Archive for March, 2012

Keynesians are Clueless

Paul Krugman, New York Times columnist, Nobel Prize winner, and Keynesian economist extraordinaire is about to have his new book released entitled, End this Depression Now.  In it, the Duke of Deficit Spending argues that a speedy, robust recovery from the Great Recession which started in 2008 is just a quick policy decision away.  If only our leaders can muster the “intellectual clarity and political will” needed to raise federal spending further, Americans will begin consuming again, businesses hiring, and the current depression will be over in a flash.  Once again Krugman is being true to his economic philosophy – namely that increasing aggregate demand through loose fiscal and monetary policy is a cure-all for what’s ailing the economy.  Let it be said that there is not a more consistent deflationist than Paul Krugman in all of the economic profession.

Now, why anybody would still listen to Krugman is a mystery to me.  After all, he entirely missed calling the financial crisis of 2008 while Austrian economists were spot on with their prognostications.  I suppose most laymen don’t know the difference and most economists and academics are as Milton Friedman proclaimed so long ago “All Keynesians now”.  Thus ignorance of and loyalty to a failed philosophy are powerful forces to make people do irrational things.

In the first place, Krugman shows his ignorance with the title of his book, End this Depression Now.  The statistics indicate that we are not currently in a depression.  Secondly, current numbers indicate that the deflationary spiral that Krugman has been predicting and fears the most is not happening.  On the contrary, while he continues to fret over falling prices leading to a double-dip recession, long-term trends point strongly toward oncoming double digit price inflation.

What it all boils down to is that Krugman and other Keynesian economists are about to miss the next economic crisis.  Austrians have been arguing all along that we can’t solve our economic problems by doing the same things that got us into the mess in the first place.  Deficit spending and a ridiculously loose monetary policy will not cleanse the market of all the mal-investments made during the preceding artificial boom (housing bubble).  It will only put us deeper into trouble.  What was needed was a drastic cut in government spending, a cut in taxes, and the setting of interest rates by the market not the monetary oligarchs at the Federal Reserve.

So because policy makers in Washington listened to Krugman and his ilk over the voices of reason, we are about to enter the next cycle of boom and bust.  It will consist of phony growth, rising prices, and rising interest rates which will ultimately pop the bubble and send the economy into another tailspin.  The proof is in current trends.

In spite of Krugman’s ill-timed book, we are not in the middle of a depression.  Consumer spending is way up.  In the fourth quarter of last year balances on credit cards rose 9.27 percent.  In February, retail sales in the U.S. improved in 11 of 13 industry categories and marked the biggest gain in five months according to Commerce Department figures.

Then there is job growth.  400,000 private sector jobs have been created just in the first two months of this year.  More workers mean more spenders and more spenders mean more jobs, right?

Oh, and let’s not forget how well the financial markets are doing.  The Dow is up 7 percent YTD, the S&P 500 is up 11 percent YTD, the Homebuilders Index is up 23 percent YTD, and the S&P Financials are up 21 percent YTD.  These are not numbers indicative of a depression.

But, all of this good news is coming at a cost, literally.  We are approaching the place this commentator wrote about on October 16, 2009.  Bernanke and the Federal Open Market Committee are going to have a big decision to make in the near future – raise rates and burst the Fed induced bubble or leave rates low and watch prices skyrocket.

Price inflation is already heating up.  It was only a matter of time before all the stimulus, low interest rates, and money printing kicked in to produce higher prices.  The money supply has increased by 14.6 percent year over year ending in February.  That makes 39 consecutive months of double digit year over year rates of monetary inflation.

The result has been higher gasoline and food prices.  College and healthcare costs continue to rise.  And the Manufacturing ISM Report On Business® for the 4th straight month shows the number of industries experiencing higher raw material costs on the rise and the number of industries experiencing  lower raw material costs on the decline.  It will be just a matter of time before those higher raw material costs find their way into higher prices on the merchant’s shelf.

So while Krugman and other Keynesians clamor for more federal spending and easy money to produce a speedy, robust recovery from the Great Recession, they are missing that the next boom and bust cycle has already begun.  But, that’s okay because Austrians have been predicting it for some time.  In the words of Yogi Berra, “It’s déjà vu all over again”.

Article first published as Keynesians Are Clueless on Blogcritics.

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Bernanke’s Publicity Stunt

Federal Reserve Chairman Ben Bernanke has taken his defense of the Federal Reserve System on the road.  In response to recent critics of the central bank, notably Republican presidential candidate Ron Paul, Bernanke is scheduled to deliver four classroom lectures at George Washington University.  In his first discourse, Bernanke was Bernanke, extolling the virtues of the Fed while criticizing calls to return the dollar to a gold standard.

One of Bernanke’s criticisms of a return to the gold standard is that it is not practical.  By that he means “it can be a waste of resources to secure all the gold needed to back currency, moving it from South Africa to the Federal Reserve Bank of New York’s basement”.  But, the benefit of using gold to back currency is precisely because it is scarce and difficult to dig up and transport. Otherwise, it would have little value and be about as valuable as paper money.

A more significant criticism lodged by Bernanke against the gold standard is that it doesn’t prevent “short-term volatility”.  According to the Fed chairman, “Since the gold standard determines the money supply, there’s not much scope for the central bank to use monetary policy to stabilize the economy”.  By short-term volatility, Bernanke must be referring to those periods in the 19th Century when the Second Bank of the United States and the federal government from time to time allowed banks to suspend payment in species thus enabling widespread currency inflation and financial volatility.  The fact is that under a true gold standard short-term volatility would not exist.  Prices would be stable and the artificial booms and inevitable busts caused by Fed monetary price fixing would not happen.

But, to his credit, Bernanke did acknowledge that historically countries using the gold standard have experienced long periods of price stability.  In fact, in the United States from the mid-Nineteenth Century until 1940 prices in the United States actually fell on average from year to year – the main exceptions being during war years.

So while even Bernanke admits that the gold standard is an effective means to produce stable prices which after all benefit the poor, the elderly, and others on fixed budgets, why is he still so resistance to a return to the gold standard?  The key is in the answer he gave to one student’s question about why Fed critics are pushing hard to return to a gold standard. Bernanke indicated that they want to remove some “discretion” the Fed has over the economy.  It is this “discretion” that Bernanke and his monetary oligarchs used to dole out trillions of dollars in secret loans to their bank buddies who nearly brought the whole financial system to its knees.  Many of them got a piece of the action – Citigroup – $2.513 trillion, Morgan Stanley – $2.041 trillion, Merrill Lynch – $1.949 trillion, Bank of America – $1.344 trillion, Barclays PLC – $868 billion, Bear Sterns – $853 billion, Goldman Sachs – $814 billion, Royal Bank of Scotland – $541 billion, JP Morgan Chase – $391 billion, Deutsche Bank – $354 billion, UBS – $287 billion, Credit Suisse – $262 billion, Lehman Brothers – $183 billion, Bank of Scotland – $181 billion BNP Paribas – $175 billion, Wells Fargo – $159 billion, Dexia – $159 billion, Wachovia – $142 billion, Dresdner Bank – $135 billion, and Societe Generale – $124 billion.  You see with a gold standard these loans and other Fed schemes to benefit the bankers would not be possible.  Thus, when Bernanke criticizes the gold standard it is more than just professorial theorizing, it is a defense of the current corrupt banking cartel in America.

In the final analysis, Bernanke’s lecture series at G.W. is nothing more than a publicity stunt and not a very good one at that.  The Federal Reserve is an indefensible institution.  Compounding his problem are arguments he is attempting to make against the gold standard which served our country well for so long.  Anything he says cheats the students of valuable educational time.  Perhaps the powers that be at G.W. should invite Ron Paul to debate Bernanke.  Only then will the students get their money’s worth.

Article first published as Bernanke’s Publicity Stunt on Blogcritics.

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Ron Paul’s Delegate Strategy May be Working

There is an interesting analysis article over at Real Clear Politics that lays out a scenario whereby the August Republican National Convention evolves into the worst nightmare imaginable for party officials – a brokered convention.  Based on how Republican candidates for president have done so far with different demographics and regions of the country, Sean Trende predicts how the race for the Republican nomination may play out and lays out a scenario where a brokered Republican convention could take place.

Now, it’s no secret that a brokered convention would be a catastrophe for Republican Party leaders use to grand coronations at their quadrennial national party events.  After all, anything could happen.  Chaos could rule or a dark horse candidate not officially sanctioned by the party oligarchs could emerge.  In either case their lack of control would disrupt the usual smooth proceedings meant to portray to the nation a party united, happy, and excited about its standard bearer.

Given his campaign’s strategy of focusing on caucuses and out hustling his rivals at local, county, and state conventions nationwide the main beneficiary of a brokered convention would be Texas Congressman Ron Paul.  The fact of the matter is that most Americans do not get involved in politics.  Many rightly view it as an ugly, corrupt business.  Others are too busy following American Idol, Dancing with the Stars, or the latest escapades of Lindsay Lohan.  While others would rather leave it to the professionals.  But, Ron Paul supporters are different.  They may not outnumber the supporters of other candidates, but they are hungrier and more dedicated to their principles.  They are much more willing to show up, outlast, and fight for delegate positions than the supporters of rival candidates.  These attributes seem to be paying dividends for the Paul campaign at least in the early stages of the delegate selection process.

In Iowa, Ron Paul supporters have become delegates for other candidates.  Under party rules, if the convention is brokered at some point those delegates could be eligible to throw their support behind Dr. Paul.

In Georgia, Paul forces took over or as local GOP officials called it “hijacked” the DeKalb County delegate-selection convention in eastern metropolitan Atlanta.  They also missed by a whisker doing the same thing in populous Cobb County.

And in Clark County, Nevada, home to Las Vegas, at the county GOP convention made up of over 2600 delegates, Paul supporters organized and triumphed by electing Paulites to all 14 seats on the ballot for county GOP executive committee board.  These 14 new members of the board will make up two-thirds of the ruling body.  Consequently, that county’s GOP platform now calls for holding elected officials to their oath to the Constitution, repeal of the 16th Amendment, and a full audit of the Federal Reserve.

The process of selecting delegates in most states is in the early stages.  There will be multiple stories like the ones mentioned above.  Ultimately, there may be a brokered Republican convention in August.  Then again, there may not be.  Ron Paul may not get the GOP nomination for president in 2012, but whoever does will be leading a party much different from the one that exists today.  It will include delegates to the national convention, activists, and party officials who support a non-interventionist foreign policy, sound money, and civil liberties.  You talk about a nightmare for the party oligarchs!

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Have you watched an Elizabeth Warren video? I admire her energy. She uses phrases like, “We have to get cracking.” She probably doesn’t use exactly those words, but that’s the feeling you get. We have problems to solve and she wants to solve them. Now.

The problem is that she believes in good government. That is, she believes that when government acts, it accomplishes good things. Barack Obama and Nancy Pelosi think the same way. Have a problem? Let’s solve it the public way. They like hat motto of public service, “Hi, I’m from the government and I’m here to help.”

For people who oppose Warren, Obama, Pelosi and a passel of other progressives, the idea that government accomplishes good things is demonstrably false. It also runs against the traditional American idea that government is a necessary evil, not a positive good. A necessary evil has bad consequences, which people must tolerate because the alternative – in this case, no government at all – would be worse. A foundational principle of governance is that public instruments and institutions are intended to prevent bad consequences of lawlessness. To use these same tools to accomplish other purposes – to solve problems for people – invites their misuse.

Analysts often criticize conservatives because conservatives believe government itself is bad. How can you expect government to work, critics say, if you elect people who believe government itself is the problem? You have to populate government with people who believe government can accomplish good things. Otherwise, critics continue, we will see more government dysfunction, malfunction, and gridlock.

That’s an interesting explanation of why our government doesn’t work well. Another explanation is that you can’t take tools designed for one purpose and use them to accomplish some other purpose. We’ve seen this type of argument many times in foreign policy debates. You can’t take armed forces designed to keep our country secure, and use them to build states abroad. Armed forces aren’t trained or organized for the latter task. We never see good outcomes when we do try to use our armed forces to build and secure states abroad. Instead we see failure, one after another.

Why should we expect different results in our domestic policy? Our Constitution specifies a government strictly limited to the preventive functions mentioned above. Moreover, our Declaration of Independence says that when government exceeds its authority, it must be replaced. The Constitution in particular does not contain tools or precedents that authorize government to solve problems or accomplish purposes beyond those spelled out in the Constitution. Nor does this founding document create institutions intended to accomplish tasks beyond those stipulated. In fact, it says exactly the opposite to future officials of the federal government: anything not mentioned here, you are not authorized to do.

Yet critics blame small-government advocates for the current inability of public institutions to accomplish good things! They say that if advocates would only believe in government’s ability to solve problems, rather than faulting it for causing problems, government could once again become a force for good. Their frustration with the current anti-government mood is palpable.

To take a simple example, suppose you have legal mechanisms in place to prevent fraud in the drawing of business contracts. Fraud is a type of lawlessness; government exists to prevent that. Now suppose you use those legal mechanisms to regulate legal, non-fraudulent business relationships. In the latter effort, goverment uses its authority to address some problem not under its purview. Its tools don’t work, and unsurprisingly the attempt has a bad outcome. When government tries to do more than prevent lawlessness, the record shows that the net consequences are bad: the costs exceed the benefits. The costs nearly exceed the benefits even when it adheres to its principal or core functions.

That is why it is called a necessary evil. On the ladder of human benefits, only two rungs fall below minimal government: (1) activist government, and (2) no government at all. That puts the limited, minimal government in our Constitution at the top of the ladder. I’ll leave it to you to decide which of the two alternatives oppresses citizens more egregiously: anarchy or the powerful, monstrous government we see growing right before us.

When you see an energetic progressive claim we should rally together so government can help us, ask for some evidence. Ask for an example. The advocate for government activism may cite the Affordable Care Act, passed in 2010 under Barack Obama and Nancy Pelosi. There you have your evidence of the putative good government accomplishes when people work together. There you have your evidence of monstrosity.

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Imagine that a foreign army comes to occupy your country. Drones and jet aircraft launch missiles and drop bombs on your homes. Helicopters strafe your neighborhoods with machine guns. They kill people you love: your wife, your grandparents, your parents, your teenagers, your little children who make you laugh. People you love die by the dozens and by the hundreds.

When you and your friends gather to bury your loved ones, they kill you there as well, out in the open where you cannot protect yourself. After each massacre, the occupying army apologizes for the regrettable incident. “We are sorry,” the army says. “We will do everything we can to prevent such incidents in the future.” Then it kills more members of your family.

At last you have had enough. You say, “We want you to go. We mean it: we truly want you to go. You say you want a friendly relationship, but we know you will continue to kill our families and say how sorry you are. If you try to stay here, we will make you go.”

Then one Sunday at two in the morning, a party of drunken, laughing soldiers walks off a military base near Kandahar to a nearby village called Panjway. Their weapons are loaded. One of the soldiers walks into a home and murders eleven people in their beds, including little girls age six and under. Blood spatters the walls. The soldier moves on to two more homes and kills more families with his automatic weapon.

The soldiers pour chemicals over the still-warm bodies and try to burn them. The leaders responsible for the soldiers’ actions respond rapidly. Spokespeople  issue statements to reassure people, statements designed to protect the army and its mission. The occupying army says, “We’re sorry. We truly wish this regrettable incident had not happened.”

If a soldier walked into your home and shot your little girl, would you believe that?

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We value free speech in the our country. The First Amendment has a hallowed place in our homes next to apple pie a la mode and our parents. When anything threatens our family or our favorite dessert, we react vigorously. The same goes for our civil and political rights.

Now we see attempts to erode those rights not through overt acts of censorship, but through backdoor methods where the government does not even acknowledge its actions. It uses its ability to regulate financial institutions to control what people can publish. It knows it cannot attack First Amendment rights head on, so it figures out sneaky methods to accomplish the same ends.

News about the latest example of this kind of censorship comes via Mark Coker, head of Smashwords and advocate for independent authors and publishers. Authors use Smashwords to publish and distribute ebooks through all the various channels that have developed during the last few years. PayPal is the platform’s primary payment processor. PayPal instructed Smashwords to remove certain kinds of content from its site, or lose its business relationship with PayPal. For details, see Mark Coker’s updates on the issue at the Smashwords press room.

Now, why would a payment processor care about the content of the books available at Smashwords? The fact is, it doesn’t. PayPal says it must comply with rules that credit card companies and banks have promulgated. Banks and credit card companies don’t care about ebook content any more than PayPal does. The people who care about ebook content are public servants, paid to protect First Amendment rights, who use their regulatory authority over financial institutions to take away those rights. Essentially, they arrogate to themselves the role of morality police, and use their regulatory authority to control ebook content by whatever means they can find.

The invisible moralists for Smashwords are not payment processors. The moralists are people who regulate the payment processors. When PayPal refers to compliance with existing rules, they do not refer to rules that PayPal, credit card companies, or banks make themselves. PayPal refers to rules that grow out of new post-crash legislation designed to stipulate what banks and payment processors can and cannot do. In the uncertain, clamp-down atmosphere that Dodd-Frank created, payment processors do not care to take chances. They do not want to provoke displeasure in their federal masters.

To take another example of First Amendment rights under attack, government used its tight grip on payment processors to shut down Wikileaks in 2010. The technique worked extremely well. In just a few days, it strangled off the flow of donations to Wikileaks. It threatened companies who process those donations, and they immediately buckled. The whole operation took about two weeks. Now regulators  look around to find other groups they can strangle. Authors who write about immoral acts look like good targets. Few stood up for Wikileaks when so-called patriots urged that Julian Assange be prosecuted as a traitor and a spy. The government counts on the same hesitation to defend people who write about immoral sexual acts. Who will speak up for them?

The government figures that anyone who stands up for literary accounts of rape and other sexual crimes is going to lose. Their aim is to isolate, regulate, and attenuate a targeted group’s ability to resist. First federal regulators targeted the publisher of leaked military reports and diplomatic cables in the Wikileaks case. Now they a small group of fiction writers with the same confidence and power. If you are a regulator who wants to enforce your idea of what people can read, you’ll go after people who can’t rally much support.

The morality police go after people who can’t rally support, because others are afraid to stand up for them. First the government went after the whistleblowers. I wasn’t a whistleblower, so I let it go. Then they went after the Occupy protesters, but I wasn’t camping out with the Occupy movement, so I let it go. Still later they went after authors, pornographers, publishers and bloggers who violate community standards of decency. I wasn’t an author, pornographer, publisher or blogger, so I let it go. In they end they came after me, but no one was around anymore to stand up for me.

That is how we lost our democracy.

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Just Who is a Threat to Whom?

If you listen to the so-called mainstream media Iran is the biggest threat to world peace since Adolph Hitler.  Every night, journalists, analysts, and government officials bombard the airwaves with inflammatory rhetoric about how Iran is hell-bent on incinerating Israel and the United States.  Naturally, the whole charade is packaged to instill fear in the average American that if Iran builds nuclear weapons it would be the end of Western Civilization as we know it.  The daily barrage is reminiscent of the American media’s successful campaign in 2003 to beat the drums for war with Iraq by convincing Americans that Saddam Hussein was allied with Al Qaeda and possessed weapons of mass destruction.  We know now that the allegations against Saddam were false and represented either incompetent journalism at best or fraudulence at worse.

In either case the same crusade is being played out today against Iran.  What the discerning observer must ask is: who is really a threat to whom in this circumstance?  A close look at the evidence should leave little doubt in anyone’s mind.

When it comes to military might the United States’ far exceeds the Iran’s capabilities.  The comparison is so ridiculous that I won’t insult my readers’ intelligence by spewing already known facts.  However, it is important to note that about 45-50 percent of Iran’s meager air force is grounded because of a lack of spare parts (owing mostly to the outdated aircraft in its fleet).  The last time it saw action was in 1988 at the tail end of the Iran-Iraq War.  It also lacks modern radar, communication, and electronic warfare equipment.

Iran’s navy fares no better.  It boasts a few small frigates and three Russian shallow water Kilo-class submarines.  This is undoubtedly not the kind of fleet that could ever pose a threat to any country.  For the American media to talk up that Iran’s military poses a huge threat to the United States is ridiculous.

On the other hand, the best trained and equipped military in the world has Iran almost completely surrounded.  The United States has military personnel and hardware on 44 bases around Iran.  She maintains an invasion force in neighboring Afghanistan and has conducted air campaigns over other regional countries including Pakistan and Yemen.

In fact, the U.S. has even just recently violated Iranian airspace with at least one spy drone that the Iranians shot down.  Additionally, the car bomb blast that killed an Iranian nuclear scientist inside Iran in January has U.S. and/or Israeli intelligence finger prints all over it.

But this should come as no surprise as the U.S. has a history of meddling in the internal affairs of Iran.  In 1953, the CIA orchestrated the overthrow of the democratically elected Iranian Prime Minister Mohammad Mosaddegh.  Mosaddegh’s crime was nationalizing Iran’s oil industry.  Besides overthrowing the popular Mosaddegh, the U.S. also installed and then supported until 1979 the brutal regime of Mohammad-Reza Pahlavi (The Shah).  This sordid history of American intervention in Iran essentially paved the way for the ascendance of the Ayatollah Ruhollah Khomeini and the current frigid relationship that exists between the two countries.

Lastly, the extreme sanctions being placed on Iran by the United States is the same tactic applied by Franklin Roosevelt on pre-war Japan.  In July of 1941, FDR froze all Japanese assets in the U.S., terminated all trade agreements between the two countries, and set up an oil embargo which proved to be the straw that broke the camel’s back.  The result was the Japanese attack on Pearl Harbor and America’s entry into World War II.  Today, the Obama Administration is attempting to starve Iran into submission with trade sanctions and an embargo on Iranian oil.  The U.S. ability to impose these sanctions through her European allies is yet another way the U.S. is a much larger threat to Iran than Iran is to the U.S.

At the end of the day, when you cut through all the hype of the media and our leaders calling for tough action against Iran, what is needed is a little perspective.  It is the United States that has the mightier military by far.  It is the United States that has Iran almost completely surrounded by a military force that She has recently used on several of Iran’s neighbors and Iran as well.  It is the United States that in the past has been involved in a violent overthrow of Iran’s government and the propping up of a brutal despot.  And it is the United States that has imposed crippling sanctions on Iran in order to get its way.  But we are to believe that Iran is a threat to the United States?  It’s no wonder Iran may be seeking nuclear weapons.  How else could She defend herself?

Article first published as Just Who is a Threat to Whom? on Blogcritics.

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