Category Archives: Government Spending

>Central Banking Doesn’t Work – Just Ask the Fed!

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>It is still a tiny minority who understand that central banking is a collectivist institution that is completely hostile to liberty. It is, by definition, an instrument of theft that purports to stabilize economic conditions for the collective by controlling the supply of money and credit. The fact that its only means to do so is to steal from savers to finance well-connected borrowers is a seldom-mentioned detail. That people only use the central bank’s currency because they are forced to do so by legal tender laws is spoken of even less. In this late stage of the Age of Government, the rights to liberty and property are expendable as our rulers “get the work of the American people done.”

Hopefully, the question of whether there should be a Federal Reserve will be on the table soon. However, once one concedes the existence of the Fed, there is a further question to ask: Can it do what it purports to do?

According to the Federal Reserve’s website, its mission is as follows:

Today, the Federal Reserve’s duties fall into four general areas:

• conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

• supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system[1]

Of these four stated goals, the first is the most expansive in its scope. Let us leave it until last. The second, to ensure the soundness of the banking system, seems to have been answered by history. Since the Fed’s launch in 1914, the nation has suffered banking crises in every generation that have dwarfed the Panic of 1907 or any of its predecessors. In addressing the Great Depression, the Savings and Loan Crisis, and the 2008 Meltdown, the Federal Reserve’s only answer has been, “Without the Fed, it would have been much worse.” History is not on the Fed’s side. Only a general ignorance of the facts allows the Fed to keep fooling most of the people most of the time.

Refuting the third stated goal is so easy it’s almost embarrassing. For those not trying to regain their seats after falling on the floor laughing, I need only to point out 30-1 leveraging, $60 trillion (or more?) in derivatives [2], or the subprime mortgage disaster. I believe that to go any farther would be, to borrow a football analogy, “piling on.”

In fact, Alan Greesnpan’s now famous (or infamous) mea culpa on the “flaw” in his beliefs about the self-regulating nature of financial markets effectively amounts to the Fed admitting that it has failed in goals two and three. If the “Maestro” himself doesn’t speak for the Federal Reserve, then who does?

Regarding that fourth goal, one is tempted to give this one to the Fed. The important objection would be of the “should they” rather than of the “can they” variety. The fact that the Fed provides these services with an exclusive monopoly and claims only that it will play a “major role,” rather than a positive one, makes this the least significant of the four.

That leaves the first goal, which is stable prices, full employment, and moderate long term interest rates. There can be no doubt that the promises of stable prices and full employment in particular are now the principle justifications for the existence of the Federal Reserve. Almost exclusively, when the subject of the Fed comes up, these two goals are discussed. Even the Fed chairmen themselves, when testifying before Congress, often state these two goals exclusively in describing the Fed’s overall mission.

It should not be forgotten that until the late 1970’s, full employment was not part of the Fed’s mandate. Even using the logic of central banking proponents, these two goals are mutually exclusive of one another. Since the only means the Fed has at its disposal to try to achieve full employment is expansion of the supply of money and credit, which puts upward pressure on prices, the Fed must balance these two goals to try to find the optimum level of money and credit where everyone is employed but prices remain stable.

Ironically, the best source of information on the Fed’s performance in terms of its principle goal for the first sixty years of its existence (price stability) is the Fed itself. Among the collections of historical data on the Federal Reserve of Minneapolis website, there can be found a table documenting price inflation rates for every year since 1800 (Appendix A of this article). There, one can see for oneself whether or not the Fed provided price stability during any period in its existence.

The first fact that jumps off of the page is the stark difference in the trends before and after the creation of the Fed. For the period from 1800-1913, the general price level (a statistic that Austrian economists object to) was cut almost in half. In other words, products that on average cost $100.00 in 1800 would only cost $58.10 in 1913 (Appendix A). While there were some years where prices rose, prices generally fell overall during the entire 19th century.

This would probably be a startling revelation to most modern Americans. There isn’t an American alive whose parents or grandparents haven’t remarked at current price levels and gone on to say, “When I was your age, I only paid a dime for that.” As unbelievable as it might seem, that conversation would have been exactly the opposite in 1890. Grandpa would instead be saying, “When I was your age, I had to pay a lot more for that.” Today, Americans resign themselves to constantly rising prices as a fact of life. However, that is a phenomenon that has only occurred since the creation of the Fed.

In contrast to the century preceding the Fed, the century following has seen exactly the opposite result. Those same products whose average price had fallen from $100.00 in 1800 to $58.10 in 1913 rose to $1,265.14 in 2008. That is an increase of over 2,000%!

Without addressing the subject of which result is “better for society,” inflation or deflation, the data speak directly to the question of “price stability.” From 1800-1913, the average annual fluctuation in price was 3.4%. From 1914-2008, the average annual fluctuation in price was 4.5%, a 33% increase over the previous period. In fact, the numbers for the Fed would be far worse if the same methods used to calculate the price inflation rate were used for the entire period from 1914-2008. In the 1990’s, several changes were made to the methodology used to calculate the Consumer Price Index. They all have the effect of lowering the price inflation rate given a particular set of price data.

Regarding the goal of “full employment,” the Fed’s results are also poor. Similar to that of the CPI, the methodology for calculating the unemployment rate was also changed in the 1990’s. These changes in methodology, which include no longer counting “discouraged workers,” lower the unemployment rate from what it would be for the same data if calculated using the old methodology. Despite this handicap, the Fed still fails to achieve positive results. The average annual unemployment rate in the U.S. between 1948 and 1978 was 5.1% (see Appendix B). Even without compensating for the changes in methodology during the 1990’s, the average annual unemployment rate in the U.S. between 1979 and 2009 was 6.1%. So, unemployment was almost 20% higher during the period that the Fed actively tried to manage it than it was during the prior 30 years.

Once you undo the methodological changes in calculating price inflation and unemployment that were put in place in the 1990’s, the Fed’s results on price stability and unemployment get much uglier. Nevertheless, even after the Fed fudges its own numbers it still comes out a failure. Everyone can remember the ne’er-do-well from school that cheated on tests and still couldn’t pass. Would we want that kid managing the entire economy?

The arguments that the Fed makes to justify its existence are fraught with false assumptions. One is that “stable prices” are a good thing. Remember, the industrial revolution occurred amidst steadily falling prices. It was this period of steady deflation (gasp!) that saw the common people become the prime market for society’s output – for the first time in human history. It was this period that saw the United States transform itself in a matter of decades from an indebted hodgepodge of former colonies to a world economic power. The natural result of economic progress and increased productivity is falling prices. That is what raises the standard of living for the great majority of society.

However, the most absurd assumption underlying the arguments for the Fed is one common to all collectivist arguments: that there is some strange entity called “society” whose needs outweigh the rights of every individual that comprises it. Every citizen surrenders his right to liberty to legal tender laws because being forced to use the Fed’s worthless notes as currency supposedly benefits “society.” He surrenders his right to property in letting the Fed steal his savings through inflation for the same reason. In the end, however, the Fed fails to achieve its “societal” goals of full employment and stable prices, so he gives up his rights for nothing. Isn’t time he took them back? There is a way: End the Fed.

Appendix A – Price Inflation Rates 1800-2008 (Federal Reserve Bank of Minneapolis)
 
Appendix B – Unemployment Rate (Monthly) 1948-2009 (Bureau of Labor Statistics)

[1] https://www.federalreserve.gov/aboutthefed/mission.htm

[2] https://www.newsweek.com/id/164591

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2010

>The Government Bubble Heads for a Blow-Off Top

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>I have a friend that tends to express his ideas about everything in the jargon of a securities trader. Of course, this is probably because he has been a very successful trader, both in bull and bear markets, for many years. “Every trend in history, even liberty, can be charted like a stock,” he has often observed. I tend to agree.

As any trader will tell you, bull markets do not go straight up and bear markets do not go straight down. Rather, they tend to meander in the direction that they are headed. During a long-term bull market, a trend will have major pull-backs and long periods of consolidation. It is the experienced trader that knows how to “buy low and sell high,” taking advantage of the back and forth action of a stock or a sector on its journey. However, even wiser is the investor that can spot the trend at the beginning and keep buying lows without having to attempt to time the market and sell at all. The legendary Jim Rogers has often said that he is “the world’s worst short-term trader.” He would rather buy something that he can own forever than buy with the intention of having to sell.

Gold has been the most spectacular bull market over the past decade. Like all trends, it had periods of dramatic rise, followed by sharp pullbacks that gave back a portion of the gains, and then long periods of consolidation. Once a consolidation was over, another dramatic rise in price followed. The first run began at the beginning of the decade, with gold selling under $300 per ounce. It ran up to over $700 per ounce in 2006 before pulling back sharply under $600. The price then consolidated there for an entire year before the next leg up began. That second leg ran all of the way over $1,000 per ounce before pulling back to the low $700’s. Again, there was a long consolidation before this latest run, which will take gold we know not where.

All of the movements in the price have explainable reasons. When the fundamentals are stronger than the actual price of the security or commodity, investors begin buying. Once the price starts to move up, traders begin wading in to make profits on the movement of the price, both up and down. At any given time, there are those who are long and those who are short. Contrary to the nonsense you hear from government officials and their kept economists, short sellers play a vital role in keeping the market healthy. When a stock, commodity, or sector beings to fall in price, short sellers help stabilize that price because they have to buy the stock that they sold short to cover their short sales.

You will often hear the wisest of investors say that a trend is about to reverse when there is no longer any disagreement about it. When everyone is positive on a stock or a bull market, it is about to go down. When everyone is negative, it is about to make a run up. When all of society agreed that the NASDAQ would never go down – when every conversation in every coffee shop, supermarket, or dinner party revolved around the wonderful opportunities in technology stocks, wise investors knew it was time to get out.

Of course, this is not some sort of market magic or voodoo. It is simple cause and effect. When there are few sellers in a market and many buyers, the price is going to be inflated far beyond its value. From an opposite standpoint, when short sellers are forced out of the market in a “short squeeze,” there is now nothing to stop the price from falling precipitously once it starts to fall. With no short sellers covering their shorts, the price falls like a stone. Thus, at the end of long bull market, a bubble usually develops, characterized by a final, parabolic “blow off top,” followed by an equally dramatic drop in price.

The past 100 years has been a bull market for government. While the seeds of the run were sown in the mid-19th century, the bull market in government really began at the turn of the 20th century. The first signs of the bull could be spotted as early as the (Teddy) Roosevelt administration, but the real advances came under Woodrow Wilson. The income tax, the Federal Reserve, and the 17th Amendment were advances in government that made gold’s move from $275 to $700 look tame.

There was then a period of consolidation during the so-called Roaring Twenties. It was not so much a pull-back of government as a slow-down in the pace of its growth. Under three Republican presidents, the government bull market consolidated as Americans convinced themselves that they had restored a free market (because the Republicans said they did, despite their actual support of big government fundamentals).

The next big move came during the Great Depression. While the stock market and the real economy went south, government went on another tear as FDR fully instituted the modern welfare state, the fascist regulatory structure, and took America to war. After 16 years of absolute misery, even the most enthusiastic government bull must have thought it was time for a pullback. It was brief, but it came.

Americans again elected a Republican president in the 1950’s and convinced themselves that they had restored the American system and rejected the big government philosophy of FDR and his liberals. However, this, too, was only another consolidation. In actuality, it was Eisenhower that paved the way for LBJ’s Great Society by creating the Department of Health, Education, and Welfare (now the Department of Health and Human Services). The 1950’s are fondly remembered as a period of (mostly) peace and prosperity for America. It was only another consolidation period for government’s century-long bull run.

The next great move came during the 1960’s, when LBJ again lead a tremendous run up for government. Medicare and Medicaid, the other two entitlement monsters that will eventually combine with Social Security to bankrupt the United States, were born during this fabulous period for big government. The move ran right through a two-term Republican presidency (counting Ford’s mop-up after Nixon’s resignation) and into the Carter administration.

Most bull markets have two legs. Some have three, but usually no more than that. It seemed like that axiom would hold true for government as Ronald Reagan gave his first inaugural address. “In this crisis,” he told us, “government is not the solution to our problems – government is the problem.” It was the greatest inaugural speech of the 20th century. The government bull market was over. Or so we thought.

We now know that government didn’t get smaller during the Reagan years, but much bigger. However, there was at least a feeling of negativity about government during the Reagan-Bush years that even forced Bill Clinton to pass himself off as a free-market friendly centrist. It was another consolidation period, with a seemingly impossible fourth leg to follow.

We are in the midst of that fourth leg now, as government makes a more precipitous run up than at any time in history. In a few short years, the government will have nationalized the banking, auto, and health care industries. There are no more government bears to be found anywhere, either among Republican or Democratic politicians or (let’s face it) among 99% of the citizenry. Outside of a tiny constituency of libertarians, paleo-conservatives, and anarchists, there are absolutely no non-believers in government left. The rise is accelerating too fast for any protest or community organizing to stop. It’s a short squeeze as the government bull stampedes.

While this might be a terrifying period for anyone remotely interested in living his own life, there is much reason to be hopeful. As most bull markets eventually do, government is experiencing a blow-off top. The curve has bent straight up, with nary a short to be found in any political party or in any bowling alley or church social. Americans have convinced themselves that government either “should” or “must” do something about absolutely everything. We should expect the run to pick up speed, as government invades every aspect of our lives. Never before – not even in the most barbarous ages – has government made such enormous claims upon the life, liberty, or property of its subjects. Medieval serfs were taxed less. Ancient slaves were freer. Not even the brutal Romans killed with such efficiency and on such a scale.

For all of these reasons, it is about to end. With almost uncontested faith in government, its role has expanded so far beyond what it is actually able to deliver that soon we will see a fall that will make the real estate meltdown look like a mild pullback. Having rode the last leg of the move and squeezed out the last of the shorts, government is about to remind everyone that it not only should not be providing what it is attempting to provide, but that it cannot provide it.

At the moment that the whole world has accepted that government will centrally plan all of the economy, take care of its citizens from cradle to grave, and rule a worldwide military empire –all with money that comes from nowhere – at that very moment the age of government will end. The end is going to come fast, too, just like the end of the bull markets in technology stocks and real estate. Ben Bernanke will still be telling government bulls that there is nothing to worry about long past the moment when his time is up. That’s how fast it’s going to be.  As in any market, the moment when every bear is gone is the moment that the bull run is over.

This will not be a pleasant experience. No correction ever is. Fortunes will be lost (albeit mostly fortunes dishonestly made), but innocent people will be hurt, too. All of society will come to the realization that government really can’t provide anything, beyond the brute force that is only justified in self defense. It may take a generation to repair the damage. It’s going to be rough.

However, we should remember one thing. When a bubble deflates, the capital that is not destroyed seeks another refuge. When the NASDAQ melted down and the U.S. dollar began to implode, the smart money fled to gold. It will be no different during the bursting of the government bubble. With a precipitous fall in government, there is an equally dramatic rise in its opposite – liberty.

Americans will have to forego the ill-gotten gains provided by government and do with less while they rebuild. That is unavoidable. While the NASDAQ bubble actually started on a real foundation, the fundamentals of the government bubble were never real. It was all an illusion and it is five minutes from ending.

It’s going to be great.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2010

>The Democrats Privatize Wealth Redistribution

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>George W. Bush redistributed more wealth during his presidency than any president had since Lyndon Johnson. Republicans really have never had any problem with redistributing wealth as long as the proceeds go to the right people. Since Medicare benefits senior citizens, a constituency that no election can be won without in the baby boomer retirement era, Republicans had no problem using the force of government to take money from one individual and use it to buy “healthcare” for another – as they did with their Medicare prescription drug benefit. Neither do they hesitate to redistribute to bankers, under the cover of “saving the financial system.” God help us if there is ever a constituency of senior citizen bankers.

In fact, if one looks at the federal budget as it existed before the massive bailouts started – pre-TARP – at least 80% of the almost $3 trillion budget amounted to wealth redistribution. Always there was some rationalization for why this or that group must receive federal funds “for the good of all.” The farmers must be subsidized because there is absolutely no way to sustain farming in a market economy. If large farming corporations weren’t subsidized, we would all starve. Medical research must be subsidized because we will eventually all die of cancer, AIDS, and other horrific diseases if the government doesn’t subsidize medical research. Corporations in general must be subsidized because if one were to go out of business, everyone would be unemployed.

The Democrats typically attempt to characterize the Republicans as racist or elitist because the Republicans have traditionally resisted wealth redistribution for the poor or minorities. However, the reality is that Republicans do this for the same reasons that Democrats resist redistribution to bankers and corporations (or at least they used to). The poor and minorities don’t vote Republican. That is the only reason that Republicans attempt to leave them out.

No one in America seems to know any American history. Following the American Civil War, when black voters universally supported the Republicans due to their perception that the “party of Lincoln” had set them free, it was the Republicans who promised “40 acres and a mule” to blacks and the Democrats who proclaimed themselves “the party of white men.” Enslaved by their former ruling class and now used as pawns in a political power game by the new one, the freed black voters of post-Civil War America serve as a perfect metaphor for the supposed “beneficiaries” of all government redistribution schemes. Whether it is elderly people trying to scrape by on a Social Security Check, poor people trying not to starve on public welfare, or Iraqi citizens enjoying their newly provided “freedom,” the so-called beneficiaries of government wealth redistribution are never the winners. It takes an alarming lack of skepticism not to ask who the real winners are.

As this new century has “progressed” (pun intended), even the blurry lines separating the two parties have begun to melt away. Remember that George Bush’s redistribution schemes also included stimulus “tax refunds” to everyone, whether they actually paid taxes in the first place or not. “Compassionate conservatism” was nothing more than a euphemism for attempting to blend traditional Republican rhetoric about “free markets” and “limited government” with thinly-veiled redistribution schemes. By doing so, Bush’s Republicans hoped to hold onto their own base while chipping away at the Democratic voting blocks by promising them other people’s money, just as the Democrats do.

Throughout the 20th century, the two parties employed this strategy of “borrowing a page from the other’s playbook” over and over, always hoping to win voters away from the opposition while retaining the loyalty of their own traditional supporters. It was this that caused many liberals to criticize Bill Clinton for being “too much like a Republican.” Why George Bush has managed to hold on to his image as an “extreme conservative” defies explanation.

Until now, there has always been at least one thing to say in favor of the Democrats. They have been honest about their intentions. They have come right out and said that their intention was to redistribute wealth in order to achieve “equality” or “social justice” or some other utopian goal. Certainly, no lucid American can deny that the Democratic platform has been a socialist one for at least the last century. It has been the Republicans who have deceived their followers to a much greater extent by promising them liberty and property rights and then redistributing almost as egregiously as the Democrats.

One hallmark redistribution strategy used by the Republicans was “privatization.” Somehow, they managed to successfully characterize forcibly extracting money in taxes from their citizens and redistributing it to private corporations as “free enterprise,” as if “private” and “free” were synonymous. Alexander Hamilton must have smiled in his grave.

However, the Democrats have truly broken new ground during this presidential administration. Not only have they managed to outspend the voracious Bush administration in just ten short months, but they have taken a page from the Republican playbook and actually privatized wealth redistribution. Formerly, however transparent the scheme, the money at least made it into the federal treasury for a moment before being paid out to the special interest that had bought it with votes. However, H.R. 3962, the so-called “Affordable Health Care for America Act,” dispenses with this formality. Now, using the coercive power of government, private citizens will be forced to pay their money directly to government supported health insurers whether they wish to or not. The veneer that this is “public money” being spent for the “public good” has been completely stripped away. There is now simply a government pointing a gun at its citizens and forcing them to pay directly to the special interest that has successfully lobbied for their money. Even King John of the Robin Hood tales did not extort for his friends this overtly.

A more perverse merger of left and right political corruption is unimaginable. Using the government’s numbers, this will provided coverage for 36 million uninsured Americans at a minimum of $15,000 per covered life. Assuming these numbers to be at least “in the ball park,” President Obama and his so-called liberals have just handed over a half a trillion dollars a year to corporate America (the health insurance companies). What true progressive could possibly support this?

The price of this corporate welfare, of course, is that any remaining vestiges of voluntary contracts between insurer and insured that health insurance still retained has been eliminated. Insurers are no longer allowed to determine rates demographically and based upon a real risk model. They are no longer allowed to offer diverse coverage packages to compete with one another for different customer groups. They now must offer low rates and uniform benefits to everyone as entitlements. Like individual welfare recipients, they have surrendered all of their liberty and property rights in return for other people’s money. They are now just one more arm of the state bureaucracy.

The worst aspect of this great fraud is the implications it has for the liberty of every American. The closest parallel to this heretofore has been automobile insurance. Americans have been forced to buy auto insurance directly from an auto insurer in order to exercise the “privilege” of driving on the government’s roads. This was of course enacted for the public good, to ensure that poor drivers could not bankrupt the innocent by demolishing their cars or saddling them with exorbitant hospital bills. However, as hostile to liberty as these laws are, they still leave the driver a choice. He can choose not to drive, however impractical or unrealistic that choice might be.

However, with this new bill, even that smattering of liberty is ripped away. Americans are now forced to purchase insurance from a government-protected and subsidized health insurance company merely because they are alive. Worse yet, they are not merely forced to make a single payment of tribute to satisfy their “individual responsibility.” They must go on paying, year in and year out, for as long as they live. They cannot decline. They cannot conscientiously object. There is no escape from this tyranny save one: death. For those individuals that can demonstrate that they are completely incapable of paying, someone else will be forced to pay for them. No matter what, the government’s corporation will be paid. Even life is no longer a right, but a privilege that the government extends to its subjects for a fee.

From 2001-2006, the Republicans controlled all branches of government. It was an horrific period of utter destruction of American liberty. The Democrats have now been given their chance and in ten short months they have far outdone the Bush Republicans for this dubious distinction. Make no mistake. If the Republicans regain power, they will be worse still. Americans should understand that they will affect no “change” in their government by electing either of these two parties. The federal government is a monster that has taken on a life of its own. Both parties are now its minions and are indistinguishable from one another.

Our Declaration of Independence says that “mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

Are we there yet?

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2009

Michael Moore Wants to End the Fed (He Just Doesn’t Realize It)

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“You keep on using that word. I do not think it means what you think it means.”

– Mandy Patinkin as Inigo Montoya in The Princess Bride (1987)

It is ironic that Michael Moore’s latest movie, Capitalism: A Love Story features two appearances by writer and comedic actor Wallace Shawn. There is even a clip of Shawn exclaiming “Inconceivable!” in his hilarious turn as Vezzini in The Princess Bride. However, the most appropriate clip from that movie would have been Inigo Montoya uttering the words quoted in the prologue of this article. Using one of Moore’s staple filmmaking techniques, he could have cut to the clip immediately after one of his own pronouncements about capitalism. For although Moore says the word over and over throughout the movie, it is apparent that it “doesn’t mean what he thinks it means.”

The closest thing to a definition of capitalism that Moore provides to his audience comes early on when he remarks, “Capitalism: a system of giving and taking – mostly taking.” He goes on to show a half dozen or so clips of people extolling capitalism for providing “the freedom to succeed and to fail” or hailing the virtues of competition. However, the common mistake made by both Moore when attacking capitalism and the Republican politicians he depicts defending it is their mutual failure to recognize the central tenet of capitalism: property rights.

True capitalism is based upon one simple principle: that all exchanges of property are made with the voluntary consent of all parties. Private ownership of property and competition – the other two components of capitalism in most traditional definitions – are actually results of this foundational principle. As all governments are institutions of coercion, there is no way for them to acquire property through voluntary exchange. Further, with all exchanges being voluntary, sellers must by definition compete with one another in order to sell their products. So, the foundation of “capitalism” is really the non-aggression principle applied to property. Capitalism requires that no one’s property can be taken from them without their consent.

However, Moore’s film does not examine anything close to that system, which Adam Smith called “a system of natural liberty” (the word “capitalism” was not coined until nearly a century later). There is a good reason for that – it doesn’t exist. What Moore mistakes for capitalism is really the soft fascism that has been increasing in intensity in the United States since the Federal Reserve and income tax were created and property rights were destroyed. He makes the same mistake that Republican voters make when they vote Republican politicians into office. They believe the politicians when they say that they support “free markets,” despite the fact that they go on to govern in exactly the opposite way.

The injustices that Moore depicts in his film are without exception caused by government. Not one can be traced to people voluntarily exchanging their goods and services with one another. What Moore represents as “capitalism” is really what Thomas Dilorenzo described as “Hamilton’s Curse” in his 2008 book of the same name. Without attempting to reduce Dilorenzo’s treatise to a few sentences, he generally describes the economic system whereby the government allies itself with the wealthiest segment of society in order to plunder the wealth of everyone else in pursuit of “national greatness” or “the common good.” The hallmarks of the system are corporate welfare, deficit spending by government, protectionist tariffs, and most importantly, a central bank with a government-granted monopoly on the creation of money.

This system purports to benefit society by encouraging the growth of domestic industry and thereby increasing the power and standing of the nation as a whole, as well as providing employment for the working class. However, like socialism, it must achieve “societal goals” by violating the fundamental principle of capitalism. It must violate the non-aggression principle by taking property away from people without their consent and redistributing that property to others. Some of this is accomplished through taxation. A much greater part is accomplished through monetary inflation.

It is astounding that most people are able to ignore the fact that the central bank is an instrument of theft and thereby completely antagonistic to capitalism. It takes an incredible dearth of healthy skepticism not to question the reason for legal tender laws, which force people to use the central bank’s currency. There is only one reason for these laws: without them no one would choose to accept an un-backed paper currency in exchange for their real goods or services. People are forced to use Federal Reserve Notes so that the government and its corporate allies can use inflation (expansion of the money supply) to transfer wealth from everyone in society to the privileged few who benefit from the transfer. The beneficiaries include corporate defense contractors, large farming corporations, Wall Street banks, and other “pillars of the economy.” It is inflation more than anything else that widens the gap between rich and poor. It is the chief vehicle for what Bastiat described as “the few plunder the many.”

However, Michael Moore does not recognize the right to the fruits of one’s labor and so he is completely blind to the difference between capitalism and the system promoted by Republican politicians (in deed if not in word). He fails to see that every aspect of our financial meltdown was caused by some violation of property rights, representing a departure from capitalism.

The money needed to extend all of those “deceptive mortgages” was created by the Federal Reserve out of thin air, thus diluting the value of all existing U.S. dollars. This was a theft from the holders of those existing dollars. Most of the loans themselves were guaranteed by Fannie and Freddie Mac, which uses the coercive power of government to force taxpayers to put up their money as collateral for people who would either not receive those loans or who would pay a much higher interest rate without it.  Again, this is not capitalist voluntary exchange but instead wealth redistribution and a distortion of the free market. Similarly, the hundreds of billions paid out to defense contractors and other beneficiaries of President Bush’s wars in the Middle East were also funded by inflation, which the Republicans overtly flaunted by cutting taxes while skyrocketing government spending.

Since he fails to recognize that it was violation of property rights that truly caused our economic meltdown, he doesn’t recommend the restoration of property rights as the solution. Moore blindly accepts the traditional “progressive” fallacy that free market participants can only benefit at someone else’s expense, instead of recognizing that people who exchange voluntarily do so to their mutual benefit. As a result, he accepts government’s role as plunderer of property and merely suggests dividing up the loot differently. He promotes the bogus idea that the government can grant rights to people, and suggests that the coercive power of government no longer be used to redistribute to the wealthy, but instead be used to redistribute to everyone else. He objects to a system wherein the few plunder the many, but suggests it be replaced with a system where “everybody plunders everybody.”

Moore asserts that FDR had the answer when he proposed a “Second Bill of Rights,” granting Americans the right to a reasonable wage, health care, a pension, and other entitlements. Again, as the concept of property rights is foreign to him, Moore is able to ignore the fact that granting a right to these things means that those who provide them have no rights. He extols the “justice” of labor unions, but ignores the fact that it was the unions that destroyed the U.S. automakers by claiming exactly these rights. It was actually an alliance between government and these unions – identical in principle to the alliance between government and Wall Street – that turned his beloved Flint into a ghost town. He suggests that we should set these forces loose upon all of society. His ability to ignore reality is, to quote Mr. Shawn, “inconceivable.”

Like all of his movies, Capitalism: A Love Story is very well made. Moore is exceptionally good at what he does, bringing wit, comedic timing, and emotional power to the screen. Also like all of his movies, he identifies real injustices and expresses appropriate outrage at them. However, throughout his distinguished career he has made the classic mistake of misidentifying the cause of the problems he depicts so poignantly on the screen.

He compares the United States to Rome and points to the similarities between our problems and theirs. He correctly identifies half of the cause of Rome’s decline and ours: the government’s unholy alliance with a landed aristocracy that plunders the wealth of the people for redistribution to the privileged few. However, he fails to recognize his solution as the other half of the cause of both Rome’s decline and ours: the rest of society attempting to share in the plunder by means of majority vote (democracy). It was both of these forces acting together which destroyed Rome’s currency and led to her eventual collapse. Like Rome, we are also afflicted with both of these ills.

The only real solution to our predicament is to implement a system that supports Bastiat’s third alternative – “where nobody plunders anybody.” It is only by following this principle that justice can truly prevail. The most significant step in achieving such a system would be to eliminate the Federal Reserve System. Neither the Republican system of plunder for the wealthy nor the Democratic system of plunder for everybody is possible without monetary inflation. There is no way that government could ever achieve either through direct taxation.

I believe that Michael Moore’s intentions are good. At the end of his film, he asks Americans to join him. I have an alternative proposition for him. If he truly wants to see justice restored in America, along with equal opportunity for all Americans to pursue their happiness, he should call off his misguided attack on capitalism and join us to End the Fed.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2009

>A Nation of Hyenas

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>One never knows where one will find profound metaphors for human existence and society, and I certainly wasn’t looking for one while channel surfing last weekend after a morning of yard and house work. However, I had the good fortune to flip on Mutual of Omaha’s Wild Kingdom and observe a perfect analogy to what our once-great society has become.

That episode was about the cheetah, the fastest land animal on earth. The cheetah is a beautiful creature. As the show pointed out, it is literally built for speed at the expense of brute strength, of which it has relatively little compared to other predators in its habitat. While unfortunate for the antelope, it was nonetheless quite inspiring to watch a high-speed pursuit of that animal by the cheetah, exhibiting gracefulness which rose to the level of poetry. Having made her kill, the cheetah brought the antelope back to feed herself and her young.

However, the story was not to end so happily for this family. The smell of blood in the air had attracted a pack of one of the cheetah’s competitors, the hyena. While the aforementioned lack of brute strength would probably not allow the cheetah to fight off even one hyena, that fact was irrelevant in that it was ten or twelve hyenas which now threatened her. Why? They were after the antelope – the fruits of the cheetah’s labor – and were going to use their greater numbers to take it from her by force. They weren’t intent upon killing the cheetah or her young, but were willing to do so, if necessary, to obtain her property without her consent. The cheetah weighed the risks to herself and her cubs and retreated, left to try to make up the loss elsewhere to provide for her family.

A few nights later I broke an embargo of sorts and actually watched a “news” program. I tuned in Cavuto on Fox News[1], which is one of the few shows where actual journalism seems to occur occasionally, despite its network affiliation with right wing propagandists Hannity and O’Reilly.

Cavuto’s regular panel of guests is arguably the most libertarian one can find anywhere in the “mainstream media,” regularly featuring Jonathan Hoenig, Peter Schiff, and even Yaron Brook, President of the Ayn Rand Institute.

That night, the auto company bailouts were again on the docket, and familiar arguments were made by Hoenig and the other panelists about why the results would be worse if the government took control of the auto industry. Cavuto’s token panelist from the left[2] (a female panelist whose identity I have been unable to verify), made the now also-familiar argument that “we bailed out Wall Street and now Main Street is demanding that the government do something for them.” Most of the panelists answered correctly that they were against the Wall Street bailouts as well, a point that was left unemphasized due to several people talking at once. However, the real chance for a meaningful debate still lay ahead. The boisterous Cody Willard set the stage when he said, “if you want to help them, send them your money, but don’t hold a gun to my head.”

The reply from the panelist arguing the liberal perspective was monumental:

“That’s why we have a democratically-elected government and the people want the government to do something.”

When she gave that answer, it was time to stop the quips, the witticisms, and even delay going to a commercial, if necessary. Despite the fact that the host trivialized the exchange by talking over part of both her and Willard’s comments, the exchange between the two was enormous beyond what most viewers probably realized.

There are many who would probably consider Willard’s statement a half-facetious exaggeration for effect. It was not. It is the horrifying reality of what any government bailout or other redistribution of wealth represents. We as Americans have forgotten that all government action is exercised under exactly these circumstances: at gunpoint. That is the purpose of government, to exercise brute force on behalf of its constituents when it becomes necessary to do so. That is why our government was originally so limited. The founders of our nation believed that brute force was only justified in self defense. Therefore, government action was limited to protecting its constituents from harm by other people, whether it was harm by a fellow citizen or a foreign army.

However, when the government undertakes to “do something” about a failed bank or auto company, it really means that We the People have decided to apply brute force to the problem, even though it is not a matter of self defense. Willard was completely accurate: a government bailout of a distressed auto company, whether it saves jobs or not, is really the people using their collective means of brute force (the government) to take property from one group of people and give it to another. This exchange is done at gunpoint – there is no consent by the party being taken from. Had the managers or the employees of the auto company armed themselves and sought to raise the funds themselves by stealing them at gunpoint from the people directly, they would have been arrested and prosecuted for armed robbery. However, Willard’s opponent in the debate argues that there is some ethical difference because a “democratically-elected government” acts as the armed robber in their stead. What can the difference possibly be?

This is the fundamental question that we as a society must answer if we are ever going to reverse the downward spiral we find ourselves in. Do we believe that individuals have inalienable rights or do we believe that a majority vote can take those rights away?

If one takes an objective look at our society as it has evolved over the past century, one must conclude that we have already answered it. Stripped of euphemism, almost every government institution in our society amounts to us using the brute force of government to violate the inalienable rights of our neighbors. Let us consider just a few examples.

Government involvement in healthcare has driven the price so high (through the artificial demand it creates) that the poor and elderly cannot afford it. Our answer is to apply the brute force of government to steal the money at gunpoint from one group of people to provide healthcare to another. In a truly bizarre development, that practice has now resulted in such high prices that almost no one can afford healthcare. So, we will now steal from everyone to provide healthcare for everyone. Lewis Carroll couldn’t have dreamed of anything quite so mad.

In order to be able to stop working but still enjoy the quality of life we feel we deserve after a certain age, we use the brute force of government to steal from those who are still productive to support those who are not. We could save for our retirement, but we choose instead to steal. We call this “Social Security.” It should be called, “Anti-Social Insecurity.”

Similarly, in order to afford to buy a house without saving the necessary down payment and establishing superior credit, we use the brute force of government to compel our neighbors to guarantee our mortgage loans with their money. When the inevitable tsunami of defaults occurred last summer, some objected to the government stealing the money to cover the losses of the banks. In truth, the money had been stolen decades ago, the minute that Fannie Mae was established.

Rather than saving the money for college tuition or allowing our children to work their way through college if we cannot afford to pay the tuition in full, we use the brute force of government to compel our neighbors at gunpoint to guarantee our student loans with their money. As with healthcare, this evil practice has driven the price of college tuition so high that not only are students going into long-term debt just to pay for their education, but their parents are taking out decades-long loans as well.

Should fortune not smile upon us or should we not develop marketable skills with which to obtain employment, we use the brute force of government to steal the money needed to sustain us from our fellow citizens. We call this the “social safety net,” but it also should be recognized as “anti-social.”

If we believe that we have a scientific theory that could lead to a new discovery that will benefit society (and enrich ourselves), we do not seek out capital to research it from those who can provide it voluntarily. We use the brute force of government to steal the money from our neighbors with the flimsy justification that “federal funding of research” will “benefit all of society” with a new medicine or a new technology.

This is by no means the length and breadth of the ways in which we violate each other’s rights on a daily basis. Every program funded by government, besides those that have the express purpose of defending our rights (police forces, the courts, the military), amount to the same thing: using our collective means of brute force to extract money from one group and give it to another.

What should be obvious is that it is not one evil group (the poor, the elderly, the corporations, Wall Street, etc.) that engages in this morally repugnant practice. Politicians will pick their scapegoats to play to their own power bases. The Republicans will blame the poor to get votes and campaign contributions from their base, the corporations and the rich. The Democrats will blame the rich and the corporations to get votes and campaign contributions from their base, the unions, average Americans, and the poor (the poor have only their votes to give and get back only the most miserable portion of the loot).

However, we must wake up to the fact that we all have a hand in this. The steady growth of one redistribution scheme after another has made it virtually impossible to function in our society without in some way participating in the looting of our fellow citizens, while we are at the same time looted ourselves. We have established all of these redistribution schemes through the democratic process. This past century has not been a progressive century. It has been a regressive one. We have regressed from a society of free people that respect each other’s inalienable rights to a society that is based upon competing groups stealing from one another through the brute force of government. We use only the support of greater numbers (majority vote) to justify the institution of each new crime. We have regressed to the brutal law of the jungle. We have become a nation of hyenas.

This has all followed logically from one fundamental break we made from our founding principles. We have elevated democracy to an ideal, at the expense of the individual rights that our government – and any government of free people – was constructed to protect. We have convinced ourselves that anything a majority vote sanctions is just, even if it violates those rights. Once we accepted that premise, the seeds of our destruction were sown.

As one might expect, this is something that the founders of our nation warned us specifically against. When one takes an objective look at our founding documents, the first thing that should jump off the pages is how little democracy there really was in our original government. Only the House of Representatives was chosen directly by the people, with the president and senate chosen indirectly by electors or the state legislatures, respectively.

More importantly, it is vital to realize what all of the limits, checks and balances, and even the Bill of Rights were intended to protect us from. They were intended to protect us from democracy.

One does not need to engage in interpretation to support this claim. The founders said it explicitly on more occasions that one could count. Here are just a few examples:

“Democracy is the most vile form of government … democracies have ever been spectacles of turbulence and contention: have ever been found incompatible with personal security or the rights of property: and have in general been as short in their lives as they have been violent in their deaths,”[3]

“The majority, oppressing an individual, is guilty of a crime, abuses its strength, and by acting on the law of the strongest breaks up the foundations of society.”[4]

“There is no maxim, in my opinion, which is more liable to be misapplied, and which, therefore, more needs elucidation, than the current one, that the interest of the majority is the political standard of right and wrong.”[5]

These vitriolic attacks upon democracy and majority vote from the founders of our nation would probably surprise most Americans. Nevertheless, there they are. The founders understood that democracy was a means, not an end. Their end was protection of the inalienable rights of each individual. Democracy was only good and just insofar as it helped to defend those rights. Furthermore, it must be prevented from being used to violate them. Again, the founders said this explicitly.

“In short, it is the greatest absurdity to suppose it in the power of one, or any number of men, at the entering into society, to renounce their essential natural rights, or the means of preserving those rights; when the grand end of civil government, from the very nature of its institution, is for the support, protection, and defence of those very rights; the principal of which, as is before observed, are Life, Liberty, and Property. If men, through fear, fraud, or mistake, should in terms renounce or give up any essential natural right, the eternal law of reason and the grand end of society would absolutely vacate such renunciation. The right to freedom being the gift of God Almighty, it is not in the power of man to alienate this gift and voluntarily become a slave.”[6]

This passage elucidates another conclusion that proceeds from natural law. Not only is each individual prohibited from using the majority vote to violate the rights of his fellow citizens, he is prohibited from using that vote even to relinquish his own rights. That is because rights are not granted by society. They are inherent in man’s nature itself. They are non-transferable. They cannot be taken or even given away. That is the meaning of “inalienable.”

It was at the turn of the last century that we made the fundamental change in our philosophy. Since that time, we have held democracy up as our ideal at the expense of our natural rights. We did this primarily to justify the routine violation of one specific right: property. It is no accident that as democracy has become more and more extolled as an ideal, property has become more and more reviled. We have even had professors in American universities teach their students that “property is theft.”

Of course, like the hyena, we really do not care what our fellow citizens say or believe. We will not expend much energy in violating their rights to free speech or freedom of religion, because in the end we have nothing to gain from violating those rights. However, by violating their rights to the fruits of their labor, we do gain enormously at their expense. This is the true danger of democracy. We must face up to this plain fact and stop talking about everything but property. As Adams also said, “Now what liberty can there be where property is taken away without consent?”

We are at a crossroads. The system we have built upon the brutal law of the jungle is about to collapse. We are presently suggesting even more brute force (government) to try to preserve it. If we continue on this course, the relationship between predator and prey on the African savannah will seem civilized compared to the state of our society. Unfettered democracy – not unfettered capitalism – has brought us here. We must choose respect for our inalienable rights over the loot that unfettered democracy can provide us with. If not, we must admit to ourselves that the way in which we live and deal with one another is no different from that of the savage beasts of the jungle. A return to our founding principles is our only hope.

Are we not men?

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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[1] “Cavuto” Fox Business News May 27, 2009.
[2] While hard-core progressives might call her a “Fox News Liberal” for even appearing on the hated network, her role on this telecast was without question to argue the liberal side of the issue.
[3] Madison, James Federalist #10
[4] Jefferson, Thomas To Dupont de Nemours Washington ed. vi, 591 1816
[5] Madison, James Letter to James Monroe October 5th, 1786
[6] Samuel Adams The Rights of the Colonists (1772) The Report of the Committee of Correspondence to the Boston Town Meeting, Nov. 20, 1772 Old South Leaflets no. 173 (Boston: Directors of the Old South Work, 1906) 7: pg. 419.

>The Bursting of the Socialism Bubble

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>In the midst of what “debate” there has been about the eventual bailout of the financial sector, it is clear that even most of those opposed to the bailout do not understand what is happening. The unfortunate aspect of some of the commentary is that there is a faction arguing that without the bailout, the stock market will not crash. Thus, the debate is shifted to “which course of action can best protect stock market values?” They cannot be protected. The government argues that the credit squeeze could result in unemployment, while the other side argues that unemployment will not necessarily result if the bailout is not passed. Another position blames the crisis on too little regulation. All of these positions are wrong. There will be a painful adjustment in the stock market and massive unemployment, whether the government bails out the financials or not. The only question is how long it will last. That is reality when any bubble deflates.

The most unfortunate result of all of this misunderstanding would be for the American people to reverse their position and support the bailout just because there are severe market losses if it does not pass. Their initial instinct was correct, whether for the right reasons or not. The losses that these companies suffered due to massive malinvestment are real, and that must eventually be reflected in the value of their stocks.

Similarly, it will be unfortunate if the American people are convinced that more regulation is needed to prevent this from happening again. More regulation will not prevent a problem that was in part caused by too much regulation.

We have heard about the “tech bubble,” the “housing bubble,” and even the “dollar bubble.” All of these are real. The dollar bubble is about to burst, with global catastrophic consequences, but even that is not the biggest bubble that is out there. The biggest bubble, which has been building literally for the past century, is what I will call “the socialism bubble.”

What is the socialism bubble? Let’s define “bubble” first. The term “bubble” is used in economics to describe a large misallocation of resources (malinvestment). Anyone with even a passing familiarity with economics knows the basics: the central bank artificially infuses money and credit into the economy, that money flows toward projects that appear to be profitable under the artificially created conditions, but aren’t, and those projects ultimately fail, causing the bursting of the bubble. The worst part of the bursting of a bubble is that the greatest misallocation of resources has been human resources, and those people now have to find new jobs. They have to be reemployed elsewhere, in more profitable ventures, just like the capital goods that were misallocated to the projects. That is why unemployment accompanies recessions.

Like any other bubble, the socialism bubble is also a misallocation of resources. It has just taken longer to form and is much huger in scope. The principles behind it are the same, however. It represents government intervening into the economy to create artificial conditions that misallocate resources. Under these artificial conditions, the entire economy appears to be profitable, but isn’t. When the inevitable bubble bursts, all of the resources, including human resources, that were misallocated, become unemployed. We are about to experience the massive correction following this socialism bubble.

How did it happen? One must look back to before it started to understand it completely. It started at the turn of the last century. The United States of the 19th century had the closest thing to laissez faire capitalism ever achieved in history, arguably followed next by Great Britain. The defining principle of laissez faire capitalism is VOLUNTARY EXCHANGE. With everyone acting in their rational self interest, the minds of all participants were leveraged by the system to consistently produce optimal results.

In the laissez faire marketplace of the 19th century, wages generally declined over time. A pitiable lack of understanding of economics caused social reformers to condemn the free market for this.[1] They ignored the fact that the general price level fell faster than wages, making workers richer in real terms. They attempted to improve on the results that laissez faire capitalism had produced with government policy.

However, there is only one alternative to voluntary exchange: INVOLUNTARY EXCHANGE. Government economic policies FORCE economic agents to make choices that they otherwise would not make. No matter how one tries to euphemize socialism, that is what it is. By attacking voluntary exchange, socialism attacks the mechanism that creates wealth. That is the true root of the problem.

One way in which this manifests itself is in the cost of production. Government cannot come to a company that makes automobiles and force them to pay their employees more, provide them healthcare or pensions, pile one regulation on top of the next in terms of how the company operates its business, and then expect the company’s cost of making that automobile not to rise. As the cost of production rises, the company must find a way to keep the cost of producing their product below the market retail price. They might decide to manufacture SUV’s, which have larger margins, even though a spike in gasoline prices could put them out of business. See General Motors. The truth is that none of the American auto manufacturers are able to produce an automobile that is competitive in the market. Government will come up with a host of villains to blame for this, but look at the balance sheets of the Big Three and you will see why they are not viable. Concessions to labor unions (mandated by government) have made it too expensive for them to operate.

Similar government intervention is behind virtually all of America’s loss of manufacturing infrastructure. It is simply not economically viable to manufacture anything in the United States anymore. This is not a natural result of free markets. As previously noted, wages and other costs of production fell under the laissez faire system. Falling prices are a natural result of economic growth and innovation. Only the artificial conditions created by government intervention – the use of force to coerce economic agents – have made it more expensive to make things in America.

The cost of production is not the only pressure that socialism has put on the American economy. The welfare programs currently consume 11% of GDP. Keynesians would say that this is ok, because the recipients spend that money and increase demand. Hopefully, the coming calamity will discredit this economic school of charlatans once and for all. Wealth is created by production, not consumption. This redistribution destroys voluntary savings and ultimately capital. It also eliminates the other conditions that accompany a period of voluntary savings that facilitate natural expansion of the productive structure.

In any case, increasing socialism has put artificial pressures on the American economy for almost a century, and those pressures have accumulated to make America profoundly less productive. Like the communist countries, we have lived in a dream world in which government could use coercion to change economic reality. We have pretended that a business venture can spend more than it takes in and continue to survive. For a time, the free market aspects of America’s “mixed economy” allowed her to overcome these negative pressures, but that time has passed. Economic reality is about to assert itself in devastating fashion.

For at least two decades now, America has been producing far less than she consumes. All things being equal, this would not have gone on for long. However, all things have not been equal. The United States has a central bank, and the privilege of printing the world’s reserve currency. This is why the socialism bubble has been become so enormous.

Instead of a drop in consumption and a rise in unemployment[2] as its manufacturing sector migrated overseas, America went right on consuming, and those employees found new jobs in the “service economy.” With the Federal Reserve providing an unlimited supply of fiat currency, and with the ability to ultimately export that inflation overseas by importing foreign goods in exchange for U.S. dollars, America has been able to maintain the same standard of living as it enjoyed in its productive days. As long as foreigners accepted U.S. dollars, the dream world could persist. The bubble continued to inflate.

The ominous part of this is that today a large percentage of the American labor force is now misallocated by this bubble. There are tens of millions of American workers that are employed in ventures that will cease to exist once the socialism bubble bursts. We have seen the beginning of this with the failures of large retailers and restaurant chains, but that is only the tip of the iceberg. Worse yet, unlike previous recessions, there are no manufacturing jobs for these displaced workers to redeploy to. The productive structure must be rebuilt, and that doesn’t happen overnight.

Therefore, Americans must realize that a stock market crash[3] and mass unemployment are inevitable, whether government intervenes or not. The only question now is how long those undesirable conditions will last. There is no “solution,” government or otherwise, that will allow us to avoid this correction. If the government does not intervene, the stock markets will crash faster and the layoffs will begin sooner, but the total period of adjustment will be far shorter. If the government intervenes, no matter how they do it (including by allowing the Federal Reserve to massively inflate the currency), the adjustment period will be stretched out, with continued new malinvestment even as liquidation of current malinvestment occurs. That was the story of the Great Depression.

The only course of action that can speed up the recovery is a return to the laissez faire capitalism that made America great in the first place. This would include eliminating unnecessary regulation, abolishing the central bank and restoring sound money, eliminating minimum wages and other artificial price controls, capping and eventually phasing out the entitlement programs, eliminating other massive government spending like military welfare for other countries and unnecessary war, and restoring protections of property rights. In other words, Freedom. Don’t you think it’s time we tried it again?

[1] The lack of understanding of “real wages” was certainly not the only misconception of the social reformers, but it was a major misconception and representative of others.
[2] The European mixed economies have already experienced this adjustment, debased their currencies, regrouped under the European Union and an new currency, and are presently pursuing the same failed ideology to destroy this new economy as well.
[3] It is conceivable that the Federal Reserve could inflate the currency so much that the stock market remains at $11,000. However, if $11,000 only buys 10 loaves of bread at that point, it would still represent the same devaluation as a crash.

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>Putting Some Lipstick on the Bailout Rip Off Pig

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>I’m not sure what is worse: having your life savings and future stolen by armed criminals or having to endure the charade of a Congressional debate that attempts to portray the theft as something that is in the best interest of the victims. In case you have become distracted by all of the theater, allow me to state clearly what is happening right now. The federal government has taken the “liberty” of confiscating trillions of dollars from the citizens whose property they have sworn to protect. This has been done for no other reason than to prop up their failed monetary system so that they can continue to siphon off the wealth of the productive members of society – rich, poor, and middle class alike – and direct it to the privileged few who would not prosper in a truly free market. Regardless of the endless minutiae that is thrown at the American public over the next several days, weeks, or months, this is the REALITY of the government’s response to the predictable meltdown of their socialist monetary and financial system.

If a little diversion is necessary to distract people when an ordinary crime is being perpetrated, then obviously an extraordinary diversion is needed when you are perpetrating the greatest heist of all time. In this respect, for once, our federal government did not let us down. It began routinely enough, with Chairman “Mao” Bernanke attending a hearing in Congress to answer questions on the details of the heist, including how the loot would be split up, etc. Of course, it was immediately assumed by all in attendance that the bailout was going forward. So, in an attempt to appear to be “fighting for their constituents,” many of the Congressmen began arguing for a clause in the bill that would limit the compensation of CEO’s of companies that made use of the stolen money. The extent to which this was debated was practically insufferable, as the underlying assumption was that the American people are so stupid as to believe that saving tens or hundreds of millions of dollars would make some significant difference when they were being divested of trillions. Still, for decorum’s sake, somebody had to put some lipstick on this bailout, rip-off pig.

There was also some discussion about the clause in the proposed bill that would give the Treasury Department and Federal Reserve unchecked power to spend the money any way they want, without oversight by Congress. Under the pretense of them representing “the people,” many of the Congressmen blustered that unelected officials could not be entrusted with this much money without oversight by the people’s representatives. Of course, anyone that has seen The Godfather movies, Goodfellas, or Casino knows that infighting is common inside criminal organizations. What this really represented was a power struggle over how the loot would be split up, or at least who would decide how it will be done. The most laughable part of this is that even if Congress gets oversight into the bill, they have already demonstrated while squandering the other $3 trillion dollars that they stole from us this year that they are going to roll over and agree to whatever the executive branch wants to do anyway, no matter how unconstitutional or even criminal (is there a difference?) the policy may be.

Finally, there was also some discussion about not appropriating the entire $700 billion all at once. Honestly, some of the Congressman seemed genuinely concerned about the calls that they were getting from their constituents. Apparently, significant segments of the population in some districts had not slept through this one, and were letting them know that they weren’t happy about this latest scam. False Prophet of Freedom Charles Schumer suggested that perhaps Treasury could pilfer $150 billion now, and return at a later date to collect the rest. There are always those who lose their nerve in every crew.

At this point, it is probably clear that never was there going to be a debate about WHETHER OR NOT THE MONEY SHOULD BE STOLEN FROM THE PEOPLE AT ALL. By the end of the news coverage of the congressional hearings, the debate had been framed to focus on whether or not to let CEO’s share some of the loot, who would decide how it was divided, and whether or not it would be stolen all at once. Of course, the media outlets for both major parties (Fox for the Republicans and MSNBC for the Democrats) immediately took their cues and tried the best they could to characterize these trivialities as “weighty issues.” However, there was still a feeling of uncertainty in the air about whether or not the syndicate could actually get away with this. Never fear, because the best theater was saved for last.

I have to give some credit to the political professionals that are running John McCain’s campaign. I wouldn’t have given him a chance to win this election six months ago, when it became apparent that he would be the Republican nominee. Somehow, his campaign has managed to convince a significant amount of people that this man, who barely graduated from college, whose mental stability has legitimately been questioned on many occasions, and who literally cannot be trusted to give an unscripted statement within range of a microphone, should be the next president of the United States. His selection of Sarah Palin as running mate seemed to swing momentum to his side at a time when Obama was poised to distance himself in the polls. After more McCain blundering at the podium had revived Obama once again, giving him a six point lead in the latest national polls, the McCain campaign pulled off its greatest coup to date. John McCain was suspending his presidential campaign, and calling on Barack Obama to do the same. There was a danger that the heist wouldn’t come off without their help, and McCain was heading immediately to Washington.

Finally, this was the diversion that the plot needed. The media was energized. Fox’s Carl Cameron appeared onscreen literally out of breath (I hope he was acting) with the scoop on McCain’s startling decision. Now, the debate had really been framed. Should Obama follow McCain’s lead, or was this just a political move? Should the debates go forward? Who actually called who first? McCain or Obama? There was simply no longer time to argue dry, philosophical issues, such as property rights for instance. No, there was now high drama in the presidential campaign charade and a prime time television event that was in jeopardy of being cancelled. The heist was on, and all that was left was to make sure that Stacks didn’t fall asleep in the getaway truck.

While without question a political stunt, and what will probably prove to be a very successful one, there was a little sincerity amidst all of the theater. McCain called for a presidential commission including Republicans and Democrats. It was time to put politics aside. Obama said that this was “no longer a Republican or Democratic problem, but an American problem.” I would only add one word. It is not a Republican or Democratic problem, but an American Oligarchy problem. The oligarchy is in some jeopardy here, with its phony monetary and financial system in danger of collapse, and it is time to put the pretense of being ideologically different aside and work together to save it. I was reminded of Mel Brooks in the classic “Blazing Saddles,” when he said, “We’ve got to protect our phony baloney jobs!” If there was ever a question of whether we are ruled by “Republicrats,” that question has been answered now that the chips are down.

There is some hope, though. For once, Ron Paul was not the only one calling the system into question. Jim DeMint actually said that he was disturbed that free market capitalism was being blamed for the crisis when in actuality it was entirely caused by government. Richard Shelby said that he was opposed to the bailout, as did Jim Bunning, who has been vocally critical of the Federal Reserve. Most importantly, even though the media jumped right in line with the Republicrat spin to frame this debate away from the real question – can the government actually steal this money from the American people – they were nevertheless forced to report that large sections of the American public are ANGRY about this. Unfortunately, they don’t know exactly what to be angry at, and are probably going to be quite easily manipulated to focus that anger in the wrong direction. But they’re pissed, and they are not being quiet about it anymore. One thing is true: the American people have been poorly educated, misinformed, lied to, manipulated, and conditioned to a certain extent, but they are not stupid. They know something smells about this and they are starting to figure out what direction the odor is coming from. Once they rediscover their individual rights – the rights that cannot be bought with fiat money nor voted away in an election – the criminal gang is going to be in grave danger. This may be their last score.

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>Paulson Says, "He’s Not in This Stove"

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>Pretty soon we’re going to need a ramrod with a wet sponge to swab down the barrel of Treasury Secretary Henry Paulson’s bazooka. In another emergency meeting on Friday, this time to discuss what to do about the (again) bankrupt Lehman Brothers, Paulson, Federal Reserve President Timothy Geithner, SEC Chairman Christopher Cox, and what Fed spokeswoman Michelle Smith would only name as “senior representatives of major financial institutions” met at Geithner’s offices at the New York Fed. As reported by Martin Crutsinger, AP Economics Writer, “the Wall Street Journal reported on its website that this group included Morgan Stanley chief executive John Mack and Merrill Lynch chief executive John Thain among others.”

So, another investment bank goes bankrupt and again we have the U.S. government, its private banking monopolist, and the investment bank’s two chief competitors getting together to figure out what to do. It is refreshing that at least there is no longer any pretence that the U.S. financial sector is a free market, rather than a cartel. Of course, history shows that tight collusion between government and large corporations is the best thing for a society that wants to remain free, open, and prosperous. Just ask the Italians. However, this is not the best news. Crutsinger goes on to say,

“Earlier in the day a person familiar with Paulson’s thinking said that the treasury secretary was opposed to the use of any government money to bail Lehman Brothers out of its financial difficulties.”

If you’ve been paying attention for the past few months, your reaction should be something on the order of “here it comes.” Of course, this is merely “a person familiar with Paulson’s thinking” (which should qualify him or her for a purple heart) telling us that no bailout is coming. The real news will not come until sometime after Paulson holds a press conference and tells us that the U.S. government absolutely, positively will not bail out Lehman Brothers. At this point, those press conferences are starting to sound like Bugs Bunny telling the Irish cop “he’s not in this stove.” By now, we should all be saying, “Oooohhhh! So you’re hiding Rocky in the stove, are you?” As long as he remains this consistent, his communication to the American public has become quite effective. Just assume that he is about to do exactly the opposite of what he says.

Considering that Paulson and Bernanke are both Bush appointees, it is fair to characterize this “strategy” as a Republican strategy. This is significant because it points to one identifiable difference between the two major parties. Neither wants to cut government spending and both are equally socialist. However, the Republicans wish to keep tax cuts in place, while the Democrats want to raise taxes. While the Republican strategy might seem perversely illogical at first glance, it is not. They are simply going to run deficits and steal your money through inflation. They are going to talk about free markets and capitalism and give you fascist socialism.

On the other hand, if you paid attention to the primary races and have read Barack Obama’s platform, it has become clear that the Democrats really make no secret that they are going to give you the closest thing to communism that they feel like they can get away with. They will steal your money through direct taxation.[1] Perhaps that makes them more honest. I knew I’d finally find something nice to say about them.

So, the Republicans will say, “I’m not going to steal your money,” and then steal your money, while the Democrats will come right out and say, “I’m going to steal your money,” and then steal your money. Well, at least Americans can’t complain that they don’t have any choices. Of course, we may wake up in four years wondering where the last vestiges of our freedom have gone. However, with the government in the housing business, the mortgage business, the healthcare business, and perhaps even dabbling in energy, at least we will have a good idea about where to look. Just don’t bother to come out and ask your government, because you already know what they’ll say.

It’s not in this stove…

[1] Of course, inflation will not end with Democratic rule, as the Fed really does whatever it wants. However, the Democrats have at least proven that it is incidental to their agenda. If they had it all their way, they’d just take all of your money directly through taxation.

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>Life in the Post-5/7 America

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>We have spent the past seven years in a “post-9/11 world.” We started hearing this insidious slogan not long after the terrorist attacks occurred. To translate the slogan for anyone who has not realized what it means, it means this: Whatever was left of your personal liberty before the 9/11 attacks is no longer a privilege your government can afford to grant you (and make no mistake, your government considers liberty a privilege, not a right). It seems that personal liberty is something that was nice in the Old America, but is just impractical in a “post-9/11 world.”

Of course, the struggle for economic freedom was lost decades ago with the onset of public and corporate welfare, the abolition of the gold standard, and the emergence of the American Empire. However, as with the other “civil liberties,” some traces of the economic freedom of America’s former Republic have survived several decades into America’s post-WWII social democracy. Those last traces are about to disappear as well. The following is one way it could happen.

Why May 7th? There is no compelling reason for the exact day. However, it is the Thursday of the first full week after the next president’s first 100 days in office are completed. It may be just a coincidence, but cataclysms never seem to happen during those 100 days. Perhaps world market movers don’t do much until they get a feel for the new administration. Perhaps it is some kind of statist magic, left over from government sorcerers like Merlin or Morgan Le Fay. In any case, even the terrorists respected the first 100 days of George Bush’s administration before launching their attacks. So, I am going with the odds to say that the economic day of reckoning will not manifest itself until May 7, 2009 – the new “Black Thursday.”

Even if the American economy is already dead for all intents and purposes, an historic crash of the stock markets will officially signal the dawn of the new era. When it does, all pretense of the “possible moral hazard” accompanying massive government interventions into the marketplace will be dropped. We will be in a “post-5/7 economy,”[1] much like our “post-9/11 world,” and the last vestiges of your economic freedom will be lost, just as your personal liberty was lost after 9/11. Forgotten in debates regarding whether these interventions will be good or bad for “the economy” is the fact that each one amounts to stealing from someone – legal plunder because it is committed by government. Each new intervention, “unavoidable” because of the latest threat to the U.S./world economy, will cause three more problems for the government to solve with further interventions. Pointing out that the original problem was caused by a previous government intervention will be pointless. Free markets were a nice idea in the 20th century, but government control of the marketplace will be needed in a post-5/7 world.[2]

Despite the fact that government already treats the right to the fruits of your labor as a granted privilege, the small percentage Americans have been allowed to keep will seem relatively large compared to what they will be allowed after the big event. At that point, there will be a continual state of economic emergency that requires “Americans and Europeans to do more, not less,” as Barack Obama recently said in Berlin. There will be Housing in the New America and Universal Healthcare to be paid for, tens of millions of unemployed Americans to feed and clothe, and the “challenges of the 21st century (all created by government)” to meet.

Perhaps at that point it will occur to someone, somewhere, that none of this is necessary. Without the parasitic influence of a few thousand people, the other 300 million would naturally trade with each other to their mutual benefit, and would have little to fear from people thousands of miles away whom they would never think to bother themselves. It really is that easy. Americans can make a decision for freedom anytime they wish to, and rid themselves of the parasites once and for all. Hopefully, there will come a time when they will be easier to convince in the post-9/11, post-5/7 world.

[1] Whatever the actual date of the crash, simply insert it into the new government slogan and it works just as well.

[2] While it would be impossible in a Republic to enslave people with such nonsense as a market crash or a terrorist attack creating “a new world” where natural rights no longer exist, it is relatively easy in a Democracy, where only 51% of the people have to believe it for the scheme to work. This is just one reason why no politician refers to America as anything other than “a Democracy” anymore. Be suspicious of anyone who speaks likewise.

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>Housing in the New America

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>Lest it fade from memory amidst almost daily violations of our rights by the federal government, let us consider some possible implications of the housing bill passed almost one month ago. Since then, the shares of Fannie Mae and Freddie Mac have plummeted yet again, and at this point, the “bazooka” that Treasury Secretary Paulson said he would likely never have to use is certainly loaded and ready for firing. In case you have forgotten, the urgency behind passing the housing bill, and the stated reason for President Bush withdrawing his veto threat, was the need to keep the two Government Sponsored Entities (GSE’s) from imminent bankruptcy. Paulson said that he needed vast powers at his disposal (the bazooka), including the statutory authority for the federal government to buy shares in Fannie and Freddie. He said at that time that he didn’t anticipate ever having to use the bazooka, but needed to have it to “boost confidence.” He was either lying or a fool.

It is apparent by now that the bazooka is not going to inspire investors to buy back into Freddie and Fannie. Shares have been as low as $3 and $4, respectively, in the past week, down from highs of $69 and $68 over the past year. They literally have trillions of dollars worth of bad mortgages on their books and no way to cover their obligations. While there is some justifiable outrage over the use of public funds to backstop these firms (although not enough), it doesn’t seem that the great majority of people see where this scenario is likely headed.

The U.S. government is going to have to buy a substantial portion of Fannie and Freddie, because no one else will. Of course, that will push up the price of their shares artificially, as the market has decided (rightly) that these companies are worthless. It is not out of the question that the federal government will acquire a controlling interest or all of the shares of the two GSE’s, perhaps with the stated intention of selling them back into the public sector after they have stabilized under the federal government’s “astute management.”

What happens then? Well, the tsunami of mortgage defaults continues, and another 2 million people walk away from their homes. However, these homes are not now owned by private sector banks, who must sell them at pennies on the dollar, if necessary, to recoup as much of their losses as they can. No, these houses are now owned by the federal government, for whom market forces do not apply. Of course, the government would want to get what they could out of these assets, but they have another alternative that is not available to the mortgage lenders, who cannot lose money indefinitely (in theory).

Before considering the government’s “other option,” let us take a step back and consider the bigger picture for a moment. It is obvious that the bursting of the housing bubble is symptomatic of a much bigger, more systemic problem for the U.S. economy. After decades of consuming more than it produces, its productive structure decimated by an increasingly predatory and parasitic government, the U.S. consumer economy itself is poised to collapse. Already, retailers are going bankrupt at an alarming rate, and despite the stock markets’ refusal to face reality, the U.S. economy no longer has the productive means to mount a recovery. The Federal Reserve has done everything it can do other than inflate further, which is what it will do, further destroying the U.S. currency. By this time next year, Americans will be looking into the abyss of an unprecedented economic disaster. We have had double digit unemployment before – this time it could be worse.

Of course, if government has proven one thing, it is that they will never learn that intervention into the marketplace never helps. After some inspiring speeches, our new, first-term president will declare war on the problem. That’s when things may really get ugly.

Just what could the federal government do with 30 million unemployed people and 7 million empty homes? Enter the Public Housing Administration and Section 8. Of course, there will need to be a “catchy” new government name to spin the new program to not sound like welfare. Perhaps “America Lives Together,” or “Communities in Progress” or some such nonsense. What is important is that the federal government will REALLY be in the housing business now, and not just for those below the poverty line. Average Americans will now be living in government-owned homes and paying rent directly to the government. Eventually, the rent payments could be incorporated into their payroll withholdings. One thing is for sure, once a federal government program is started, there is one thing it always does and one thing it never does. What it never does is go away. What it always does is grow larger.

Of course, this is not meant as a prediction, but merely one possible scenario among many that could result from America’s economic day of reckoning. However, while 40 years ago average citizens living in government housing was confined to the dark visions of Orwell and Burgess, today the unthinkable shouldn’t surprise us when it comes to any aspect of our society. We are presently giving serious consideration –in “the land of the free” – to socializing medicine, nationalizing the oil industry, and ending the rights of inheritance forever. A nation of socialized housing would complete that picture very well. Perhaps that America is still a few years off. On the other hand, we have been promised “change” during this next presidential term by a candidate with the most socialist platform we’ve seen in decades. Let’s hope it doesn’t look like this.

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