Reading Between the Basepairs

A company is offering personal genetic testing:

Three years later, their company, 23andMe.com, gives anyone with $399 to spend a host of information about his or her genetic markers; from traits like whether you’re a natural sprinter to whether you might be at risk for Parkinson’s disease. You order the kit online, get it in the mail, spit in the cup and mail it back. A few months later, you get your results via email. It’s as easy as getting a movie from Netflix.

OK, so I've known about this stuff for a long time. It's pretty cool to see it showing up on Yahoo!Finance. The main reason I posted on it was that one of the last lines caught my eye:

Among them, doctors and regulators who think the procedure should be done by a doctor, privacy advocates who worry the information could be used against you, and people who think decoding your genetics is a step too close to playing God.

Analyzing my own DNA is playing God? I'll leave it alone...

Fred is Back!

Fred Reed is back, and about two months early if I remember correctly. He opines on the "drug war:"

To show that utter futility can, if not be fun, at least serve to pass an idle hour, let me express the common Mexican and indeed South American view of the, oh god, War on Drugs. It goes thusly:

Latin America does not have a drug problem. It has a United States problem. The problem is that Americans want drugs. The US is a huge, voracious, insatiable market for drugs. Americans very much want their brain candy. They will pay whatever they need to pay to get it. All the world knows this.

Why, Mexicans wonder, is America’s drug habit Mexico’s problem? If Americans don’t want drugs, they can stop buying them. Nobody forces anyone to use the stuff.

Fred appears to be in fine literary form, eyeball injuries notwithstanding. And a wonderful topic for his return to the digital press. I would have to say that I agree with his sentiment. The War on Drugs is a joke. It is manifestly not making the world a better place. It should be ended, with all haste. There very well may be an upsurge in the number of drug addled zombies walking the streets the day after surrender is declared, which is probably what scares the pee out of those who still support wallowing in this hopeless quagmire. There may not. But let's not pretend that the ban has done much to stem the flow of "substance." And there can be little doubt that quite a few very nasty characters have been well rewarded for their troubles in getting "substance" to us and doing some awful things in the process. All of that ends with legalization. I'm not completely without sympathy for the conservatives on this. I don't much like the stuff myself, and I've seen more than a few people mess themselves up pretty badly by indulging in this lifestyle. But as we have seen in vivid detail, banning a thing is a very different proposition from not having a thing. Legalization and prohibition each has its set of problems. Seems to me we've pretty well sampled this set. Why not try out the other for a change? Besides, I've got a lot of hobbies that might prove to be unpopular if put to a vote. A lot of people do. Americans are supposed to be above putting one another's activities up for referendum. How about the US and Mexico strike a deal: America legalizes drugs, Mexico legalizes guns? Sounds like a win-win to me, and a big lose for the bad guys.

What Is Economic Collapse Like?

Not good. Worse than I had thought, actually. Courtesy of Gary North's site is a posting by an Argentinian on what it is like to live through a severe economic collapse. Here's an excerpt:

After all these years I learned that even though the person that lives out in the country is safer when it comes to small time robberies, that same person is more exposed to extremely violent home robberies. Criminals know that they are isolated and their feeling of invulnerability is boosted. When they assault a country home or farm, they will usually stay there for hours or days torturing the owners. I heard it all: women and children getting raped, people tied to the beds and tortured with electricity, beatings, burned with acetylene torches.

Big cities aren’t much safer for the survivalist that decides to stay in the city. He will have to face express kidnappings, robberies, and pretty much risking getting shot for what’s in his pockets or even his clothes.

So, where to go? The concrete jungle is dangerous and so is living away from it all, on your own.

Argentina has had chronic financial problems for decades, as has most of Latin America. It has defaulted on its national debt not once, but multiple times during that time period. In 2001, it faced what was apparently a very serious collapse. I was aware that Argentina had fiscal problems; I was not aware that it got this bad. If you are concerned or curious about what might happen in the event of a currency collapse, I would advise reading the whole thing. The author does not speak English perfectly well, but he is clearly a clever guy with a lot of insight on what we in the US may be facing. I would also note that the USA is not Argentina. The argument could be made that our crisis will be much more severe; the opposite argument could also be made. I, for one, cannot say for sure, and only time will tell. But I do think we are in for a long, rough ride. A lot of his suggestions are readily doable and easily affordable by most people: have some rechargeable batteries on hand and a solar or mechanical charging system, LED flashlights and headlamps, food, water, etc. He gives particular attention to the security situation, which I found most frightening. He makes the very salient, and what ought to be obvious, point that criminals are inherently dishonest; they are not going to have a skull-and-crossbones flag flying over them and likely won't engage you in an honest fight. That assault rifle you got at the gunshow last weekend is not going to do you much good, since you likely won't be fighting at long range. The criminal will use guile and dishonesty to get up close, then spring his attack. It is more likely to be an up-close and personal battle, with the enemy having the element of surprise. Doesn't look good for honest, gullible folk. We middle class Americans may be getting a lesson in street smarts... Bottom line: it does not have to cost you very much to prepare at least somewhat for a bad scenario. You won't be able to prepare for every contingency, certainly, but a little preparation now could save you an awful lot of suffering and reduce the magnitude of the adjustments you will likely have to make in the event of a crisis. Think about it.

Rozeff Opines on FED Sterilization

Michael Rozeff is an Austrian guru on finance. Apparently, he looked at the possibility of the FED issuing its own bonds several months ago:

The big picture here is something like this. The banking system has a lot of lousy loans on its books. It didn’t mark them all down or fully because that would reveal that many banks are insolvent. They would need to be re-organized. The insolvent banks didn’t want this done. The Fed rode to the rescue by exchanging its good securities for bad loans from the banks – some of them, not all. Meanwhile, bad loans began to crop up elsewhere in the system. The Fed took on some of those too. In the process, it has created far too high a level of bank reserves, a level that is highly inflationary if put to work making new loans. By issuing long-term debt, the Fed would complete the process it began. The banks would now have as assets the better securities the Fed loaned them plus they would have Federal Reserve bonds. As for the Fed, its balance sheet would now carry as assets many troubled loans that the banks once held. On the liability side, the Fed would have issued its own bonds. Its financial leverage would have increased dramatically even as its asset quality decreased dramatically. Some of the shakiness of the banking system would be transported into shakiness of the Fed as a bank. This would not resolve all the problems because the total amount of shaky debt in the system, in the U.S. and worldwide, is so great that the Fed can absorb only a small fraction of it.

His analysis is a bit more thorough than mine. Of course, he is/was a professor of finance and actually knows what he is talking about, while I am just a simpleminded amateur. Plus I only get to do this for about an hour a day, so I'm unlikely to catch up anytime soon. Anyway, this is a just-for-fun blog. If you were looking for real expertise, you came to the wrong place. He goes the long way around, but seems to arrive at more or less the same conclusions I do: price inflation gets postponed, dollar is put further into jeopardy as the layers of government debt-cake pile on deeper and deeper. Rozeff's a good guy to stay up on. I'm putting him on the recommended reading list.

Fran on "Playing King"

Fran Porretto has an excellent post along the lines of my previous post "Playing God" over at his website:

In my adult life I've become acquainted with thousands of men, from all walks of life and all the nations of the world. I've gotten to know perhaps a hundred of them very well. That's enough, I think, to form a sample of Mankind sufficiently representative for some tentative conclusions about human quality.

In brief, most people are fit to govern their own lives, if only barely, but nothing more. A few plainly aren't even up to that; if not looked after by wiser and more capable others, they'll kill themselves ignominiously and, quite likely, take a few innocent bystanders with them. But there are a very few whose wisdom, ability, and passion for justice are demonstrably great enough that others should take their advice, even if they find it humiliating to hear and painful to follow.

One of our fondest secret wishes is that a person of that kind should rise to the rule of our nation, free of encumbrance by legislatures, judiciaries, and regulatory bodies with contrary inclinations. The wish, though unarticulated, is so strong that we attribute monarchic powers to our presidents, permit them far more latitude than the Constitution grants them, and hold them accountable for every rise or fall in our national fortunes.

Though he'd never admit it, the typical American voter goes to the polls every four years to elect a king.

He mostly leaves out the "God" aspect, substituting "king" instead, but the point is pretty much the same: people instinctively want their governing body to act as God. Like all of his musings, this one is eminently worth reading.

Choking on Debt

From Reuters:

NEW YORK, March 25 (Reuters) - U.S. Treasuries fell on Wednesday, with benchmark yields reaching their highest levels in a week on concerns over a surge of debt supply to finance the ballooning U.S. deficit.

Losses extended on Wednesday afternoon after tepid demand in a record-large auction of five-year Treasury notes fueled fears that investors may not have sufficient appetite to swallow all of the new supply.

The drop in prices was limited, however, by the Federal Reserve's debut purchase of government bonds, which is intended to boost government debt prices and sink yields.

Translation: Periodically, the Treasury holds debt auctions, selling Treasury debt certificates to raise money. There are two contributing sources: new bonds issued to fund deficit spending, and new bonds issued to pay for the retirement of old bonds which have matured (debt "rollover"). Debt rollover is necessary because the government doesn't have enough money to simply pay off any of its debts which have "come due" (i.e. it is running a deficit). So, even though the government is expected to run a ~$2 trillion deficit this year, it will have to auction probably ~$5 trillion this year, or possibly more. One of those auctions was held today, and buyers "choked," at least a bit. More supply than demand, but it could have been worse. There simply weren't that many buyers willing to pay for the debt certificates that the Treasury was selling. So the Treasury had to offer a higher coupon (more interest) to keep people buying. In addition, the FED intervened (as Bernanke had said it would), buying up some of the debt (about ~$7 billion worth) with newly printed money. This, of course, is inflation. That $7 billion will show up in the AMB as fresh money entering the monetary base, and the Treasuries will show up on the FED's balance sheet. Where will the new money go? To the Treasury, where it will be spent, buying whatever it is the government is buying (warplanes, bridges, bureaucrat salaries, etc.). It will enter a bank account when the government check gets deposited. From there, there are two possibilities. It could get deposited back with the FED as excess reserves, which is what banks have been doing with their money lately, or it could be lent out, beginning the process of multiplication by the fractional reserve banking system, getting multiplied up to ~10-fold in the process. That's right. This money could wind up as a ~$70 billion increase in the more comprehensive money aggregates (M1, M2, etc.) For this reason, this stuff is called "high-powered money." So, what's the significance? Each time the FED makes these purchases, it suppressed the interest rate for government borrowing in the short term, at the expense of inflation and consequently higher interest rates in the long term. Furthermore, the government is in effect "buying" the private sector. Each purchase diverts resources away from the private sector, increasing costs for private businesses competing for those resources and inhibiting their ability to grow and make the adjustments necessary to return to profitability. This does not escape the notice of savvy investors. It should not escape yours. Watch these auctions. If the dollar dies, it is likely to be in connection to one of them. If rates rise, it's a reflection that the value of the underlying asset (the bond) is losing value. China alone holds ~$1 trillion of these puppies. Supposing rates go from ~3% to ~6%, they are looking at a ~50% loss on longer dated bonds. Don't expect people holding these assets to just sit there and take it. They will sell to cut losses. Rates will rise even further as even more supply comes onto market. Its a vicious cycle. The FED will be forced to intervene. It will print more money to buy the debt, inflating ever further. We have already discussed what that means... But don't think that "they" haven't thought of this. There is talk of yet another tool for FED manipulation.

The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter.

Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis, the Journal said.

This is banana republic stuff. It is called "sterilization." Basically, it is a way to take the newly printed money and bury it in a hole in the ground so that it has no inflationary effect. The FED borrows money, and does nothing with it. It simply takes it off the market. FED buying of Treasury debt increases the money supply. FED borrowing decreases the money supply. Government gets the money, FED avoids inflation. Problem solved, right? Not exactly. The problem with this strategy is that, basically, the FED would be borrowing from the private market in order to lend to Treasury. Which is to say, overall, the Treasury would be borrowing from the private market. At first glance, there is no point... except that the FED would presumably offer a higher interest rate so that it could offer the government a lower rate. The FED takes the interest payment hit, not the government. The government gets to borrow at a lower rate and pretend to be solvent. The FED simply prints the money to pay its interest. The FED never goes insolvent. In addition, the borrowing activity of the FED will compete with the borrowing activity of the Treasury, since there are only so many lenders out there. It's simple conservation of matter. The FED is simply adding another layer to the debt cake. It is not solving the problem. As the FED pays out interest, the inflation is spread out over time. There will be less of a "stimulative effect" now (which seems to defeat the whole purpose of all this, actually), and a longer time frame for the inflation. But it will still be inflation. This is typical Washington kick-the-can-down-the-road strategy. Nothing new, just more convolution. There simply must be inflation. This is the only tool the government has to make the books balance, at least in nominal (and legal) terms. No matter how they slice and dice it, no matter how it gets relabeled, that is what it is. It is either inflation, or default for an awful lot of people. Which is to say, it is either dishonest default, or default. There is no alternative. However, depending on exactly where rates end up, the nominal price of Treasury debt certificates will be held up by the interest rate suppression, while the FED will be paying out enormous interest to its lenders. So Treasury certificate holders (China) will be more protected, while those who are forced to pay their taxes and do all their business in US dollars (Americans) will be more devastated. Of course, the exact degree of each will be completely under the control of the politicians in Washington. Which I suppose was the point all along. More shuck-and-jive, eh Ben?

Coke vs. Pepsi

 I was just thinking that my last post didn't too much sense, so I'm going to try to tweak it a bit.

I may have given the impression that I was somehow against division of labor.  We can't all be plumbers, chemists, and bean-counters simultaneously.  Division of labor and specialization is normal and healthy.  What I think is a problem is extreme specialization whereby one person only understands a very minuscule part of the world.  

I once had a marketing professor gave the class an example:  Take a successful business executive who makes >$200K per year.  The value of this person's time is extremely high, around $100/hour.  So, logically, this executive should not engage in activities that waste his time.  The professor's example was "impulse buys" at grocery stores.  The executive is justified in making impulse buys because he shouldn't waste his precious time looking around the store for the things he needs.  I suppose logically he should also not change the oil in his car, fix the leaky faucet, or engage in any activity that does not pay him $100/hour.

But, what kind of life is this?  Why not just lock the executive in his office and let robots bathe and feed him....just like in Wall-E!

So, that may be part of the problem.  Another part of the problem is, as Scott has mentioned, we are all too interested in the latest (fill-in-the-latest-washed-up-movie-star-name) crotch shot, but not so interested in things that actually have an impact on us.

Finally, since we are conditioned to not know much about anything, we tend to buy based on brand-name recognition.  For example, my Honda has been a great car, so I think I'll buy a Honda next time I am ready to buy a new one.  Some of this is unavoidable.  I can't possibly inspect every part of the car to determine it's a good car.  I just know from experience that it's a reliable car.  

The same thing happens in politics.  Any political party/ideology has a certain set of issues and values it's trying to sell.  The Republicans have a set and the Democrats have their own set, each opposed to the other we are told.  It's like Coke vs. Pepsi.  If you agree with the Republicans on the economy, for example, you are expected to swallow the whole can on the rest of the issues it espouses.  

I suppose this has turned into a mundane criticism of two-party politics.  But, hey, isn't it time we had a good 'ol Dr. Pepper?

Spooky Stuff, Dude

I was going to write Scott an email, but I decided I would just throw a post up on the blog.  It’s been a while for me, but it’s bean-counting season, and I’m a bit busy at the moment.  And sorry for the cheesy title, but seeing as it is bean-counting season, my brain is a bit mushy with all the numbers going through it. 

The spooky thing is that while Scott has been trying to reconcile my tendency to chalk things up to conspiracy theories (have you ever looked at the dimensions of the Washington Monument: 555.555’ tall = 6666.666 inches! Whoa! Spooky stuff, Dude) with Scott’s theory that culture determines government (if I may paraphrase).

Well, the stars must be aligned (Spring Equinox?) because I think I found a formulation of the theories that may give us some common ground.  And it seems that Scott has done the same.

Yes, there is plenty of shuck-and-jive that goes on in politics.  I would also extend that to bait-and-switch, manipulation, and outright lying.  It happens every day.  That’s really nothing new. 

So, my thought was:  Maybe it’s what we asked for.  I’m sure you’ve seen videos like these: American’s are stupid.  Maybe they picked some really stupid Americans for this thing, but I’d say it’s probably pretty close to accurate.  Take a look at our culture.  We don’t really know much about anything, even things that affect our day-to-day lives.  And I have to include myself in that.  

What’s in your shampoo?  I don’t know.  A bunch of chemicals I can’t pronounce.

Where does that hamburger come from?  I don’t know.  Some farm somewhere.

The faucet is leaking.  What’s wrong with it?  I don’t know.  Call a plumber.

Why is our economy in trouble?  I don’t know.  Something about the banks, Bush, and toxic assets.

What is in the 1,000-page Stimulus Bill?  I don’t know.  But, it’s going to help me!

How do you know that?  Because that guy on TV told me.  He’s a smart guy!

So, are we partly to blame?  Yes.  Does our government (and marketing departments) take advantage of it?  Absolutely.

I’m not sure I formulated the argument very well, but hopefully I made some sort of point.  I would love to spend more time analyzing this, but I…MUST…GET…BACK…TO…BEAN…COUNTING.  MUST…NOT…LEAVE…CUBICLE…

(hmmm, perhaps this is the problem)

Conspiracy: A Biblical View

I recently finished reading Gary North's Conspiracy: A Biblical View. I had known about this book for some time, but for whatever reason hadn't found it sufficiently interesting a topic to read. After all, there are an awful lot of things out there demanding attention right now, and I just haven't had the time for reading much recently. I have a whole pile of books that I have intended to read sitting around gathering dust, or whatever it is that e-books gather when they are not in use, and this topic was certainly not one that was screaming for attention considering the present economic situation. But enough of that. So what did I think? First of all, let me say that I am not predisposed or even mildly sympathetic to the view that there are about three guys or some secret society that runs the world from the shadows. This point of view really grates on me. I get very tired of the infantile thesis that Hitler or Stalin or Mao or whoever ruined Germany, Russia, China, mankind, the 20th century, or fill-in-the-blank all by his lonesome self. No single human being can accomplish a feat this large without a considerable amount of help! These kinds of statements deny the culpability of the innumerable guilty parties that helped these leaders in their gruesome tasks, or otherwise stood by and allowed it to happen. They also ignore the fact that for anyone to attain the kind of political power that these men undeniably had, there must be a very sizable population that was sympathetic to their professed ideals, at least for a time. Likewise, if there really are a handful of sinister people operating from the shadows to accomplish all the evils of this world, this is only made possible by a compliant population. Not a knowing population necessarily, but at least one that "goes along with the plan." But surely people have minds of their own, or at least ought to be held accountable for their own actions? If the "conspiracy" is guilty of evil, this would imply that we ourselves are guilty of evil, for it is we who carry out their will. Are we questioning the actions we are asked to undertake? Do we bother to ask whether what we are doing is evil? If we are not, or worse, we ask, answer, and do anyway, then who is really to blame? In short, such a view of history is simply ludicrous, and is in my opinion an attempt by certain parties to avoid blame, or to avoid having to consider the possibility that humanity as a whole is capable of such evil. It is easier to shift all of the blame onto a single person, preferably a dead person for whom it is widely acceptable to publicly condemn and is incapable of defending himself. But it is not rational. This is why I have taken the cultural view of history. It is not possible for a single man, or even a few, to control a vast population which is diametrically opposed to such rule. Government necessarily is a product of culture. On the other hand, our very own conspiracy theorist Ben can point to many events which clearly show acts of duplicity on the part of the ruling class towards the ruled. There is undeniably a great deal of shuck-and-jive that goes on in the world of politics, and an awful lot of instances of voters manifestly not getting what they asked for. So who's really in charge here? Somebody's got to be making these decisions, and it sure as heck isn't "We the People." If you've been paying attention to this blog for some time, you've seen an ongoing debate between the two of us over precisely this point. After reading this little book, I'd have to say that the debate is officially over. It seems that we both had a little bit right (OK, so maybe Ben had a bit more than I did), but neither of us knew the half of it. At any rate, I'm surrendering my position. I agree with Gary and Ben: it really is a conspiracy. But there's a lot more to conspiracies than you might think. I was pretty amazed how similar a lot of what we had been thinking was to some of the central ideas of this book. It is true that I read a lot of Gary North's stuff, but I tend to avoid things like this. I usually stick to his economic and religious writings. Maybe its just that his thinking has influenced me to such a degree that I have basically shuffled down paths of thought that would lead more or less to a lot of the ideas in this book. I also encountered one of the key ideas in a quote from R. J. Rushdoony that Gary uses frequently, which I used awhile back. But Ben? Actually, the Rushdoony quote is a good place to start:

The important question to ask is this: What makes a conspiracy work? Let us suppose that a number of us conspired together to turn the United States into a monarchy, and ourselves into its nobility; let us further suppose that we could command millions from our own to achieve this goal. Or, let us suppose that, with equal numbers and money we conspired to enforce Hindu vegetarianism on the country. In either case, we would have then, not a conspiracy, but a joke. A successful conspiracy is one which is so in tune with the faith and aspirations of its day that it offers to men the fulfilment of the ideals of the age. It is an illusion to believe that dangerous or successful conspiracies represent no more than a small, hidden circle of diabolical men who are manipulating the world into ruin. Such groups often exist, but they only exist and succeed because their plan and hope is closely tied to the public dream and the faith of the age. If the threat were only from small circles of hidden men, then our problem would be easy. Then, as Burton Blumert has observed, "if we only unmasked the conspiracy, all our problems would be solved, but if the trouble is in all of us, then we really are in trouble."

And that first question is what this book is about: what makes a conspiracy work. Of course, it is a pretty short book, and provides mostly just an outline. If you are looking for a lot of specifics, this isn't the book for you. But it might be a good place to start, as it has an excellent bibliography. This book is more for a person who might be straddling the fence, who's a bit skeptical of both sides, the mainstream and the kooks, thinks there might be a bit more going on than makes the evening news, there might be a bit of manipulation going on, but has little patience for theories about space aliens killing JFK (sound familiar?) A lot of space is devoted to the broader, shared ideology of the "conspiracies," the main one of which he terms the "Establishment," (yes, that Establishment, the one that controls the USA) and just how they manipulate public opinion, a necessary requisite for controlling the public, rather than the public controlling the conspirators. A lot of it will sound familiar: control of the mainstream media outlets, control of academia, etc. But a good bit is commonsensical stuff that I never would have thought of: passive suppression of truthful conspiracy theories themselves as "kooky," even as the ideas promoted by the conspirators are far and away more bizarre. The conspirators use a lot of human-self censorship and irrationality to accomplish their goals (controlling public education helps in this regard...), and silence debate using such means far more than they actually bother to combat their rivals head on. But be forewarned: if you're not on board with the whole Christianity thing, first of all, you really ought to reconsider, but secondly, as the title suggests, the book takes a distinctly Christian view of things. If you are easily off-put by the suggestion that God has much to do with things that happen in real life, this book is going to get under your skin. Gary takes the view that all conspiracies are evil and necessarily against God's chosen order. He explicitly says that:

Western Civilization's moral foundations and especially legal foundations were constructed in terms of biblical morality and biblical law. Thus, the conspirators are at war against Western Civilization.

So, if you're an atheist, better keep an open mind (or find another book. But I'm telling you, you're missing out...) The last part is devoted to combating the conspiracy. Believe it or not, Gary has a lot of confidence that the conspiracy will eventually be broken. Maybe that's because he's taken the view that they are going up against God. I suppose smart money would naturally be on The Almighty. But he has a lot of regular old boring arguments to make his case, too, though this was written sometime before the present financial crisis. Interestingly, he even predicts in this book, which is fairly old, that there will inevitably be a severe financial crisis which will force the population to "choose sides," and though he isn't certain the good guys win this time around, he seems to heavily favor them. This is on the basis of the "conservative uprising" that has been occurring over the last few decades, throwing a lot of unwanted light on the institutions controlled by the Establishment, even if they don't necessarily have their own act all that together. Of course, he's got an unfair advantage making such a prediction, being a fantastic economist in his own right, but I still find it impressive that he was predicting these kinds of things in the '90's. He terms the solution "education," but to me, it sounds more like simple rejection of the conspirators. As he even explains, understanding isn't really necessary; just a simple distaste for what the conspirators have to say and want to do, and a willingness to give them the boot. And since he is of the opinion that the conspiracy is inherently anti-God, the solution is simply understanding and acceptance of God's order in their lives. Knowledge or even awareness of the machinations of the conspirators is really beside the point. As the Rushdoony quote implies, the conspiracy needs public approval of its plans. The conspiracy is only in charge of what the public wants to do. If the public isn't game, and can't be manipulated into playing the way the conspirators would like, well, it's all over. I would highly recommend this little book to anybody with any interest whatsoever in the topics discussed on this blog. No, there are no monetary statistics, and not much Austrian theory either, but I have a feeling most folks would rather tune in for politics anyway. And if you really want to "do something" about the present situation, I can't think of a better source. So, what are you waiting for? Check it out!

Playing God

Back when I started college, I decided to major in genetics. This was for a couple of reasons: 1) I thought it sounded cool, but more importantly, 2) it accepted more of my placement credit than other majors I was interested in, so I wouldn't have to take introductory classes and could go straight to advanced stuff. Probably not the best reasons, but you really can't expect much from an eighteen year old who went to public school. When people asked what I was studying, my answer would frequently get the evil-eye response. "You're one of those people who wants to "play God," with our DNA aren't you?", it said. No, not really. At least I didn't consider it "playing God." I went on to graduate school, where I studied biological chemistry, and actually did end up manipulating the DNA of living creatures. They were only bacteria, though. In the course of my "experiments," I transferred the DNA of one species to another, synthesized completely new sequences and stuck them in, too, and even modified the actual genome of one bacterial strain by removing a gene to change its color. Pretty cool stuff. Most of it didn't work very well. But I never really felt like I was "playing God," even when I was successful and everything turned out as I had predicted. That is not to say that I never felt that I was playing God in graduate school, however. The situation that led to this feeling was just in a very different setting: teaching. I taught several different laboratory sections over the years. At one time I was very enthusiastic about teaching. But after a time, it wore on me, especially when I began to recognize the whole "playing God" element for what it was. After that point, I found it revolting. One particular lab really brought it out. It was a very, very large course, with over a thousand students per semester, divided up into probably 50 individual sections. Being so large, it presented formidable logistical challenges, and in getting students through each lab everything had to work like clockwork or the whole system would back up. To deal with this, the people in charge had devised a fairly complex set of policies and rules, and enforcement was often achieved through incentives in the grading policy. Basically, you broke a rule, turned in a paper late or what-have-you, and you lost points. They were trivial amounts, usually two points out of a thousand total or so, with a curve at the end, but they helped keep students focused on getting things done on time and getting through the lab in an organized fashion. At least, that's how they were supposed to work. Not really agreeing with a lot of the rules, or even in having a lot of rules to begin with, but still being somebody who believes in rule of law, I decided to be a Nazi about enforcement. I didn't really have a choice about the rules, but I didn't think it was right to be arbitrary about them, either. I figured it was the only fair thing to do: not care about excuses, or reasons, simply enforce the rule as written and be done with it. It really wasn't any of my business, anyway; to me, making a lot of arbitrary judgments of "leniency" would be an overt act of "playing God," and an extremely arrogant and condescending act. It would just be wrong. Everybody got treated the same, and besides, there was a curve at the end. There wouldn't be any fewer A's or B's because of it. Overall point totals would just be lower. Seemed reasonable to me. I figured, well, if it had to be this way, that's how I'd want to be treated, and so would everybody else. Boy, was I wrong. My students hated me. For the most part, at least. Every so often, I'd get a really good review about how cool I was because I didn't give in to the crybabies, but for the most part I wasn't well liked. What got me was when I actually confronted them philosophically about this stuff. Somebody would show up late, and I wouldn't take her prelab, and she would complain that it wasn't her fault, the bus came by earlier than usual, or whatever, and I should take it without any loss of credit because it "wasn't fair." Life wasn't fair, so I should take that into account. One guy even argued that since he had a job, but other students got tuition from their parents or from scholarship, it just wasn't right that he got lower grades because he had less time to spend studying, and there should be some way to take this into account. There were a million versions of this, every stinking day it seemed. I would ask these students if they really wanted me to be arbitrating what was fair, suspending the rules and making allowances for some but not for others, according to whichever whim struck me at that particular moment. Didn't that strike them as a bit arbitrary? What if the judgment went against them because of an "unfair" advantage of theirs next time? Was that fair? And furthermore, wouldn't that represent an act of "playing God" if I were to actually do so? Wasn't that actually a bit scary? I can't tell you how many stunned expressions I got for this line of questioning. They were speechless. Well, at least for a few seconds, anyway. But very few really seemed to ever change their line of thinking. Finally, I realized that for the vast majority, they were simply incapable or unwilling to think in any other way. The didn't want a set of rules, however fair. They could not fathom such an existence. They WANTED me to play God for them. I suppose it was just too scary for them to place their fate in the hands of a relatively impartial set of rules. They didn't want to live under a set of rules, they wanted someone to rule over them. "Fairly," I suppose. Maybe "compassionately." I don't know. I wonder how much thought they gave to that proposition. But I guess I shouldn't be too harsh on them. I was in their shoes once, too. Which brings me to one of my usual subject: politicians. If you ask me, these are the real people "playing God." Scientists can do some pretty scary things, but they only try to do things like split atoms and change the DNA of living organisms. They at least know that they are beholden to the physical laws of the universe, even if they don't necessarily know or understand them all. Politicians are far and away more frightening. They try to change the moral order of the universe, and they think that they can. This must surely be the truest definition of what it is to "play God." This must be far more grievous an affront to "the proper order of things" than DNA tinkering or atom smashing. Changing the moral order has become almost the entire purpose of government. It surely is the entire purpose of the FED. An honest, open market and a society governed by proper ethics just isn't good enough. It doesn't give people what they want. They think they can do better than honest money, better than liberty, better than what they are supposed to get by honest means. Politicians tell them they can. They call it "progress." They call it "compassion." It comes under many other names. Desirable outcomes supersede proper means, and an abomination is born. The problem is, they are all wrong. Very wrong. Now we are reaping our just reward. Again. When will we learn? There are rules. God wrote them. They are best obeyed. At worst, they are broken with penalty. But they are not rewritten.

The Beginning of the End?

As I have been saying, the FED has decided to buy more Treasury debt:

WASHINGTON – With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

(emphasis mine)

This could be it. The dollar's final death spiral may have just begun. Bernanke is being asked to fund Obama's and Congress's spending. Bernanke will take it out of your savings by taking it out of the dollar. He's going to buy the assets with newly printed money, which will eventually enter the banking system. Eventually, credit will "thaw." Fractional reserve banking will further increase the money supply. Inflation will start to bite. Interest rates will rise. The economy will not recover. The FED will be asked to buy more debt. It will be asked to suppress interest rates by printing more money. It won't be able to. Other nations will start to sell off their Treasuries. The FED will be asked to buy even more to finance the national debt. The money supply will spiral higher and higher. Wealth will not be created by the process. It will be destroyed. This is because it will not pay to generate wealth. It will pay to destroy wealth. The government will make sure of this. It's going to be ugly. I'm not sure how long it will take. Maybe years. Maybe not. Long-term treasuries were up, the Yen and Euro were up (the dollar down), and oil and gold were up on the news. Not a good sign. Okay, so it wouldn't exactly be the beginning of the end. That probably occurred in 1913. But anyway, it is a big deal. Pay attention! And be prepared...

Free-trade Revisited

Becca chimes in:

I don't think that the way companies treat workers has to be considered a free-trade issue neccessarily. Sure, a contract is a contract, but if it contains anything illegal then it is not legally binding. Your example of a contract specifying daily whippings would be assault (not legal) and therefore null and void. The actual contract discussed in the article seems like it would be fraud, considering that the company has a reasonable expectation that the worker would not be allowed to stay in the country for the duration of the contract. However, who is going to sue the company for fraud if the workers don't know they have that option because they don't know their rights? I think that's the real issue here. Any worker (local or imported) should be able to learn about his rights and common practices, average wages for the trade, living expenses, etc. but it is an individual's responsibility to assert his own rights. This sounds like a fantastic opportunity for a non-profit organization or charity to educate domestic and foreign laborers so that they are not taken advantage of by unscrupulous bastards, er, employers.

I appreciate the comment, but I think I disagree a bit. And I didn't mean the 12-stroke lashing idea as a serious suggestion, but more a reductio ad absurdum. Of course it would be illegal. Not what I was trying to illustrate. More along the lines of: you can't always get what you want. Supply and demand and all that. Bonus question: are S&M clubs illegal? Hmmm...? Unfortunately, "Any worker (local or imported)" says it all. Everything is a free-trade issue, and the immigration situation, free-trade, and employer/employee relations are inextricably linked. Furthermore, it doesn't help at all that, as Ben has pointed out, we're not really talking about free-trade at all, more like politically motivated exchange. This is where libertarian ideals butt up against a world with sharp edges. It's all very disconcerting, and I don't like it one bit. It's all a very tangled, very political, mess. This is a huge ball of wax, but I thought I'd make a few comments. The visa status of the workers in question is contingent upon employment, and it is revoked upon loss of a job. This is key. What makes free and open markets so much more humane than command economies is not some mystical aura that permeates "democracies" or what-have-you. Life is tough. Everywhere. Contracts are broken all the time, even in "democracies" with rule-of-law. We can't possibly pursue every infraction using force of law. Practically speaking, it simply wouldn't work. What protects us far more is the simple fact that people have choices. This is the real issue, if you ask me. If one party abuses you, you are free to enter into relationship with another party. This tends to keep people at least a little bit more honest than they might otherwise be. When choice is limited, abuse tends to follow. Typically, it goes something like this: Worker: "I'm interested in the position you have advertised. Could you describe the responsibilities?" Employer: "Sure. The responsibilities are X." W: "That is all? You are sure there is nothing else? I won't be doing Y?" E: "Never, only X. When you have completed this, you'll be free to pursue other things. You look qualified, would you like the position?" W: "Sounds good. Sign me up." E: "Great! I'll get you your H2B visa." Later... Worker: "My visa needs to be extended. Could you sign some papers for me?" Employer: "I will sign your papers, but only if you do Y first." W: "But we had an agreement that I wouldn't be doing Y. I'd only be doing X. I'm almost finished, just as we had agreed, and I'd like to move on to other opportunities when I'm done." E: "I'm not signing that paper if you don't do Y." W: "But I'll be deported if you don't sign my paper." E: "That's your problem." This is how the shadow of coercion of the immigrant's home country follows him to this one. This is not idle speculation. I've seen it happen. It is not right. I would imagine there's also a lot of "show me your ta-ta's or your fired," as well, though I haven't encountered that personally. But it happens enough with citizens, I would imagine its far worse with immigrants, who don't just face the threat of losing their jobs, but also deportation. And I would imagine this would be talked about a bit less than the first scenario. The counterargument would simply be, "well, that's illegal isn't it? They can just sue, or complain, or whatever." Well, yes, they could. But as I said, the law doesn't generally work the way its supposed to. Making something illegal is a fairly ineffecutal way of preventing it from happening. The law is far less protection that we would like to believe, as is readily seen by the ineffectual "drug war" and border non-enforcement. (Which, actually, ought to embolden exploited immigrants, now that I think about it...) How many people have been killed by the very folks for which they've had a restraining order issued? Plus enforcement is the job of government, the single most unreliable institution in the world. Bureaucrats aren't particularly dependable. And in this case, the law is deliberately putting people in a vulnerable position, with another party having arbitrary power to send a person off to an awful, abusive place. Sure, there's "oversight," and people ought to "know their rights," but it doesn't help much in practice. There's a lot of coercion going on, simply as a result of the way the world works. And do we really want to be teaching potential immigrants dependency on the government for help? Or should we encourage them to take care of their own problems? The reason that "how companies treat their workers" becomes a free-trade issue is that, as you say, the workers are "imported." They are being imported because companies don't want to compete in local wage markets, just as manufacturers don't want to pay American wages and so move their factories overseas. I don't so much mind the manufacturing, because I know two things: number one, it opens up new opportunities here for higher productivity activities, and two, there are still a great many protected positions which simply can't be offshored. Choice is undermined for workers, but not overwhelmingly so, and there are a great deal of offseting effects. Not a perfect world, but it never is. On the other hand, there's immigration. A culture of coercion and lacking in ethics motivates immigrants to come here (actually, they typically just see it as a wage differential, but anyway...), which is understandable, but at the same time, it has the effect of undermining the "choices" of local citizens pretty much all the way to zero. Don't want to work on the same terms a third worlder will accept, who will accept them simply because they are slightly less awful than the conditions of the third world? That's fine, we'll just hire the third worlder instead. There aren't many positions protected from this effect, and with the numbers of immigrants we are seeing, the size of the economy cannot grow fast enough to swamp the effect out, either. Economic contraction isn't helping. Thus, as I'm starting to see it, "free-trade" in labor, and the practice of hiring foreigners to "do work Americans won't do" (which is an obviously dishonest argument that I'm not even going to bother with) doesn't so much export freedom as undermine choice, and import abuse and coercion in the process. I would like to export freedom abroad, through free-trade, competition, and open borders. But I don't think that this is what is happening in practice. I think in practice we are getting the opposite. And I would rather preserve liberty than undermine it. That's just the way I see it. But it's okay. The whole house of cards is tumbling down anyway. It's all coming to an end. Soon enough, we'll have bigger things to worry about.

Beware Rising Oil Prices

Oil prices have been trending upwards of late:

Oil prices rose above $48 a barrel and tested the top end of a trading range it has held so far this month, ahead of U.S. inventory data expected to show a build in crude stocks.

You've probably noticed this at the gas pump. There's other "good" data in the article - rising housing starts, strong dollar vs the yen, etc. - but beware: good news isn't always good news. A lot of folks will probably remark that the market rose along with rising oil prices 2003-2008, so why would this be such a harbinger of doom? Will it "cut into consumer spending" or something? No, this argument is mostly bunk anyway. The problem is that prices rose 2003-2008 in response to a market flooded with dollars, just like all the other prices. The market rose and oil rose for the same phony reason. Rising prices now say to me that people have cash to pay and are bidding up prices. In other words, it looks inflationary. I hope that the trend turns back south. $47/barrel is still a historically very high price for oil. And if oil prices start rising again, it'll be off to the slaughterhouse for the dollar. $55-60 would have me scared. Beware!

A Few Timely Stories

Several stories have caught my eye of late that cause me to fear that inflation may be coming very, very soon. First, in an unusual move, AIG has been spending its bailout money:

Goldman Sachs Group Inc and a parade of European banks were the major beneficiaries of $93 billion in payments from AIG -- more than half of the U.S. taxpayer money spent to rescue the massive insurer.

The article focuses on outrage that politically well-connected banks got taxpayer money, but to me this screams "inflation!," which is not mentioned. Thus far, almost all of the TARP and other funds have remained deposited with the FED, so the money is not circulating or being multiplied by the fractional reserve system. $93 billion is a lot of money to enter the money supply at once (about 10% of the AMB of early September 2008). There are two possible destinations for the money: lending into the money supply (inflationary), or placing it on deposit with the FED (non-inflationary, at least in the short term). I'm not seeing it show up too much in M1, so it appears that most of it is not entering circulation. But then, why would Goldman Sachs put money on deposit with the FED? Presumably they gave AIG a good reason/promise of high return, so it would not make sense to put the money on deposit with the FED. Maybe they have future plans for it. Or maybe the FED charts just haven't been updated yet. Next, more bad news:

The Treasury Department will purchase up to $15 billion in securities backed by Small Business Administration loans in an effort to unfreeze the secondary market for SBA loans.

This should increase SBA lending to small businesses by enabling lenders to sell their existing loans on the secondary market, according to the White House. This will free up capital to make new loans.

This is exactly how Fannie Mae and Freddie Mac drove up housing prices. It is a stupid idea. However, Treasury cannot print money, so the spending will be funded by taxes and deficits. Therefore, it is not a net increase of the money supply, but a diversion of funding from taxpayers pockets (private markets) to subsidize small businesses (private markets) through force of government (fascism). A thought for the Obama administration: why not just give a tax cut? Answer: probably because the government wouldn't get to pick winners and losers. Patronage. It's what politics is all about. Bernanke decided to make certain how he would be remembered by historians:

Treasury prices declined Monday, pushing yields higher, as Federal Reserve chief Ben Bernanke's outlook that the recession could end this year supported global equity markets and reduced the desire for the relative security of U.S. government debt.

Just like every other public official who presided over a crisis: clueless. I don't understand why Bernanke would do this. Despite not being an Austrian, he should not be considered a stupid man. He did not need to suggest that the recession could end this year, and I'm pretty sure he knows it won't. It really wasn't necessary. This statement will probably come back to haunt him. And before you start to get too optimistic, a quick history lesson. The same thing was widely believed about another key year:

“The depression has ended.” Dr. Julius Klein, Assistant Secretary of Commerce. - June 9, 1931

Don't believe a word of it. Finally, a little old-fashioned exploitation:

Thang Hong Luu pledged his parents’ house in Vietnam as collateral to raise enough money to take advantage of a job opportunity in America.

He says he paid a $10,000 fee to be chosen for a 2½ -year stint as a welder that he thought would earn him more than $100,000 — money that seemed out of reach in Vietnam.

But in February, eight months into his work contract, he was told he’d have to go home, he said.

This is already pure evil. A Houston company offers welding jobs to poor Vietnamese, asking for a very large (for said workers) fee up front, then is forced to break its contract when the Federal Government refuses to extend their visas. But its not just that. This deal, offered to desperately poor people, was a total rip-off:

Luu says the companies charged him and his fellow workers a fee of between $6,500 and $15,000 to be chosen for the U.S. jobs; told them not to speak to outsiders because Americans disliked citizens of communist countries; and overcharged them for housing and transportation... ...Luu’s contract with Coast to Coast notes he would earn $15 an hour for the first 40 hours and an additional $22.50 an hour for overtime.

He also agreed to pay Coast to Coast $500 a month in rent, $85 a month for transportation and a management fee of $2 per hour worked, according to a copy of his contract.

He said he didn’t know when he signed the contract that he’d be sharing an apartment with three other workers.

I'm not someone who normally thinks it's kosher to jump between mutually agreeing contracting parties, but it's hard to argue that there is no coercion or fraud involved in such a contract. I have to think that the policies of the Vietnamese government loom large in the back of the workers minds in the signing of such contracts. Worse, such awful circumstances tend towards corruption once here in the states, as employers know their workers are in a bind and find contractual infringements are easy to get away with. My hackles were particularly raised when I encountered the following:

The workers were here on H-2B visas that allow foreign workers to take positions, generally for up to 10 months, that U.S. companies cannot fill.

Couldn't fill the position?! What American in his right mind would agree to such a contract?! What a joke! This company wasn't trying to fill these positions. I'll bet I couldn't fill a position that required 12 hour days with no compensation, and a 12-stroke lashing at noon. That shouldn't get me the right to import foreign workers to fill the position. If you can't fill the position, RAISE THE SALARY! Thanks to repeated encounters with this kind of thing, I'm increasingly coming down against free-trade. I know what it is supposed to be, but it seems to me that in actual practice, it boils down to de-facto offshoring of the slave-master's whip, among other disgusting practices. Work for me, do whatever I say, or I'll ship you back to that awful place you came from. Work for me, or he'll beat the snot out of you. It also seems to me that this is just another way our government tries to inflate/steal without consequence. One of the key steps that brings about the end of the business cycle is the bidding up of the price of labor (wages). This is what eventually feeds the rise in consumer prices as the newly printed money moves down the production structure and forces the central bank to tighten monetary policy. If wages are artifically suppressed by expanding the labor pool with third-world labor, the central bank can continue to inflate awhile longer before triggering a rise in the CPI. (And yes, there really is something to the complaints of "liberals" that "conservatives" suddenly become upset when wages rise, but don't mind outrageous compensation of executives just because executives' wages don't much impact the CPI. The reality is, both really are inflation; one is just showing up sooner and isn't considered inflationary because the CPI isn't a good measure of inflation. It really isn't fair. "Conservatives" do try to suppress wages. "Liberals" should become Austrians.). I'm conflicted on this. I'm instinctively pro-free trade, but force and fraud are the antithesis of what I consider to be ethical behavior. I hate to encourage it. It seems to me that the de-facto argument here once again goes against first instincts, as it did in the immigration debate. I'm not sure where I stand anymore. However, I do know I'd have good company in my corner if I decided to become anti-free trade. It's a tough question. I respect both sides.

Interview with Ayn Rand

No, it's not a seance. It's an old interview with Phil Donahue, of all people! Neat lady, neat philosophy. I must confess: I'm a fan, especially of Atlas Shrugged. Her economics were pretty dead-on for not really being an economist at all, but she was dead-wrong on religion. I'm pretty sure that our philosophy expert Ben easily spied the flaw (actually, it's pretty glaring) in her ~90-page diatribe by John Galt that pretty much destroys the whole thesis of objectivism. Too bad. But really, I think Ayn Rand is an objective lesson in the tremendous value of not allowing even large faults to turn us off to otherwise great minds and powerful insight. Milton Friedman is another. They didn't get everything right, and some of their faults are glaring, even to a novice. But they were passionate people, and they thought and dreamed and fought hard. I respect them very much for their literary and philosophical contributions. Nobody is perfect, and even horribly flawed arguments can still be chock full of valuable insight and perfectly valid, powerful conclusions. Don't ever let pettiness or condescending pride close your mind off to a powerful source of truth. It is a tremendous personality fault and, in my opinion, the sign of a small mind. I read a lot of writers with whom I have major disagreements. A quick perusal of the sites I have listed will quickly reveal contradictions. I still learn a lot from them. All of them.

Geithner Urges Fascism

From Bloomberg:

March 11 (Bloomberg) -- Treasury Secretary Timothy Geithner urged the Group of 20 nations to take “forceful” actions to end the financial crisis and called for an expansion of the International Monetary Fund’s supplementary borrowing program by about $500 billion.

“This is a global crisis which requires a global response,” Geithner said today in a statement from Washington. “G-20 countries must take strong macroeconomic and financial sector measures.” A “reasonable benchmark” is the IMF’s recommendation for stimulus equivalent to 2 percent of a nation’s gross domestic product, Geithner said.

What more is there to say? "Forcible" actions? I do not think this was poor word choice. He knew exactly what he was saying. It makes me cringe. This reveals the true nature of the so-called Establishment. I have mentioned a few times that the consumer should be the sovereign of the marketplace. This is not just gratuitous Austrian-speak. Some might cringe as it sounds "consumerist," but it is actually quite critical. The economy ought to be shaped by the desires of consumers. They are the ones who should decide what is to be produced and how resources are to be allocated. This is one of the central insights of Austrian theory and its placement of individual man as an economic actor at the center of economic decision making. Not supply and demand. Not credit, money, government, or math. The titles of the "great works" of the different schools is telling. Keynes: General Theory of Money and Credit. Friedman: Capitalism and Freedom. Mises: Human Action. That says it all. If consumers want a rurally based, agrarian lifestyle, the economy ought to be in the business of catering to those needs. If it wants urban hard living, well, the economy ought to follow along, satisfying those needs. Obviously, some things are simply physically incompatible and there's nothing the economy can do about that, but the point is that social forces and the satisfaction of individual desires and dreams ought to dominate what an economy strives to produce and how it functions to satisfy those desires. We may gag when we look at the magazine rack at the grocery store and see what it is that people are reading (or at least what magazines estimate will sell well) but we must remember that these consumption patterns have been shaped by a century of government meddling. How would consumption patterns have been different without the monetary expansionism and the newly implemented income tax in the 1920's? Would there even have been a rise in "consumerism," which might be better described as "consumptionism," without the flames being fanned by inflation and heavy taxation? We'll never know. Mr. Geithner, for one, doesn't seem interested in finding out. He's got taxes to collect and money to inflate. It is clear that he and the other powers-that-be see things very differently. The economy does not exist to serve the consumer (i.e. the population). The population exists to serve the economy, which itself exists to serve the state, which is to say, those in charge. If individual people think the present environment is too risky for investment right now, or they don't think that the extra work to get GDP up is worth the return it will get them, or they would like to save their money rather than spend it, well that is just too bad. Geithner wants full employment, money flowing into the stock market and the banking system, and higher consumer spending, and he intends to get it. The economy has to grow, because taxes have to be collected, because the government has an agenda and that requires a budget. There are bills to pay. Politicians have big dreams for our country, and that costs money. There is American greatness to consider. It's going to be Washington's way, because that's the American way, and that's all there is to it. After all, we voted for the guys didn't we? Well, that's a mandate now, isn't it? Can anybody say fascism? Later on, there is mention of a gold sale:

The Obama administration soon will also push Congress for legislation that allows the IMF to “mobilize” its stockpile of gold, Geithner said today. Congress would need to approve the IMF funding expansion, although it wouldn’t count against the budget deficit, he said.

This is to raise money, of course. Not to suppress gold prices. Geithner needs dollars to implement his plans. He'll probably print them. I think I'll get some gold while prices are still low. $900 an ounce is low, you say? Low.

Hope for the New Century

I was going to write a post about the coming dark age, but since recently being reminded that this site tends to be "a bit gloomy," I thought I'd do one about the upsides of the financial disaster. While it is true that, materially, things probably won't get better any time soon, it is equally true that in its unfolding we may witness great, even divine, triumphs, if we are able to recognize them. National Bankruptcy National bankruptcy is almost certainly in our future. The deficit approached $1 trillion last year; it is foreseen to be $1.75 trillion this year by some exceedingly optimistic forecasters on the basis of Obama's presented budget. Let's call it an even $2 trillion. That makes $3 trillion in two years. Last year, the accumulated national debt was about $10 trillion, not counting Social Security and Medicare obligations, which simply make the calculation too ludicrous to bother with. So, that constitutes a 30% rise in debt obligations in two years. Obama says, again, exceedingly optimistically, that the deficit will be $500 billion by the end of his term. So we're looking at a few trillion more over the next 4 years. By exceedingly optimistic guestimation, we are talking about increasing the national debt by $5-6 trillion over four years, bringing us to $15-16 trillion in total debt by 2012. Now, the national debt is structured such that a fraction of it "rolls over" (heaven forbid it be paid off!) every year. This means we can expect the Treasury to be auctioning off ~$5 trillion or so to keep the old debt alive in addition to the $500 billion in deficit spending for 2012. Again, being very generous. Right now interest rates are insanely low, especially on shorter term Treasury debt, allowing the Treasury to borrow fairly cheaply. (Incidentally, all this federal borrowing tends to "crowd out" private sector borrowing, as corporate bond rates clearly show.) But at 6%, a more "normal" interest rate, the interest alone on $15 trillion is $900 billion. Let's call it an even trillion. Federal Revenues for 2008 were $2.5 trillion on GDP of $14 trillion. Neither will be that high this year. Or next. The Treasury can't afford for rates to rise to "normal" levels. If the FED doesn't intervene to suppress the interest rate, the budget will be toast. The government and the FED have fallen off the debt tightrope. They just haven't hit the ground yet. We are just waiting to see whether it will be the pavement or the rocks, outright bankruptcy or a very, very nasty inflation. The smart money is on inflation. So the money supply will expand. A lot. This will bring the legitimacy of the dollar as a store of value into question. This will tend to further dampen interest in the purchase of Treasury debt, as it is denominated in dollars, and possibly instigate selling, necessitating further purchases by the FED. It is a vicious cycle, and it won't have a pretty ending. But the upside of national bankruptcy and the destruction of the currency is... national bankruptcy and the destruction of the currency. When government checks bounce (or more likely, won't buy much of anything), and the value of retirement plans are wiped out, there may, just may, be a window of opportunity for the forces of liberty. The very legitimacy of the government and central banking will face severe scrutiny, with or without political opposition. I have said before that I would not expect the present culture to suddenly embrace the principles of limited government. But a government that cannot write good checks is a weak government indeed, and will have difficulty enforcing its will. This may mean less law and order, and personally I would expect that there might be some difficulty holding this large and varied nation together in one piece if the central government became too weak and "the several states" thought they might have a better go of it on their own. But a weaker central government is a weaker central government. Never look a gift horse in the mouth. Socialism Doesn't Work

"This would be a terrible world if socialism worked. Fortunately, it does not work." -Leonard E. Read, Foundation for Economic Education, as relayed by Gary North

Socialism does not work. Fascism, being a variant of socialism and kissing cousin of communism, does not work either. All seek to enforce government direction of the economy and use of resources, rather than direction by the consumer, which is the rightful sovereign of the marketplace. We need not fret over whether or not the present system is broken. It most definitely is, and has been for some time. It will not work because such schemes have never worked. History has taught us this. Any scheme that seeks to replace socialism with more socialism will not work either. We do not need to worry about that. No further scheming and conniving acts of Congress, the President, the Treasury, the FED, or any other worldly power, can produce a tenable, permanent arrangement. The world was not built to sustain socialism. It will eventually wither and die. Only systems which recognize certain basic ethical principles may flourish in this world, and this is by design. These principles are categorically denied by socialism. The principles cannot perish; socialism will. Always. Which brings us to our last, and our very best, reason to be hopeful. God Is In Charge The single biggest lesson that we can learn from this is that God and his universal laws are in full force, that they are unbreakable, and non-negotiable. No contrivance of man can overcome, circumvent, or overwhelm what He has designed. None. We may know with confidence that whatever may be obtained within the bounds of His laws cannot possibly be against His will, and ought not to be overturned by the hand of man. This is the basic ethic of a free nation, and is rightfully respected by decent men. The converse we may also know: that whatever is against His will must also be against His laws, and cannot stand for long. We are tempted to despair by what we see in the marketplace, but make no mistake: what we are witnessing is actually a very powerful display of righteous forces wreaking havoc on a vile and evil system. As Gary North has pointed out, this crisis is Adam Smith's "invisible hand" dealing a powerful, possibly fatal, blow to central banking and a fiat currency regime, which is a system founded on theft, fraud, and coercion for the purpose of accumulation and centralization of power. A free nation has no use for such a thing. It is an abomination. Good riddance. If we find ourselves cheering on Ben Bernanke and the FED as they struggle to "save" the banking system, we should probably ask ourselves just whose side we are on, anyway. We should not lament the end of the present system. We should celebrate its demise. What will replace it? We do not know. It will probably be even worse. But the present one will be gone, or at least severely weakened, and this will be a mighty testament to His eternal, universal sovereignty, though few may recognize it. As much as it will impact our way of life, those of us who choose the side of liberty should recognize this as A Good Thing. Conclusion We really should not beat ourselves up too much over the present failure. We like to think of ourselves manning some last desperate rampart, fending off the forces of tyranny against all odds to the bitter end. This is not particularly realistic. The reality is that the walls were breached long ago. The battle has already been lost. The FED is almost a century old. So is the income tax. Social security is not much younger. The Constitution has been in tatters for ages. America has been in a long, slow slide for quite some time, and, truthfully, the West's New Dark Age has been a work-in-progress for quite a while now. The 20th century did not just see man land on the moon and the invention of the iPod. It was also a period of mass slaughter on a scale never before imagined. How easily we forget these things. But despair is the opposite faith. There are things larger than America, and larger battles to be fought. We ought to choose the banner we will fight behind wisely, for though we may suffer or even perish, if we have chosen the proper side, we cannot possibly be defeated; we can be certain Who is destined for victory. I think I will leave the final conclusion to a fellow Austrian:

A friend once asked how I could be so cheerful while America rots from within and endures attack from without. Others have wondered how I can be so personally optimistic even as I morbidly chronicle one debacle after another in this column and on my blog. The answer is that despite my love for America and my passionate allegiance to the ideas upon which it was constructed, I know that its fate is immaterial. Our country, our homes and even our lives are all things of shadow which will one day disappear in the light of the glory of Jesus Christ.

-Vox Day "The King of Christmas 2008"

scott on Austrian Theory

Just for convenience, I thought I'd put up a post to link to background Austrian theory articles I had written. Might be helpful for getting folks oriented after snapping-to from their Keynesian brainwashing.

The Fallacy of Neutral Money
Capitalism and Ethics I, Capitalism and Ethics II, Capitalism and Ethics III (OK, not exactly Austrian, but still...)

Inflation: What it is and what it is not
Banking and the Money Supply I: Sources of Inflation
Banking and the Money Supply II: Deflation
Interest Rates and the FED
The Symbology of Money
The Origin of Economic Bubbles: The FED and the Business Cycle
Inflation vs. Deflation: The Verdict


Stable Money I
Stable Money II
Stable Money III