Wednesday, December 1, 2010

President Obama is wrong, and Secretary Clinton is wrong. Those remoras of state at CNN, FOXNews, ABC, NBC, CBS, NPR and many Congressmen are all wet in their frantic response to Cablegate, and Wikileaks in general.

I’ll admit the U.S. government should have been a bit angry about the Wikileaks release over the summer of the 2007 gunship video and narration of a bloody massacre of unarmed Iraqis and reporters. There was nothing redeeming there, no points of light or lessons to be learned. That release fundamentally explained to Americans and others who supported the Iraq invasion and occupation exactly what democracy at the point of a gun looks like. Perhaps the US government wasn’t as upset as it might have been because no one affected by this crime was surprised. Similar massacres, according to soldiers involved in Iraq, were routine and conducted as ordered. The Iraqis, of course, knew this from the beginning.

The Wikileaked Afghanistan reports didn’t indicate much more than the antiwar and the pro-war crowds already knew, and as a result, again, there were no changes in the bleachers of American foreign policy. It’s likely that the Rolling Stone interview with General McCrystal around the same time was more embarrassing to Washington. One wonders why McChrystal has not yet been declared a domestic terrorist. He shared secrets and embarrassed the administration. A case could be made that his pussyfooting around the Afghans (a Special Forces nuance that our good Prussian Petraeus was quick to eliminate) was intentionally designed to help "lose the war" in Afghanistan. Well, give it time.

But Cablegate is different, and the reaction of the ruling class so far ranges from simply demanding Assange’s head on a platter to demanding the Internet be declared a terrorist entity, and destroyed.

Government propagandists proclaim that people will die from this latest release. Unless they mean die laughing, this is quite an overstatement. Government goons, soldiers and bureaucrats in foreign countries will not face a greater threat to their lives, most especially from these cables. What they will face is snickers, chuckles, and outright laughter.

And truly, this is as it should be. When one declares that his robes are the most beautiful, made of the finest silk, so glorious that they compete with the sun – sometimes a little blond-haired boy with a most serious look about him declares that it seems to him that the Emperor has no clothes! And we see, slowly at first, then an unstoppable surge of laughter and finger-pointing by the common people who, for all their ignorance and all their flaws, know enough to put on clothes before going out in public.

The US government shrieks, tone-deaf, of global democracy – but disparages the populist language of Italian officials and declares the elected and popular prime minister there to be unqualified. Yet, this same democracy-loving government enjoys very much its dealings with the evilest of dictators. This hypocrisy has long been a staple of both libertarian and Marxist critiques of US foreign policy, for well over a century. Now it’s out in the open – and it’s kind of funny.

Hillary Clinton approves a State Department-wide command to surreptitiously collect DNA and credit card numbers on UN representatives and other diplomats. This particular case is breathtakingly Nuremburgian. The order Hilary was transmitting was already government policy – the great Diplomat Herself was just following orders. And certainly, any of us common folk who watch enough CSI to be dangerous know that collection of DNA samples with chain of custody procedures that will stand up in court is not something we would automatically trust to a bunch of pinstripers at State. Beyond that, the rest of us who watch COPS know that taking people’s credit card numbers without their knowledge and permission is a crime.

Now that we know what they are trying to do, the proper reaction is to giggle and glance at each other while we check our pockets, handbags, backpacks and satchels for our wallets and watches whenever we find ourselves near a government representative. Of course, air travelers in this country have been doing just that for some time. But the sweet lesson here is that a government goon is a government goon, just following orders, no matter where they buy their suits. Our ability to quickly recognize that government goon is increasingly unifying average Americans, and strengthening us. As our government goonar continues to develop, the game becomes more fun, and funnier. Cablegate improves everyone’s goonar!

There is talk that the data released this week actually helps Israel’s case for a good old-fashioned pre-emptive attack on Iran. Why? Because Saudi Arabia supports it! Well, skyrocketing oil prices certainly would come in handy to the still dollar dependent House of Saud about now, but I digress. Now, if I were the little old US of A thinking about starting one more war with a country I didn’t like, especially given I was dead broke and already a military laughingstock based on past and present performance in Iraq and Afghanistan, listening to what the corrupt, US-dependent ruling class of Saudi Arabia had to say about it would be right up there on my go-to-war-decision-meter. Give the obvious and otherworldly stupidity of our politicians, generals, and diplomats, perhaps the Saudis do tell us what to do, and maybe Wikileaks hearts neocons. A better sense of where the US diplomatic head is at can be gained by reading reports of meetings in Tel Aviv, where the great US stumbles over itself to be inoffensive, seeking simultaneously to be both submissive and warlike when speaking to Israelis. Pathetic little weasels, the lot of them. But their pathetic weaselness cannot be blamed on Julian Assange, no matter how many neocons and other cons declare the problem to be facts in the open, rather than simply the facts.

On a more serious note, beyond the debate on whether to assassinate Assange, blow up the Internet, conduct an unwarranted attack on an NPT signatory that is following the rules, or to continue to ally ourselves with the crazies in Pakistan and Israel, it is important to recognize that fascism of one kind or another is currently embraced by a majority in Congress, and by a large minority across the country. An alert and informed citizenry, valued by presidents from Washington to Eisenhower, is now deemed by D.C. to be a nascent domestic terrorism threat. As the American wholesale subsidy of banks, bullets and butter metastasizes, devouring freedom and wrecking the system, the desperation of the ruling class and those in its employ is palpable. Americans ought to gratefully smile as we review these latest Wikileaks, and we should savor the hilarity. Seeing our government as theatrical stooge, as incompetent popinjay, as naked and embarrassed Emperor, sets the stage well for what comes next.

Doug Casey on the TSA

Doug Casey on the TSA

Interviewed by Louis James, Editor, International Speculator

Recently: Doug Casey on Gold’s New High, the Fed, and the Greater Depression

L: Doug, your favorite group of people, the Transportation Security Agency, has been in the news a lot lately, with their chief being summoned to Capitol Hill to answer for the excesses of his underlings. Today is National Opt Out Day, when Americans are encouraged to refuse the full-body "porno" scans and the alternative pat-downs. And yet, the TSA is said to have very high approval ratings – as high as 81% in one CBS poll. As straws in the wind go that does not bode well. What do you make of this?

Doug: They're certainly the face of government that one encounters most often these days. Some newer polls and news stories suggest that support for what they do may be waning, but in general, it's another sign of the accelerating decline of the American Empire. As Tacitus pointed out in the second century, the more numerous the laws, the more corrupt the state.

All bureaucracies inevitably become sodden, counterproductive, and centered mainly on their own agendas. But the TSA is on an extraordinarily steep downward trajectory. I suspect that is for several reasons. One is that the TSA is on the "front line," as they pathetically describe it, of an unnecessary and illusory war on terror, so they're very sensitive about somehow justifying their existence. Another is that they're dressed up in uniforms and organized in a paramilitary manner; once you put people in uniforms they become much more obedient chimpanzees. Another is that their employees are actually the dregs of U.S. society. It amazes me that when Congress created it, they somehow found 50,000 people who thought that getting paid to go through fellow citizens' dirty underwear at airports was a good deal.

This is unskilled labor of the most menial sort. But these are not, by and large, teenagers with no skills; rather, they are middle-aged people who should be able to find some more productive – or at least higher-paying – use for their time. I suppose it was perceived as a step up for those who were WalMart greeters, or packing bags at Safeway – although that's incorrect, because although those are low-paid, unskilled, and unchallenging occupations, they are at least honorable work.

And they've now expanded the force to 65,000, and they are still hiring – they've placed ads on the backs of pizza boxes. These people are truly the bottom of the barrel.

L: I've just looked it up, and the TSA screener gets paid $10.91–$15.59 per hour. Overtime is up to $23.23, and there are bonuses. I wonder what those are for…

Doug: I doubt the bonuses are based on "customer satisfaction." And I bet the government benefits are significant, and the fringe benefits are commensurate with government employment. At this point, the average government employee makes about 50% more than a civilian worker. It's appealing to those who have not bothered to learn a useful trade.

But the real problem is psychological. Certain types of people are drawn to certain types of jobs. Only a certain type of person would, for example, become a prison guard. It's bad enough being sent to prison involuntarily, so what does it say about a person who'll spend his or her days there, just to be the one with the baton? These are really bad apples, and the power has, quite predictably, gone to their heads.

L: You don't think any of them think they are actually making people safe – saving lives?

Doug: There might be a few who actually believe that, but that doesn't mean they are not still, on average, the sort of person who enjoys bullying other people. Actually, the people who are even more contemptible are the members of the chattering classes – you can read their editorials in the Washington Post and here – who cheerlead for the TSA, by saying "Yes, some mistakes are made, some officers are over zealous, or lack common sense, but it's good and necessary in principle." That's totally pernicious nonsense on all levels. It's a matter of principle that's in question, something to which they're completely oblivious.

There are many, many recent examples of just how arrogant and abusive these thugs have gotten recently. I just read today about a cancer victim that had a bladder bag…

L: Can't take any liquids through security!

Doug: Yes. So they pawed the thing and spilled urine all over the fellow, and he had to travel that way. Another story I read recently was of a woman who had pierced nipples and the TSA removed the rings with some pliers they had lying around, even after the things were identified and were obviously no threat.

And there was a six-year-old child who couldn't walk without a leg brace, but they made him take it off to go through the metal detector. And you better not back-sass your betters today, either…

Actually, the TSA serves absolutely no useful purpose. On the one hand, it's playing into the bad guys' hands by helping bankrupt the U.S., by death through a thousand cuts. On the other hand, if a bad guy really wanted to do some damage, he'll just stand in a line with hundreds of others waiting to go through screening, and detonate his carry-on bag there. That will certainly happen.

L: I've just looked up some sample news reports, including the screaming three-year-old and that guy's "don't touch my junk" cell-phone recording that's going around, for people who haven't seen them.

Doug: This is, in my view, criminal malfeasance. These people are completely out of control. But, more importantly, it's a sign of the times. An atmosphere of suspicion, antagonism, envy, and fear is becoming more pervasive every day in the U.S. and Europe. With every real or imagined "terrorist" event it gets ramped up more. The TSA now has goons patrolling trains and bus stations. A clever bad guy will attack one of those, so that all public travel in the U.S. would be as bad as it is in the airports. Then, a couple incidents using cars and trucks, which would "prove" the necessity for 100,000 more TSA people. Eventually, you'd be unable to travel anywhere, in any way, without the prospect of inspection and detention.

L: People do seem to be realizing this danger. The outrage seems to be a matter for comedians to take up. There are some Internet spoofs of the TSA pat-downs going around, including one from Saturday Night Live I just dug up.

Speaking of spoofs, do you remember the Airplane movies made back in the 1970s to spoof the Airport dramas? In the second one, there's a scene in which two main characters are talking in the foreground, and in the background, people are trooping through the magnetometer with guns, bandoliers and bazookas, while a little old lady is thrown against a wall and frisked. These movies are totally slapstick, intended to be utterly ridiculous, and now life is imitating fiction.

Doug: I know; Americans are now the laughingstocks of the world. Life is clearly imitating art at this point. There's no question about it. I just wish it would get to the point it did in V for Vendetta, towards the end of the movie – and sooner rather than later. But I fear that whatever replaces the current system – at least for a while – will be even worse, before it eventually gets better.

L: It certainly seems to be a sign of our times – evidence of the decay of the empire, as you say; the roaches are coming out of the woodwork and marching about in the light of day with arrogance and disdain for their inferiors. On the other hand, the head TSA roach did get called out on the mat. The Internet is buzzing with praise for Ron Paul's efforts to put them in their place. Do you think there's any hope Americans will put their collective foot down and stop the airport grope-fest?

Doug: No. Some polls show citizens are outraged, but most others suggest that they are cheering the TSA on. The fact is that when you deal with almost anybody, as an individual, they are generally affable and sensible. But we're dealing here with mob psychology, and governments. Therefore you're dealing with the lowest common denominator, and the basest motives and emotions. At this point the whole system is in a self-reinforcing downward spiral. It needs to be flushed.

L: Hmmm. There was a recent comedy about an improbable romance between a "nobody" and a girl who's totally "out of his league." What job did they give the guy to epitomize the insignificance of his life? He was a TSA goon. But it was a Hollywood fantasy, so he was, of course, an under-appreciated nice guy.

Doug: That's classic. But in real life, even people who would ordinarily be nice tend to let the demons within out, once they're sucked into power within an abusive system. It's like the Milgram Experiment. You can put an ordinary person into an authority system, and he starts acting as he's told to. And the public starts acting like sheep. This is why it only takes one guard to intimidate 100 prisoners.

Take the example of Germany. It was a civilized country in the 1920s, but when the wrong people got in power, the 20 percent of the 20 percent who are the worst among people came out of the woodwork and joined the SS and the Gestapo. They were mostly pretty average nothing/nobody people who let power go to their heads – just like the people who work for the TSA today.

The Black Riders have come out from Mordor and their minions are swarming over the land.

L: Someone replicated the Milgram experiments recently. I'm amazed they got it past an ethics committee. As for the TSA, here's a collection of horror stories to back you up.

What's really scary is all the preparation our tireless public servants have done, setting up systems that seem benign – or at least mostly harmless – now, but pave the way for serious abuse. The suspension of posse comitatus for the drug war, the declaration of U.S. citizens to be "enemy combatants" (a term not mentioned in the U.S. Constitution) and therefore without the rights guaranteed by the Constitution, the stories about the FEMA camps already built, wiretaps without warrants, the erosion of the Second Amendment (the right to keep and bear arms), "free speech zones" where free speech is allowed… All of these things are police-state tools.

Right now, the U.S. still feels relatively free. You and I can have this conversation without being sent to the gulag. But make a joke in a TSA screening checkpoint, and see how free you feel. Or make a politically incorrect statement on a college campus. What happens when these insects, with real or manufactured approval from the masses clamoring for security, feel truly free to do whatever they please?

Doug: The cat's totally out of the bag now. It's become Kafkaesque. It's gotten so bad, many people I know go out of their way not to fly through the U.S. Even if you're not leaving the airport, but are just making a flight connection, you have to go through the indignities of customs and immigration – and then you have to deal with these lowlifes at the TSA. And it's just going to get worse.

I'm interested in – but not looking forward – to seeing what happens on my next trip to the U.S. Flying in most parts of the world is still fairly mellow, unless it's a flight to the U.S. I plan on opting out next time, and not using the back-scatter device. I just have to keep my cool. These people can sense I have an attitude about these things – and frankly I have only contempt for people who don't have an attitude. They either have no self-respect, or no intelligence. But it's pointless to lose you temper, since you're dealing with robots. Raging against the machine just depletes your own resources, and can actually strengthen the machine.

The wisest course is to minimize your flying, and soon other travel, in the U.S. That means spending a minimum of time in the U.S., but since there is relatively much less wealth and opportunity in the U.S. with each passing day, that's less and less of an inconvenience. I fear it's going to get much worse, at an accelerating rate.

L: And to add insult to injury, none of this makes anyone one bit safer, while there are systems that apparently do. They don't pat people down in Israeli airports, for example, and yet have not had a breach of security for years. Here's a video I found that makes that point.

Doug: I suppose. The Israelis have gone out of their way to hire street-smart operators, which won't ever happen in the U.S. And they can be very politically incorrect, looking for a certain type – basically a young Muslim male; that will never happen in the U.S. either. And they've been lucky; only a complete idiot will hit such a hard target. But Israel is a theocratic, ethnically exclusive police state – hardly a model to follow. And I don't like being interrogated by some fool in a uniform, either.

On the bright side, this gross violation of people's rights by the TSA is so personal, it could be the thing that actually pushes the U.S. over a psychological tipping point, and gets Americans to act like Americans, and say, "I'm not going to take anymore!" At some point even a cowering dog will stop cowering and bite. At least in theory.

The would be good for the country, but could make things turn pretty ugly in the interim, which is one reason I'm glad I don't have to – and don't – spend much time in the U.S. any more.

L: But you've said before that the Land of the Free and the Home of the Brave has been turned into Land of the Lapdogs and the Home of the Whipped Dogs. Do you actually think there's a line beyond which U.S. citizens can't be pushed and will develop the spine to act like Americans?

Doug: Well, one can hope. With millions and millions of people losing their houses, and almost 40 million people receiving food stamps, while corporate execs loot their publicly-traded and government-subsidized employers for billions in bonuses, and inflation set to take off in the not-too-distant future, these sorts of indignities could push people over the edge.

Sometimes, it amazes me to see the stock market going up in the face of all this volatility, but I believe it's doing so because of the creation of all these trillions and trillions of currency units. Not because of any fundamental soundness in the economy. This has me thinking of the ideal speculations for the next little while… which I'll write about in the next issue of The Casey Report.

L: Okay, but generally, investment implications would be as with other straws in the wind spelling out trouble and volatility: liquidate, consolidate, create, and speculate.

Doug: And diversify your political risk. As you know, I always like to look at the bright side of things. In this case, it will be interesting to see if the looming complete bankruptcy of the U.S. government will force a deconstruction of the "national security" state, including disbanding of the TSA, which may well grow to 150,000 employees in the near future. Or whether it will turbocharge its growth for a while thereafter.

L: Okay then, no need to repeat that – but readers who have not read what you have to say on those subjects should follow the links.

Doug: Right.

L: Say, Doug, we spoke about music last week, but neglected to mention our music project.

Doug: You mean your student from Belarus, whose debut CD we funded?

L: Yes. Her band is called PRANA. We're still working on English translations, but there's one song in English folks can listen to now, if they're interested. Go to www.musicbyprana.com, click on "eng" for English, then click on the angel holding a musical symbol. That takes you to a page with an audio file called Tempt Me Not – click on the "play" triangle. There are other, rather different songs in Russian on the Russian side of the site.

If you'll indulge me, I'd like to ask our readers for a favor: PRANA has entered a contest in which anyone can vote for their favorite Belarusian bands. The big prize is funding for a professional music video. There's an important vote taking place today (until 5 a.m. EST 11/25), and another one next week. I'd like to ask our readers who are interested to listen to PRANA's music, and if they like it, to vote for her in this contest. To do that is easy, though the site is in Russian; go to http://www.trkbrest.by/projects and click on Prana's picture (it's the one on the right, the only one of a girl), and when the popup box appears, click on the blue "Голосовать" button on the left. That's it. Prana and our students in Belarus would really appreciate the support.

Doug: Okay, but when will we hear more songs in English?

L: I've helped her translate her lyrical poetry, and she's working on her pronunciation. The words are important in her songs, and she wants to be understood clearly. I hope we'll have an English CD soon.

Doug: Good luck to her!

L: Thanks, and thanks for your input on the TSA today. I hope lots of people opt out!

Doug: You're welcome. Until next time…

Doug and his fellow editors of The Casey Report tell it like it is – so you always know what's coming. The increased government meddling in security and in all sectors of the economy, the looming bankruptcy of the U.S. government, and the investment implications can make or break your future wealth. Learn how to take advantage of the current situation and profit while other stand on the sidelines; click here for more.

De-Toxify the Beast!

De-Toxify the Beast!

by Gary North

Recently by Gary North: Lincoln's Gettysburg Address, If He Had Been More Honest

Have you ever heard this phrase? "Starve the beast!" It refers to starving the Federal government. It argues that if Congress cuts taxes, spending cuts will necessarily follow.

The problem with this metaphor is that it conjures up a mental image of an overweight person who cannot bring himself to stop eating. He has no inner Richard Simmons, longing to get out.

The problem is this: this obese person has an inheritance that he can tap into whenever money runs short: the Federal Reserve System. He just keeps getting fatter.

The metaphor of the obese person is the wrong one. The correct metaphor is a city council filled with drunks. Only one of them has remained stone cold sober for 30 years. He keeps telling the voters that his colleagues can't sober up on their own. The voters pay no attention. That is because the council members keep buying free drinks for the party-loving folks who live in their districts. "Barkeep, another round for my friends!"

Where does the city council get the money? From the voters. The voters who remain sober say they don't like it when council members keep buying drinks for their neighbors and then put it on the city's tab. But, drink by drink, household by household, most residents are becoming steadily addicted to booze.

It is always hard to persuade a lone drunk to head for Alcoholics Anonymous. It is impossible when they are all together at the bar, with half a dozen constituents each. "Set 'em up, barkeep! Put it on my tab!"

POLITICAL RESENTMENT BY SOBER VOTERS

There is no possibility that such a city council will ever head for AA as a group. Why should they? Parties are fun. Everyone loves a good party. But what's a party with only lemonade? That would be a Baptist party, with some Mormons invited, just to be sociable.

But, insist the fiscal Baptists, one of these days the taxpayers are going to find themselves incapacitated. The broad mass of taxpayers are going to find it difficult to remain productive. Revenues will fall. Then the city council will find that the till is depleted. No more parties!

That sounds plausible, but there is a problem: bonds. The voters keep passing bond issues. And why not? When you are dealing with a room full of drunks who are three hours into the party, you will not find a lot of concern about the borrowing cost of putting more booze on the tab. Parties make for short-run thinking. "There's always more where that came from! Let the good times roll!"

The bartender knows that the city council is good for the money. What's a little extra debt? The owner of the bar will submit his bill at the end of the month, and it will be paid. It has always been paid. It's easy money for him. He tells the barkeeper, "Keep filling up those glasses. The city is good for the debt."

The remnant of voters who are both sober and productive now see what is going to happen. The bonds must be paid off. The sober voters will have to pay the bills. They don't have the votes to lower taxes. They can at best hold taxes level. But the tab keeps getting larger. The tavern owners in the city keep extending credit. The tax base will not cover this indefinitely.

It is obvious to the voters who are not participants at the party that, at some point, the city is going to default on the bonds. The losers will be the dolts who kept lending money to a city whose council members were, with one lone exception, drunks. The tavern owners will hit the skids themselves. The fiscal Baptists prepare for the great "we told you so" opportunity that is surely coming. "Sorry, guys, but you knew your customers were a bunch of drunks. You will now have to go into another line of work. And your customers will all be suffering from hangovers and depleted bank accounts."

The problem is, when the city defaults, there will be a lot of services cut. The parties will cease, but then money for all of the other services will be hard to come by. The city council will find it difficult to collect taxes. It will find it more difficult to attract future lenders. When it's "in God we trust; all others pay cash," there will not be much cash.

CONGRESS IS NOT A CITY COUNCIL

Here is where the analogy breaks down. Yes, they are all drunks: voters and council members. That part holds up. What doesn't hold up is the analogy of the city council. Drunks with an unlimited tab are in Congress.

Unlike a city council, which faces a potential revolt by bond investors – the famous vigilantes – Congress has a central bank in reserve. That's why it's called the Federal Reserve. The FED keeps buying the debt of the U.S. Treasury. Congress, unlike a local city council, can keep running up the tab. "Another round for my guests, barkeep!"

The Federal Reserve, unlike a bond vigilante, is not using its own money to pay Congress for its perpetual party. It creates money out of nothing to buy the IOUs of the party-goers. It's a two party system. The Democrats invite their constituents to the party, and the Republicans invite theirs. They sit at different ends of the bar. Nobody is in favor of calling it a night and going home.

What this means is that the party can go on a lot longer in Washington than it can locally. The presence of the Federal Reserve makes the tavern-owners happy. The revelry will go on indefinitely.

Or can it? As they say, "drunks are drunks." The behavior has the same debilitating effects, whether locally or in Washington, D.C. The revelers stagger home at dawn, only to start up again in the evening.

Good time Charlie Wilson is the model. So is Carl Albert, who was Speaker of the House from 1971 to 1977. He was an alcoholic. The public did not know or care. His colleagues knew, but a lot of them suffered from the same affliction. (http://bit.ly/DCbooze) It is "don't ask, don't tell." People who live in dirty glass houses don't hire window washers, let alone throw stones.

When you are dealing with people who are long-term alcoholics, you need to intervene to get them to stop. The problem is, almost everyone seems to be at the party, allowing Congress to run up a huge tab at the bar. The vast majority of voters do not want intervention. They may complain about too much beer being consumed by teenagers and other uninvited guests whose IDs are never checked by the bartender, but the hard stuff – Medicare, Social Security, and the Department of Defense – is untouchable. "Let's party!"

The dwindling number of sober voters look at this and conclude: "Something's got to give." They are correct. This raises several questions.

1. What?
2. When?
3. With what consequences?
4. For whom?
5. In what order?

And, of course, the big one:

6. How can I get out of the way?

The last time that the Federal Government had no debt was in 1836. That was the only fiscal year in American history when the condition of cold turkey sobriety prevailed. This tells us that the problem of irresponsible drinking is not going to be solved at fiscal AA meetings: no booze at all.

Americans are not fiscal Baptists. We are, at best, sneakin' deacons.

LAFFER'S SOLUTION

For 35 years, conservatives have witnessed a continuing debate that has raged on the sidelines of the conservative movement.

Should the Federal government balance the budget by (1) raising taxes or (2) cutting spending, so that economic growth can replace the forfeited revenues?

This is the debate over the Laffer Curve. Arthur Laffer presented his famous curve to Dick Cheney and Donald Rumsfeld on a napkin. That was in 1974. He argued that, when taxes are too high, people will find ways of cutting back on their official, easily taxable production. The government will not collect all of the tax revenues that Keynesian economists had promised.

The solution, Laffer argued, is to cut taxes: especially high marginal income tax rates. Then production will increase and tax revenues will rise. Presto: Less is more! Less taxation on the books brings more revenue. That will balance the budget.

Wikipedia has a cogent article on the Laffer Curve.

The argument is formally correct, but it rests on an assumption: the marginal tax rates really are on the far side of the curve. This assumption is true most of the time.

The argument makes another assumption, which is never true for long: "Congress will not spend more money than is collected from any increased revenues." This assumption is not correct politically. (When Laffer drew his curve, it was not politically correct, either.) Here is what it misses.

No matter how much revenue is collected, Congress will always pass more spending bills, so that the deficit will inevitably reappear, assuming that it ever goes away.

Put succinctly: "Federal government deficits are inevitable." This law has remained unbreakable ever since 1837.

Mainstream economists make false assumptions. There is only one assumption with respect to taxation that is in fact a law of politics: "Assume the position." Politics determines only who will assume which position and for how long.

DAVID STOCKMAN'S SOLUTION

Stockman was Ronald Reagan's budget director from 1981 to 1985. He did not believe that Laffer's solution would work. He said so in cabinet meetings. Reagan had promised to pressure Congress to pass a law lowering marginal tax rates. He also promised to increase military spending. He did both.

Stockman kept saying that the increased revenues would not be sufficient to overcome the increase in expenditures. He was correct. Reagan vetoed no big spending bills that Congress got to his desk for a signature. Spending kept rising.

Meanwhile, Volcker's policy of dramatically reduced rate of growth in the monetary base produced back-to-back recessions: one under Carter in 1980, which lost the election for him, and one under Reagan in 1981-82, which cut revenues. In 1983, the Federal Deficit went over $200 billion. I had predicted this figure in my newsletter and my book on price controls in 1977, at the beginning of Carter's Administration. I had said it would hit in 1984. I missed.

Stockman looked at the politics of budget-cutting and concluded, "No way." He was correct. There was no way that Reagan would reduce spending sufficiently to bring the budget into balance.

The question was this: "Could he have cut spending?" That was the most important domestic policy question in the entire post-War world.

The thrust of bipartisan Keynesian politics, 1946 to today, has been to resist all attempts to cut spending, or even hold it steady. Reaganites promised a Reagan revolution. "Let Reagan be Reagan." But Reagan was a big spender. He never lost his taste for the New Deal, which he favored domestically all of his life. He was never in the camp of the Taft Republicans.

Reagan had the votes to get marginal tax rates cut. He had the votes to build up the Defense Department. But he never bothered to test the political waters on the question of domestic spending.

In 1983, Social Security technically went bankrupt. That was Reagan's moment of truth in domestic politics. Would he let the thing go under, or would he implement the Greenspan's Commission's recommendation to hike taxes? He did not hesitate. He backed Greenspan.

Then in 1986 he signed TEFRA into law: a major tax increase.

There was no Reagan revolution. There was only a Laffer revolution, and then only on the taxing side.

Stockman wanted a balanced budget. He saw that Reagan would not provide it by vetoing spending for domestic programs. So, he opposed tax cuts. He opposed the Laffer revolution. Conservatives never gave Stockman credit for having warned Reagan that this would happen. When he resigned, there were no cries of "Good show, Dave!"

Had I been Stockman, I would have resigned. But I would have resigned over Reagan's refusal to cut spending, not his decision to cut taxes. My motto is this: "If you're going to commit political suicide, do it on behalf of cutting spending."

"ALL HAIL THE DEFICIT!"

Here are the political choices available in a national political system that is based on this slogan: "Another round for my friends, barkeep."

1. Cut taxes (deficit rises).
2. Leave taxes alone (deficit rises)
3. Raise taxes (deficit rises)

This means that the deficit will rise. Now the debate shifts. From the point of view of American voters, who should buy Treasury debt?

1. Private investors
2. Foreign private investors
3. Foreign central banks
4. The Federal Reserve

There is no question which I am in favor of: #3. Let foreign central banks buy all of it – every last dime of it. Why? Because American voters will accept this slogan: "Stiff China!"

Somebody is going to get stiffed. There is no way out. This can be American investors. It can be Asian central banks. It can be American citizens, who will be wiped out because of

1. Piecemeal default by hyperinflation
2. Piecemeal default by mass inflation and price controls
3. Immediate default by open declaration of Federal bankruptcy
4. Piecemeal default by means-testing of benefits
5. Piecemeal default by the boom-bust cycle, repeated forever

The deception can go on and will go on. But the question of who bears most of the costs of the default is a political question.

CONCLUSION

Raising taxes will not help. Congress will spend every dime and borrow against the future.

Cutting spending is not politically possible. Reagan had his chance. He never considered it.

The deficit will delay the day of sobriety.

The day will come when Congress will not have any more credit. The bar's owner will send a note to the bartender: "Don't let these guys run up the tab. It's cash on the line."

If the FED inflates, prices will rise, until the bar's owner tells the bartender: "Silver coins or gold coins only."

Congress will then sober up.

Tens of millions of Americans will then go through forced de-tox at that point. It will be pink elephants on parade.

Pink elephants are the inevitable result of red ink.

So, my goal is to increase the supply of red ink. I want to keep more of my income, so that I can invest in asset categories that will protect me from the drunks, both when they are drunk and when they have the DT's. This means lower taxes now, capital accumulation now, and buying up the distressed property of drunks after they finally sober up. Cut taxes and cut spending. But if it's one or the other – and it surely is – cut taxes.

I wish to be remembered by this poem:

North marched up the Laffer curve,
And said to all his men:
"Let's cut the rates till income falls,
And then let's cut again."

December 1, 2010

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible

So What Happens If The Dollar And The Euro Both Collapse?

Currency Crisis! So What Happens If The Dollar And The Euro Both Collapse?

Some analysts are warning that the U.S. dollar is in danger of collapse because of the exploding U.S. government debt, the horrific U.S. trade deficit and the new round of quantitative easing recently announced by the Federal Reserve. Other analysts are warning the the euro is in danger of collapse because of the very serious sovereign debt crisis that is affecting nations such as Greece, Portugal, Ireland, Italy, Belgium and Spain. So what happens if the dollar and the euro both collapse? Well, it would certainly throw the current world financial order into a state of chaos, but what would emerge from the ashes? Would the nations of the world go back to using dozens of different national currencies or would we see a truly global currency emerge for the very first time?

Up until recently, the idea of a world currency was absolutely unthinkable for most people. In fact, the notion that all of the major nations around the globe would agree to a single currency still seems far-fetched to most analysts. However, if enough "chaos" is produced by a concurrent collapse of the U.S. dollar and the euro, would that be enough to get the major powers around the world to agree to a new financial world order?

Let's hope not, but it is getting hard to deny that we are heading for a major currency crisis, and if the U.S. dollar and/or the euro collapse, the world will certainly never be the same afterwards.

In case you missed it, China and Russia made a very big announcement the other day.

They told the world that instead of using the U.S. dollar to trade with each other, they will now be using their own national currencies.

Most Americans don't realize it, but that is a very, very big deal.

The fact that the U.S. dollar has been the primary reserve currency of the world for decades has given the United States a tremendous amount of economic power.

But now nations are beginning to lose confidence in the U.S. dollar and they are slowly starting to move away from it.

When the Federal Reserve announced a new round of quantitative easing in early November, it created a huge backlash from other nations. For decades, many other countries have been heavily investing in dollar-denominated assets, and now they are quite upset that those assets are going to be devalued.

Chinese Finance Vice Minister Zhu Guangyao used very strong language in denouncing the Fed's new quantitative easing scheme earlier this month....

"As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets."

German Finance Minister Wolfgang Schäuble was even more blunt. He has called current Federal Reserve policy "clueless", and he says that he is absolutely disgusted with the Federal Reserve at this point....

"They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous."

So where is all of this going?

If the Federal Reserve keeps flooding the system with new dollars, the rest of the world could eventually totally reject the U.S. dollar and U.S. Treasuries.

If that day ever arrives, the results would be beyond catastrophic as the following short video from the National Inflation Association demonstrates....

But it is not just the U.S. dollar that is in trouble.

The euro is in danger as well.

Just consider the financial problems that some major European nations are experiencing right now....

*Standard & Poor's has slashed Ireland's credit rating two notches to "A", and is warning that there could be further downgrades. The Irish budget deficit is projected to reach 32 percent of national output this year. Ireland's finances are being called "just one big pyramid scheme", and they recently accepted a huge European bailout. Unfortunately for Ireland, this bailout comes with strings. The Irish government is now being forced to implement an austerity program that is being referred to as "draconian".

*Analysts are projecting that Portugal is going to need a bailout of at least 50 billion euros. The government of Portugal has implemented some harsh austerity measures in an attempt to get the red ink under control, and the people are not pleased. On Wednesday, a massive national strike shut down travel and basic services across the country.

*Things are so bleak in Portugal right now that Foreign Affairs Minister Luis Amado recently stated that his nation "faces a scenario of exit from the euro zone" if a solution is not found for this financial crisis.

*Greece was the first nation to need a European bailout, and now there are rumors that they may need even more assistance. The statistics agency for the EU, Eurostat, recently revealed that Greece's budget deficit for 2009 was actually 15.4% of GDP rather than 13.6% of GDP as originally thought. The Greek national debt is now well over 120 percent of GDP. The financial problems in Greece never seem to stop.

*Belgium's debt has reached 100 percent of annual national income, and the cost of insuring that country's debt has now hit record levels.

*Even Spain is in trouble. Rates on Spanish 10-year government bonds have risen to frightening heights in recent days, and the official unemployment rate in Spain is hovering around 20 percent.

*In a recent article entitled "A Spanish Bailout Would Test Europe’s Strained Finances", the New York Times quoted Jordi Galí, the director of the Center for Research in International Economics at Barcelona’s Pompeu Fabra University as saying that rumors that Spain is in financial trouble could end up making it a self-fulfilling prophecy....

"If investors expect Spain to have trouble refinancing its debt, now or somewhere down the road, then Spain will have trouble,” he added. “This is only aggravated by the fact that the reluctance of investors to purchase the country’s public debt leads to an increase in the interest rate it has to pay and thus in the budget deficit and the amount of debt it has to issue."

So could this sovereign debt crisis actually cause the euro to collapse?

Well, it depends who you ask.

European Financial Stability Fund chief Klaus Regling says that there is "zero" chance that the euro will collapse....

"There is zero danger. It's inconceivable that the euro would collapse."

Other European leaders are not so sure about that.

EU President Herman Van Rompuy recently warned that if some of the weaker countries in Europe are forced to abandon the euro it will likely cause a total meltdown of the European Union....

"We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union."

German Chancellor Angela Merkel is also warning that a failure of the euro could bring down the entire European Union....

"If the euro fails, then Europe fails."

But is this likely to happen any time soon?

No, probably not, but in 2010 top European officials are actually acknowledging the possibility, and that shows just how serious things have gotten.

So if the U.S. dollar and the euro do collapse, what would happen?

Well, already many world leaders are openly speaking of the need for a true global currency.

After all, they argue, there won't be any "currency wars" if we are all using the same currency.

In fact, the Institute of International Finance, an organization that represents 420 of the biggest banks and financial institutions on the globe, recently declared that the time has come to adopt a one world currency.

In fact, as I wrote in an article entitled "Bancor: The Name Of The Global Currency That A Shocking IMF Report Is Proposing", a recent IMF policy paper actually proposed a name for the "global currency" that they believe could be coming....

A paper entitled "Reserve Accumulation and International Monetary Stability" by the Strategy, Policy and Review Department of the IMF recommends that the world adopt a global currency called the "Bancor" and that a global central bank be established to administer that currency. The report is dated April 13, 2010 and a full copy can be read here. Unfortunately this is not hype and it is not a rumor. This is a very serious proposal in an official document from one of the mega-powerful institutions that is actually running the world economy. Anyone who follows the IMF knows that what the IMF wants, the IMF usually gets. So could a global currency known as the "Bancor" be on the horizon? That is now a legitimate question.

So will any of this ever come to fruition?

Well, it would likely take one whale of a crisis to get the countries of the world to agree to such a thing.

However, we do live at a time when the world financial system seems to be perpetually on the edge of chaos. If at some point the U.S. dollar and the euro totally fall apart perhaps we will see a "new order" arise out of all of that chaos.

But let's hope not. Once we give any organization the power to issue a global currency the odds of us ever getting our economic sovereignty back will be greatly reduced. The internationalists are going to use any crisis as an opportunity to argue for greater centralization of the world financial system, and it will be very important for the American people not to fall for those arguments.

Hopefully the U.S. dollar and the euro can remain stable currencies for at least a little while longer. Because once they collapse things will never, ever be the same again.

Walmart Black Friday 2010 Madness!

9 Shocking Examples Of Black Friday Violence

9 Shocking Examples Of Black Friday Violence – Is This A Foretaste Of The Economic Riots We Can Expect When The Financial System Collapses?

It seems with each passing year the madness on Black Friday gets even worse. This year, there were reports of fights and rioting from coast to coast. It was estimated that over 180 million U.S. shoppers headed for the stores on Friday, and whenever you get that many people together there are going to be problems. But just how crazed ordinary Americans are getting over saving a little bit of money is deeply disturbing when you really start thinking about it. If people will go this wild just to save 40 percent on a television set, then what in the world are they going to do when they have been without food for a couple of days? If Americans will act like psychotic animals just to save 50 bucks, then what in the world will they do when they have lost everything and are desperate to survive?

All of us had better hope and pray that an economic collapse does not happen any time soon, because it is becoming increasingly apparent that the American people are not morally equipped to be able to handle one. Greed and selfishness have become so rampant in America that large segments of the population have totally forgotten how to be any other way.

If the United States ever experiences a really, really bad economic downturn, this nation could very quickly start looking like New Orleans after Hurricane Katrina from coast to coast. Most Americans would simply not know how to handle it.

The following are 9 shocking examples of Black Friday violence that should make all of us wonder what is happening to America....

#1 At a Target store in Buffalo, New York the crowds waiting impatiently outside suddenly became a chaotic mob once the doors opened at 4 AM on Friday morning.

One man that was lying on the ground remembers thinking "I don't want to die here" while he was being trampled by crazed shoppers....

#2 Crowds were becoming so violent at a Wal-Mart in Sacramento, California that the police actually evacuated the store early Friday morning.

#3 Three women from West Palm Beach, Florida said that $1,000 in presents that they had just purchased at Best Buy were stolen from their vehicle on Friday morning within minutes of being purchased.

#4 One U.S. Marine reservist that was collecting toys for children was stabbed with a knife when he attempted to stop a shoplifter in eastern Georgia on Friday.

#5 Blogger Lynne Elder-Blau has posted about overhearing police officers describe a huge brawl that erupted this year at one well-known store on Black Friday....

Well, the girls and I were in a popular convenience store in Garden City last night while a store employee and a Garden City Police Department Officer were visiting. They were conversing about a large group of customers who got into a knock-down brawl at a nationally-known variety store in Garden City yesterday morning. Several police officers were brought in to break up the ball of adults who were pulling and tugging at products and actually punching other customers in their faces and stomach areas! We're not just talking about a few people who were involved in this violent non-sense. The officer said that there was a large amount of people involved in this particular altercation. Ridiculous!!!

#6 A 21-year-old woman from Middleton, Wisconsin was arrested when she threatened to shoot other shoppers while waiting to get into a Toys R Us store for Black Friday. The other shoppers had objected when she attempted to move to the front of the line.

#7 The following is video of customers literally tearing apart a store display at a Wal-Mart in Douglasville, Georgia as they pushed and shoved each other in an attempt to grab the best deals....

#8 The Los Angeles County Sheriff's Department actually "locked down" a section of a Cerritos, California shopping mall after a wild fight broke out in the food court. There were even reports that some people were flinging chairs at other customers.

#9 At one Wal-Mart in Texas, a near-riot broke out right in the middle of the store as a huge crowd of customers pushed and shoved each other to get a handful of Black Friday deals that were being wheeled out to the floor....

If you want to see even more videos of Black Friday craziness, check out this and this.

Remember, the products that these Americans are fighting over are not free. This is how crazy people are willing to go just to get a deep discount on an item.

So what is going to happen someday when people are desperate for food or shelter?

If this is how people act when the sun is shining, how are they going to behave once a really bad storm arrives?

In America today, fewer and fewer people are treating others the way that they would like to be treated themselves.

Instead of showing others kindness and respect, in 2010 most Americans would seemingly rather trample anyone who is in the way of getting what they want.

So what do you think? Are Americans becoming more greedy and more selfish or are they basically "good" and "decent" people most of the time? Feel free to leave a comment with your opinion....

20 Statistics That Prove That Global Wealth Is Being Funneled Into The Hands Of The Elite

20 Statistics That Prove That Global Wealth Is Being Funneled Into The Hands Of The Elite – Leaving Most Of The Rest Of The World Wretchedly Poor

Today global wealth is more highly concentrated in the hands of the elite than it ever has been at any other point in modern history. Once upon a time, the vast majority of the people in the world knew how to grow their own food, raise their own animals and take care of themselves. There weren't many that were fabulously wealthy, but there was a quiet dignity in having land you could call your own or in having a skill that you could turn into a business. Sadly, over the past several decades an increasingly growing percentage of agricultural land has been gobbled up by big corporations and by corrupt governments. Hundreds of millions of people have been pushed off their land and into highly concentrated urban areas. Meanwhile, it has become increasingly difficult to start a business of your own as monolithic global corporations have come to dominate nearly every sector of the world economy. So more people than ever around the world are forced to work for "the system" just to make a living. At the same time, those at the very top of the food chain (the elite) have spent decades rigging the system to ensure that increasing amounts of wealth will continue to flow into their pockets. So now in 2010 we have a global system where a few elitists at the top are insanely wealthy while about half the people living on earth are wretchedly poor.

There are very few nations around the world that have not been almost entirely plundered by the global elite. When the elite speak of "investing" in poor countries, what they really mean is taking control of the land, water, oil and other natural resources. In dozens of nations around the world today, big global corporations are stripping fabulous amounts of wealth out of the ground even as the vast majority of the citizens of those nations continue to live in abject poverty. Meanwhile, the top politicians in those nations are given huge bribes to go along with the plundering.

So what we have in 2010 is a world that is dominated by a very small handful of ultra-wealthy elitists that own an almost unbelievable amount of real assets, a larger group of "middle managers" that run the system for the global elite (and are rewarded very handsomely for doing so), hundreds of millions of people who actually do the work required by the system, and several billion "useless eaters" that the global elite don't really need and that they don't really have much use for.

The system was not ever designed to lift up the poor. Nor was it ever designed to promote "free enterprise" and "competition". Rather, the elite intend to funnel all wealth to themselves and to have the rest of us enslaved either to debt or to poverty.

The following are 20 statistics that prove that the wealth of the world is increasingly being funneled into the hands of the global elite, leaving most of the rest of the world wretchedly poor and miserable....

#1 According to the UN Conference on Trade and Development, the number of "least developed countries" has doubled over the past 40 years.

#2 "Least developed countries" spent 9 billion dollars on food imports in 2002. By 2008, that number had risen to 23 billion dollars.

#3 Average income per person in the poorest countries on the continent of Africa has fallen by one-fourth over the past twenty years.

#4 Bill Gates has a net worth of somewhere in the neighborhood of 50 billion dollars. That means that there are approximately 140 different nations that have a yearly GDP which is smaller than the amount of money Bill Gates has.

#5 A study by the World Institute for Development Economics Research discovered that the bottom half of the world population owns approximately 1 percent of all global wealth.

#6 Approximately 1 billion people throughout the world go to bed hungry each night.

#7 The wealthiest 2 percent own more than half of all global household assets.

#8 It is estimated that over 80 percent of the world's population lives in countries where the income gap between the rich and the poor is widening.

#9 Every 3.6 seconds someone starves to death and three-quarters of them are children under the age of 5.

#10 According to Gallup, 33 percent of the people on the globe say that they do not have enough money for food.

#11 As you read this, there are 2.6 billion people around the world that lack basic sanitation.

#12 According to the most recent "Global Wealth Report" by Credit Suisse, the wealthiest 0.5% control over 35% of the wealth of the world.

#13 More than 3 billion people, close to half the world's population, live on less than 2 dollar a day.

#14 CNN founder Ted Turner is the largest private landowner in the United States. Today, Turner owns approximately two million acres. That is an amount greater than the land masses of the states of Delaware and Rhode Island combined. Turner also advocates restricting U.S. couples to 2 or fewer children to control population growth.

#15 There are 400 million children in the world today that have no access to safe water.

#16 Approximately 28 percent of all children in developing countries are considered to be underweight or have had their growth stunted as a result of malnutrition.

#17 It is estimated that the United States owns approximately 25 percent of the total wealth of the world.

#18 It is estimated that the entire continent of Africa owns approximately 1 percent of the total wealth of the world.

#19 In 2008, approximately 9 million children died before they reached their fifth birthdays. Approximately a third of all of these deaths was due either directly or indirectly to lack of food.

#20 The most famous banking family in the world, the Rothschilds, has accumulated mountains of wealth while much of the rest of the world has been trapped in poverty. The following is what Wikipedia has to say about Rothschild family wealth....

It has been argued that during the 19th century, the family possessed by far the largest private fortune in the world, and by far the largest fortune in modern history.

Nobody seems to know exactly how much the Rothschilds are worth today. They dominate the banking establishments of England, France, Germany, Austria, Switzerland and many other nations. It was estimated that they were worth billions back in the mid-1800s. What the total wealth of the family is today is surely an amount that is almost unimaginable, but nobody knows for sure.

Meanwhile, billions of people around the globe are wondering where their next meal is going to come from.

At this point, many readers will want to start arguing about how horrible capitalism is and about how wonderful socialism and communism are.

But capitalism is not the problem and as we have seen countless times over the past several decades, government ownership of business is not the solution to anything.

What we have in the world today is not capitalism. Rather, it more closely resembles "feudalism" than anything else. The elite are "monopoly men" who use their unbelievable wealth and power to dominate the rest of us. In fact, it was John D. Rockefeller who once said that "competition is sin".

It would be great if we lived in a world where those living in poverty were encouraged to start owning land, to create businesses and to build better lives for themselves.

But instead, things are going the other way. Wealth is becoming more concentrated in the hands of the elite, and the middle class is starting to be wiped out even in prosperous nations such as the United States.

It turns out that the global elite have decided that they don't really need so many expensive American "worker bees" after all and they have been moving thousands of factories and millions of jobs overseas. Meanwhile the American people are so distracted watching Dancing with the Stars, Lady Gaga and their favorite sports teams that they don't even realize what is going on.

There is no guarantee that America will be prosperous forever. Today, a record number of Americans are already living in poverty. Today, a record number of Americans are on food stamps. The median household income went down last year and it went down the year before that too.

So wake up. America is being integrated into a world economic system that is dominated and controlled by the insanely wealthy elite. They don't care that you have to pay the mortgage or that you intend to send your kids to college. Mostly what they care about is making as much money for themselves as they can.

Greed is running rampant around the globe, and the world is becoming a very cold place. Unfortunately, unless something really dramatic happens, the rich are just going to continue to get richer and the poor are just going to continue to get poorer.

A Reflection of Desperation on Both Sides

I know I sound like a broken record, but when I look around, talk to family and friends, and read and listen to news and other reports, I just can't see the so-called recovery. Maybe I'm wrong about this (as I've noted on many occasions, I've made more than my fair share of mistakes), but the overall picture doesn't seem right.

Admittedly, there's evidence of a pick-up in activity, but it's spotty and disconnected. At the same time, huge swaths of the economy, including the small business sector, remain mired in trouble. Many of the problems that helped bring about the crisis in the first place have not been solved, just papered over. Important industries are dependent on government support or extend-and-pretend largesse.

And yet, the media and the so-called experts are so convinced that a rebound is on the cards that they keep trying to weave a relatively small and disparate collection of bullish data points into a broad and sustainable uptrend.

But what if the dots shouldn't be connected in the way the optimists think they should be?

For instance, anybody who's been paying attention knows that there's considerable angst and uncertainty in the retail sector about the upcoming holiday selling season following the painful disappointments of the past few years.

Meanwhile, reports indicate that more and more Americans are being forced to make do with less because unemployment checks have run out, jobs are hard to find, credit is tight, the cost of food, health care and other staples has jumped, and savings have been drawn down.

Is it so hard to believe, then, that this combination, as The Atlantic alludes to in "Does a Great Black Friday Mean a Holiday Season of Strong Sales?" might mean the "good news" of the past week or so reflects desperation on both sides, and, thus, is a cause for concern?

Retailers are celebrating a great start to the holiday shopping season this week. Sales on Black Friday and the weekend that followed soared past expectations. This period often foreshadows the strength of overall holiday sales. So will Americans spend far more this year than last year, or is there some other possible explanation for why Black Friday shoppers were so eager to spend?

First, just how strong were sales? Although official tallies won't be available until later this week, some preliminary estimates are pretty optimistic. Andria Cheng at Dow Jones Newswires reports:

The number of people who shopped at stores and online between Thursday and Sunday jumped 8.7% to 212 million shoppers, according to a National Retail Federation survey of 4,306 shoppers conducted by BIGresearch. The total amount spent during the four-day weekend reached an estimated $45 billion, with the average spending rising 6.4% to $365.34, the survey showed.

That 6.4% increase for Black Friday appears to have soundly beat expectations of 2% to 3%, though some other estimates don't predict as impressive performance. Still, if sales are significantly higher for Black Friday than they were last year, this would generally indicate that holiday shopping overall will be quite robust. That is, unless there's some other explanation.

Unfortunately, there could be. If you happened to look at any of the retailer circulars advertising the Black Friday deals, then you saw just how deep the discounters were at some stores. There were crazy deals like $10 toasters and coffeemakers. LCD television prices were bordering on ridiculous with 40" TVs at prices below $400.

So instead of a strong Black Friday indicating lots of additional holiday sales to follow, you might be seeing still stingy shoppers soaking up the insane deals before they're gone, with less intention to shop as freely in subsequent weeks. Consumers who cut their spending broadly generally make sure good deals are present whenever they do shop. So a very strong Black Friday might have been predictable, since struggling Americans are very hungry for big discounts.

And just how has the economy changed from November 2009 to 2010? Unemployment has dropped from 10.2% to 9.6% from October 2009 to 2010. Over the same period, annualized personal income is up 4% from $12.2 trillion to $12.7 trillion. Third quarter gross domestic product has risen from 1.6% to 2.5% from 2009 to 2010. Finally, the S&P 500 was up nearly 8% from Thanksgiving 2009 to 2010.

So American consumers should, indeed, feel a little bit better about their economic surroundings this year. The question is: how much more comfortable? For retailers, there's a big difference between a 2% to 3% increase in sales and a 6% to 7% rise. We'll have to wait until the holiday season is over and all receipts have been counted to know for sure.

The ultimate insiders

The ultimate insiders
Is Congress making money off advance economic knowledge?

By Richard W. Rahn

Stock or commodity trading on "inside information" has been illegal since the early 1960s. Yet there is one group that frequently has access to nonpublic information that can greatly affect stock prices, to the extent of making or breaking a company or even an industry, and these "insiders" are considered exempt from prosecution by the Securities and Exchange Commission (SEC). The insiders I refer to are members of Congress and their staffs. They have prior knowledge about which companies or industries will or will not be "bailed out," have their taxes raised or lowered, be subject to costly new regulations or exempted from such regulations, receive government contracts, etc. However, because the members of Congress and their staffs do not obtain their information from employees of the companies affected, they are not considered insiders.

There have been a number of recent news stories about how the average member of Congress showed an increase in net wealth over the past couple of years, while the average American was losing net wealth. The obvious conclusion is that members of Congress knew things the rest of us did not and acted on this knowledge to their own advantage - no surprise. A new study that empirically demonstrates this, "Capitalizing on Capitol Hill: Informed Trading by Hedge Fund Managers," has just been published by the Social Science Research Network. The authors of the study, Jiekun Huang and Meng Gao, found that hedge funds connected with lobbyists, relative to non-connected ones, outperform by 1.6 percent to 2.5 percent per month in politically sensitive stocks compared to nonpolitical stocks. These results suggest that hedge-fund managers exploit private information, which can be an important source of their superior performance.

We are in the process of finding out what actually was in the 2,000-page-plus health care bill and financial "reform" bill. Those bills have many winners and losers - which previously were known only to the lobbyists and the members of Congress and their staffs who put in the specific deals. This is why House Speaker Nancy Pelosi famously said, "We have to pass the bill so that you can find out what is in it." It will never be known who gained financially from the inside information that was acted on as these bills were being passed, but you can bet the gain was in the hundreds of millions of dollars.

A bill was introduced early in this current Congress (H.R. 682: Stop Trading on Congressional Knowledge Act) which would prohibit the sale and purchase of securities or commodities' futures based on knowledge gained from a member of Congress, an employee of Congress or other federal employees. The proposed legislation is so broad and at points so vague as to be unenforceable in a consistent manner.

This proposed act makes the same mistake that the SEC often makes in dealing with "inside information," in that there is an underlying assumption that the uncontrolled dispersal of information about the health or prospects of companies is bad and that known information can be controlled.

The recent release of highly classified information from Pentagon sources by WikiLeaks again shows the near impossibility of controlling even the most sensitive information. Time and time again, the U.S. government has shown that it cannot protect sensitive information, from atomic secrets to sensitive financial data held by the Internal Revenue Service. Those who tell us that any information is safe when held by the U.S. government are both supremely arrogant and ignorant of history, including the news of recent weeks.

The SEC has a long history of not knowing what it should have known (e.g., Enron, Bernard Madoff) and at the same time trying to stop the dispersal of information about companies that is necessary for markets to operate properly. The SEC is in the process of trying to find ways to criminalize those who (outside a firm) find better ways of doing research or modeling what they think is going on in a firm, even though they have received no direct, nonpublic information from real insiders. This approach eventually could kill the whole field of securities analysis. Only government employees at the SEC could dream up a scheme to try to keep everyone ignorant and call it "progress."

Professor Henry Manne, dean emeritus of the George Mason University Law School and arguably the nation's greatest scholar on "insider trading" issues, observes that the decades of failure at the SEC show that enforcement of insider-trader laws is not feasible and often is counterproductive. Also, there has never been a clear definition of insider trading either from Congress or the SEC. Mr. Manne says it is time to "rethink any current policies based on a view of pricing in which we exclude the best-informed traders." Because insider or informed "trading clearly makes the market process work more efficiently, it aids capital allocation decisions and informs business executives through market-price feedback of the best predictions about the value of new plans."

Outsiders are best served in making their buy and sell decisions when all of the information about a company is incorporated in its market price, even if comes from insiders. As for Congress and their staffs, given that a prohibition of the use of inside information is nearly impossible, the effort should focus on more transparency. This, in part, would mean legislation being passed in small, understandable increments so that outsiders would be able to determine who benefits or loses when the legislation or regulation is proposed.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

The Dead Enders

Even after their defeat, Democrats keep insisting on a tax increase.

'It is not a sensible way to run a country to have this magnitude of tax issues left to annual uncertainty," said Treasury Secretary Tim Geithner earlier this month, and he's certainly right about that. But at the current moment the single biggest obstacle to more certainty is his boss, President Obama, who still refuses to compromise on the tax increase set to whack the economy in a mere 30 days.

After meeting with Congressional leaders yesterday, Mr. Obama dispatched Mr. Geithner and budget director Jacob Lew to negotiate a deal. Yet the President is still holding out against even a temporary extension of the 2001 and 2003 tax rates. Republicans won 63 House seats running against those tax increases, but Mr. Obama still seems under the spell of the dead enders led by soon-to-be-former House Speaker Nancy Pelosi.

The magnitude of the looming tax increase ought to snap him out of this hypnosis. If the Democrats who still run Capitol Hill for another month fail to act, tens of millions of American households will see their paychecks shrink immediately in the New Year.

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AFP/Getty Images

Democrats say a millionaire surtax would raise about $50 billion a year, but don't count on it.

Capital gains and dividend tax rates will climb to 20% and 39.6%, respectively, from 15%, and the top two income tax rates will climb to 38% and 41% (including deduction phaseouts), from 33% and 35%. The typical family with an income between $40,000 and $75,000 a year will pay as much as $2,000 more in 2011, as the 10% tax rate bracket and the $1,000 per child tax credit vanish.

This could have been resolved months ago, except that the White House and Congressional Democrats insist that some taxes must be raised. Mr. Obama wants the lower rates to expire on incomes of $200,000 for individuals and $250,000 for couples. Dozens of Democrats revolted against that in the campaign, so the latest gambit, courtesy of New York Senator Chuck Schumer, would raise that threshold to $1 million.

Republicans shouldn't be suckered into raising taxes on anyone, especially not on small business job creators. The U.S. corporate tax rate of 39% (a combination of state average and federal rates) is already about 15 percentage points above the international average, and for the first time in a generation the personal rate of 41% would rise above the average of our overseas rivals. That's all before the 3.8% surtax on investment income arrives in 2013, courtesy of ObamaCare.

Because most nations tax their companies at a business rate lower than the personal rate, the Tax Foundation says the Obama plan would mean that many Subchapter S corporations in the U.S. would pay "virtually the highest tax rates in the world on their business income." In other words, the after-tax rate of return on investment in the U.S. would fall relative to investing in Europe or Asia. This is an invitation to outsource more jobs. The U.S. should be cutting tax rates to become more competitive, as President Obama's deficit reduction commission and tax reform advisory panel have recommended.

About half the income taxed above $250,000 is business income, so small businesses get hammered from the Obama plan. Mr. Schumer argues that if the income threshold for higher taxes is raised to $1 million, Republicans will no longer be able to claim that this plan taxes small business income.

Not so. The Small Business Administration classifies a small business as an entity with fewer than 500 employees. The Schumer plan shifts the tax onto larger, more profitable firms from relatively smaller ones. But this still puts jobs at risk. A business with $1 million or $10 million of net income has many times more employees and does a lot more hiring than a business with, say, $60,000 of net income or one that is losing money.

The Tax Foundation estimates that of tax filers reporting income of more than $1 million a year, about 80% have business income and that more than 60% of millionaire income is either business or investment income. So about two of every three dollars raised would come directly out of business coffers—i.e., from the capital that businesses need to expand their operations.

Democrats say a millionaire surtax would raise about $50 billion a year, but don't count on it. Millionaires tend to be financially sophisticated and are well equipped to respond to higher rates by finding tax shelters, exploiting loopholes (municipal bonds!) or simply working less. If high tax rates were irrelevant to economic decisions, the soak-the-rich states of New York, New Jersey and California wouldn't be losing millionaires to better tax climates.

Tax payments by millionaire households more than doubled to $273 billion in 2007 from $132 billion after the tax rates were cut in 2003. The number of tax returns with $1 million or more in annual reported income doubled over that period thanks to the strong economic rebound. Tax payments by millionaires also increased dramatically after the Reagan and Kennedy tax rate reductions.

Republicans shouldn't oversell an extension of the current tax rates as an economic panacea. Making the lower rates permanent would do far more for economic growth by removing one more source of uncertainty. And there are many spending and regulatory threats to growth that must be removed. But at least an extension would avoid a tax blow to a recovery that is still struggling to become a sustainable expansion.

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Even in this lame duck liberal Congress, there is a bipartisan majority in both houses to prevent this tax increase. The only obstacles are a defeated, willful liberal minority that wants to extract one more pound of flesh from the private economy, and a President who still fails to comprehend that jobs and wealth are created outside of government and politics. If Democrats won't compromise this month, the first vote in the new Republican House in January should be to repeal the Obama-Pelosi-Schumer tax increase.

10 WikiLeaks Questions For Obama

Why hasn't more been done to stop this terrorist and his vile WikiLeaks operation? AP View Enlarged Image

Leadership: As vile as the WikiLeaks theft and dissemination of American secrets is, the ultimate responsibility for defending the U.S. lies with the Obama administration. Its weak response raises question after question.

As Americans contemplate the dump by WikiLeaks chief Julian Assange of 250,000 confidential U.S. diplomatic cables onto the Internet — and the blow it has delivered to our foreign policy — the administration's reaction was disheartening.

"President Obama supports responsible, accountable and open government at home and around the world, but this reckless and dangerous action runs counter to that goal," said the White House. "We condemn in the strongest terms the unauthorized disclosure of classified documents and sensitive national security information."

That was about as forceful as it got, even as a Waterloo-like diplomatic disaster unfolded on the world's only superpower.

The appropriate response is to destroy WikiLeaks as an enemy of liberty and exact a high price from its collaborators. But all we get is Jimmy Carter redux — a lack of urgency and a need to be seen as obeying international law. In our opinion, at least 10 questions demand a response:

1. Attorney General Eric Holder says he's weighing charges against Assange and WikiLeaks under the Espionage Act. What has taken him so long? Assange has been working loudly against America for 18 months, releasing stolen documents on Iraq and Afghanistan for more than a year, amid reports of repercussions against U.S. allies. Shouldn't Holder have done something long ago?

2. Chased out of Europe, Assange moved his server to Amazon.com. Explain again why a U.S. company is facilitating this sleazy trafficker in stolen secret data without a court order to shut it down? Last week, the White House shut Web sites trafficking fake Prada handbags. Why does it do nothing here?

3. A private hacker called the "Jester" claims he's successfully enacted a denial of service attack against WikiLeaks. But with all its resources, why hasn't the United States government blown WikiLeaks and all its mirror sites off the air instead? America's ally Colombia has destroyed FARC terrorist Web sites, taking info-terror as seriously as it takes jungle warfare. A Colombian embassy spokesperson told IBD the country has an unofficial military unit just for the purpose. And we don't?

4. The New York Times, the U.K.'s Guardian, Spain's El Pais and Germany's Der Spiegel are working hand-in-hand with Assange, publishing his stolen documents, effectively serving as a backup to disseminate the documents even if WikiLeaks gets shut down. Why aren't these beneficiaries of freedom of the press who turn on its chief defender being prosecuted? News organizations such as CNN recognized this criminality for what it was and, unlike the Times, wouldn't touch the story.

5. Sweden has an open book of unrelated rape charges against Assange, who is Australian. And to its credit, it has denied him asylum. But why was he sheltered there for so long? And why hasn't the Obama administration been able to get him extradited?

6. After Hillary Clinton showered Rafael Correa, Ecuador's anti-American president, with praise and kisses this year, that country has offered Assange asylum. Where is the U.S. muscle, along with a hard threat to pull Ecuador's trade privileges and Federal Reserve support for its dollarization regime?

7. Assange's initial collaborator was a troubled 22-year-old Army intelligence analyst, Private Bradley Manning. Who put him in his position and did political correctness about his gay orientation keep him there, much as it did with the crazed Islamofascist who shot up Fort Hood? Why was he permitted to see secret data?

8. Why are there 3 million other people with security clearances who can not only see diplomatic cables but also download them?

9. Where is the cooperation from other countries to bring Assange to justice? We thought President Obama would repair relations with so-called allies. Any slacking here ought to bring sanctions.

10. Where, for that matter, is president himself? Amid a 9/11-grade attack on U.S. diplomacy, the WikiLeaks debacle calls for strong statements signaling that America will take actions to punish this determined enemy. But beyond bland boilerplate, and at a time that calls for resolve and action, Obama has said and done nothing.

INTERMEX POWER

Wednesday, December 1, 2010

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Andrew Napolitano - Government Lawlessness

Judge Napolitano : Revolution is Duty of the People

The Proper Response to WikiLeaks

The Proper Response to WikiLeaks

Doug Casey on the TSA

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So What Happens If The Dollar And The Euro Both Collapse?

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Walmart Black Friday 2010 Madness!

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20 Statistics That Prove That Global Wealth Is Being Funneled Into The Hands Of The Elite

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A Reflection of Desperation on Both Sides

A Reflection of Desperation on Both Sides

The ultimate insiders

The Dead Enders

The Dead Enders

Even after their defeat, Democrats keep insisting on a tax increase.

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10 WikiLeaks Questions For Obama

10 WikiLeaks Questions For Obama

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