week after parliament failed to approve the measures on Oct. 11.

Enhancing the powers of the EFSF, the temporary bailout fund, is crucial for adopting the key element in the strategy to prevent contagion from the debt crisis that has spread from Greece to other countries. European Commission President Jose Barroso yesterday called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to ease debt woes.

So the EFSF appears to defer the day of reckoning. Nonetheless like the Greek mythical beast the Hydra, for each head decapitated, grew two more, today the credit rating S&P downgraded Spain. Governments are likely to clamp down or apply censorship on these politically privileged entities too.

Markets have been gyrating based on a whack-a-mole patchwork approach applied by global governments.

Occupy Wall Street: More Evidence of President Obama’s Re-election Campaign

I harbored suspicions that Occupy Wall Street could be part of President Obama’s re-election campaign strategy. And the unfolding events seem to be validating my position.

From Intelhub.com

As the Occupy Wall Street protests have grown and evolved we have seen a major change in overall direction coming from the most vocal supporters.

While many still claim that this is not a political movement, the unfortunate fact is that everyday we see more and more evidence that the establishment left has, at least in part, co opted the movement.

Yesterday’s so called Millionaires March has drawn major media attention around the world, with support popping up in places that most wouldn’t think would support protesters targeting the financial district.

Linette Lopez, writing for the Business Insider, revealed that the real powers behind the march were numerous extreme leftist organizations with open socialist and communist ties.

Now here’s who they are specifically:

-The Working Families Party

-UnitedNY

-New York Communities for Change

-Strong Economy For All Coalition

-VOCAL-NY

-Community Voices Heard

Those are some pretty established New York groups that span across the state, and they have some powerful people behind them.

So we have super leftist organizations running large scale protests for the Occupy Wall Street protesters yet we are supposed to believe that this is not a political movement?

While it is clear that these organizations do not speak for ALL the protesters, a growing majority are seemingly falling in line with groups who openly support one of Wall Streets biggest supporters, President Barack Obama.

Read the rest here

Considering that President Obama’s approval rating has been drifting at a nadir (record low from many polls as gallup or Quinnipiac University), thereby diminishing his chance of re-election...

From Gallup

And considering that the tea party movement has served as an influential force in shifting the political tide as revealed by the last Congressional elections…

From Reuters.com

President Obama desperately needs a gimmick…and real quick

And there’s no easier way to pander to the masses than to resort to groupthink gimmickry which have mostly been based on class warfare (Buffett Taxes), nationalism (via protectionism also here) and racism.

For the left, desperate times call for desperate measures

Chart of the Day: European Financial Stability Fund

The distribution of the expanded € 780 billion EFSF (source: weltdie.de) [hat tip Antony Mueller]

Occupy Wall Street French Edition: Arnaud Montebourg

Riding on the Occupy Wall Street’s theme, aspiring French politician Arnaud Montebourg appears to be making headway in French politics.

From Reuters, (bold emphasis mine)

French Socialist Arnaud Montebourg was eliminated in round one of his party's presidential primary Sunday, but his campaign against globalization, greedy banks and trash TV was such a hit that mainstream leftists may ignore it at their peril.

A 48-year-old lawyer and member of parliament, Montebourg scored a surprise 17 percent in Sunday's vote after proposing during televised Socialist Party debates to put banks on a tight leash and ramp up protectionism…

Montebourg's main proposition is that it is time to do away with the idea that France has no choice but to compete with the likes of China on prices when the latter is unbeatable because of lower social and environmental standards.

At a time when European governments are under pressure to yet again bail out the financial industry, Montebourg has struck a chord in proposing that banks be brought to heel by having the state buy stakes in them and put vote-wielding government officials on their boards.

"All those who have lost out from globalization have heard the proposals for a new France," Montebourg said Sunday.

Mr. Montebourg has essentially not been saying anything new when it comes to French politics, which have long been steeped in socialist democracy, except for imputing the culpability of banks to the ongoing crisis.

In the Eurozone or in the world, France has not been known as a political haven for capitalism (see Economist chart above)

But as this Economist April article says (bold emphasis mine)

Like their politicians, the French always sound defiantly anti-globalisation. In polls they are far more hostile to free markets than Germans, Chinese or Russians. Yet when it comes to buying or eating foreign stuff, they are as enthusiastic. France is one of the most profitable markets for McDonald’s. Judging by the dress code of French teenagers, there will be long queues outside Abercrombie & Fitch—though whether to buy the hooded tops or to eye up the sales staff may be another question.

Again this serves as another example of “do as I say but not as I do”

This means that for an aspiring politician like Mr. Montebourg, the way to get elected would require staple adherence to socialist rhetoric with a little populist twist—blame capitalist greed on politically privileged banks.

Besides, for Mr. Montebourg to propose more government presence in the banking system is hardly any change. What this does is to formalize or embed what has already been in place, an unsustainable welfare state financed by government protected towards government controlled banks.

Chart from Philipp Bagus

Yes banks, like in the US, have complicit roles played to the respective lingering political economic problem alright, but what Mr. Mountebourg has been missing is that overspending and bubble policies of the welfare state has functioned as the primary reasons for this unfolding crisis.

And institutionalizing government’s presence in the banking system will hardly be the solution; to the contrary this will even exacerbate the existing problems.

Yet despite Mr.Mountebourg’s emergent popularity, French politics has not been representative of the dominant political trend of the Eurozone.

From the Economist (dated June 7, 2011)

Heritage Foundation Urges Military Action on Iran

The Heritage Foundation has an incredible philosophical dichotomy, where on the one hand they propose free trade, and on the other hand, they propose imperialist policies to defend against terrorism

From Mike Brownfield (bold highlights mine)

The Obama Administration, to date, has pursued the Obama Doctrine–a foreign policy that calls for the United States to engage with its enemies instead of confronting the threat of state-sponsored terrorism head on. It’s an attitude and a posture that has been pervasive in President Obama’s rhetoric–abjuring American exceptionalism, passing on the opportunity to speak loudly to promote the spread of democracy in the Middle East, failing to condemn Syrian President Bashar al-Assad’s ruthless regime, offering weak support to Israel and failing to condemn those who threaten the country’s very existence, and presenting a face of international accommodation and ambivalence. Obama’s strategy invites aggression and leaves the American people less secure as a result.

The Administration must finally change direction. Heritage’s James Carafano writes that it should take strong measures to respond to Iran’s actions, including conducting a proportional military response against suitable, feasible, and acceptable targets (in many ways the situation is similar to military operations conducted against al Qaeda in Pakistan). It should impose and enforce the strongest sanctions, target public diplomacy to expose the regime’s human rights abuses, reduce Iran’s meddling in Iraq, and rescind and rewrite its counterterrorism strategy.

The fact is that war and free trade are simply incompatible. Not only does war appropriate resources required for productive economic activities, which likewise has been tied to inflationary policies, war encourages growth of government or statist ‘ratchet effect’ policies in the broader spectrum of the economy in the US and elsewhere. This would be inimical and contradictory to economic freedom and free trade.

Yet militant foreign policy responses would likely trigger retaliatory impulses among those affected by these policies, whose feedback mechanism encourages more ‘terrorism’ instead of quelling it.

Besides to militarily provoke other nations could mean that the law of unintended consequences will apply. It would be hubris to believe that applying violence on some entities labeled as ‘terrorist’ won’t prompt for any nasty feedback.

Encouraging people to trade instead of coercive imposition of Western brand of democracy would serve as better approach for peaceful settlements.

As the Murray N. Rothbard wrote (italics and strike through mine)

America was born in a revolution against Western imperialism, born as a haven of freedom against the tyrannies and despotism, the wars and intrigues of the old world. Yet we have allowed ourselves to sacrifice the American ideals of peace and freedom and anti-colonialism on the altar of a crusade to kill communists terrorist throughout the world; we have surrendered our libertarian birthright into the hands of those who yearn to restore the Golden Age of the Holy Inquisition. It is about time that we wake up and rise up to restore our heritage.

I am no American, but I believe that America’s libertarian legacy can set the right model for the world.

The Myth of Cheap Currencies driving Trade Deficits

For mercantilists an oft repeated claim has been that China’s cheap currency equals US trade deficit. From such premise they advocate the policy recourse of protectionism

How valid is this?

From the Economist (bold highlights mine)

“the recent relationship between China's currency and America's trade deficit with China is not what China hawks in the Senate think it is. Rather than a cheap yuan leading to a flood of Chinese imports, the yuan has actually strengthened as the deficit has widened. There are many things American companies dislike about the way business is done in China: intellectual-property theft, the impossibility of winning government contracts, baffling rules on corporate ownership and so on. However the place for fixing these things is the World Trade Organisation, not Congress. President Obama's administration has already passed on two opportunities to label China a currency manipulator, out of a well-founded fear of sparking a trade war.”

Cheap currencies and export might is a post hoc ergo propter hoc fallacy. Having to hyperinflate their local currency in 2008, Zimbabwe should have been today the world’s premier exporter.

Next, relative currency values are just one of the many variables that affect trade. Among the other variables are specialization, proximity to markets, market niches, transaction costs, political and legal institutions, access to and quality of labor pool, taxes, and etc. etc. etc...

But for mercantilists the world can be seen only in the prism of reductio ad absurdum

Mercantilism has never about the truth, but about getting elected or or about imposing political control over others or about social signaling.

Quote of the Day: On Ron Paul’s Growing Influence

From Cato’s David Boaz, (bold emphasis mine)

In 2007 (which is when he got the most attention in the last cycle) Ron Paul warned that an economy based on debt and cheap money from the Federal Reserve was not sustainable, but the economy was booming and nobody wanted to listen. After the crash, they started listening. In 2007 he said we should replace the Federal Reserve and fiat money with the gold standard, and even some libertarians said things like, “What’s the beef with the Fed? They’ve dramatically reduced the volatility of the business cycle while achieving low, reasonably constant inflation.” Nobody’s scoffing at criticism of the Fed now. In 2007 Ron Paul criticized excessive federal spending, but with a Republican in the White House Republicans weren’t so interested. With even more excessive spending by a Democratic president, that’s become a central issue of the era. In 2007 Ron Paul criticized endless military intervention, but most Republicans were content to repeat, “The surge is working.” Now even Republicans are getting weary of war. In 2007 Ron Paul said that Congress and the president should not act outside their powers under the Constitution, but Republicans didn’t want to hear about unconstitutional acts by a Republican president. Now, after the bailouts and the health care takeover and the unauthorized war in Libya, all the Republican candidates are talking about restoring the Constitution.

It’s not that Ron Paul has moved closer to the center but rather that the center of American political discussion has moved closer to him.

Gandhi's law applies to Ron Paul (even if this might not apply to his presidential aspirations)

First they ignore you, then they laugh at you, then they fight you, then you win

Slovakia Rejects Euro Bailout, government falls

I would like to congratulate Slovakia’s classical liberal party the Freedom and Solidarity (SaS) party led by Richard Sulik for standing firm against the Euro bailout which not only led to the rejection, but also to the fall of Slovakia’s government too.

I earlier pointed out that Mr. Sulik’s party could become the last impediment to the EFSF

From Bloomberg, (bold emphasis added)

Slovakia’s opposition leader said lawmakers must find a way to approve Europe’s enhanced bailout fund, which was rejected yesterday amid a dispute over the future of Prime Minister Iveta Radicova.

Slovakia “must sign up to the rescue fund,” Robert Fico said late yesterday, adding that his party, which didn’t back the measure yesterday, is awaiting a proposal from the ruling coalition. Radicova said the only country in the 17 nations that use the euro that has yet to approve European Financial Stability Facility, must find a solution to approve the EFSF “as soon as possible.” No time for a new vote has been set…

A total of 55 lawmakers of the 124 present backed the motion, short of the required majority of 76 deputies. Nine were against it. The vote was destined to fail after the Freedom and Solidarity party, one of four coalition members, said it wouldn’t support the changes.

With average salaries still below those in Greece, it’s getting tougher to garner support among the poorest euro citizens for further aid to their Mediterranean partners.

As the crisis continues to engulf the euro region and threatens its lenders, German and French leaders at a meeting on Oct. 9 pledged to devise a plan to recapitalize banks, help Greece and strengthen Europe’s economic governance. German chancellor Angela Merkel, after meeting French President Nicholas Sarkozy, said Europe will do “everything necessary” to ensure that banks have enough capital.

The expanded powers of the 440 billion-euro ($600 billion) EFSF would allow the fund to buy the debt of stressed euro-area nations, aid troubled banks in the region and offer credit lines to governments. The EFSF’s current role is to sell bonds to finance rescue loans.

The Slovakia’s vote on the EFSF is still expected to be passed as the ruling party intends to tie up with other opposition bloc.

Aside, ECB officials are reportedly weighing on options to circumvent Slovakia in case she remains intransigent. In short, rules be damned, just save the bankers.

Obviously the hefty rebound by global equity markets have been based on the recently announced QEs by the ECB and the BoE, which has been mostly rationalized from ‘promises’ by major EU political leaders to secure a bailout that would ring fence the EU banking system.

The markets appear to have even written off a potential rejection, in what seems as strong confidence that the EFSF will get through with Slovakia’s vote or without Slovakia’s participation.

In my view this seems to be a tenuous premise from which to latch a bullish perspective on. This signifies as extreme faith towards government’s ability to solve social problems by inflationism and financial repression even if the supposed panacea seem lacking the scale compared to the previous measures

And as said before there is still is a China factor to consider.

I'll be in constant vigil

Graphic: Differences and Shared Interests of Occupy Wall Street and the TEA Party

A Venn Diagram showing the differences and shared interests of the Occupy Wall Street and the Tea Party movements

(hat tip Professor Steve Horwitz. Source here)

War on the Internet: Legalized Spying of Email?

Incumbent political institutions will continue to wage war of controls against the immensely expanding social media. The latter is being proven as a crystallizing force in politics (e.g. Arab Spring)

I have covered part of this cat and mouse engagement here, here, here and here. Now the theatre of war has expanded to include prying into personal emails.

This from Wall Street Journal (bold emphasis mine)

The U.S. government has obtained a controversial type of secret court order to force Google Inc. and small Internet provider Sonic.net Inc. to turn over information from the email accounts of WikiLeaks volunteer Jacob Appelbaum, according to documents reviewed by The Wall Street Journal.

Sonic said it fought the government's order and lost, and was forced to turn over information. Challenging the order was "rather expensive, but we felt it was the right thing to do," said Sonic's chief executive, Dane Jasper. The government's request included the email addresses of people Mr. Appelbaum corresponded with the past two years, but not the full emails.

Both Google and Sonic pressed for the right to inform Mr. Appelbaum of the secret court orders, according to people familiar with the investigation. Google declined to comment. Mr. Appelbaum, 28 years old, hasn't been charged with wrongdoing.

The court clashes in the WikiLeaks case provide a rare public window into the growing debate over a federal law that lets the government secretly obtain information from people's email and cellphones without a search warrant. Several court decisions have questioned whether the law, the Electronic Communications Privacy Act, violates the U.S. Constitution's Fourth Amendment protections against unreasonable searches and seizures.

WikiLeaks is a publisher of documents that people can submit anonymously. After WikiLeaks released a trove of classified government diplomatic cables last year, U.S. Attorney General Eric Holder said the U.S. was pursuing an "active criminal investigation" of WikiLeaks.

Passed in 1986, the Electronic Communications Privacy Act is older than the World Wide Web, which was dreamed up in 1989. A coalition of technology companies—including Google, Microsoft Corp. and AT&T Corp.—is lobbying Congress to update the law to require search warrants in more digital investigations.

The law was designed to give the same protections to electronic communications that were already in place for phone calls and regular mail. But it didn't envision a time when cellphones transmitted locations and people stored important documents on remote services, such as Gmail, rather than on their own computers.

Law enforcement uses the law to obtain some emails, cellphone-location records and other digital documents without getting a search warrant or showing probable cause that a crime has been committed. Instead the law sets a lower bar: The government must show only "reasonable grounds" that the records would be "relevant and material" to an investigation.

As a result, it can be easier for law-enforcement officers to see a person's email information than it is to see their postal mail.

Another significant difference: A person whose email is inspected this way often never knows a search was conducted. That's because court orders under the 1986 law are almost always sealed, and the Internet provider is generally prohibited from notifying the customer whose data is searched. By contrast, search warrants are generally delivered to people whose property is being searched.

Read the rest here

Politics has never been about transparency or tolerance of political differences or of freedom of speech or of respect of privacy but has been about censorship and the suppression of political opponents or the despotic control of the flow of information. This applies not just in the US but everywhere.

Current day politics essentially represents an ongoing battle between vertical political forces, vestiges of the industrial age, against the new generation individual based or bottom-up forces whom have been enabled and empowered by the web, such as Wikileaks.

Even the current welfare-financial crisis being endured by mostly Western or developed nations have been clear symptoms of the erosion of this untenable structure.

It’s the same war that’s being wage at almost every aspects of our lives.

A war against our civil liberties. And, through the internet and through education, we are fighting back.

As Ludwig von Mises wrote,

Everything that happens in the social world in our time is the result of ideas. Good things and bad things. What is needed is to fight bad ideas. We must fight all that we dislike in public life. We must substitute better ideas for wrong ideas. We must refute the doctrines that promote union violence. We must oppose the confiscation of property, the control of prices, inflation, and all those evils from which we suffer.

Ideas and only ideas can light the darkness. These ideas must be brought to the public in such a way that they persuade people. We must convince them that these ideas are the right ideas and not the wrong ones. The great age of the nineteenth century, the great achievements of capitalism, were the result of the ideas of the classical economists, of Adam Smith and David Ricardo, of Bastiat and others.

US Regulator Call for Price Controls in Commodity Markets

More and more signs validating my suspicions of politically engineered price suppression scheme being applied by regulators in the commodity markets

From the News Tribune

Having failed earlier this year to impose congressionally mandated limits on excessive speculation in commodities markets, a key regulator on Thursday called on the Obama administration to immediately impose temporary limits on some Wall Street investments.

"We were supposed to have these done earlier this year but have failed to do so," complained Bart Chilton, one of three Democrats on the Commodity Futures Trading Commission.

Chilton is calling for what are known as spot-month limits, which would restrict how much of trading can be done by a single trader or company in contracts for next-month delivery of crude oil, natural gas, wheat or any number of other commodities.

The influx of Wall Street money into commodities markets, some on behalf of large pension funds and other institutional investors, has resulted in financial players far outnumbering the traditional traders in these markets, where producers have sought to protect themselves from large price swings.

The flow of this Wall Street money has led to wild and volatile price swings in the price of everything from crude oil to cotton to coffee - hurting consumers and businesses.

It's also led some lawmakers, academics and market participants to conclude that the futures markets no longer work as intended. A series of reports this year by McClatchy Newspapers suggests futures prices now are often divorced from the underlying supply-and-demand fundamentals in many markets.

The real intended design has been to keep commodity prices low so that political stewards will be unconstrained to apply more policies geared towards inflationism.

In short, blame the unintended effects of the current policies as the cause of today’s woes.

As I previously pointed out, the great Ludwig von Mises has predicted this in 1945 (Planning for Freedom), as part of the inflation cycle—a feedback loop mechanism where inflationism begets price controls which leads to more inflationism

those engaged in futile and hopeless attempts to fight the inevitable consequences of inflation — the rise in prices — are masquerading their endeavors as a fight against inflation. While fighting the symptoms, they pretend to fight the root causes of the evil. And because they do not comprehend the causal relation between the increase in money in circulation and credit expansion on the one hand and the rise in prices on the other, they practically make things worse.

Regulators believe the myth that the law of demand and supply can be politically controlled or manipulated or repealed. If they succeed in imposing such policies, then these regulators would be sowing the seeds of economic perdition.

Italian Minister: Cocaine responsible for Market Volatility

From the Guardian (bold highlights mine)

First it was the hedge funds, then the ratings agencies. Now, a member of Silvio Berlusconi's government has pointed to a different reason for the world financial turmoil. The problem — or one of them — is cocaine. And to tackle it, Carlo Giovanardi, a junior minister with responsibility for the family, said he intended introducing drug tests for securities traders on the Milan Borsa. Speaking in a YouTube interview, he said the drug is one of the causes of fluctuations on the stock exchange and "an alarm that needs to be listened to". The minister said testing traders to see if they had been snorting the odd line was part of a wider project for checks on pilots, professional drivers, public officials, surgeons and police officers. "The idea of giving drug tests to people with great responsibility is absolutely acceptable," he said. "I rather doubt that an investor would entrust his or her savings to an alcoholic. And the same thing holds good for cocaine."

I don’t know about the rest, but as a 'trader', I frequent beer and has never touched or used cocaine. So I am not party to the accusation of so called cocaine driven market epileptic seizures.

Yet I don’t see any of my beer stupors as having to affect my market positions. I guess anyone exposed in the financial markets would be risking real money enough to sensibly make economic calculations as major part of their decisions or actions--even if such action would represent as miscalculations for one reason or another.

Besides, volatile markets as I have been repeating are manifestations of boom bust policies meant to preserve the current political order.

Funny how politicians are finding fault on everyone and everything else except themselves.

First, this demonstrates utter ignorance of the market process. Second, such is a symptom of desperation. And lastly, this also signifies the innate desire by politicians to use more political power to control people's actions--political greed--which is actually the source of all the volatilities

How imbecilic.

Chart of the Day: Cartelization of the US Banking System

Hat tip Karen De Coster at Lew Rockwell Blog

Click on the image to enlarge

This germane quote from the great Murray N. Rothbard tells us why too big to fail banks is the direction of central banking policies,

The fewer the number of competing banks in existence, the easier it will be to coordinate rates of expansion. If there are many thousands of banks, on the other hand, coordination will become very difficult and a cartel agreement is apt to break down

China Announces Bank Bailouts

My hunch about China's bursting bubble has been getting some validation.

The Chinese government has announced that it will intervene by buying shares of select banking stocks.

From the Financial Times (bold emphasis added)

The Chinese government will boost its stakes in the country’s largest banks, as it attempts to shore up slumping financial stocks and to restore investor confidence.

Central Huijin, the domestic arm of China’s sovereign wealth fund, will purchase shares in Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China, the official Xinhua news agency announced on Monday. Xinhua added that the purchases by Huijin – its first such public intervention since a similar decision at the onset of the financial crisis three years ago – would “support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks”.

The announcement came too late for the Chinese stock market, which had closed at a 30-month low, but had an immediate effect on late trading in Hong Kong. ICBC’s Hong Kong-listed shares, which had been down 3 per cent, rallied to close up 1 per cent

Beijing also allowed the renminbi to record its biggest one-day gain in years on Monday. It rose 0.6 per cent against the dollar, squeezing traders who have been betting that the currency will weaken in tandem with a slowing economy.

Adding to my earlier commentary, a bust process-in China’s bubble economy or following an earlier money supply growth driven boom-is also a result of a rising yuan.

Corporate finance analyst and author Kel Kelly at the Mises.org provides an eloquent explanation

Therefore, letting its currency rise will cause a recession, since reduced money-supply and credit-growth rates are the usual initiating factors that bring on recessions (reduced rates of spending alone can cause recessions, but they are usually preceded by prior reductions in money and credit). It has been rapid increases in money and credit that have driven the current boom in China, and it will be the reduction in the growth rate of those variables that causes the bust.

The economic boom in China has consisted of rapid increases in true economic growth accompanied by — but not driven by — an increase in monetary spending. The increase in monetary spending, in turn, has been driven by wild credit growth, and has resulted in massive overinvestment in particular industries. There has been no shortage of commentaries and videos highlighting building booms, mania-type herd-mentality home buying, and the mass creation of buildings, shopping malls, and even multiple entire cities in China that stand unoccupied — all dramatic yet classic symptoms of credit bubbles.

So like the Eurozone, we see China’s government providing explicit support by jawboning or providing promises to buttress her banking sector.

However, the problem is that China’s current currency policies appear to contradict this (see chart below from Mr. Kelly).

The left hand does not know what the right hand is doing.

Again, we should see if such guarantees would suffice to forestall a bust or if market forces will continue to put pressure on China’s government, not only to make promises, but to forcefully act.

Very interesting times indeed.

Is Slovakia’s Classical Liberal Party the Last Stand Against the Euro Bailout?

Today the Slovakian parliament will vote to ratify on the rescue mechanism for the Eurozone.

However, there seems to be a complication—a party of libertarian-classical liberals led by Richard Sulik, leader of Slovakia’s libertarian Freedom and Solidarity (SaS) party—are opposed to its passage.

From Sunday’s Financial Times (bold emphasis)

A hardline libertarian party in one of the newest, smallest and poorest members of Europe’s single currency looks set to throw a spanner in the machinery of expanding the eurozone’s bail-out fund – seen as crucial to restoring market confidence in the bloc.

Despite pressure from across the continent, Richard Sulik, leader of Slovakia’s libertarian Freedom and Solidarity (SaS) party, repeated on Sunday that his party would reject the measure.

A last-minute meeting of the four-party ruling coalition is set for today in an effort to persuade Mr Sulik to back down and support the extension of the European financial stability facility at a crunch vote on Tuesday.

Mr Sulik made clear that his 21 MPs will reject the EFSF expansion if the other coalition parties do not agree to his proposals. Without those votes, the 77-member governing coalition has no chance of a majority in the 150-seat parliament.

Last week SaS offered to support the EFSF, but in return for a Slovakian veto on how its contribution would be spent and an outright refusal to participate in the permanent European stability mechanism, due to replace the EFSF next year….

The quiet-voiced Mr Sulik looks more like a demure bureaucrat rather than what he is – a self-made millionaire and one of the last of central Europe’s true believers in economic liberalism. Free market doctrine was hugely fashionable in the 1990s across the region, when ministers who had gained most of their experience from economic texts found themselves in power. They pursued radical solutions to eliminate the last remnants of state socialism.

“We are a classical liberal party. We are defenders of the Austrian school of economics,” says Juraj Droba, an SaS MP, describing his party’s relationship with the neoliberal school.

If the Slovakian parliament fails to garner the required votes, then whatever gains that we’ve seen in the financial markets lately—mostly based around expectations of political promises—will turn out to be fleeting.

Anyway even if the rescue package gets ratified, the EFSF is no guarantee of success. Bailouts incentivizes moral hazard or reckless behavior, which is why we are seeing this continuing crisis which began to unravel in 2008.

Hopefully Slovakia’s classical liberals will remain steadfast in their quest to champion sound money policies and continue to fight against tyrannical redistributionist policies that favors the political and banking elites. (hat tip Angel Martin, David Boaz).

Global Banking Regulators to Force Banks to Hold More Liquid Assets

From the Reuters,

Global banking regulators will press ahead with the first worldwide effort to force banks to hold more liquid assets, the chairman of the Basel Committee on Banking Supervision said in an interview with the Financial Times on Monday.

Stefan Ingves, who also heads the Swedish central bank, said the Basel group plans to put uniform implementation of the Basel III reforms at the top of its agenda.

The measures, which will also force banks to cut back on short-term funding, have come under scrutiny from some of the 27 member countries who say the rule changes could damage the broader economy.

The reforms, which were agreed to by the member states, will force banks to hold more top-quality capital against unexpected losses, but there are rising concerns that some countries will not stick to the agreement.

Bank capital standards will continue to put pressure on the markets as I explain here and here. More liquid assets will not stop the consequent crisis from central banking induced bubble cycles. In fact, this could worsen it.

By forcing banks to hold more liquid assets, which will likely come in the form of government debt, this compels banks to finance financially strained governments. So productive capital will be channeled to preserve the privileges of the political and the banking class at the expense of the economy, which signifies a form of financial repression.

Central bank based bank capital regulations are essentially aimed at the preservation of the unsustainable banking system-central banking-welfare-warfare state political economy.

Merkel and Sarkozy on Bank Recapitalization: Promises, Promises

Global financial markets appear buoyant anew on news of more promises of political rescue efforts

From Bloomberg, (bold highlights mine)

Angela Merkel and Nicolas Sarkozy, racing to stamp out the euro debt crisis threatening to engulf the financial system, gave themselves three weeks to devise a plan to recapitalize banks, get Greece on the right track and fix Europe’s economic governance.

“By the end of the month, we will have responded to the crisis issue and to the vision issue,” the French president said in Berlin yesterday at a joint briefing with the German chancellor before they dined at her office.

Under rising pressure to defuse turmoil that’s raged for 18 months, and facing growing concern Greece is headed to a default, Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit…

After their eighth bilateral summit in 20 months, the two leaders unveiled no new agreement on what role should be played by the bailout fund, the European Financial Stability Facility, amid reports that they differed on how to use it.

“We will recapitalize the banks,” Sarkozy said. “We’ll do it in complete agreement with our German friends because the economy needs it, to assure growth and financing.”

European banks need as much as 200 billion euros of capital, Antonio Borges, the International Monetary Fund’s European department head, said last week.

European leaders are bracing for the consequences of a Greek default. German Finance Minister Wolfgang Schaeuble told Frankfurter Allgemeine Sonntagszeitung that euro governments may have come up short on the scale of Greek debt writedowns when they reached the agreement in July. He cited a “great risk” that the crisis could spread further.

Eventually markets will get satiated by the many promises that have been meant to be broken

From the refrain of Naked Eyes’ Promises, Promises

You made me promises, promises

Knowing I'd believe

Promises, promises

You knew you'd never keep

Quote of the Day: Banking Stress Test

From Vern McKinley at the Freebanking.org

Another interesting issue about Dexia is that just this past summer it went through the so-called “stress tests” by the European Banking Authority. Dexia passed with flying colors with an 11% capital ratio intact, well above the 10% ratio that its regulators had hoped for. This was the procedure that 91 of Europe’s largest banks went through to see how they could withstand the stress of a downturn. Seems the stress test was not so stressful, as it just assumed that sovereign debt would not cause any problems for Dexia. So the post-crisis panacea for addressing future stress of having banking agencies worldwide demand higher capital ratios and then intervene early to avoid bailouts seems to be coming apart before it was even fully implemented.