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Where's the Productivity? PDF Print E-mail
Written by Administrator   
Thursday, 06 March 2014 12:30
Once again the CNBC talking heads (and the government pundits) are confused about the economy. We keep developing all these nifty devices to make us more productive, but productivity remains below expectations... how can that be? Productivity grew at an annual rate of 1.8% in the October-December quarter, lower than the 3.2% gain the government had previously estimated. Productivity is the amount of production per hour of output, as measured by gross domestic product (GDP). For example, if GDP is $10 trillion and people worked for an aggregate 300 billion hours, then productivity is $33/hr. If that's not growing at least as fast as inflation, then our population is becoming poorer.

Firstly, it's important to note that GDP is seriously over-estimated because inflation is tragically underestimated, because it would make the government and Federal Reserve look bad and decrease confidence in them and our economy if they reported that true inflation (using 1980 government calculation methods) is 10% and that we're still mired in a recession as real GDP is shrinking by 8% per year. The cognitive dissonance results from the fact that people both believe the government's numbers but also readily realize that prices are increasing at 10%+ per year (many sectors much faster).


So where's the productivity going? For one thing, the Federal Reserve is stealing it. When the Fed prints $1 trillion per year out of thin air, it doesn't actually make us $1 trillion richer. It just devalues everything else in the economy by $1 trillion. So everyone ultimately absorbs that loss, albeit disproportionately. The Fed balance sheet grows while our balance sheets shrink. And the Fed has been doing this since 2008 at this incredible rate, and at a slightly slower rate for decades prior. Who gets most of the stolen loot? Unproductive people like bankers and bureaucrats mostly, followed by defense contractors who make things that end up either blown up or in boneyards. The people who lose the most are those who are actually productive, building things that last and make us richer, like factories and other capital improvements.

Also, the government is stealing it and disincentivizing it. By putting onerous taxes on the most productive people and crippling regulations such as Obamacare and labor laws, the most productive among us, who pull up our overall average, just aren't all that interested in being productive anymore when they could instead be lounging on a beach somewhere or maybe move to Hong Kong or Singapore and be productive there instead.

So yeah, our smartphones, advanced production lines, online shopping, etc., are making us mildly more productive. But most of our productivity is being lost or stolen. And it's much worse than the government numbers reported because they're misrepresenting how bad inflation is. It's as if a common bank robber walked into a bank, helped himself to a million dollars, fudged the bank's balance sheet to show they never had the million, and then made a deposit of $10 and told the bank's customers and shareholders that they increased their balance sheet slightly.

Make no mistake: there is a crime occurring here, and if you're working and trying to make ends meet, you're the victim. Your salary is probably not increasing as fast as inflation is even though you're getting better at your job, and so your productivity is being stolen. Maybe let the pundits and politicians know that you know and that you're not going to take it anymore.

If you look up at that inflation graph, you can see the missing productivity. It's the difference between where inflation is reported to be and what it actually is. That's your missing productivity and why the talking heads are so confused.

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Deconstructing Free-Market Capitalism PDF Print E-mail
Written by Administrator   
Wednesday, 19 February 2014 15:06


What is free-market capitalism?  Let's start with some basic definitions of the component parts of that phrase...

Free -- adj. Not imprisoned, controlled, governed, dependent, restrained, or subject to interference.  The basic foundation of freedom is self-ownership.  Nobody else has a higher claim on you than you do.  You have total control and veto power over what may be done to you or requested of you by others. 

Market -- n. A place, gathering, region, or opportunity for exchanging goods and services.  A free market is one where exchanges are done entirely voluntarily, under no external force or duress.  Whether an exchange occurs is entirely dependent on whether the parties to the transaction believe it is in each of their best interests.  For instance, a dairy farmer may have lots of milk, but no bread, whereas the baker may have lots of bread, but no milk; milk is more valuable to the baker than the farmer because he has no milk, and bread is more valuable to farmer than the baker because he has no bread; so the two may exchange milk for bread and bread for milk, each coming away wealthier and better off than before the transaction.  They feel no remorse over what has transpired and would gladly do it again, and probably will.  A free-market hallmark is the double thank-you.  The baker thanks the farmer for the milk while the farmer simultaneously thanks the baker for the bread.  If an exchange is not free, but coerced, then one side leaves better off and the other worse off.  You don't thank your tax collector, for example. 

Capital -- n. An asset, advantage, marketable skill, or other form of wealth which can be employed in the production of goods and services.  To continue our example, the dairy farmer would consider his farm, his animals, his milk bottles, his knowledge, and his labor as capital.  He uses them to produce dairy products.  The baker would consider his bakery, his oven, his stores of flour and other ingredients, his relationship with his suppliers, his knowledge, and his labor as capital.  Without capital, neither the farmer nor the baker could produce their goods.  There would be no milk and no bread. 

Capitalism -- n. An economic system in which the means of production are privately owned and operated.  What this means is that the farmer owns his land and cows and bottles and his own labor and expertise.  Likewise, the baker owns his shop and oven and supplies and proprietary connections and his own labor and expertise.  He is not an indentured servant or a slave or an employee of someone else, namely the government.  This is contrasted with socialism/communism where the means of production are owned by the State.  Under capitalism, the farmer and the baker invest the profits of running their business into the purchase of more capital in order to expand their operations and produce even more goods, if there is a market for them, or they may invest in ancilliary lines of business such as ice cream and pastries, if there is a better market for those goods.  Supply and demand are the main arbiters of how future production should be best utilized.  This was referred to by Adam Smith as the "invisible hand" of the market, whereby the self-interest (profit-motive) of producing the goods in highest demand or filling unmet niches tends to produce the highest collective good for society.  Under socialism, the farmer and the baker only earn a wage and the State decides how capital should be best managed, usually for political reasons, independent of any market forces.  Under socialism, the "invisible hand" of the market is ignored and thus capital is usually malinvested, producing supply shortages in some sectors, surplusses and waste in others, and unmet expectations all around. 

Free-market capitalism then is an economic system where the means of production are privately owned and operated and the markets for goods and services are not restrained or controlled by outside forces.  Individuals own themselves and the fruits of their labor, including the ability to amass capital in order to support their future production.  Individuals guide all of their own productive activities without coersion and offer up their goods and services for voluntary exchange.  Individuals are free to accept or reject any offer in the marketplace according to their own judgement.  There are no limits or terms placed upon them by the State.  Free-market capitalism is the de facto economic system in the absense of a government, and always has been.  Unless an external structure is placed upon them, people naturally act according to free-market capitalist princples.  It is a most natural form of human cooperation which maintains a fair and equitable balance of rewards achieved versus work and skill applied.  For instance, as noted, the baker and the dairy farmer are both better off when they agree to trade with each other than if they did not.  It provides them with a division of labor whereby both men don't have to try to both bake bread and raise dairy cows.  They can concentrate on their most finely-honed trade but still enjoy the products of the other.  And if the baker is lazy and only produces enough bread to buy his milk and feed his family, then his rewards are proportional to his efforts.  Perhaps he enjoys painting or playing sports or sleeping instead of working harder than that.  Those are his values and his choices.  The dairy farmer may have other goals however, and he may put in long hours and develop a line of cheeses and yoghurt and maybe franchise his operations by investing in another farm run by an apprentice.  The dairy farmer may therefore reap the rewards of his hard work and skill and become quite wealthy.  In exchange for his wealth and what it can buy, he has given up the ability to enjoy painting or playing sports or sleeping long hours in the meantime.  The result in each case is fair and equitable. 

The proper role of government in a free-market capitalist system is to prevent fraud, force, or theft only, and not to otherwise influence voluntary commerce.  For instance, the government should act to prevent or punish the baker from stealing milk from the dairy farmer, delivering day-old bread to the farmer when the agreement was for fresh bread, or blackmailing the farmer over an embarrassing incident he doesn't want to be publicly known in order to get a special deal on his milk.  But the government should not dictate that the baker may only charge a maximum of one loaf of bread per gallon of milk, as that is something for the baker and farmer to work out between each other, based on their own individual values and governed largely by supply and demand.  Nor should the government dictate the technique the farmer uses to milk his cows or the recipe the baker must use to make his bread.  And the government certainly should not force the baker to license his oven or the farmer to register his cows.  When the government starts interfering with capital, production, and transactions in this fashion, it is no longer free-market capitalism.  When the government uses its monopoly on the legal use of force to govern capital, production, or transactions, the government has made a claim on the capital and the individuals which is above their own claim.  They are no longer free, but in a way enslaved.  This is a form of socialism, though it is generally considered a "mixed economy" or some form of regulated capitalism, such as merchant capitalism or feudalism or national socialism, where the State maintains the highest claim and veto power, but acts as though individuals or groups have ownership or at least guardianship so as to avoid the extreme inefficiency of complete centralized planning. 

Above, I noted that free-market capitalism is a form of cooperation.  This may seem contradictory to a popularly recognized element of capitalism: competition.  But it should be recognized that competition and cooperation are not mutually exclusive in an economic system.  Competition arises when there is more than one producer of a particular good or service.  For instance, in our ongoing example, a second baker may move into town.  Now, where before the original baker had a monopoly on the production of bread, he now has a competitor.  The second baker will compete by either producing a higher quality bread, a different kind of bread, or charging a lower price for his bread.  Any of these things -- better quality, more diversity, or lower prices -- are all good things.  As long as Baker1 doesn't react by competing with Baker2 on one or all of these fronts, most of Baker1's customers will instead choose to buy bread from Baker2.  Baker2 may then react to this surge in demand by raising prices, driving some customers back to Baker1 again.  The voluntary transaction between producer and customer is a form of cooperation.  They are each better for it.  But the competition between multiple producers makes the deal a customer receives much better or at least broadens their choices.  So, where the dairy farmer before was pleased to get bread in exchange for his milk, he now has the option of expensive sweet bread and cheaper sourdough bread.  And as time goes on, competition may have the bakers innovating such things as sliced bread!  Therefore, competition is a very important part of free-market capitalism, as it drives innovation and efficiency.  In contrast, there is no motivation to innovate or improve efficiency under a socialist system because there are no independent proprietors who reap the rewards of their commerce.  Under socialism, innovation and efficiency can only be driven by State mandate, which is why products in socialist economies are only developed to the point that they are good enough, and no further.  The result is things like the East German Trabant, a notoriously small, dirty, ugly, poorly-performing automobile that remained largely unchanged for 30 years. 

Free-market capitalism drives cooperation of other kinds as well, however.  As I have already suggested above, perhaps the farmer is unsatisfied with the scale of his operation and wishes to expand.  However, the farmer cannot manage two properties by himself.  So, he cooperates with his apprentice, who wants to open his own dairy.  In exchange for the up-front capital that the farmer invests as well as his ongoing expertise and support, the apprentice will pay the farmer a percentage of the profits of the new operation.  This might be considered a franchise or a partnership arrangement.  Another form of cooperation is raising lots of capital from many investors in order to engage in some new venture.  Let's say that the people of our imaginary town are unhappy with the monopoly pricing of the dairy farmer.  They believe that if they owned a dairy, they could produce milk at better quality and cheaper prices.  But none of them have enough resources to open a dairy on their own.  So what they do is form a corporation which is composed of a number of shares of stock.  One person may only have very limited resources and therefore only buy a few shares, while his neighbor may be relatively wealthy and buy many shares.  As a result, they can both participate in the new business, but their voting control over what the business does as well as the share of the profits that they receive will be directly proportional to the amount they originally invested (and put at risk for loss if the venture failed).  It's all very fair and equitable.  If it wasn't, they wouldn't agree to it.  Under a free market, nobody is twisting anyone's arm to participate or not.  So, under this cooperative structure called a corporation, many people are able to now fund a business which brings competition to their dairy market.  If, as they expected, they are able to operate more efficiently, they will sell their milk and cheese and yogurt at a lower price and force the original dairy farm to either lower prices or improve quality or otherwise compete with them.  And this competition drives continuing innovation and efficiency.  And continually increasing efficiency drives economic growth by freeing up capital and labor to pursue new ventures. 

In this light, I think everyone can agree that free-market capitalism seems like a pretty good system.  It is voluntary, fair, equitable, efficient, and produces innovation and growth.  So, why have various movements over the centuries challenged free-market capitalism?  The primary enemies of free-market capitalism are those who do NOT want it to be voluntary or fair or equitable or efficient or innovative or growing.  What possible motivations could people have for this?

  • Repressive political regimes do not want commerce to be voluntary because it reduces their ability to coerce the People.
  • Religious organizations and luddites do not want innovation because they fear it will make them irrelevant.
  • The poor do not like that capitalism is equitable because they are envious of what others have been able to accumulate.
  • The rich are against its fairness because they want to maintain any advantages that they may have created or been born into.
  • Environmentalists hate the growth that capitalism creates because they see people as a plague upon the planet.
  • Busy-bodies don't like capitalism because it's voluntary, and they want to dictate how everyone else behaves.
  • Sentimentalists don't like the efficiency of production because they value the old-style craftsmanship.
  • Lazy and undriven people do not like the equitable nature of capitalism, for they want to benefit from others' hard work.
  • Meek and ignorant people don't trust their own judgement to make good voluntary choices and thus want everything regulated.
  • Spiritualists feel like the profit-motive which drives capitalism is too materialist and spiritually impure.
  • Some rich people feel guilty about having things that others don't, and thus want to disperse (other people's) capital more equally, but clearly unfairly and inequitably.
  • Et cetera.  I'm sure the list could go on and on. 

Are any of these valid criticisms of free-market capitalism?  I don't think so.  From a moral perspective, nobody should ever have a higher claim over you and the fruits of your labor than you yourself have.  Some people point out that we have a moral obligation to help those who are less fortunate.  There may be some truth to that.  However, that is entirely outside of the scope of the economic system.  That's why charity has always been an individual or religious matter.  No matter how needy someone may be, they do not have an inherent claim on you or your labor that is above your own.  Only you can decide to voluntarily give of yourself and your capital.  The needy do not have a right to steal it.  And governments do not have a right to steal it in their name.  Charity must be voluntary.  And if people tend to value the truly needy less than their own luxuries, then that is a horrible testament to the people who allow it to occur, but I know of no society in which that has ever been the case.  There have always been half-way houses and soup kitchens and hand-outs to beggars.  The charity is there for all who need it.  It may not be a pleasant or comfortable life to depend solely on charity, but then it really shouldn't be.  To elevate the non-working destitute to a level of comfort higher than the hard-working would be counter-productive.  Everyone deserves a second chance to pull themselves up by the bootstraps, and there is plenty of charity for that purpose.  But nobody should live comfortably off of charity alone.  A natural human sense of sympathy tends rightly to end as soon as it's clear that someone is taking advantage of it. 

What about the view that some have lately that corporations are evil enterprises only interested in profits no matter the harm they may cause?  Well any individual or organization which causes harm should be prevented from or punished for doing so by the government.  Remember, that is the government's only role in free-market capitalism.  Nothing about the nature of corporations themselves lend to any kind of abuse.  Corporations are democratic structures for the voluntary cooperation of many individuals to achieve a larger objective and to reap the rewards of such in an equitable fashion.  To the extent that certain corporations may become dominated by particularly ruthless stockholders and engage in harmful activity with the blessing of government, it is a failing of government, not of free-market capitalism.  The main thing to remember in regard to government is that government is a necessary evil and a powerful tool which needs a constantly vigilent People to prevent its escaping the bounds of its charter.  Government is not a benevolent force which can be trusted with our well-being.  It is a magnet for corruption and tyranny that should only be empowered enough to maintain the rule of just law.  We neglect the advice of our Founding Fathers in this regard at our own peril.  It pains me to constantly see the red herring thrown about that "evil corporations" are the cause of this or that tyranny when the real culprit lies with corrupt government.  The answer to government corruption is NOT to give them more power and more control by relinquishing our sovereign rights over our selves and our property.  The answer to a corrupt government is to strip it of its unnecessary powers and decrease the amount of money that it controls.  Usually the problem is that government has grown too big, has the power to grant too many favors, and controls too much money.  Returning it to the powers delegated in its charter, the Constitution, is the way to solve the abuses of individuals and groups operating under free-market capitalism. 

It should also be pointed out that capitalism is not a political philosophy.  Capitalism can work under any political system which guarantees the freedom of its citizens.  It is usually best practiced for this reason under a constitutional republic, but could also function in a pure democracy or even a benevolent dictatorship, if such a thing were truly possible.  Free-market capitalism becomes very difficult to outright impossible in any situation in which the People are coerced or forced however.  That's why dictatorships, plutocracies, oligarchies, monarchies, theocracies, and other forms of non-popular rule generally result in feudalism, merchantilism, socialism, communism, or mixed economies.  Free markets and free people go hand in hand. 

For more information on free-market capitalism, and some of the fallacies you may have heard (such as that war drives productivity), please read "Economics in One Lesson" by Henry Hazlitt and some of the other books I recommend following this article below.

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Monetary Base vs Gold Divergence PDF Print E-mail
Written by Administrator   
Monday, 07 October 2013 10:14

Click on the image for full size



As anticipated, quantitative easing (QE) has caused the monetary base -- i.e. total currency circulating in the public plus bank reserves -- to grow astronomically. From under $1 trillion prior to the 2008 crash, the monetary base now stands at about $3.6 trillion and continues to grow by at least $85 billion per month. Gold had mostly kept pace until this year. At the point where both the monetary base and gold had a bit more than doubled, the monetary base took off to the upside with QE4 while gold slumped from almost $1900 to $1200. Gold was driven down by continued proclamations from the Federal Reserve that quantitative easing was on the verge of ending at any moment, although that never actually materialized. In fact, with foreigners buying less American debt than ever and Baby Boomers beginning to liquidate their retirement accounts, the Federal Reserve has become the buyer of last resort.

So as long as the American government continues its massive deficits, which are only projected to grow ever larger with entitlement obligations to retiring Baby Boomers plus now Obamacare, then the Fed must continue monetizing that debt. Even if the Fed were able to pause on QE for a short time, there's no possible way that the monetary base can shrink, as that would entail the Fed trying to sell Treasury bonds in competition with the Treasury itself! As already discussed, the Treasury can't even find enough buyers in the market as it is. Interest rates would have to skyrocket to be able to sell into an environment where the Fed is not only no longer buying, but also selling. That obviously can't be allowed to happen, as the American government cannot afford to service a $17+ trillion debt at interest rates much above those of today (nearly zero). So the monetary base is not shrinking and it is most likely going to keep growing exponentially. And since gold is priced in dollars and tracks monetary growth so closely, gold is most likely going to shoot up to at least $2100 per ounce in the short term just to catch up to where it should have been. And as the monetary base grows, gold should continue to track it, short of temporary fluctuations caused by Fed jawboning.

That sets us up for an incredible opportunity at current prices. I highly recommend signing up for a BullionVault account right now and loading up on as much as you can afford in their Swiss vault (or Singapore or Toronto). You will probably never ever see gold this cheap again and will kick yourself for not taking advantage of this opportunity. As this global financial collapse progresses and fiat currencies go down the proverbial drain, physical gold and silver in your possession or in a responsible vault in a safe jurisdiction will be your only insurance and protection. Even if you can't afford to invest in much right now, you can easily set up a monthly BullionVault savings plan to buy as little as a gram at a time. And every little bit helps.

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Is Congress Doing Their Job? PDF Print E-mail
Written by Administrator   
Wednesday, 02 October 2013 09:03
James Madison, Father of the Constitution and author of Federalist 58
James Madison, Father of the Constitution and author of Federalist 58
I hear people saying "We want Congress to do their jobs." And likewise, "Obamacare is the law, it was passed by Congress and upheld by the Supreme Court, so it has to be funded!"

Well first of all, let's try to establish what is Congress' job in relation to setting the budget and funding programs invented by prior Congresses. The source of all government power is the Constitution, so that's where we'll look to find out what Congress should and shouldn't be doing.

Article 1, Section 9 says that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law". An appropriation is money set aside by formal action for a specific use. And laws are only made by Congress, as declared in Article 1, Section 1: "All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives". This means that the President, who does not have any legislative powers and my not write law, may not expend funds until Congress says so. It is in fact Congress' job to make laws which appropriate money.

Moreover, Article 1, Section 7 says that "All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills". As budgets necessarily include revenue, the budget process starts in the House of Representatives. The Senate may not originate a budget bill, but only offer amendments.

James Madison described why this is important in Federalist 58: "The House of Representatives cannot only refuse, but they alone can propose, the supplies requisite for the support of government. They, in a word, hold the purse... This power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure." In other words, it is Congress' job to withhold funding from government programs that they feel are unfeasible, unsound, or undesirable as per their constituents. This was designed into the structure of government from the beginning by the principle author of the Constitution.

Obamacare is not an appropriation. Obamacare is a regulatory framework which defines a bureaucracy and rules. As an analogy, if you were building a house, Obamacare is like the blueprint for the house. As the owner, after you've drafted and approved the blueprint, it is still your prerogative to hire a contractor or not. Just because you've approved blueprints doesn't mean that your control over the construction process has ceased. Maybe the contractor starts laying the foundation and then you decide that the plan isn't so good after all -- well, the contractor can't come back to you and say "you've already approved the plans, so it's all getting built". You're still in charge of your checkbook and can decide to scrap the project at any time. Maybe you lose your deposit, but you don't have to follow through with bad plans and build a house that you don't want. Likewise, Congress holds the checkbook for America and may choose to fund or not fund any regulatory schemes drawn up by prior Congresses.

This is why we elect a new Congress every two years. Sometimes previous ones designed idiotic plans and so succeeding ones need to put the kibosh on them. It's a part of our checks and balances.

Is Obamacare the law? Not under even a loose interpretation of the Constitution, but as per the Supreme Court, it is a statue which is being enforced as if it were constitutional by claiming that the fine which Obama said was not a tax is in fact a tax. But does that mean that it must automatically receive whatever appropriations the President deems necessary? Absolutely not. It is the Congress' job to only fund government programs that the current Congress believes to be in their constituents' best interests. Congress does not believe that Obamacare should be funded. Therefore, it shouldn't be. If you disapprove of that decision, there's another election in 2014. Elections have consequences, remember.

As recently as 2007, a Democratic majority in Congress pushed an effort to use their "power of the purse" to defund the Iraq War. In fact, Harry Reid -- who now calls Republicans "anarchists" and "terrorists" for wanting to defund Obamacare -- co-sponsored the bill to defund the war in April, 2007. The principle sponsor of that bill, Russ Feingold, said, "Congress has a responsibility to end a war that is opposed by the American people and is undermining our national security. By ending funding for the President's failed Iraq policy, our bill requires the President to safely redeploy our troops from Iraq." Reid said, "I am pleased to cosponsor Senator Feingold's important legislation. I believe it is consistent with the language included in the supplemental appropriations bill passed by a bipartisan majority of the Senate. If the President vetoes the supplemental appropriations bill and continues to resist changing course in Iraq, I will work to ensure this legislation receives a vote in the Senate in the next work period."

That legislation included the specific clause: "Prohibition on Use of Funds – No funds appropriated or otherwise made available under any provision of law may be obligated or expended to continue the deployment in Iraq of members of the United States Armed Forces after March 31, 2008." Remember that the Iraq War Resolution was law, passed by the House and Senate and signed by the President, just like Obamacare. How this 2007 legislation to defund the Iraq War (which would have actually put American troops in danger) was considered a proper use of constitutional power but the current effort to defund President Obama's failed health care policy opposed by the American people and undermining our economy is "irresponsible and futile" is beyond comprehension. If the Democrats had that power then, the Republicans have it now.

The House of Representatives proposed three different budget bills prior to the beginning of FY 2014 on October 1st, and all of them were shot down by the Senate Democratic majority. The Democrats refuse to recognize the House's prerogative to set spending levels and negotiate a budget, as per the Constitution. The House of Representatives (controlled by Republicans) is doing their job. The process is being held hostage by the Senate Democrats who refuse to adhere to Constitutional separation of powers in order to hold onto the Obama administration's signature legislation which was passed in the middle of the night only through bribery and coercion. It is fully within the House's authority to defund this law that never should have been.

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Orwellian Unemployment Figures PDF Print E-mail
Written by Administrator   
Friday, 17 May 2013 14:10
The Labor Department said Friday that non-farm employers added 165,000 jobs in April and the U-3 unemployment rate fell to a four-year low of 7.5%.

Unemployment rates have primarily declined because many of the unemployed have stopped looking for work. The government counts people as unemployed only if they are actively seeking jobs. Many people have stopped actively looking for work because they believe no jobs are available for which they would be considered and so they are not counted as unemployed even though they are not working and would like to be. 2.3 million people were marginally attached to the labor force in April, meaning they wanted and were available for work, and had looked for a job sometime in the prior 12 months, but are not included in the unemployment rate. A further 7.9 million individuals were working part time because their hours had been cut back or because they were unable to find a full-time job, but are not included in the unemployment rate.

In total, including children and retirees, almost 90 million Americans are not included in the labor force, which puts the civilian labor force participation rate at 63.3% in April, which is the lowest it's been since the 1970s. The civilian noninstitutional population -- i.e. those capable of working -- was 245 million in April and grows at a rate of roughly 0.9% annually. That means that approximately 184,000 people should be entering the labor force on a monthly basis just from population growth alone. But 13,500 more workers became discouraged in April than were added to the labor force through population growth. In other words, while 165,000 jobs were added, 197,000 people gave up looking for jobs or never bothered to start.

New York and California -- two states being touted as having decreased their unemployment rates the most in April -- were among the states with the largest reduction in the size of their labor force, implying that their lower unemployment rates came mostly from people giving up looking for work rather than becoming newly hired. Only Texas showed both a sizable increase in their labor force and a simultaneous decrease in their unemployment rate, indicating hiring occurring. Colorado, Virginia, and Missouri to a lesser extent showed true unemployment reduction. On a national level though, about 32,000 more people in April were without a job than in March. So to claim that the unemployment rate fell "to a four-year low" borders on Orwellian doublespeak. (Source: Bureau of Labor Statistics)

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Global Bank Run PDF Print E-mail
Written by Administrator   
Tuesday, 26 March 2013 22:46
Jeroen Dijsselbloem, the Dutch finance minister who has been chairing the Eurogroup committee of finance ministers for two months, said that the Cyprus model (of stealing depositors' money to bail out banks) would be extended to other countries and situations to avoid the injustice of having taxpayers shell out for the risky behavior of bankers.

Firstly, aren't depositors and taxpayers largely the same group? And how are bankers suffering in this deal where depositors lose 40% of their savings and bankers keep their jobs? Wasn't the ENTIRE POINT of central banking meant to keep banks solvent without risking depositors' money?

That's how they were sold originally. Back in the late 19th and early 20th century, before the age of central banking, individual banks printed their own bank notes (i.e. currency) backed by what was on deposit (usually gold). When they printed more notes than backing (in order to collect more interest on loans -- a practice known as fractional reserve banking), and people grew suspicious of this, it would cause a run on the bank whereby individuals tried to redeem their notes for actual money (gold). But since there were more notes than gold, some people could not be made whole and lost everything. The bank also crashed, of course.

Central banks were supposed to be a central source of bank note liquidity whereby all depositors would be paid in full even if a bank wildly over-lent notes into the economy. Therefore there would be no need to rush and get your money out and so there'd be no more bank runs. This was supposed to bring stability and prosperity.

Instead all it did was allow banks to wildly print money with no responsibility for the havoc that results. And in the end, we have a massive global banking system which exponentially inflated the currency supply, and now there will be a massive, global bank run. I hope you've got your assets somewhere safe...

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Monetization Gone Crazy! PDF Print E-mail
Written by Administrator   
Monday, 11 March 2013 19:21
monetary inflation precedes gold bull run

Gold has traded sideways for over a year between the initial impact of QE2 and the start of QE3&4. Short for Quantitative Easing, QE is the Federal Reserve's policy of printing currency in order to inflate away our problems. QE started as a reaction to the 2008 housing bubble burst and financial crisis, but has become a way of financing our ever-growing federal budget deficits while foreign interest in our Treasury Bonds wanes, especially with record low interest rates. But each iteration of QE is less and less potent than the last, like an addict becoming habituated to drugs. As a result, the Fed has had to inject this stimulus more frequently and in greater amounts. Operation Twist had virtually no effect, so QE3, which purchases $40 billion worth of mortgage-backed securities every month, was implemented with no upper limit, meaning it would continue until some impact is felt. Then, with the announcement of QE3 having almost no impact on the markets, the Fed followed up almost immediately with QE4, which directly purchases $45 billion worth of long-term Treasury bonds every month with no upper limit! This binge will push monetization to over $1 trillion per annum until the market decides to inflate a sufficient bubble with this extra liquidity such that unemployment falls below 6.5%.

But of course this assumes that the action actually produces the desired result. What if ongoing monetization continues destabilizing markets and sends unemployment higher? That's what has historically happened in highly inflationary environments. In that case, we'll have ongoing QE virtually forever. But not really forever, because eventually the markets will lose faith in the currency and it will collapse. But before that happens, even the highly manipulated CPI must indicate price inflation over the Fed's target of 2.5%, right?

Certainly that will be the case, but does that mean the Fed will stop printing? Not hardly. The federal government currently has a budget deficit of around $1 trillion per year and they go into convulsive fits over even the thought of restraining future increases let alone actually cutting spending! But foreigners have significantly slowed their purchases of Treasury debt, with our top foreign holder, China, actually selling over $100 billion since 2011. The Federal Reserve is now the top buyer of Treasuries, outpacing all foreign central banks combined. The past few years have seen other countries unpeg from the Dollar and resort to regional currencies for international trade instead of using a single reserve currency. In some cases, particularly those under U.S. embargo, they have moved to gold as the mode of trade.

Moreover, what will happen when the present bond bubble bursts? Treasuries are vastly over-owned by private investors following the big scare out of stocks in 2008. But now that many stocks are offering better yields than bonds and seem likely to continue to do so for the foreseeable future, especially once inflation expectations rise to meet reality, there will be a massive sell-off in bonds. And this will be especially true if the Fed lets interest rates increase even a little bit, which will trigger a decrease in bond prices. Normally, that would mean that interest rates would spike upward as people dump bonds at ever-decreasing prices. But not only would that be counter to current Fed policy, it would also bankrupt the U.S. government.

The Treasury currently spends around $250 billion per year on interest at an average rate of 2.2%. If rates rose merely to where they were 10 years ago at 5%, interest expenditures would more than double to over $500 billion per year. And if rates really took off, as they are wont to do during the popping of a bond bubble, they might reach the level they were in 1980 at near 14%, which would be a six-fold increase in interest payments, approaching $1.5 trillion per year! Obviously, since the government can't even pay its bills currently, this would all be in deficit, which means that the total deficit would climb to almost $2.5 trillion per year! And where would they get that money? They'd have to borrow it! From whom? The Federal Reserve! Obviously this would be quite the predicament, and should be avoided at all costs. Which means that the Fed would simply step in and buy all of the bonds being sold off by private investors, effectively monetizing a major chunk of the present national debt, upwards of $5 trillion. This may not seem as immediately bad as having to monetize $5 trillion every two years, but it will increase the monetary base by over 100% very quickly.

If Fed bails out bond bubble, it could end up with over 50% of national debt.

In other words, there's no way out for the Fed. They cannot cease QE in any politically acceptable way. Doing so would leave the government without the ability to fund its deficits and with interest payments exceeding the entire discretionary budget! It would also absolutely tank the economy which is currently floated on a zero interest rate policy. And that, of course, would bring forth calls for even more deficit spending as stimulus! Even if, miraculously, the unemployment rate fell to under 6.5%, it would still pop the bond bubble as people rush out of bonds and into stocks. So you could have the case where BOTH unemployment is under 6.5% and inflation is over 2.5%, and the Fed still won't be able to stop printing money! Tightening would mean bankrupting the government, which simply isn't politically feasible. We're at the point where we're monetizing our spending, which is the first step to hyperinflation. The only way out is austerity, and that's simply not going to happen here, as proven over the past several years of debt limit gum flapping.

What's worse is that the U.S. is far from alone in this predicament. Central banks the world over are monetizing their governments' spending and embarking on a world-wide competitive currency debasement! So we have few options for safe havens.

And so we must be resigned to much higher inflation and probably hyperinflation, not just here but globally, and that means that the number one inflation indicator, gold, is headed much higher. I highly recommend signing up for a BullionVault account right now and loading up on as much as you can afford in their Swiss vault. You will probably never ever see gold this cheap again and will kick yourself for not taking advantage of this opportunity. As this global financial collapse progresses and fiat currencies go down the proverbial drain, physical gold and silver in your possession or in a responsible vault in a safe jurisdiction will be your only insurance and protection. Even if you can't afford to invest in much right now, you can easily set up a monthly BullionVault savings plan to buy as little as a gram at a time. And every little bit helps.

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The Internet: You Didn't Build That PDF Print E-mail
Written by Administrator   
Tuesday, 24 July 2012 12:32
You Did't Build That!Here we go again with the spurious claims about the invention of the Internet. President Obama declared that we all owe government a great debt for inventing it. Previously Al Gore took credit. Then on Monday, Wall Street Journal columnist Gordon Crovitz gave credit to, among other people, Steve Jobs! And yesterday, Michael Hiltzik, author of a book about Xerox PARC, came back to the defense of the government's role in an article in the Los Angeles Times.

So what's the real story? There are elements of truth in each of these points of view, but strongly biased and selectively told. The early concepts of packet switching global networks were developed by Leonard Kleinrock of MIT (later UCLA), J.C.R. Licklider of BBN, Paul Baran of RAND Corp, and Lawrence Roberts of MIT in the early 1960s, but were independently developed simultaneously by quite a few others. It was a concept whose time had come, inspired by the telephone network (invented by Alexander Graham Bell and AT&T) and the need to send data between computers.

Licklider was appointed to the Defense Department's Advanced Research Projects Agency (ARPA, created in 1958) in 1962 and there he convinced some colleagues about the importance of his networking ideas. Licklider left ARPA, but the agency pursued his ideas primarily under Bob Taylor. An ARPA-sponsored study lead to a paper by MIT's Larry Roberts basically outlining an ARPANET plan in 1966.

1967 had Roberts discussing designs with ARPA. An Association of Computing Machinery symposium that year lead to the meeting of independent packet network teams from RAND Corp, the U.K.'s National Physical Laboratory (NPL), and ARPA. NPL that year created an experimental packet-switching network called NPL Data Network. NPL's Donald Davies coined the term "packet".

ARPA put out a Request for Quotation to build a packet switched network in 1968, and awarded the contract to BBN. BBN's ARPANET linked UCLA, Stanford, UCSB, and U of U -- each of which were independently working on networking research -- over leased AT&T lines in late 1969. This was a network, not an internetwork. Within about 6 months, MIT, Harvard, and BBN in Cambridge, Mass, were added, along with Systems Development Corp (SDC) in Santa Monica, which had previously connected to MIT via a direct (non-packet-switched) link.

You Did't Build That!Throughout the 1970s, other universities and corporations connected to this network along with a few government nodes to help participate in computer & networking research. Remote login, email, file sharing, and other network applications were developed by various members of this research community.

In 1973, Stanford's Vint Cerf & BBN's Bob Kahn -- influenced by Hubert Zimmerman and Louis Pouzin's CYCLADES network in France and Xerox PARC's Pup protocol -- developed an internetworking protocol called TCP. The term "internet" is coined at this point. Further reasearch funded by DARPA at BBN, Stanford, and University College London created further refinements and iterations which became the TCP/IP protocol we use on the Internet today.

BBN created the first commercial packet-switched network, Telenet, in 1974. In 1977, AT&T Bell Labs released the Unix operating system with its own networking protocol, UUCP. In 1978, Apple released a serial interface card to communicate with acoustic coupler modems for dial-up access. In 1979, USENET was established using UUCP, with "newsgroup" message boards for various topics of interest. IBM distributed systems with NJE networking protocol, on which BITNET was built in 1981, providing "listserv" email message systems and file transfer. CSNET was established as an alternative research and student-access network for those without ARPANET access in 1981. EUnet was created in Europe using UUCP in 1982. Various other commercial and non-profit networks sprung up around the world around this time as well, variously using UUCP, BITNET, or TCP/IP.

The government and civilian nodes of ARPANET separated into distinct but inter-networked networks in 1983 when TCP/IP was fully implemented. Although this wasn't the first internetwork by far, it formed the basis of the Internet as we know it today because all other networks and internets wanted to be connected to this foundation of universities and corporations. In 1986, the National Science Foundation created a non-commercial, research-only cross-country 56kbps Internet backbone called NSFNet to which many other universities and corporations connected.

In 1987, commercial UUCP and Usenet access was made available by UUNET. In 1989, commercial email relay with the non-commercial Internet was established with MCI Mail and CompuServe. The same year, ARPANET was officially decommissioned, with non-commercial Internet traffic then mostly on the NSFNet backbone.

The World (world.std.com) launched the first commercial Internet dial-up access in 1990. Commercial Internet eXchange (CIX) Association, Inc. was formed by General Atomics (CERFnet), Performance Systems International, Inc. (PSInet), and UUNET Technologies, Inc. (AlterNet), in 1991 to offer commercial Internet access as the NSF began lifting restrictions on commercial use of the NSFNet backbone. That same year, hypertext transfer protocol (HTTP) and the world-wide web (WWW) were released by CERN, where Tim Berners-Lee as a young student years before had made the first hypertext client-server communication. Also in 1991, Senator Al Gore introduced the High Performance Computing and Communication Act of 1991, signed into law by George Bush, allocating $600 million to accelerate development of gigabit networking. Throughout the early 1990s, multiple independent commercial networks grew to the point of internetworking independently of the NSFNet backbone and were able to offer cross-country commercial Internet services. You Did't Build That! Businesses and media began taking notice of the Internet and Web in 1993 with the Mosaic web browser (created by Marc Andreessen at the University of Illinois) and the first websites. Al Gore was a cheerleader of the "Information Superhighway" throughout this era, but did little to influence it aside from his bully pulpit.

In 1994, Tim Berners-Lee founded the World Wide Web Consortium (W3C), a private, non-profit, industry-membership, international standards organization which helps to ensure the interoperability of the Web. By 1995, NSFNet was ended and all Internet traffic depended on commercial Internet backbones, with AOL, Prodigy, and CompuServe offering dial-up residential Internet access. In 1996, 34 universities kicked off a replacement high-speed research-only network called Internet2 since now "the" Internet, i.e. Internet1, had become thoroughly commercial and launched into a dot-com bubble. The Internet subsequently included satellite links, cellular networks, and wireless mesh networks, and it continues growing as the technology and software and culture and usage patterns continue to evolve.

You Did't Build That!So, who invented the internet? The global free-market economy, with for-profit and non-profit corporations, universities, and government research institutions all involved in some way. There was no single inventor. It was an idea whose time had come, and many people on the leading edge of their fields helped to make it happen. Lots of people can realistically claim to be among the founders and early adopters, but nobody can claim sole credit for the Internet. It was not an invention of the government, but the government played a role, as it does in all things these days. But it was in no sense dependent on government. The Internet would have come into being even without the government or any of several other key players. Someone else would have stepped up instead. Indeed they did. Nobody was the only game in town. Government provided some funding, but the profit motive provided much more. The Internet has diverse roots throughout the global economy, and we should be thankful that governments for the most part stayed out of its way. For that is the real distinction -- although governments did impose a few limitations here and there, for the most part, the history of the Internet is unique in that governments did not try to control and regulate it to death. At least not yet.

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Trojan Obomney PDF Print E-mail
Written by Administrator   
Wednesday, 22 February 2012 20:18
Don't fall for the trick... Romney is every bit the progressive that Obama is.  He's just dressed up like a conservative.

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Obama's Fantasy World PDF Print E-mail
Written by Administrator   
Friday, 17 February 2012 20:18
This week, the White House released their proposed 2013 Budget, which can only be described as fanciful, to put it mildly. Take a look:

Absurd Budget Projections
Ok, first of all, when has Obama or this Congress been able to make any cuts even to proposed increases in spending let alone REAL cuts? We're supposed to believe that they're going to knock $35 billion off of discretionary spending from 2011 to 2013? Fat chance.

Next, they project a 6.7% increase in mandatory spending on entitlement programs... are they not aware that Baby Boomers are now retiring in droves? 6.7% over two years (3.35%/year) doesn't even keep up with inflation let alone account for all of the new recipients! This number is obviously severely low-balled.

So, total outlays going up only 1.4% over two years is laughable. But if you think that's funny, just look at the other side of the balance sheet! Individual income taxes are being hiked 18%? Corporate taxes by 101%? That's just outlandish! And then look at entitlement income... more people are retiring and less people are working, but payroll taxes are going up by 25%? And how about those excise taxes jumping 20%? Apparently we're going to enact protectionist trade policies! But then how do they expect customs duties to jump by 13%?

It is just beyond comprehension how any serious person could propose that they can increase government revenue by 25%. Did they not get the message from the Tea Party movement that we're TAXED ENOUGH ALREADY? Trying to enact this kind of tax scheme would drive corporations to foreign shores, small businesses to bankruptcy, and most individuals onto the ever expanding unemployment rolls. This proposal is not merely optimistic, but seriously puts into question the sanity of those who proposed it.

Here's my prediction of what actually happens... Discretionary spending increases by 6% (to $1,378 billion), which hardly even keeps up with inflation. Mandatory spending increases by 15% (to $2,383.95 billion), which is probably conservative. Also, forget about that $71 billion cut from the "Joint Committee enforcement". That's not going to happen. That puts 2013 total outlays at just over $4 trillion.

As for receipts, none of that stuff is going to happen. If they're lucky, they'll manage to pull in the same amount in 2013 that they did in 2011. If they try to raise taxes (which is doubtful to pass Congress), it will tend to depress economic activity and result in even lower receipts. I would expect no more than the same $2,303 billion.

That means that in reality, the deficit will climb to $1.7 trillion in 2013. By the end of the year, the national debt will be pushing $18 trillion, or over 110% of GDP. That assumes of course that we haven't yet experienced the likely imminent currency collapse. But by that time, the Fed is going to be monetizing like crazy to keep up with this debt, so it will be a miracle if we last that long.

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