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)
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...
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.
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.
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.
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. 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.
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.
This week, the White House released their proposed 2013 Budget, which can only be described as fanciful, to put it mildly. Take a look:
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.
After many confirmations of the exponential trend, this is the first major challenge since I started publishing these charts over a year ago. Let's look at the concerning development:
To repeat what I wrote last time: not every 10-20% retreat is "the end of the bubble". They call this the "wall of worry" in a bull market. I must admit I'm kinda worried this time because the exponential trend line being confirmed multiple times was giving me some serious confidence in the trajectory, and this move now challenges to invalidate that trajectory. The fact that it crossed under the 200 day moving average also adds to that concern.
That said, the depth (in percentage terms) of the pull-back at this point is only slightly more than the average correction during this bull market and has a long way to go to match 2008. It also has quite a ways to go before becoming true bear market territory. Technically speaking, we're still in a flag formation, which is a bullish continuation pattern. Unless we have another steep sell-off from here down to $1500 or lower, we're still in a strong up-trend.
So, we've got some mixed technical signals here. Looking at the charts alone, it could be another 2008-style bottom which catapults higher back into the exponential trend, or it could be setting up for a redrawing of the trend.
Good thing technical indicators are just a tool to gauge transient market sentiments and not our only method of gauging where the market is headed. We also have fundamental analysis. All the fundamentals driving gold and silver higher remain intact and have only grown stronger. The U.S. government agreed to add another $2.4 trillion to the national debt in August and just yesterday approved another $1 trillion in spending for a short-term continuing resolution in lieu of a real budget. The national debt is now over $15.100 trillion (more than 100% of GDP) and will probably hit the ceiling of $15.194 trillion within a month. And as we go into ferocious politicking around this issue in January again as we did in August (Obama can sell up to $1.2 trillion more in bonds, but he will have to veto a Congressional vote against it with each bond issue, and possibly face further credit rating downgrades), it will be accompanied by a far worse and quickly deteriorating situation in Europe which will almost certainly result in the break-up of the monetary union and several major economic powers declaring bankruptcy.
The Federal Reserve has pledged to keep interest rates at zero percent until halfway into 2013. Meanwhile all of that Treasury debt that's piling up is eminently unattractive to foreigners at zero percent interest; as a consequence, they have drastically reduced participation in Treasury auctions of late. The Federal Reserve has been and will increasingly continue to act as the lender of last resort, quietly engaging in "quantitative easing" to buy those Treasury bonds without announcing it to anyone as such. Moreover, we've just recently learned that the Fed is participating in bailing out European banks and governments, providing trillions in liquidity. As such, the monetary base is expanding rapidly and inherently fueling inflation.
China is dealing with high inflation and a crashing economy, but yet are also now easing their monetary policy. The Swiss Franc is now pegged to the dying Euro. Central banks are now net buyers of gold. And the Fed is probably going to declare a new major program of easing as the economy suffers another leg down following a very weak holiday shopping season. The Yahoo Finance headline today reads, "Ho, Ho, No! Santa Claus Rally Won’t Hit Wall Street This Year." We've already seen ample evidence that the Fed won't sit back and do nothing, particularly since their manipulated inflation indicators are still within their "targets". This is not an environment in which gold could suddenly become a bear market!
So where to from here? Gold and silver have been correcting for nearly four months and have now breached the 200-day average and the exponential trend line, but fundamentally are in a bull market and severely oversold. I don't think they'll long stay at these levels, but I said that last time too. Already they have stayed down far longer than I've expected. How much longer until the next break-out to the upside? Unfortunately, short-term movements are incredibly difficult to predict. We could hang out here or even lower for another month or even two. Or we could get an inflationary catalyst to set it off tomorrow! I would expect increasing volatility, with possibly $100/day moves either up or down.
We did spend all of November above $1700 for gold, as predicted, and we even had a confirmation of the trend by bouncing off the lower limit that month. This recent crash to $1600 was highly unexpected, especially since this is historically the strong season, but we could very easily see a year-end rally to the minimum for gold near or above $1800 to continue this same exponential trend. A $200 move is not at all out of the question. Silver also handled November as expected, but is below the trend now like gold. Silver should end the year above $35, which is a $5 gain from here. I don't know how likely this is -- the rally may not come til January or even February as an outside possibility. I do not see us getting into spring without a significant rally though. History has shown that precious metals achieve most of their annual gains between Sept and May, with Dec through Feb being the strongest months. All else being equal, the time of year alone should bring our rally. Any number of black swans could catalyze an even more significant move.
The main take-away is that while it certainly can't hurt to be cautious and hedge your bets, we're very likely currently at an incredible buying opportunity, just like in November/December 2008 when I picked up some gold and silver miners which ended up being 10-bagger gains for me!
And especially if you don't have any physical metals yet, 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 foreign jurisdiction will be your only insurance and protection.
Don't have a lot of money to donate to your political campaign of choice (e.g. Ron Paul)? Make an anti-contribution to other political campaigns instead! How do you do that? Simple... a single Google or Facebook ad can cost a campaign $5, $10, maybe even $20 per click! Whenever you see an ad for a candidate you don't like, click their link and waste their money! That reduces the mindshare available for people who might actually be swayed toward them and increases the relative mindshare for Ron Paul ads! You essentially cancel out someone's (probably a big Wall Street bank's) donation to that campaign.
If you want to target a particular candidate, just search for them and click on their sponsored listing. Otherwise, just click on them whenever you see them pop up wherever you're at on the Internet.
You can actually get a bonus if you're on a website you really like -- you cost the opposing campaign money and generate revenue for your favored site! E.g., I have some Google ads in the right-hand side of this page! If you see Newt or Mitt pop up -- click 'em like whack-a-mole! (Also don't be afraid to click if you see something you genuinely like!)
You can also save your favored candidate (e.g. Ron Paul) money by NOT clicking on his ads. Instead, type in the URL (http://ronpaul2012.com) directly in your browser. Or if you see something specific you want to get to, do a Google search and click on a non-sponsored link to find that content.
Presto! You've made an anti-contribution almost as good as donating!
At the same conference, Rick Rule, founder of Global Resource Investments, spoke about the unwinding of the U.S. Dollar...
And finally a sobering, in-your-face, but ironically optimistic talk by Doug Casey on the stupidity, evil, and decline of the United States...
The lesson is that things are going to be volatile, lots of people will be hurt (or killed), a massive transfer of wealth will occur, but the future is still bright and especially so if you position yourself well today.
Occupy Wall Street has now been raging for a few weeks and I've been trying to understand what specifically it's all about. It's a given that the mainstream media are telling the story wrong, or telling the wrong story, so my facts are gathered mostly over the internet from the horse's mouth as much as possible. Much can be gathered from signs held by protestors; however, there are quite a few divergent and even mutually-exclusive memes, indicating that the protests encompass more than one goal or mindset, perhaps with some overlap. This is to be expected from the wide range of groups who jumped into the mix right off the bat -- anti-consumerists, unions, Anonymous, libertarians, hippies, anarchists, socialists, etc.
I think that what unifies everyone is the emotional feeling that things are very wrong in this country and the overt involvement of banks at its root. What's interesting is that this is also what drove the organization of the Tea Party movement two years ago. The major difference, I think, is that the Tea Partiers identified President Obama as being a part of the problem, whereas the Occupy Wall Street movement only later came around to that understanding. Many people were naively charmed by Obama and genuinely believed he would bring hope and change. When it turned out that Obama not only continued many of the corrupt policies of George W. Bush, but layered on even further corruption, opaqueness, and infringements on our civil liberties, the masses became disenchanted. However, having bought into liberal punditry falsely labelling Tea Parties as racist corporatists, they were incapable of assimilating into that movement. At least not right away anyway.
What I'd like to do is try to address some of the more glaring fallacies eminating from some in the Occupy Wall Street movement based on "official" decrees, common protest sign themes, and prominent apologists, and try to reconcile some differences so as to suggest a more cohesive and appropriate direction. Perhaps even cross-polination with the Tea Party movement.
The Declaration of the Occupation of New York City, which has widely been proclaimed as the "official" manifesto of Occupy Wall Street, identifies that the chief goal of the protests is to "express a feeling of mass injustice". They then go on to list some "facts" which may or may not be agreeable to everyone, but I think that most would probably agree that the feeling of mass injustice is the main gist of it all. That's what the Tea Party has responded to as well and it's a great common ground. Where things go sideways is who and what people blame for the feeling of mass injustice.
Let's start with the Declaration... the second paragraph begins to lay blame at the feet of "corporations", who they say "do not seek consent to extract wealth from the people and the Earth... [and] place profit over people, self-interest over justice, and oppression over equality". They also allege that corporations "run our governments". They then list a few dozen grievances against corporations. Sounds pretty bad. But what exactly is a corporation anyway? Merriam-Webster says it comes from Latin corporare, meaning "to form into a body", and in the present legal sense is "a voluntary chartered association of individuals that has most of the rights and duties of natural persons but with perpetual existence and limited liability." There is a charter which defines the governance of the association and the rights of its members (shareholders and officers). Individuals are members voluntarily, meaning they can come and go as they please. Nobody is holding a gun to their heads. The association of individuals has similar rights and duties to any single individual, since it is composed of individuals and acts on individuals. It survives any of its members freely coming or going. And it has limited liability, meaning that if one of its members or officers does wrong, they are personally liable, and the shareholders are not directly liable for the one individual's actions. This all seems very reasonable and not the least bit evil. Corporations are formed when individuals don't have sufficient resources on their own to accomplish a large goal and so they pool resources to accomplish it such that any benefits are equitably shared according to the individual risks taken. What's so bad about that?
Well, let's look at some of the particular grievances...
They have taken our houses through an illegal foreclosure process, despite not having the original mortgage. This is clearly specific to banks, not corporations in general. But isn't the "foreclosure process" a legal procedure? So isn't it the legal system which has failed in this case?
They have taken bailouts from taxpayers with impunity, and continue to give Executives exorbitant bonuses. Well, what shareholders choose to pay their officers is their own business. It's their money. But it's interesting that they phrase this as "they have taken bailouts". Corporations have no means to take anything from government; they can only accept what is freely given. So this seems to be a complaint against the government giving bailouts, not banks or corporations taking bailouts.
They have perpetuated inequality and discrimination in the workplace based on age, the color of one’s skin, sex, gender identity and sexual orientation. I wonder how this is possibly the sole province of voluntary associations of individuals called corporations. This seems to me to be a general gripe against culture itself! Discrimination is rarely if ever a corporate policy, but rather the result of many individual interactions.
They have poisoned the food supply through negligence, and undermined the farming system through monopolization. Monopolies do not exist in a free market, but only through government force. So to the extent that there are monopolies, the fault lies with government laws, regulations, subsidies, and other interventions in the market. As far as having "poisoned the food supply", that would necessitate that the food supply is indeed controlled by a monopoly, and it is not, although the government has increasingly tried to make it so by outlawing everything produced by small, independent farms in favor of heavily-regulated food conglomerates. Again, the gripe here seems to be properly aimed at government, not corporations.
They have profited off of the torture, confinement, and cruel treatment of countless animals, and actively hide these practices. Again, this seems to be an issue with culture rather than particular corporations who fail to share the same values as some individuals regarding humanity's use of animals.
They have continuously sought to strip employees of the right to negotiate for better pay and safer working conditions. Corporations are intriniscally incapable of such action, because in a free market, employees work at will. The employer-employee relationship is inherently a negotiated one. The great leaps in pay and working conditions have been a direct result of such free-market negotiations.
They have held students hostage with tens of thousands of dollars of debt on education, which is itself a human right. Nobody has a right to the labor or property of others. Education is a service. To suggest that anyone has a right to this service is to make educators slaves. Everyone has a right to voluntarily engage the services of an educator, but not by force. Like everyone else, educators must earn a living from the services they provide. They do so by charging tuition. If students don't have the means to pay tuition, they borrow the money to be repaid later after they presumably get a better-paying job as a result of their education. This debt is entirely voluntary. Who is being "held hostage"?
They have consistently outsourced labor and used that outsourcing as leverage to cut workers’ healthcare and pay. Outsourcing is a direct result of market forces reacting to the costs largely imposed by our own government. When taxes and regulation make hiring onerous here, it is natural to look elsewhere to conduct business. This is not the result of any evil intentions on the part of corporations, but the desire to provide a cost-effective product or service to customers. Corporations are always doing what's in the best interests of customers, because that's who pays the bills.
They have influenced the courts to achieve the same rights as people, with none of the culpability or responsibility. Since corporations are composed of people, why wouldn't the rights of the shareholders extend to their voluntary association? And in what way are they not responsible? The liability of the whole is limited, yes, but only insofar as the liability of the individual is intact. If the courts have been "influenced", isn't that a gripe against government rather than corporations?
They have spent millions of dollars on legal teams that look for ways to get them out of contracts in regards to health insurance. A contract is a voluntary agreement. The only way to "get out" is by satisfying the terms of the contract. If they manage to find a "loop hole", then it is because the other party allowed that loop hole into the contract in the first place.
They have used the military and police force to prevent freedom of the press. They have deliberately declined to recall faulty products endangering lives in pursuit of profit. Corporations do not control the military or police. That's government, again. And have you ever heard the phrase "caveat emptor"? Nothing is perfect. To the extent that some companies recall their products (usually under a specific warranty period) does not imply that everyone should do so in reaction to every potential flaw or misuse of every product. Take some personal responsibility!
They determine economic policy, despite the catastrophic failures their policies have produced and continue to produce. Corporations do not determine economic policy for the society at large. To the extent that economic policy is determined centrally at all, it is (unconstitutionally) by the government. The blame for catastrophic failures of economic policies lies squarely with government.
They have donated large sums of money to politicians, who are responsible for regulating them. To the extent that regulators are influenced by large sums of money, that is a failure of government.
They continue to block alternate forms of energy to keep us dependent on oil. Corporations have no means by which to "block" alternate forms of energy. Corporations merely sell things to willing customers. Failure of any particular corporation to offer a product is not the same as "blocking" a product. Corporations will sell whatever is profitable. Alternate forms of energy have largely been unprofitable, costing more to produce than customers are willing to pay.
They continue to block generic forms of medicine that could save people’s lives or provide relief in order to protect investments that have already turned a substantial profit. Corporations have no means by which to "block" generic forms of medicine. This is more a function of the patent system instituted by government. Patents are granted in order to make the massive investments into research worthwhile. If patents last too long, they give more benefit than is necessary to incentivize and prevent generics from competing. If patents are too short, it is insufficient incentive to research new life-saving medicines. I don't know whether patents are too long, too short, or just right. But whatever your opinion, you have to take it up with government, not corporations.
They have purposely covered up oil spills, accidents, faulty bookkeeping, and inactive ingredients in pursuit of profit. These are largely crimes of individuals, not corporate policies. And to the extent that they are corporate policies, they are crimes if they cover up culpability in causing harm. It is the job of victims to sue and the job of government to prosecute. But you can in no way blame the institution of corporations for the crimes of particular ones. This is merely a function of humanity.
They purposefully keep people misinformed and fearful through their control of the media. Corporations in general do not control the media. Only specific ones. And with the advent of the internet, that is becoming less of an issue. Unless of course we permit the government to regulate the internet.
They have accepted private contracts to murder prisoners even when presented with serious doubts about their guilt. Corporations do not execute criminals... that's government, again.
They have perpetuated colonialism at home and abroad. They have participated in the torture and murder of innocent civilians overseas. That's the military... i.e. government, again.
They continue to create weapons of mass destruction in order to receive government contracts. Government orders weapons; corporations do not impose weapons on government. Again, the gripe seems to be with government.
By and large, these grievances seem to be misdirected. What is blamed on corporations is mostly the fault of government or the crimes of particular individuals. To the extent that there is a "feeling of mass injustice" caused by these particular grievances, that injustice is perpetrated by our government. In this sense, Occupy Wall Street is in the wrong place. It should be Occupy DC (which there is one now). More importantly, the common solutions offered are way off the mark! Calling for greater regulation and more taxation would be feeding the beast! It is not agents of Merrill Lynch or Coca Cola who are beating and pepper-spraying the protestors on Wall Street. That's the government doing that! It's not Goldman Sachs that's arresting people on the Brooklyn Bridge (no matter how big the revolving door with the Whitehouse), that's the government doing that! Do these protestors not see the irony of seeking to increase the number of jackboots standing on their necks? The "feeling of mass injustice" is a feeling of the loss of freedom. Government is the opposite of freedom. To increase freedom, you must shrink government.
But maybe we're missing the point to focus on these particular grievances, which were created by a very small subset of the entire movement and does not speak for everyone. What other memes pervade the crowds of protestors?
We are the 99% This slogan (along with "Eat the Rich", "Workers' Rights Now", various things about "Greed", etc.) is an element of class warfare illustrating a growing distaste for the escalating wealth disparity in this nation. Where does this wealth disparity come from? The crowds seem to think that "the 1%" are engaged in criminal activity and somehow stealing it from them. There is no overt theft though, so they surmise that people should be receiving better pay and benefits and are being shafted. But employment is a voluntary agreement, and individuals are free to negotiate for better pay or benefits if they like. However, workers find that they don't have any leverage. There are too many workers and not enough jobs. Ah, but whose fault is that? Well, the greedy corporations are outsourcing all the jobs, they think. But that is far too simplistic. The fact of the matter is that labor is a commodity which reacts to supply and demand, just like any other market. If the supply is too high, it's probably because it's too pricy. I.e. it costs too much to hire that labor because either the wages are too high or taxes are too high or there are too many regulatory strings attached. If the demand is too low, it's probably because it's too hard to start a new business or because it's too onerous to hire someone given the amount of red tape involved. All of these problems stem from our massive government intervention in the economy. If more employees could become employers, the labor market would quickly balance out. But it's too hard and costly to start a new business these days. That's why the labor market is unbalanced and workers have no leverage.
End the Wars People are really fed up with our foreign militarism now. They first elected Bush to enact a "humble foreign policy". That failed. Then they elected Obama to bring the troops home ASAP. He even staked his eligibility for a second term on fulfilling this promise. But the wars continue. Obama not only didn't bring the troops home, he started a NEW undeclared, unconstitutional war! This is tangentially related to the other issues in that the Pentagon is a massive expense in our unbalanced national budget besides the fact that it kills many of our young people and makes us enemies across the globe! As with the other problems, this gripe is against our government, not against corporations.
Expose the Corruption Also, "Outlaw Lobbyists" and "End Corporate Welfare". Corruption is by definition a problem of government. Often it is related to wealthy people or companies buying favors, privileges, subsidies, loan guarantees, etc., but ultimately this is a problem of government having unnecessary, unwarranted, and unconstitutional powers to grant such favors. Lobbyists will stop having influence when government stops having unlimited power. The problems of "revolving doors" will end when government stops regulating and having the power to grant special privileges to those they regulate. That's the sole reason why ex-regulators go to work for the corporations they once regulated as lobbyists -- to get special favors from government! Stop giving government the power to grant favors and this all ends!
Reinstate Glass–Steagall This regards the Banking Act of 1933 which created the Federal Deposit Insurance Corporation (FDIC), allowed the Federal Reserve to regulate interest rates, and introduced banking reforms meant to curb speculation. Specifically, the calls are to reinstitute a provision repealed during the Clinton administration which prohibited bank holding companies from owning other financial firms, separating commercial banking from investment banking. Some economists believe that the newfound ability of investment bankers to gamble with depositors' money contributed to the 2008 financial collapse. But this wasn't really a newfound ability at all. It merely allowed bankers to gamble with depositers' money in a different way. Previously, they could issue mortgages and other kinds of loans with depositors' money. Now they could also buy stocks, bonds, and derivatives. So it wasn't a different kind of activity, just a new class of investments. The problem isn't that investment banks are comingled with commercial banks, it's that commercial banks operate a fraudulent fractional reserve system wherein they're free to invest their demand deposits in hopes of greater profits all the while pretending that any depositor can retrieve all of their funds at any time. Whether they invest in mortgages, mortgage-backed securities, bonds, or stocks doesn't make a lick of difference. The problem is that they don't keep 100% of your checking account in a vault reserved exclusively for you. And the Federal Reserve exists explicitly to protect this fraud. And under current law, this fraud is LEGAL. Let's outlaw the fraud and banks will no longer be a systemic economic issue.
Prosecute the Wall Street Criminals This demand is based on the fallacious belief that anyone on Wall Street broke any laws. You'll be hard-pressed to find anyone on Wall Street who broke the law. The 2008 financial crisis was caused by government policies (i.e. the law itself). To the extent that Wall Street helped, they did so at the behest of their regulators. Increasing regulation will only cause more problems, not less.
Pass the Buffet Rule Also "Tax the Rich", "Pay your Fair Share", etc. There's nothing "fair" about forcefully taking from any minority group, especially those who have been successful. You get more of what you subsidize and less of what you tax. So why would you subsidize poverty and tax success? I might take Buffett seriously about his political positions when he writes a check in the amount of his entire fortune to the U.S. Treasury. Until then, I know he's a two-faced liar who knows very well that the government does NOT know how to spend his money better than he does!
Eliminate Corporate Personhood I'm not sure what evils are specifically ascribed to corporate personhood, which is merely a convenient legal fiction which simplifies transactions between government and corporations, which are composed of perhaps thousands of individual shareholders, each having rights and obligations which are honored in proxy through corporate personhood, including the freedom of association. How would anything improve by ignoring the association and dealing with each shareholder directly? Some people like to claim that corporations are some kind of modern artificial invention which are not necessary or beneficial, but you should recall that corporations were integral to our society from the very first settlers. Plymouth Company and Virginia Bay Company were corporations which brought our very first colonists to America. The building of ships and all of the necessary provisions to survive the voyage and establish a colony were a massively expensive undertaking frought with risk, and this depended on investors self-interested through the profit motive to share in that expense and risk. Only through corporations were we able to establish a thriving society in America. Corporations financed industry and municipal corporations became our towns. This recent antipathy toward corporations belies their long history of good works. Corporations are clearly entities which require legal acknowledgement of some kind. Treating them as any individual would be treated is not an unreasonable method to do this, since they are composed of individuals each having individual rights. As a group, they still exercise individual rights which cannot be taken away simply because they are a member of a group. Like I said, I don't know what great evil is supposedly attributed to "corporate personhood", but it seems like a flimsy scapegoat to me.
End the Fed This, the title of a Congressman Ron Paul book decrying the evils of the Federal Reserve System, is a common refrain of libertarians and Austrian economists -- and rightly so. The Federal Reserve is indeed at the very heart of the evils and misery being felt by the protestors.
And this last point is probably where the protestors should be concentrating most of their efforts. The Federal Reserve is the genetically-modified bastard son of Big Government and Big Banks. The Federal Reserve Act was secretly written by wealthy bankers such as J. P. Morgan and John D. Rockefeller, Jr., who also helped fund President Wilson's presidential campaign for the purpose of signing this act, and then stealthily passed it on Christmas Eve when most of Congress had gone home. The Federal Reserve Act established a legal banking cartel, owned and operated by private banks, which would act as the central banking system of the United States. They were given the monopoly power to print money out of thin air, i.e. to counterfeit! The U.S. Treasury would sell Treasury bonds to the Federal Reserve, who would buy them with freshly minted paper, and the Treasury would then spend the money on government projects, essentially laundering it into the economy. The Treasury would of course pay interest on those bonds to the Federal Reserve. The Fed does contribute the bulk of its profits back to the Treasury, but after their own fees are assessed of course. Moreover, the Fed prints and lends paper money to the cartel members at virtually no interest, and the member banks then lend it to the public at high interest, again laundering it into the economy.
But how does the Federal Reserve contribute to the "feeling of mass injustice"? In The Economic Consequences of the Peace, John Maynard Keynes wrote (probably his only great insight): "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." And that is PRECISELY the "feeling of mass injustice" -- the hidden forces of economic law on the side of destruction that not one man in a million is able to diagnose. The protestors know the banks are involved and they know that the economy stinks, they just don't know why. THIS IS WHY!
The Federal Reserve debauches the currency and causes inflation in a number of ways. One, they hold interest rates lower than the market rate through bond purchases on the open market. They buy the bonds with newly created (counterfeited) money. Another way is by loaning newly created money to the member banks or even foreign banks and governments. It was recently uncovered that in response to the 2008 financial collapse, the Fed loaned out over $16 trillion -- more than the entire U.S. GDP! In some cases, they may hide their purchases of U.S. debt through loans to banks and foreign governments for the purpose of buying U.S. Treasury bonds covertly. They also buy other financial instruments on the open market, sometimes under the auspices of fake front companies, e.g. Maiden Lane, so as to hide their actions from the public. The Fed bought loads of mortgage-backed securities from Fannie and Freddie, for instance. And the banks to whom they lend cheaply engage in "fractional-reserve banking" wherein they multiply the amount they have in reserve by 10 times or more in the loans they give out at high interest. No matter the source of the debauchery, the end result is always the same though -- they print money out of thin air, and that new money dilutes the money supply and devalues every other dollar already in existence. It reduces the value of fixed income instruments, salaries, and savings. The prices of inelastic commodities such as oil and copper go up first, and eventually all prices go up, albeit unevenly throughout the economy. Wages always rise last with inflation. The result is that people have to spend more and more to maintain the same standard of living, but don't get paid enough to keep up. Worse, even when they get a raise, it may not be enough to make up for inflation (which is ALWAYS understated by the government), so while they feel like they should be richer, they still can't afford as much as before. And who gets blamed? Innocent oil companies and employers just trying to keep up like everyone else.
The Federal Reserve is the cause of the "business cycle" of booms and busts. E.g. in response to the housing collapse in the early 1990s (itself the result of an earlier Fed-induced boom), Alan Greenspan expanded the money supply and blew up the Nasdaq "dot-com" bubble. When that bubble collapsed, he fueled the next housing bubble. Then that collapsed, and Ben Bernanke is in the process of blowing up the next bubble, perhaps in commodities such as gold. This happens because inflation is a false signal. It tells the market that there's plenty of savings (the natural source of loan capital), and so people should take more risks to grow the economy, and so they invest in factories and housing and internet companies. But when it turns out that the demand wasn't really there, these turn out to be bad investments and the bubble collapses. Meanwhile, real wealth is destroyed in the process. The Fed can only print money, not the wealth that is supposed to be represented by that money. So when people work hard and invest their skill, labor, and capital chasing after fake demand represented by the illusory wealth of counterfeited money, the economy loses. Every bubble and crash takes us to a new low. And there aren't really vast amounts of savings on which to soften the crash, but just another illusion. The result is that more and more people end up unemployed and on welfare.
None of this is a part of free-market capitalism, which tends to get blamed. The cause is fiat money, fractional-reserve banking, and the central bank cartel. That is the source of the "feeling of mass injustice". That is where the energy of Occupy Wall Street should be directed. At the Federal Reserve, at the U.S. Treasury, and at Congress. This triumvirate are the culprits and the only ones who can change the direction of this country and the plight of the people. First we need a full, independent audit of the Federal Reserve and of the U.S. gold reserves supposedly at Fort Knox. Then we need to abolish the Federal Reserve and replace it with competing free market money. No more counterfeiting. No more government-created monopolies. That is how our economy regains a solid foundation upon which it can grow confidently. That's how people can be secure in their savings and their wages. That's how companies can plan well into the future, which supports hiring and investing.
It's something that everyone can get behind. Occupy Wall Street, the Tea Party, Democrats, Republicans, Independents. The time has come to finally end the Fed. Like Andrew Jackson and Thomas Jefferson before him, we must kill the bank. It is the key to our ongoing prosperity.