Friday, February 28, 2014

The High Price Of Delaying The Default......VERY IMPORTANT!

The High Price Of Delaying The Default

Credit is a wonderful tool that can help advance the division of labor, thereby increasing productivity and prosperity. The granting of credit enables savers to spread their income over time, as they prefer. By taking out loans, investors can implement productive spending plans that they would be unable to afford using their own resources.

The economically beneficial effects of credit can only come about, however, if the underlying credit and monetary system is solidly based on free-market principles. And here is a major problem for today’s economies: the prevailing credit and monetary regime is irreconcilable with the free market system.

At present, all major currencies in the world — be it the US dollar, the euro, the Japanese yen, or the Chinese renminbi — represent government sponsored unbacked paper, or, “fiat” monies. These monies have three characteristic features. First, central banks have a monopoly on money production. Second, money is created by bank lending — or “out of thin air” — without loans being backed by real savings. And third, money that is dematerialized, can be expanded in any quantity politically desired.

A fiat money regime suffers from a number of far-reaching economic and ethical flaws. It is inflationary, it inevitably causes waves of speculation, provokes bad investments and “boom-and-bust” cycles, and generally encourages an excessive build up of debt. And fiat money unjustifiably favors the few at the expense of the many: the early receivers of the new money benefit at the expense of those receiving the new money at a later point in time (“Cantillon Effect”).

One issue deserves particular attention: the burden of debt that accumulates over time in a fiat money regime will become unsustainable. The primary reason for this is that the act of creating credit and money out of thin air, accompanied by artificially suppressed interest rates, encourages poor investments: malinvestments that do not have the earning power to service the resulting rise in debt in full.

Governments are especially guilty of accumulating an excessive debt burden, greatly helped by central banks providing an inexhaustible supply of credit at artificially low costs. 

Politicians finance election promises with credit, and voters acquiesce because they expect to benefit from government’s “horn of plenty.” 

The ruling class and the class of the ruled are quite hopeful that they can defer repayment to future generations to sort out.

However, there comes a point in time when private investors are no longer willing to refinance maturing debt, let alone finance a further rise in indebtedness of banks, corporations, and governments. In such a situation, the paper money boom is doomed to collapse: rising concern about credit defaults is a deadly enemy to the fiat money regime. And once the flow of credit dries up, the boom turns into bust. 

This is exactly what was about to happen in many fiat currency areas around the world in 2008.

A fiat money bust can easily develop into a full-scale depression, meaning failing banks, corporations filing for bankruptcy, and even some governments going belly up. The economy contracts sharply, causing mass unemployment. Such a development will predictably be interpreted as an ordeal — rather than an economic adjustment made inevitable by the ravages of the preceding fiat money boom.

Everyone — those of the ruling class and those of the class of the ruled — will predictably want to escape disaster. Threatened with extreme economic hardship and political desperation, their eyes will turn to the central bank which, alas, can print all the money that is politically desired to keep overstretched borrowers liquid, first and foremost banks and governments.

Running the electronic printing press will be perceived as the policy of the least evil — a reaction that could be observed many times throughout the troubled history of unbacked paper money. Since the end of 2008, many central banks have successfully kept their commercial banks afloat by providing them with new credit at virtually zero interest rates.

This policy is actually meant to make banks churn out even more credit and fiat money. More credit and money, provided at record low interest rates, is seen as a remedy of the problems caused by an expansion of credit and money, provided at low interest rates, in the first place. 

Based on historical precedence this is hardly a confidence-inspiring route to take.


It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:

The boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. 

Depression follows in both instances!

A monetary policy dedicated to averting credit defaults by all means would speak for a fairly tough scenario going forward: depression preceded by inflation. This is a scenario quite similar to what happened, for instance, in the fiat money inflation in eighteenth-century France.

According to Andrew Dickson White, France issued paper money seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the "law of accelerating issue and depreciation." It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and with those following was practically impossible.

It brought ... commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of France — a prostration from which only a Napoleon could raise it.

Investors Are Spilling Out Of The Emerging Markets At A Record-Setting Rate...ANOTHER PESKY FACT!

Investors Are Spilling Out Of The Emerging Markets At A Record-Setting Rate

Money continues to spill out of the emerging markets.

marks the 16th straight week of outflows with cumulative outflows of $36.60 billion. 

"Another record set after last week when EM funds broke 2002 record of 14 weeks of straight outflows," observed Morgan Stanley's Jonathan Garner.

The recovery in the U.S. stock market seems to belie what continues to be a troubling situation in these developing markets. Many of these countries rely heavily on financing that comes from abroad.

cotd emerging market fund outflows

The Stock Market's Capitalization.......ANOTHER PESKY FACT!

The Stock Market's Capitalization

The stock market's capitalization has hit 200% of gross domestic product -- just shy of the dot-com-bubble peak of 204% in 2000 and well ahead of the 183% at the top of the housing bubble in 2007.

The Fed's ability to continue to pump up stock prices may be waning. Assurances that continued QE will immediately burnish the allure of stocks completely ignores 
the degree to which the rally these past four years has been built, not on actual growth, but on EXPECTATIONS that the robust revenue gains would be delivered…tap, tap…any moment now. There's no better illustration of how far afield expectations have run from reality than this single fact!

Since 2009, U.S. stocks have moved in lock-step with the size of the Fed's balance sheet. The correlation between Fed credit (essentially the asset side of the balance sheet) and the S&P 500 has been an astonishing 90%. BLATANT MANIPULATION! INVESTORS HAD BETTER UNDERSTAND WHERE REAL VALUE LIES!

Eventually the gap between expectations and reality will be closed,perhaps very quickly
just as it was after investors gave the economy "the benefit of the doubt" for three years after the peak of housing in 2005.

Increasing And Decreasing Dividends....ANOTHER PESKY FACT!

Thursday, February 27, 2014

Inflation: The Economics of Addiction......A VERY IMPORTANT MUST READ!

Inflation: The Economics of Addiction

Inflation: of all the dangers to the free market economy, historically and theoretically, the greatest is this one, yet it is one of those subjects that remain wrapped in mystery for the average citizen. This elusive concept must be understood if we are to return to the free market, for without a thorough comprehension of inflation's mechanism and its dangers, we will continue to enslave ourselves to a principle of theft and destruction.

This essay is an attempt to compare the process of inflation to a more commonly recognized physiological phenomenon, that of drug addiction. The similarities between the two are remarkable, physically and psychologically. Nevertheless, it must be stressed from the outset that any analogy is never a precise scientific explanation. No analogy can claim to be so rigorously exact as to rival the accuracy of the original concept to which it is supposed to be analogous. It is, however, an excellent teaching device, and while it is no substitute for carefully reasoned economic analysis, it is still a surprisingly useful supplement, which can aid an individual in grasping the implications of the economic argument.

Before beginning the comparison, it is mandatory that a definition of inflation be presented, one which can serve as a working basis for the development of the analogy.

One workable definition has been offered by Murray N. Rothbard, who is perhaps the most reliable expert on monetary theory: 

Inflation is "any increase in the economy's supply of money not consisting of an increase in the stock of the money metal." 

An even better definition might be this one, adopted for the purposes of exposition in this study: "any increase in the economy's supply of money, period." 

Thus, the level of prices is not the criterion in determining whether or not inflation is present. The only relevant factor is simply whether any new money is being injected into the system, be it gold, silver, credit, or paper.

Unfortunately, many economists and virtually the entire population define inflation as a rise in prices. The more careful person will add that this rise in prices is a rise in the overall price level of most goods in the economy, one which is not due to some national disaster, such as a war, in which the rise can be attributed to an increase in aggregate demand as a result of changed economic expectations. Other economists, even more precise, attempt to define inflation as an increase in the money supply greater than the increase of aggregate goods and services in the economy. Professor Mises himself, in his earliest study on monetary theory, employed a definition involving comparisons between the aggregate supply of money and the aggregate "need for money." But in later years, he abandoned this definition, and for very good reasons, as he has explained:

There is nowadays a very reprehensible, even dangerous, semantic confusion that makes it extremely difficult for the non-expert to grasp the true state of affairs. "Inflation," as this term was always used everywhere and especially also in this country, means increasing the quantity of money and bank notes in circulation and of bank deposits subject to check. But people today call inflation the phenomenon that is the inevitable consequence of inflation, that is, the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been up to now called "inflation." It follows that nobody cares about inflation in the traditional sense of the term. We cannot talk about something that has no name, and we cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy which which must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.

What about the inflation caused by increases in the supply of money metals? How does this come about? 

There are at least two ways this could happen: 

(1) new sources of gold and silver might be discovered; 

(2) a new and more efficient technical process for producing one of the metals more cheaply could be found. 

This would tend to inject new supplies of circulating media into the economy, but the use of the metals as money could be offset through their consumption in industrial use (silver, for example, is widely used in the photography industry), and as jewelry and ornamentation. Then, too, costs of mining are not any lower, nor profits any higher, in the long run, than in any other industry.

Because of these and other limitations on the use of precious metals as money, changes in their supply are relatively insignificant as inflationary or deflationary devices. It must be admitted that the inflation which stems directly from the increased supply of precious metals proceeds in exactly the same fashion as the inflation from other sources, but this kind of inflation is usually on such a vastly smaller scale that it is far less dangerous than the other types, and is therefore of less concern to this study. Since it takes place in the free market, in distinction from both mass credit and currency inflation, its effects are more predictable and less harsh. EXACTLY WHY CENTRAL BANKS AND GOVERNMENTS HATE PRECIOUS METALS!

Free market inflation and deflation, caused by the fluctuation in the supply of money-metals, are inescapable in this imperfect world, but their burden is light. Their evils are compounded sevenfold if men, in their drive for a radical, State-enforced perfectionism, attempt to eradicate this mild inflation or deflation through the imposition of State controls over the money mechanism.

In contrast to the expense and difficulty of the production of precious metals, consider how gloriously simple it is for a government to print a treasury note, or for a bank to issue a paper deposit certificate. The treasury of any nation can begin by promising to redeem all of its notes in stated weights and fineness of a precious metal, proceeding to buy the metals from producers and issuing the notes in payment. In the beginning, the treasury note, like the bank note or bank credit slip, is a legal IOU, a receipt for goods stored, goods that are payable on demand with the presentation of the receipt. So far, so good, but the matter never rests here. 

The treasury officials realize what the banking leadership realized hundreds of years ago, that few people ever call for their gold or silver. Those who do are normally offset by new depositors, and so the vast stores of money metals are never disturbed. The paper IOU notes are easier to carry, store more easily, and because they are supposedly one hundred percent redeemable from supposedly reliable institutions, these notes circulate as easily as the gold or silver they represent, perhaps even more easily, since the paper has so many useful properties. These paper notes have the character of money -- they are accepted in exchange for commodities.

Treasury officials now see a wonderful opportunity for buying goods and services for the government without raising visible taxes: they can print new bills which have no gold reserves behind them, but which are indistinguishable from those treasury notes with one hundred percent reserves. The new, unbacked notes act exactly the same as the old ones; they are exchanged for commodities just as easily as the honest IOU notes are. 

Governments print the notes in order to increase their expenditures, while avoiding the necessity of raising taxes. 

The nasty political repercussions associated with tax increases are thereby bypassed. The State's actions are motivated by the philosophy that the government can produce something for nothing, that it can create wealth at will, merely through the use of the printing press. 

Government attempts to usurp the role of God by becoming the creator of wealth rather than remaining the defender of wealth. IT'S TIME AMERICAN VOTERS PUT A STOP TO THIS!

The magic of money creation, in its modern form, makes the earlier practice of metal currency debasement strictly an amateurish beginning. If private citizens engage in paper money creation, it is called counterfeiting; if governments do it, it is called progressive monetary policy. 

In both cases, however, the end is the same: to obtain something valuable at little expense. The result is the same: inflation. In the private realm, with the notable exception of banking, counterfeiting is prosecuted by the government because it is theft. But in the public sphere it is accepted as a miracle of enlightened statesmanship.

Banking practice is quite similar to treasury policy, and the State, realizing that the banks are an excellent source of loans, permits and even encourages bankers to continue this fraudulent counterfeiting. A bank, assuming an enforced legal reserve limit of ten percent (which is about average), can receive $100 from a depositor, permitting him to write checks for that amount, and then proceed to loan $90 of this money to a borrower, virtually allowing him to write checks on the same deposit! Presto: instant inflation, to the tune of ninety cents on the dollar. 

This, however, is only the beginning. The borrower takes the $90 to his account, either at the same bank or at another one. This second deposit permits the bank involved to issue an additional $81 to a third borrower, keeping $9 in reserve, and the process continues until a grand total of $900 comes into circulation from the original $100 deposit. 

This practice is commonly known as "monetization of debt," and the banking system which practices it is called "fractional reserve banking." Then, too, there is the problem of the original $100. If it should be in the form of treasury notes, then the currency already has been heavily inflated through the government's counterfeiting practices. 

If, on the other hand, it is in the form of a check, then it is backed up by only ten percent of some earlier depositor's $111.11. In any case, the economy is faced with an ever-pyramiding structure of credit inflation, only the pyramid is inverted, with an ever-tinier percentage of specie metals at its base. Money buys less and less as prices soar. 

Anyone who doubts the magnitude of the effects of this combined bank and treasury note inflation should pause and consider the fact that in the years 1834-1859, the highest per capita total of currency, deposits, and specie in the United States was under $18, and in the low year it was just over $6 per person! In the high year, 1837, there was only $2 of specie to back up the $18, and the banks had to suspend payment, so even in this period the nation was plagued by a money mechanism based upon unbacked IOU notes. THIS IS WHY THE FED IS SO DESPERATE AND WILL DO ANYTHING TO COVER THE LIES THAT ARE OUR CORRUPT BANKING SYSTEM!

It should also be pointed out, just in passing, that the traditional debate over the so-called "wage-price spiral" misses the mark completely. The unions blame management for the increasing costs of all manufactured goods, while business blames the unions as the cause of the price hikes, since added labor costs force management to pass along the wage increases to the consumers. Both groups are wrong. 

Without the counterfeit, unbacked credit money produced by fractional reserve banking, and without the unbacked treasury notes, neither labor nor business could continually force up prices. Labor would price itself out of the market, forcing management to fire some of the laborers. Businesses would price their products too high, and the public would shift to their competitors. 

No, the wage-price spiral is only a symptom of the inflation; it is a direct result, not the cause, of inflation. Admittedly, government coercion backing up labor's demands have made the unions a major source of the pressures keeping costs rising continually, as Henry Hazlitt argues in chapter 42 of his little book, What You Should Know About Inflation. But this should not blind us to the original causes: the treasury's counterfeiting and the government-protected fractional reserve banking system.

What, then, are the effects of this inflation on the economic system? 

It is my hope that the answer to this question will be grasped more quickly through the use of the analogy of the dope addict. The nation which goes on an inflation kick, such as the one the United States has been on for well over a century, must suffer all the attending characteristics which inescapably accompany such a kick.. 

In at least six ways, the parallels between the addicted person and the addicted economy are strikingly close.

1. The "Junk" Enters at a Given Point

This is an extremely important point to understand. The new money does not appear simultaneously and in equal amounts, through some miraculous decree, in all men's pockets, any more than equal molecules of the drug appear simultaneously in every cell of the addict's body. Each individual's bank account is not increased by $5 more than it was yesterday. Certain individuals and firms, those closest to the State's treasury or the banks' vaults, receive the new money before others do, either in payment for services rendered or in money loaned to them. Inflation enters the economy at a point or points and spreads out; the drug enters an addict's vein, and this foreign matter is carried through his system. In both cases, the "junk" enters at a point and takes time to spread.

There are several differences, though, which cannot be ignored. The spread of inflation is far more uneven than is the spread of the drug. The first individuals' incomes are immediately swelled, and they find themselves able to purchase goods at yesterday's less inflated prices. They can therefore buy more than those who have not yet received quantities of the new, unbacked currency, and this latter group is no longer able to compete so well as the possessors of the counterfeits. Since yesterday's prices were designed by the sellers to enable them to sell the entire stock of each commodity at the maximum profit, the firms or individuals with the new money will either help deplete the stock of goods first, leaving warehouses empty for their competitors who desire to purchase goods at the given price, or the new money owners will be in a favorable position to bid up the prices so that the competitors will have to bow out. The first group gains, undoubtedly, but only at the expense of the second group -- the group which can no longer compete successfully through no fault of its own. The latter group bears the costs, costs which are hidden, but which are nonetheless there. This latter group is made up of those individuals who have relatively fixed incomes (pensioners, civil servants, small businessmen), and who are forced to restrict purchases due to the now inflated prices.

As the inflation spreads, it increases rapidly because of the fractional reserve banking process described earlier. Prices rise unevenly, depending on which industries receive the new funds first, while the unsuccessful businesses, those without the new money, begin to contract and even to go out of existence.

The inflationary process clearly does not create wealth. It merely redistributes it, from the pockets of those who were successful before the inflation began, into the pockets of those who are successful once its starts. The government can supply its needs without raising the visible tax rate; the banks can make more loans without raising the interest rate (in the short run, although not in the long run). The government, by inflating, imposes an invisible,' unpredicted tax upon those who cannot pay the new prices, and who must restrict their purchases; the banks, by inflating, force the non-recipients of bank credit to consume their capital by having to pay higher prices, and this tends to bring more people and businesses to the credit department of the banks. In either case, someone pays the costs. The redistribution (and ultimately the destruction) of wealth continues. All this results from the fact that the spread of inflation is uneven, and because all inflation must enter at certain, favored, points.

2. The "Junk" Produces a Sense of Euphoria

The addict experiences a series of strange sensations, some of which may be painful, such as nausea, but which are more than offset by the pleasant results, however temporary these might be. Things seem more secure to the addict, less harsh than before. The drug may produce dizziness, an imbalance, and it certainly distorts the addict's sense of reality. He moves into a false world, but one which he prefers to the real one, and which he may even mistake, at least temporarily, for the real one, until the effects of the drug have begun to wear off.

Inflation does precisely the same thing to an economy. Prices rise spasmodically, in response to the inflated money injected into certain points of the economy. Money is "easy," and profits appear to be available in certain favored industries, those industries in which, prior to the inflation, further investment would have produced losses. The entrepreneurs pour capital, in the form of money and credit, into these newly profitable ventures. The inevitable happens: good, solid, formerly profitable businesses that had been beneficial to both buyers and owners in the pre-inflation period now begin to lose money. Costs are rising faster for certain industries than are profits; capital is being redirected into other industries; laborers are moving into areas where higher wages are present. Firms which had just barely broken even before the inflation (marginal firms) may now go under and be forced to declare bankruptcy. They are bought out by the favored industries, and a centralization of production begins, with the favored industries leading in expansion and growth. The marginal firms were not destroyed through honest competition, i.e., because they were unable to offer services equal to competitors, but because some members of the economy have been given access to counterfeit money and are thus enabled to compete with an unfair advantage.

Capital -- raw materials, human labor, production machinery -- has been redirected, and in terms of the pre-inflation conditions, misdirected. Efficient firms can no longer compete, so they fold up; as inflation progresses, they fold up even faster. Supplies, initially stimulated, may begin to fall as the more efficient firms (in terms of a non-counterfeit currency) collapse. Prices, the guideposts of a free market, have been distorted by the injection of the new money, exactly as the addict's senses are distorted by the drug, and the economy reels drunkenly. Paper profits appear, followed by rising costs, which may wipe out all the gains. Businessmen are thrown into confusion, as are laborers, housewives, and professional business forecasters: where to invest, what is sound, where will rising costs lag behind increasing profits? Investments go where the profits are, but the profits are measured by a mixed currency: part specie metals and part counterfeit promises to pay specie metal. Counterfeit profits stimulate the creation of "counterfeit industries," while Wiping out formerly productive enterprises. The redistribution of wealth results in the destruction of wealth, and the consuming public is injured: some have become rich, but the majority pays for its new-found prosperity.

By fouling up the price mechanism, the inflationary drug has helped to paralyze industry. The economy fares no better than the addict. By ignoring reality, i.e., the true conditions of supply and demand, the inflationist economy helps to destroy itself just as surely as the addict destroys himself by trying to escape.

3. The Body Adjusts to the "Junk" and More Is Demanded

The addict's body eventually adjusts to the drug that has entered his system, compensates for its destructive' effects, and then attempts to heal its malfunctioning organs. Much the same thing takes place in the economic system. Sellers and buyers adjust their purchases to the new prices and the new wages. But the damage, in both cases, has already been completed. Old cells in the addict's body, and old businesses and entrepreneurial plans in the case of the economic system, have been eliminated. Things can go forward again, but not at the same rate or in the same direction as they did before. Nevertheless, the organisms are still alive and functioning once again, provided that no new "junk" enters either system.

That, of course, is the danger. The "benefits," the pleasant euphoria in the addict's case, and the apparently limitless opportunities for gain in the inflated "boom" conditions of the economy, act as a constant temptation to both to return to the old ways. The successes were too apparent, and the losses so invisible. Who misses a few dead cells, or a few bankrupt businesses? Cells and businesses die every day! But not, normally,healthy cells and productive businesses, and this is what the addict and the inflationists ignore. If healthy cells are destroyed in a human being, sickness is present. The same holds true for the economy.

The addict is tempted, and the second step is always easier than the first; moral and physical resistance is now much lower than before, and so is the initial fear. The resistance to further inflationary pressures is also lower; many in the economy have been made rich by it, and without further inflation their positions of supremacy are threatened. These vested interests do not owe their position to their successful competition; they are indebted to the counterfeiting agencies which have provided them with the additional funds. The counterfeiting agencies do not wish to cease inflating the money supply either. So the addict returns to the pusher, and the economy returns to the banks, and stands, hat in hand, at the treasury's doors. A new round of inflation begins.

There has been a change, however. Both the addict and the economy require ever-increasing doses of the "junk" in order to obtain the same "kick." The addict's body develops a tolerance for the drug, and if the same amount of it is injected into his system, he will begin to lose the old euphoria, and eventually he will experience physical discomfort. In the market, forecasters expect further inflation, and they prepare their plans more carefully, watching for rising costs, and are more ready to increase prices. The paper profits are smaller unless larger quantities of the counterfeit claims are injected into the money supply. The addict's body continues to decline, and the economy also deteriorates. New bankruptcies, soaring prices, disrupted production are everyday occurrences. The price mechanism is less and less responsive to the true conditions of supply and demand, i.e., "true" apart from monetary inflation.

Another fact that is not generally realized is that the price level may remain somewhat stable while inflation is going on. Just as the addict can take a small quantity of a drug and still seem normal, so the productive economy can seem healthy. Both addict and economy are filled with the foreign matter, whether the signs show or not. Take away the drug, and both the economy and the addict would be different. The laymen, and a considerable number of economists, forget that in a productive economy, the general level of prices should befalling. If the money supply has remained relatively stable, the increased supply of goods will force down prices, if all the goods are to be sold. In fact, the free market should generally be characterized by increasing demand prompted by falling prices, with increasing supplies due to increased capital investment. If prices remain stable, then the economy is very likely experiencing inflationary pressures. The public has erred in thinking that an increasing or even stable price level is the sign of "normalcy."

4. The Habit Cannot Go on Indefinitely

The addict will usually run out of funds before he can reach the limit of his body's toleration. If he has the funds, and if he escapes detection, then he will eventually kill himself. Normally, legal and financial considerations will prevent this.

Not so in the economy's case. The legal restrictions on the circulation of inflated bank credit are not restrictions at all: they are licenses, virtual guarantees to permit fraud. Demanding ten percent reserves is licensing ninety percent counterfeiting. Demanding a twenty-five percent gold backed dollar, is permitting seventy-five percent fraud. The legal limits are off; the addicted economy can supply itself almost forever with its phony wealth. It cannot, however, escape the repercussions.

The addict has greater restrictions upon his actions, but he can die. The economy does not die, for it is not a living creature, though for the sake of the analogy it is treated as such. Continuous inflation will, however, spell the death of the circulating media that is used. Eventually, the market will be forced to shift to some new means of price measurement, to some new device for economic calculation. If the inflation is permitted to progress to this point, the social and economic results can be devastating. Economies do not die, but the social order can be replaced. The classic example is Germany in 1923. The effects upon individual members of the society could lead to chaos, leaving large segments of the population spiritually demoralized.

The habit cannot go on forever. It will either be stopped, or else the addict will die, in the case of the human, and the monetary system will collapse, in the economy's case. The thought of the latter alternatives turns one's attention to the former one: stopping the inflation and stopping the drug.

5. Shaking the Habit

Withdrawal -- the most frightening word in the addict's vocabulary. Depression -- the most horrible economic thought in the minds of today's citizens. Yet both come as the only remedies for the suicidal policies entered into.

To the addict, withdrawal means a return to the normal functioning of the body, a return to reality. The path to normalcy is a decidedly painful avenue. Withdrawal will not restore him to his pre-addiction condition, for too much has already been lost -- socially, physically, financially, spiritually. But he can live, he can survive, and he can make a decent life for himself.

For the inflationist economy, a cancellation, or even a reduction, of the inflation means depression, in one form or another. This is inevitable, and absolutely necessary. Prices must be permitted to seek their level, production must rearrange itself, and this will mean losses to some and gains for others. The inflationary effects of the monetization of debt, the pyramiding of credit, are then reversed. The man who deposited the $100 is pressed for payment by creditors, so he withdraws his money. The banks are faced with either heavy (and unfulfillable) specie demands, or at least with credit and currency withdrawals. The bank calls in its loans, sells its property, and begins to liquidate. The man who bad borrowed the $90 now must pay up, with interest. He goes to his bank, takes out the $90, and his bank has to call in the $81 it had loaned out. The $900 built on the original $100 disappears, again as if by magic. This is the process of demonetization of debt, and it is clear why there would be a drastic decline in prices, and why a lot of banks would be closed, some of them permanently.

The suffering imposed by depression is unfortunate, but it is the price which must be paid for survival. If the consequences of runaway inflation are to be avoided, then this discomfort must be borne. The depression, lest we forget, is not the product of a defunct capitalism, as the critics invariably charge. It is the restoration of capitalism. Free banking, even without the legally enforced one hundred percent reserve requirement, can never develop the rampant inflation described here. The inflation came as a direct result of State-enforced policies, and the State must bear the blame. Sadly, it never does. It accepts responsibility for the politically popular "boom" conditions, but the capitalists cause the "busts."

6. The Temptation to Return to the "Junk"

The analogy ends here, as far as I am concerned, with only one unfortunate addition. The reformed addict, I am told, never completely loses his desire to return to the "junk." The lure of the old euphoria, the days of junk and roses, always confronts him. The temptation to inflate once again is likewise always with us, and especially during the transition (depression) period. America's 1929 depression is the best historical footnote to the unwillingness of an economy to take its medicine and stay off of the "junk."

This much is certain, the deliberate inflating of a nation's circulating media is an ancient practice which has generally accompanied a decline of the national standards of morality and justice. The prophet Isaiah called attention to the coin debasing of his day, including it in a list of sins that were common to the society. They are the same social conditions of our own era.

How is the faithful city become an harlot! it was full of judgment; righteousness lodged in it; but now murderers. Thy silver is become dross, thy wine mixed with water: Thy princes are rebellious, and companions of thieves ...

Isa. 1:21-23a

Debased currency is a sign of moral decay. 

In the final analysis, inflation is not just a question of proper economic policy. Above all, it is a question of morality. 

If we should permit the State to continue its fraud of indirect taxation through inflation, then we would have little argument against what is clearly the next step, the final removal of all natural resistance to inflation through the establishment of a world banking system. Mises warned half a century ago that the establishment of a world bank would leave only panic as the last barrier to total inflation.

In the realm of practical recommendations, at least two seem absolutely imperative. 

The first is simple: completely free coinage as a right of private property, with the government acting as a disinterested third party ready to step in and prosecute at the first sign of fraud on the part of the private firms. NEVER GOING TO HAPPEN! THE GOVERNMENT WILL NEVER ALLOW IT.  Any debasement of these private coins would be prosecuted to the limit of the laws. The private mints would therefore find it advantageous to keep continual watch over each other's coinage, calling the State's attention to any sign of fraud. 

By eliminating the present State monopoly of coinage, private competition could act as a barrier to monetary fraud. Without this mutual competition, the State's monopoly of coinage can continue, with only minor checks on debasement. Private coinage would never eradicate personal greed, of course, but mutual avariciousness would tend to place checks on the fraudulent practice of theft through debasement. OUR GOVERNMENT HAS A MONOPOLY AND THE ONLY THING THAT WILL CAUSE THEM TO RELINQUISH IT IS A SYSTEMIC COLLAPSE. THEY ARE VERY OBVIOUSLY WILLING TO RISK THIS KIND OF COLLAPSE IN ORDER TO MAINTAIN THEIR CONTROL. OUR GOVERNMENT DOES NOT CARE ABOUT OUR HERITAGE, OUR CONSTITUTION OR AMERICAN CITIZENS, THEY CARE ABOUT POWER AND MONEY AND KEEPING THEIR CONTROL OF BOTH.

The second recommendation, free banking, is similar to the first one of free coinage. The banks must be made to gain their profits from the charging of storage costs, clearing house operations for checks, and the investment of private trust funds. When banks create credit (and the power of credit creation is precisely what defines a bank, as distinguished from a savings and loan company), they charge interest on loaned funds which have been created by fiat. There are no gold or silver reserves backing this money, yet the banks profit by lending it. It involves fraud, and it is therefore immoral. The practice must be stopped. DO YOU BELIEVE THAT BANKS, WALL STREET OR POLITICIANS WILL EVER DO THE RIGHT THING? IF YOU DO,YOU ARE PART OF THE PROBLEM.

Mises argues that free banking will keep bankers honest. Mutual competition will tend to destroy banks that are insolvent because of their heavy speculative policies of credit creation. Bank runs will tend to drive the less conservative banks out of business. There may be some credit creation, but very little in comparison to that which exists today, when the governments support fractional reserve fraud. He fears a law which would require one hundred percent reserves for banks, however, for the power of the State to demand one hundred percent reserves implies the power to demand ninety-nine percent reserves, ninety-five percent reserves, fifty percent reserves, or ten percent reserves. It is safer, he argues, to leave government out of the picture completely, given the past failures of government to keep the banking system honest. Fractional reserve banking is too tempting to governments as a source of ready loans. Mises, in short, does not trust the government bureaucracy when it comes to the regulation of banking. I agree with him on this matter.

Rothbard argues cogently for a State-enforced one hundred percent reserve requirement for all banks. Any bank not abiding by this must be prosecuted. It must be stressed that Mises is not absolutely hostile to this recommendation, since he admits that "Government interference with the present state of banking affairs could be justified if its aim were to liquidate the unsatisfactory conditions by preventing or at least seriously restricting any further credit expansion." 

Mises is willing to let some regulation in on the grounds of expediency; things are so bad today that any restrictive legislation would be an improvement. Rothbard is arguing, however, in terms of principle. Fraud is involved in fractional reserve banking, so it must be eliminated by law. It is a strong argument. 

Unfortunately, Rothbard sacrifices its cogency by his philosophical anarchism. If there is no State to enforce the provision, how will his one hundred percent reserve banking scheme be different, operationally, from Mises' free banking?

In addition, Rothbard argues, the State must not be permitted to extend beyond its own sphere into the economic realm by means of the printing press. The government must not continue to hoard the gold, which originally belonged to its citizens. The people must be given the right to claim their gold. 

Preferably, the government must not have the power to store gold and silver or to print receipts (IOU's); this so-called "free" service, i.e., gratuitous service, is not really one without costs. It must be paid for, either by direct taxation or by the indirect taxation of counterfeit receipts. Invariably, the temptation to print State counterfeits is too great, especially during the crisis of war. Even the most moral of statesmen gives in. What President can resist the possibilities of "taxation without legislation" that greenbacks provide? EXACTLY HOW WE GOT INTO THE CURRENT PREDICAMENT.

The coinage power must be left to private citizens who are subject to competition from other citizens and to the enforcement by the government of the private coins' stated weights and fineness. Logically, one might argue, this would hold true for government enforcement of 100 percent reserves in banking, too. Perhaps so, but in any case, the benefits of free banking, with or without the 100 percent reserve law, would provide a remarkably sound monetary system. And either way, the "withdrawal" pains -- depression -- will not be avoided.

Unless men and women are ready to face the consequences of the necessary "withdrawal" period and the sufferings that accompany it, unless they take a moral stand against this fraudulent and suicidal drug of inflation, demanding that the government cease its efforts to promote the "boom" conditions, then the end of civilization as we now it now is in sight. 

Either we destroy the fraud of unbacked paper currency and unbacked bank credit, or the fraud will destroy us -- morally, economically, politically, and spiritually.

America's Global Retreat........AN ABSOLUTE MUST READ!

America's Global Retreat

Never mind the Fed's taper, it's the U.S. geopolitical taper that is stirring world anxiety. From Ukraine to Syria to the Pacific, a hands-off foreign policy invites more trouble.

Since former Federal Reserve Chairman Ben Bernanke uttered the word "taper" in June 2013, emerging-market stocks and currencies have taken a beating. It is not completely clear why talk of (thus far) modest reductions in the Fed's large-scale asset-purchase program should have had such big repercussions outside the United States. The best economic explanation is that capital has been flowing out of emerging markets in anticipation of future rises in U.S. interest rates, of which the taper is a harbinger. While plausible, that cannot be the whole story.

For it is not only U.S. monetary policy that is being tapered. Even more significant is the "geopolitical taper." By this I mean the fundamental shift we are witnessing in the national-security strategy of the U.S.—and like the Fed's tapering, this one also means big repercussions for the world. To see the geopolitical taper at work, consider President Obama's comment Wednesday on the horrific killings of protesters in the Ukrainian capital, Kiev. The president said: "There will be consequences if people step over the line."

No one took that warning seriously—Ukrainian government snipers kept on killing people in Independence Square regardless. The world remembers the red line that Mr. Obama once drew over the use of chemical weapons in Syria . . . and then ignored once the line had been crossed. The compromise deal reached on Friday in Ukraine calling for early elections and a coalition government may or may not spell the end of the crisis. In any case, the negotiations were conducted without concern for Mr. Obama.

The origins of America's geopolitical taper as a strategy can be traced to the confused foreign-policy decisions of the president's first term. The easy part to understand was that Mr. Obama wanted out of Iraq and to leave behind the minimum of U.S. commitments. Less easy to understand was his policy in Afghanistan. After an internal administration struggle, the result in 2009 was a classic bureaucratic compromise: There was a "surge" of additional troops, accompanied by a commitment to begin withdrawing before the last of these troops had even arrived.

Having passively watched when the Iranian people rose up against their theocratic rulers beginning in 2009, the president was caught off balance by the misnamed "Arab Spring." The vague blandishments of his Cairo speech that year offered no hint of how he would respond when crowds thronged Tahrir Square in 2011 calling for the ouster of a longtime U.S. ally, the Egyptian dictator Hosni Mubarak.

Mr. Obama backed the government led by Mohammed Morsi, after the Muslim Brotherhood won the 2012 elections. Then the president backed the military coup against Mr. Morsi last year. On Libya, Mr. Obama took a back seat in an international effort to oust Moammar Gadhafi in 2011, but was apparently not in the vehicle at all when the American mission at Benghazi came under fatal attack in 2012.

Syria has been one of the great fiascos of post-World War II American foreign policy. When President Obama might have intervened effectively, he hesitated. When he did intervene, it was ineffectual. The Free Syrian Army of rebels fighting against the regime of Bashar Assad has not been given sufficient assistance to hold together, much less to defeat the forces loyal to Assad. The president's non-threat to launch airstrikes—if Congress agreed—handed the initiative to Russia. Last year's Russian-brokered agreement to get Assad to hand over his chemical weapons is being honored only in the breach, as Secretary of State John Kerry admitted last week.

The result of this U.S. inaction is a disaster. At a minimum, 130,000 Syrian civilians have been killed and nine million driven from their homes by forces loyal to the tyrant. At least 11,000 people have been tortured to death. Hundreds of thousands are besieged, their supplies of food and medicine cut off, as bombs and shells rain down.

Worse, the Syrian civil war has escalated into a sectarian proxy war between Sunni and Shiite Muslims, with jihadist groups such as the Islamic State of Iraq and Syria and the Nusra Front fighting against Assad, while the Shiite Hezbollah and the Iranian Quds Force fight for him. 

Meanwhile, a flood of refugees from Syria and the free movement of militants is helping to destabilize neighboring states like Lebanon, Jordan and Iraq. The situation in Iraq is especially dire. Violence is escalating, especially in Anbar province. According to Iraq Body Count, a British-based nongovernmental organization, 9,475 Iraqi civilians were killed in 2013, compared with 10,130 in 2008.

The scale of the strategic U.S. failure is best seen in the statistics for total fatalities in the region the Bush administration called the "Greater Middle East"—essentially the swath of mainly Muslim countries stretching from Morocco to Pakistan. In 2013, according to the International Institute of Strategic Studies, more than 75,000 people died as a result of armed conflict in this region or as a result of terrorism originating there, the highest number since the IISS Armed Conflict database began in 1998. Back then, the Greater Middle East accounted for 38% of conflict-related deaths in the world; last year it was 78%.

Mr. Obama's supporters like nothing better than to portray him as the peacemaker to George W. Bush's warmonger. But it is now almost certain that more people have died violent deaths in the Greater Middle East during this presidency than during the last one.

In a January interview with the New Yorker magazine, the president said something truly stunning. "I don't really even need George Kennan right now," he asserted, referring to the late American diplomat and historian whose insights informed the foreign policy of presidents from Franklin Roosevelt on. Yet what Mr. Obama went on to say about his self-assembled strategy for the Middle East makes it clear that a George Kennan is exactly what he needs: someone with the regional expertise and experience to craft a credible strategy for the U.S., as Kennan did when he proposed the "containment" of the Soviet Union in the late 1940s.

So what exactly is the president's strategy? "It would be profoundly in the interest of citizens throughout the region if Sunnis and Shiites weren't intent on killing each other," the president explained in the New Yorker. "And although it would not solve the entire problem, if we were able to get Iran to operate in a responsible fashion . . . you could see an equilibrium developing between Sunni, or predominantly Sunni, Gulf states and Iran."

Moreover, he continued, if only "the Palestinian issue" could be "unwound," then another "new equilibrium" could be created, allowing Israel to "enter into even an informal alliance with at least normalized diplomatic relations" with the Sunni states. The president has evidently been reading up about international relations and has reached the chapter on the "balance of power." The trouble with his analysis is that it does not explain why any of the interested parties should sign up for his balancing act.

As Nixon-era Secretary of State Henry Kissinger argued more than half a century ago in his book "A World Restored," balance is not a naturally occurring phenomenon. "The balance of power only limits the scope of aggression but does not prevent it," Dr. Kissinger wrote. "The balance of power is the classic expression of the lesson of history that no order is safe without physical safeguards against aggression."

What that implied in the 19th century was that Britain was the "balancer"—the superpower that retained the option to intervene in Europe to preserve balance. The problem with the current U.S. geopolitical taper is that President Obama is not willing to play that role in the Middle East today. In his ignominious call to inaction on Syria in September, he explicitly said it: "America is not the world's policeman."

But balance without an enforcer is almost inconceivable. Iran remains a revolutionary power; it has no serious intention of giving up its nuclear-arms program; the talks in Vienna are a sham. Both sides in the escalating regional "Clash of Sects"—Shiite and Sunni—have an incentive to increase their aggression because they see hegemony in a post-American Middle East as an attainable goal.

The geopolitical taper is a multifaceted phenomenon. For domestic political as well as fiscal reasons, this administration is presiding over deep cuts in military spending. No doubt the Pentagon's budget is in many respects bloated. But, as Philip Zelikow has recently argued, the cuts are taking place without any clear agreement on what the country's future military needs are.

Thus far, the U.S. "pivot" from the Middle East to the Asia Pacific region, announced in 2012, is the nearest this administration has come to a grand strategy. But such a shift of resources makes no sense if it leaves the former region ablaze and merely adds to tension in the latter. A serious strategy would surely make some attempt to establish linkage between the Far East and the Middle East. It is the Chinese, not the Americans, who are becoming increasingly dependent on Middle Eastern oil. Yet all the pivot achieved was to arouse suspicion in Beijing that some kind of "containment" of China is being contemplated.

Maybe, on reflection, it is not a Kennan that Mr. Obama needs, but a Kissinger. "The attainment of peace is not as easy as the desire for it," Dr. Kissinger once observed. "Those ages which in retrospect seem most peaceful were least in search of peace. Those whose quest for it seems unending appear least able to achieve tranquillity. 

Whenever peace—conceived as the avoidance of war—has been the primary objective . . . the international system has been at the mercy of its most ruthless member."

Those are words this president, at a time when there is much ruthlessness abroad in the world, would do well to ponder.

The Difference Between A Good Economist And A Bad Economist......AN ABSOLUTE MUST READ!

The Difference Between A Good Economist And A Bad Economist

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

           From an essay by Frédéric Bastiat in 1850, “That Which Is Seen and That Which Is Unseen”


The bad economist pursues a small present good that will be followed by a great evil to come...

Economics is not a difficult subject, unless you try to learn it from an economist. 

Common sense is all that is required to be a good economist. Unfortunately, in order to get your union card, you must pretend to have none. Belief in fairy tales like more spending and “free lunches” is far more important if you want to be a mainstream economist.

Just in case you thought for a second that the sorry discipline we call economics couldn’t stoop any lower into the gutter of academic idiocy and irrelevance, think again. It’s now being reported that ex-Goldman Sachs trader Fabrice “Fabulous Fab” Tourre (recently convicted on six counts of securities fraud) will be teaching an honors economics class at the “prestigious” University of Chicago. There’s nothing like an esteemed University setting the already culturally accepted example that ethics are for suckers. Stealing, cheating and corruption are the values most exalted in today’s world. It doesn’t matter how you achieve your wealth, as long as you attain it.

DON'T BELIEVE A WORD THEY SAY.....Buffett's Hypocrisy Exposed Yet Again!

Buffett's Hypocrisy Exposed Yet Again

All you need to know about the New Normal breed of crony capitalism and unbridled hypocrisy is once again best exemplified by the following quote by Charlie Munger - the lifetime business partner of crony capitalist par excellence Warren Buffett - from May 2013, in which he said;

 "I think it is very stupid to allow a system to evolve where half of the trading is a bunch of short term people trying to get information one millionth of a nanosecond ahead of somebody else. It's legalized front-running. I think it is basically evil and I don't think it should have ever been allowed to reach the size that it did. Why should all of us pay a little group of people to engage in legalized front-running of our orders?" 

Noble words Charlie. 

What Munger, however, did not disclose is that as part of the Berkshire Hathaway-owned Business Wire news service, the company was enabling just this "basically evil" frontrunning, by allowing some, those who could afford the hefty fee of course, to make Munger and Buffett even richer and to subscribe to BW's HFT direct news access which gave them a few millisecond headstart and in the process frontrun everyone else.

Wednesday, February 26, 2014

Why the stock market is a sham for regular investors.... VERY IMPORTANT!

Why the stock market is a sham for regular investors 

Based on historical price to earnings ratios the stock market is overvalued by fifty percent. Only half of Americans own any stocks.

The stock market is largely seen as a barometer of economic health to the US economy.  Turn on any business program and they report market prices as if reporting on it being a sunny or cloudy day. The financial markets are fully juiced on our current debt based system.  Unfortunately it is taking more debt to get minimal returns and the reality is the juicing of the market is simply causing more wealth inequality in our nation. 

Financial institutions have first dibs on the easy access of debt provided by the Federal Reserve. This is why the housing market is now largely dominated by investors and banks cutting out regular home buyers. Young Americans are competing for positions in the low wage environment that is subsequently created. Yet the stock market is largely a sham for most Americans. Most do not have access to high frequency trading techniques that favor quick trades over buying and holding and corporate profits are up largely up on the slashing of wages and benefits.  When we look at historical price-to-earnings ratios, we find that stocks are currently overvalued by at least 50 percent.

S&P 500 overvalued by 50 percent

It should be noted that the recent boom in the stock market has been pumped up by debt steroids. Since 2009 the Fed opened the spigots to member banks to essentially allow them to do the following:

-A freeze of mark-to-market accounting

-Access to very low rates and generous debt restructuring agreements

-Little new regulation and lack of enforcement

-Availability of more debt but debt is now being used by banks incestuously versus lending to small businesses and the public

This is why this record stock market run has not trickled down to most Americans.  Also, prices seem inflated at the moment:
snp pe ratio
The historical P/E10 ratio going back to 1870 for the S&P 500 is 16.5. Today we are at 25. We are currently 50 percent higher than our historical average here. You have to look at price-to-earnings ratios because this will tell you how profitable a company is, at least in the short-run.  The problem with the short-run is that most of these gains have come from cutting wages, slashing benefits, and leveraging mega amounts of cheap debt. This trajectory has led to record levels of wealth and income inequality.

The rise of income inequality fueled by a stock bubble

What is interesting is that even within the top 1 percent, there is major inequality here when you begin to look at income:
income inequality at the top
Those in the top 0.1 percent and 0.01 percent have done exceptionally well since the crisis ended. Contrary to the belief that these people are hardworking business owners these are typically people connected to the FIRE portion of the economy. Some are part of the reason we had our crisis in the first place.  A study done in 2010 found that of those in the top 0.1 percent 61 percent were bankers and executives. The rest were lawyers (7 percent), doctors (6 percent), and those in real estate (4 percent).

Also, the rise and fall of their wealth goes hand and hand with the stock market:
the bubble of the stock market
Of the 400 richest Americans, an IRS report showed that 50 percent of their income came in the form of capital gains.  What is more interesting in these figures is how the FIRE side of the economy is essentially cannibalizing everything else.  And the reason the stock market is largely a sham is that most Americans don’t even participate in the stock market.

Lack of Americans invested

While the stock market has rebounded on maximum debt leverage to the connected, the public has not recovered and most are not vested in the market:
Americans invested in stocks
Part of it is the distrust of the market but a larger reason is that Americans in those low wage fields simply have no money left over to invest after paying the bills. The health of the economy should be measured by the quality of jobs and the number of these jobs available. Sure, the press is obsessed with stock values but you can easily inflate these numbers away with central banking policies that favor member banks. It certainly doesn’t seem like this run in the stock market has trickled down to regular Americans.  Why?  Because the profits are largely on their backs.


The Fed has been pumping money into the financial sector through its continuous QE programs. The money has pushed up the value of speculative stocks, even while the real economy has stagnated. With few real investments to fund, the money is plowed right back into the speculative mill. 

We are simply witnessing a replay of the dot com bubble of the late 1990's. But this time it isn't different.

In another replay of that spectacular crash fourteen years ago, the appliance and furniture retailer Conn's has just showed the limits of a business built on vendor financing. In the late 1990's telecom equipment companies almost went bankrupt after selling gear to dot com start-ups on credit. For a while, these "sales" made growth and profits look great, but when the dot coms went bust, the equipment makers bled. Conn's makes its money by selling TVs and couches on credit to Americans who have difficulty scraping up funds for cash purchases. For a while, this approach can juice sales. Not surprisingly, Conn's stock soared more than 1500% between the beginning of 2011 and the end of 2013. These financing options are part of the reason why Conn's was able to keep up the appearance of health even while rivals like Best Buy faltered in 2013.

But if people stop paying, the losses mount. This is what is happening to Conn's. The low and middle-income American consumers that form the company's customer base just don't have the ability to pay off their debt. The disappointing repayment data in the earnings report sent the stock down 43% in one day.

In essence, Conn's customers are just stand-ins for the country at large. In just about every way imaginable, America has borrowed beyond its ability to repay. Meanwhile our foreign creditors continue to provide vendor financing so that we can buy what we can't really afford.

So thanks for the metaphors Wall Street. Too bad most economists can't read the tea-leaves.

Half of US Farmland Being Eyed by Private Equity.......VERY IMPORTANT!


Half of US Farmland Being Eyed by Private Equity

An estimated 400 million acres of farmland in the United States will likely change hands over the coming two decades as older farmers retire, even as new evidence indicates this land is being strongly pursued by private equity investors.

Mirroring a trend being experienced across the globe, this strengthening focus on agriculture-related investment by the private sector is already leading to a spike in U.S. farmland prices. Coupled with relatively weak federal policies, these rising prices are barring many young farmers from continuing or starting up small-scale agricultural operations of their own.

In the long term, critics say, this dynamic could speed up the already fast-consolidating U.S. food industry, with broad ramifications for both human and environmental health.

“When non-operators own farms, they tend to source out the oversight to management companies, leading in part to horrific conditions around labour and how we treat the land,” Anuradha Mittal, the executive director of the Oakland Institute, a U.S. watchdog group focusing on global large-scale land acquisitions, told IPS.

“They also reprioritise what commodities are grown on that land, based on what can yield the highest return. This is no longer necessarily about food at all, but rather is a way to reap financial profits. Unfortunately, that’s far removed from the central role that land ultimately plays in terms of climate change, growing hunger and the stability of the global economy.”

In a new report released last 
Tuesday, the Oakland Institute tracks rising interest from some of the financial industry’s largest players. Citing information from Freedom of Information Act requests, the group says this includes bank subsidiaries (the Swiss UBS Agrivest), pension funds (the U.S. TIAA-CREF) and other private equity interests (such as HAIG, a subsidiary of Canada’s largest insurance group).

“Today, enthusiasm for agriculture borders on speculative mania. Driven by everything from rising food prices to growing demand for biofuel, the financial sector is taking an interest in farmland as never before,” the report states.

“Driven by the same structural factors and perpetrated by many of the same investors, the corporate consolidation of agriculture is being felt just as strongly in Iowa and California as it is in the Philippines and Mozambique.”

As yet, the amount of U.S. land owned by private investors is thought to be relatively low. The report points to a 2011 industry estimate that large-scale investors at the time owned around one percent of U.S. farmland, worth between three five billion dollars.

Last year, however, another industry analyst put this figure at around 10 billion dollars, suggesting that the institutional share of farmland ownership is rising quickly.

“We’ve been seeing a decimation of the family farmer for a long time, but now these processes are accelerating,” Mittal says. “We need a tightening at the policy level before we’re swamped by these trends.”

Demographic Collision

In the year after food prices suddenly rose in 2008, global speculation in land rose by some 200 percent. With the international financial meltdown coinciding almost simultaneously with this crisis, investors have increasingly viewed agricultural land as a relatively safe place to put their money amidst rising volatility.

In the United States, investors are particularly eyeing potential future returns from mineral prospecting, water rights and strengthening trends in meat consumption. U.S. farmland is also seen as globally desirable due to a combination of high-tech farming opportunities and lax regulations regarding the use of genetically modified crops.

As a result of this new interest, land prices in the United States have risen by an estimated 213 percent over the past decade. This could now play into two trends at once.

Already, the United States is home to relatively low numbers of farmers, with the country famously home to more prisoners than full-time agriculturalists. But those who do continue to farm are also quickly aging.

While federal agriculture officials are expected to offer updated demographic information within the coming week, the most recent statistics suggest that just 6 percent of farmers are under 35 of age. Further, some 70 percent of U.S. farmland is owned by people 65 years or older.

“The older generation needs to cash out because they have no retirement funds, even as the new generation doesn’t have the capital to get into the kind of debt that starting a farm requires,” Severine von Tscharner Fleming, a farmer and co-founder of the Agrarian Trust, a group that helps new farmers access land, told IPS.

“Today there is a huge number of older folks trying to decide what to do with their land, and in many places we don’t have many years to help them make that decision. So in that sense there’s an urgent need, and we don’t have many tools at the federal level to help.”

For the most part, Fleming suggests, U.S. federal agriculture policy today is not aligned to the country’s best interests, instead pointing away from greater agricultural diversity, regional resilience and greater strengthened opportunity for rural economies. Nonetheless, she says that her organisation is encountering a surge of attention from young people that want to start their own farms.

“Over the past seven years, we’ve had an explosion of interest in being trained as a farmer and entering the trade of agriculture, and this is very much related to the crises around the banks and the environment,” she says.

“The problem we’re facing is not one in which nobody wants to farm, but rather the fact that the U.S. economy is structured in such a way that makes it really hard to start a farm in this country.”

8 Levels Of Control That Must Be Obtained Before You Are Able To Create A Socialist State.........

8 Levels Of Control That Must Be Obtained Before You Are Able To Create A Socialist State



"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

            Thomas Jefferson

There are 8 levels of control that must be obtained before you are able to create a social state.

 1) Healthcare - Control healthcare and you control the  people.

2) Poverty - Increase the Poverty level as high as possible,  poor people are easier to control and will not fight back if you are providing  everything for them to live.

3) Debt - Increase the debt to an  unsustainable level. That way you are able to increase taxes, and this will  produce more poverty.

4) Gun Control - Remove the ability of the populace to defend themselves from the Government. That way you are able to create a police state.

5) Welfare - Take control of every aspect (food, housing, income) of their lives because that will make them fully dependent on the government.

6) Education - Take control of what people read and listen to and take control of what children learn in  school.

7) Religion - Remove the belief in God from the Government  and schools because the people need to believe in ONLY the government knowing what is best for the people.

8) Class Warfare - Divide the people into the wealthy and the poor.  Eliminate the middle class.  This will cause more discontent and it will be easier to tax the  wealthy with the support of the poor.