End of the Republic

The American Republic is in decline. The decline is self-inflicted, a sort of suicide by choice. Why are people deciding to follow the "Road to Serfdom" over the "Road to Freedom"?

Location: Chesapeake Beach, MARYLAND, United States

Wednesday, December 18, 2013

To close the output gap some serious economists are calling for an uptick in inflation. Clearly, inflation will change the relationship between sales prices and business costs. Inflation is designed to raise commodity prices in relation to wage rates (sound familiar - oil/gold/food?). This will, in turn, restore business profits and encourage a resumptions in output. This could also be done by a reduction in unworkable wage rates. Even those same smug economists will freely admit this. Take a look at Krugman's commentary on Greece for instance. However, these sort of economists feel that they must "protect" labor (although I do not quite understand how depreciating one's currency and making the cost of living higher actually "protects" the middle class). What these serious economists are really proposing is to DECEIVE labor by reducing real wage rates through an increase in prices. Thus, they are charlatans (at best) or outright liars (at worst). They rely on such statements as "our national income has doubled" to imply that we are much richer. People who earn a higher wage feel that they must, in some way, be better off. Of course, their standard of living has fallen greatly in the meanwhile.

Tuesday, February 16, 2010

Philosophy of collectivism - it never works.

Freedom from poverty is essentially different from the freedom of gays and lesbians to lead their own lives. What does it take to be free to marry your partner? Only that nobody else intervene. What does it take to have freedom from poverty? Does someone have to act to provide you a well paying job? Does someone have to act to provide minimal services? That would be anti-freedom as someone is FORCED into providing wages, housing, education, etc.

I want people to be free from poverty as well – and the best way to do that is to give them power over their own destiny. That means setting them free from the oppressors (government, big business, Israelis, whoever you see as an "oppressor"). The best bulwark against all three is a STRONG set of laws that protect PRIVATE property rights. Then the oppressors are disarmed because they cannot take away what you have or your right to get more and keep it, too!

There should be rules, but the rules should be outcome NEUTRAL – just to make sure that those rights are not violated – i.e. we delegate our right to use retaliatory force to an independent, objective, third party that we call government.

The battle we have to fight is the battle between individualism and collectivism. The collectivist states would be our doom precisely for due to the philosophy they embrace, not in spite of it.

Freedom vs. collectivism

There are two trends in the US and a big fight is coming between those who want to bind us all together vs. those who want to keep individual freedoms alive and well.
The battle is between individualism (freedom) and collectivism.
How do we go about living our lives in a society with one another when one group (collectivists) want to tie people down and limit their freedoms while the other group wants to remain free? These are irreconcilable differences!!!!! We cannot have both in the same society!

The question is what to do next. Neither of us will likely ever shift to the other one’s point of view. So, what do we do when we are faced with this situation – especially where one of us wants a society that ties us all together and the other one wants to be free to go his own way? Those are two FUNDAMENTAL differences.

The only way to achieve peace between them is to go in the direction of freedom. In all cases of collectivism people like me are either killed, imprisoned, or exiled. In a free society, socialists and communists can exist – they can form their own voluntary organizations and participate as long as they want to whatever extent they want. The problem I have is when these same people want to use the FORCE of government to impose their values on others.

Freedom or death, mate. That is your only choice!

Do not call the US a capitalist or free market country.

A free market is capitalism – not a mixed economy. A mixed economy is a mixture of freedom and controls and “dominant classes” fight to gain influence over the controls and to limit the freedom of the market (since a free market is a challenge to their current power and influence). They want to use the apparatus of the state to disarm their competitors and put chains on the market. Sounds a lot less like capitalism, when you really look at it!

The USA was a lot closer to it in the latter half of the 19th century than we are now. The progressive movement started to kill it in the decade running up to WWI. We had no central bank, the government was very small and restricted itself to its enumerated powers as laid out in the constitution (for the most part). We had no income tax. We were on the gold standard and the government did not print money. We had no public education system, etc – yet from the end of the civil war through 1920s, we had become the world’s leading industrial power and the living standards of our citizens were raised quite dramatically.

Capitalism and industrialization INHERITED the problem of exploitation of workers and eventually abolished it! It did not create it. Do you think that workers were all happy in the pre-industrial time? Do you think there was no such thing as child labor or did you forget all about the exploitative nature of the feudalist and mercantilist models?

In terms of the robber barrons – re-check your history again – note what fields they appeared in first – the ones in which they were able to get government involvement through the abuse of the interstate commerce clause and the establishment of the ICC. Second, the “trust busting” started to occur only in areas in which government was beginning to get its feet (see railroads as a primary example). This was the beginning of the end. It was not a perfect system, but we had a lot more freedom back then as opposed to today.

Regarding education, if you set up a modern factory with the skills of that workforce, you would be extremely disappointed with the results. Once again, this was a problem that was inherited by the capitalist system and eliminated because of it. The need for more highly educated people spurred the investment (private) in schools. It was the CHRISTIAN progressives who petitioned for a nationwide public system because they believed that the private school education was too secular! There was great opposition to these factory jobs back then by the early socialists and Marxists because they believe that industrialization and capital investment cost jobs and led to unemployment – rather than realize that the machines were replacing the backbreaking labor with highly skilled and better paid (due to the higher productivity) jobs. Just believing their argument, we should have close to 100% unemployment by now!

Beginning in the 1920s we started to get full scale government intervention – as we had a central bank in the US for the first time diddling with the money supply (even in spite of the gold standard). The 30s were the result of welfare statists attempting to break the rules of reality (to spend without regard to the consequences and that belief that the cure for the accumulated war debt was to extend more credit!)… How Keynesian! The 30s were made worse by the confiscation of gold and the imposition of draconian price and wage controls by FDR. As it says in the Koran, only Allah can fix prices!
The 30s were the result of governments foolishly playing with toys they had never seen before and should never have taken out of the box.

Sunday, March 01, 2009

Keynesianism - in his own words.

The power grabbers in Washington know more about Keynes and his theory than do the general populace. They accept this principal:

“Nevertheless the theory of output as a whole, which is what the
following book purports to provide, is much more easily adapted to the conditions
of a totalitarian state, than is the theory of production and distribution of a given
output produced under conditions of free competition and a lance measure of

California is not alone.

Municipal finances are a mess all over the United States. While municipal bonds are given "tax exempt" status (or preferential market treatment), the states cannot run their own printing presses.

Get ready to hear about how the first thing to be cut will be "essential services: education, fire, police, safety nets for the poor". I wonder why some of their non-essential services are never on the chopping block. Actually, I do not - they can easily call for more taxes if they can scare citizens with "your child will not get an education" rather than "your new bike path will not be built".

Size of Gap Percent of FY2009 General Fund
Alabama $1.1 billion 12.7%
Alaska $360 million 6.8%
Arizona $1.6 billion 15.9%
California $13.7 billion 13.6%
Colorado $604 million 7.7%
Connecticut $1.7 billion 10.1%
DC $258 million 4.1%
Delaware $226 million 6.2%
Florida $2.3 billion 9.0%
Georgia $2.2 billion 10.3%
Hawaii $232 million 4.0%
Idaho $218 million 7.4%
Illinois $4.2 billion 14.8%
Indiana $1.1 billion 8.0%
Iowa $134 million 2.1%
Kansas $186 million 2.9%
Kentucky $456 million 4.9%
Louisiana $341 million 3.7%
Maine $140 million 4.6%
Maryland $691 million 4.6%
Massachusetts$2.4 billion 8.4%
Michigan $200 million 0.9%
Minnesota $426 million 2.5%
Mississippi $175 million 3.4%
Missouri $342 million 3.8%
Nevada $536 million 7.3%
New Hampshire$50 million 1.6%
New Jersey $2.1 billion 6.5%
New Mexico $454 million 7.5%
New York $1.7 billion 3.0%
No. Carolina $2.0 billion 9.3%
Ohio $1.2 billion 4.2%
Oregon $442 million 6.6%
Pennsylvania $2.3 billion 8.1%
Rhode Island $372 million 11.4%
So. Carolina $871 million 12.7%
South Dakota $27 million 2.2%
Tennessee $884 million 7.8%
Utah $620 million 10.4%
Vermont $66 million 5.4%
Virginia $1.1 billion 6.7%
Washington $509 million 3.4%
Wisconsin $594 million 4.2%
TOTAL $51.1 billion 10.5%

Wednesday, December 17, 2008

National Debt Clock

Added to the blog, on the left.

What happens in deflation: The real value of your debt rises. If you have debt of $1,000 and now are earning less due to deflation, your debt becomes harder to pay off.

What happens in inflation: The debt value is $1,000, but your earning increase meaning it is easier to pay the debt.

Why do you think the government is gung-ho against deflation?

Tuesday, December 16, 2008

Where is Midas Mulligan?

Just like China, the US government is now resorting to strong-arming the banks to lend to their "preferred clients". Of course, this is Blago, but I doubt the practice would be limited to Illinois. Now, when can I get the government to force a bank to the people who want to buy my house?

From the Blog of the Cato Institute...

What's far more worrisome is Blagojevich's bizarre confrontation with the Bank of America. The day before he was arrested on charges of massive corruption, Blagojevich visited a group of striking workers at a North Chicago firm called Republic Windows & Doors. After being laid off the week before, the employees had begun a sit-in, demanding benefits they were still owed by their employer, which said it could not meet their demands because the Bank of America had cut off its financing. At this point, Blagojevich informed bank officials that unless they restored the shuttered window-and-door company's line of credit, the state of Illinois would suspend all further business with Bank of America. A few days later, the bank caved in and ponied up a $1.35 million loan.
The idea that the governor of a state as prosperous and important and sophisticated and upscale as Illinois would make this kind of threat is terrifying. Even more terrifying is that Bank of America saw no alternative but to give in. Yet even more terrifying is that nobody outside Chicago seems to have gotten terribly worked up about the situation, riveted as they are on the governor's more theatrical transgressions. But peddling a Senate seat or using scare tactics to shake down a newspaper are nowhere near so serious a menace to society as letting the government arbitrarily intervene in financial transactions between banks and creditors. A crooked governor we can all handle. But a governor who capriciously decides which commercial enterprises a bank must finance and which it can ignore is a scary proposition indeed.
Rome wasn't built in a day. But get the wrong politician in office, and you can burn it in a day.
What the grandstanding Blagojevich reportedly attempted to do in the Republic Windows vs. Bank of America set-to is precisely the sort of thing that happens in China, where the government routinely orders up bank loans to politically connected firms. Whether a failing company actually deserves financing becomes irrelevant to the conversation; the government doesn't want a company to fail, so it decides that it must not go under, even if it's run by clowns, stooges, gangsters or in-laws.

Tuesday, November 11, 2008

Short-term people talk deflation, but what does the market think?

A post from Barron's magazine - does the US government have a "limit" to the amount it can borrow?

Uncle Sam's Credit Line Running Out?
NOVEMBER 11, 2008

The yield curve and credit default swaps tell the same story: the U.S. can't borrow trillions without paying a price.

WHAT ONCE WAS UNTHINKABLE has come to pass this year: massive bailouts by the Treasury and the Federal Reserve, with the extension of billions of the taxpayers' and the central bank's credit in so many new and untested schemes that you can't tell your acronyms or abbreviations without a scorecard.

Even more unbelievable is that some of the recipients of staggering sums are coming back for a second round. Or that the queue of petitioners grows by the day.

But what happens if the requests begin to strain the credit line of the world's most creditworthy borrower, the U.S. government itself? Unthinkable?

American International Group which originally had to borrow what was a stunning $85 billion from the Fed to keep it from cratering in September, upped the total Sunday to $150 billion.

Monday, Fannie Mae reported a $29 billion third-quarter loss, far in excess of forecasts, raising the specter that the mortgage giant may need more money after the Treasury pledged to inject $100 billion in preferred stock financing in September.

Meanwhile, American Express received Fed approval to convert to a bank holding company, joining the likes of Morgan Stanley and Goldman Sachs, that have a direct pipeline to borrow from the Fed or the Treasury's TARP, the $700 billion Troubled Assets Relief Fund.

And, of course, Detroit is looking for a credit line from Washington. General Motors (GM) Friday warned it could run out of cash next year without a government loan. GM plunged another 23% Monday, to 3.36, as several analysts helpfully recommended selling shares of the beleaguered automaker that already had lost more than 85% of their value.

Visiting the White House Monday, President-elect Obama pressed President Bush to support emergency aid for GM and other automakers. The prospect for federal aid for GM ironically weighed on its shares as one bearish analyst said the price of the bailout could be a wipeout of common holders.

Be that as it may, it's all adding up. If the late Sen. Everett Dirkson were around today, he might comment that a trillion here, a trillion there and pretty soon you're talking about real money.

Trillions are no hyperbole. The Treasury is set to borrow $550 billion in the current quarter alone and $368 billion in the first quarter of 2009. "Near-term pressures on Treasury finances are much more intense than we had thought," Goldman Sachs economists commented when the government announced its borrowing projections last week.

It may finally be catching up with Uncle Sam. That's what the yield curve may be whispering. But some economists are too deaf, or dumb, to get it.

The yield curve simply is the graph of Treasury yields of increasing maturities, starting from one-month bills to 30-year bonds. The slope of the line typically is ascending -- positive in math terms -- because investors would want more to tie up their money for longer periods, all else being equal. Which it never is.

If they expect yields to rise in the future, they'll want a bigger premium to commit to longer maturities. Otherwise, they'd rather stay short and wait for more generous yields later on. Conversely, if they think rates will fall, investors will want to lock in today's yields for a longer period.

The Treasury yield curve -- from two to 10 years, which is how the bond market tracks it -- has rarely been steeper. The spread is up to 250 basis points (2.5 percentage points, a level matched only in the past quarter century in 2002 and 1992, at the trough of economic cycles.

Based on a simplistic reading of that history and the Cliff Notes version of theory, one economist whose main area of expertise is to get quoted by reporters even less knowledgeable than he, asserts such a steep yield curve typically reflects investors' anticipation of economic recovery.

Never mind that the yield curve has steepened as the economy has worsened and prospects for recovery have diminished. Like the Bourbons, the French royal family up to the Revolution, he learns nothing and forgets nothing.

As with so much other things, something else is happening this year.

The steepening of the Treasury yield curve has been accompanied by an increase in the cost of insuring against default by the U.S. Treasury. It may come as a shock, but there are credit default swaps on the U.S. government and they have become more expensive -- in tandem with an increase in the spread between two- and 10-year notes.

This link has been brought to light by Tim Backshall, the chief analyst of Credit Derivatives Research. The attraction of investors to the short end of the Treasury market is "juxtaposed with the massive oversupply and inflationary expectations of the longer end," he writes.

Backshall is not alone in this dire assessment. Scott Minerd, the chief investment officer for fixed income at Guggenheim Partners, a Los

Angeles money manager, estimates that total Treasury borrowing for fiscal 2009 will total $1.5 trillion-$2 trillion. That was based on $700 billion for TARP, a $500 billion-$750 billion "cyclical deficit," an additional $500 billion stimulus program and some uncertain amount for the Federal Deposit Insurance Corp.

Minerd doubts that private savings in the U.S. and foreign purchases of Treasury debt will be sufficient to meet those government cash. That leaves the Fed to take up the slack; that is, monetization of the debt.

However it comes about, Backshall's charts of the yield curve and the spread on U.S. Treasury CDS paint a dramatic picture. Both the yield spread and the cost of insuring debt moved up sharply together starting in September.

Let's recall what happened that month: the Fannie Mae-Freddie Mac bailouts, the AIG bailout and the Lehman Brothers failure. The two lines continued their parallel ascent with the announcement and ultimate passage of the TARP last month. And evidence mounted of an accelerating slide in growth.

Cutting through the technical jargon, the yield curve and the credit-default swaps market both indicate the markets are exacting a greater cost to lend to Uncle Sam. And it's not because of anticipated recovery, which would reduce, not increase, the cost of insuring Treasury debt against default.

All of which suggests America's credit line has its limits.

At the beginning of the Clinton Administration in the early 1990s, adviser James Carville was stunned at the power the bond market had over the government. If he came back, Carville said he would want to come back as the bond market so he could scare everybody.

President-elect Obama may come to think Clinton had it easy by comparison.

Sunday, November 09, 2008

No credit crunch here

Zimbabwe's central bank is doing all it can to put liquidity into the hands of its citizens... it has been so generous, it has even started printing Z$ 1,000,000 notes (just a month after it introduced its $50,000 note)...

This table shows a condensed history of the foreign exchange rate of the 3 Zimbabwean Dollars to US Dollars:

First Dollar
Month Exchange rate
1983 1
1997 10
2000 100
Jun 2002 1 000
Mar 2005 10 000
Jan 2006 100 000
Jul 2006 500 000+

Second Dollar
Month Exchange rate
Aug 2006 650
Sep 2006 1 000
Dec 2006 3 000
Jan 2007 4 800
Feb 2007 7 500
Mar 2007 26 000
Apr 2007 35 000
May 2007 50 000
Jun 2007 400 000
Jul 2007 300 000
Aug 2007 200 000
Sep 2007 600 000
Oct 2007 1 000 000
Nov 2007 1 500 000
Dec 2007 † 4 000 000
Jan 2008 6 000 000
Feb 2008 ‡ 16 000 000
Mar 2008 70 000 000
Apr 2008 100 000 000
May 2008 777 500 000
Jun 2008 40 928 000 000
Jul 2008 758 530 000 000

Third Dollar
Month Exchange rate
Aug 2008 1 780
Sep 2008 590 000
7 Oct 2008 2 300 000
14 Oct 2008 10 700 000
21 Oct 2008 1.22 Billion
28 Oct 2008 251 Billion
8 Nov 2008 663 Trillion

Now, US monetary base figures....

These are NOT seasonally adjusted.

Date Monetary

 2007-Oct.     828373 
Nov.     833052 
Dec.     836432 
 2008-Jan.     831104 
Feb.     828692 
Mar.     832358 
Apr.     830494 
May      833974 
June     839085 
July     846462 
Aug.     847302 
Sep.     908052 
Oct. p   1132799 

Two weeks ending
 2008-Sep. 10  849866 
     24  915072 
Oct.  8  988653 
     22  1146416 
Nov.  5p 1239747 

Nice growth in the past few months, eh? If the "greedy" banks were not keeping most of that new liquidity on deposit at the Fed, it would be out as cash in our hands. It still may end up there...

J. Thyme Matz

Imperial Presidency, continued

Any hopes one may have held that Obama would seek to reduce the amount of power that Bush and his earlier ilk took into the executive branch are short lived - so short they end even before he is sworn into office.

He intends to have an "immediate impact" on policy by making law using executive orders.

"President-elect Obama plans to use his executive powers to make an immediate impact when he takes office..." John Podesta, an Obama spokesman continues... "There's a lot that the president can do using his executive authority without waiting for congressional action, and I think we'll see the president do that," Podesta said. "I think that he feels like he has a real mandate for change. We need to get off the course that the Bush administration has set." Our "esteemed" ivory tower professors even get their say since these orders "have the power of law and they can cover just about anything."

Of what point is a democracy or a republic when an executive can create law that covers almost any topic?

No wonder congress has a low approval rating. Considering they have left the law-making of the country to the executive branch and delegated everything else to the bureaucracy, what are they actually doing?

J. Thyme Matz

Argentina first, USA second

Argentina's governent, at risk of default, recently seized the nation's private pension funds to give the goverment access to millions of dollars of savings. The government does not plan to use this money to pay retirees or allow them to keep that which they have saved, instead it will use money to pay its current debts and current expenses. It will "give" the retirees government debt in exchange for their cash and investments. Considering its debt is already in danger of default, this is a horrible deal for Argentinian investors (and the stock market there shows the results). What can they do? It is the law to fork over your savings to the government now.

It could not happen here, right? Wrong...

According to this, not only will the tax-free status of our 401(k) be at risk, so too will the initial investments. The ultimate aim of this will be to seize your assets (cash and investments) and replace them with a government bond (an IOU). The fact that you already could have all your 401(k) investments in a government bond by choice notwithstanding. That means, your right to choose your investments will actually be taken away. Quoting from the article "Democrats will seize on the opportunity [the financial crisis] to attack a program where investors control their own destiny"

Watch for the coming inflation (another way to confiscate savings)!

J. Thyme Matz