We like to give issues of The 5 a theme once in a while. You might recall our “commodity issue” last week or “the everyman’s issue” earlier this month. We’ve got a theme for you today, but it doesn’t exactly roll of the tongue. Oh well, it needs to happen:

Welcome to a “hot-button issues we can no longer avoid” edition of The 5 Min. Forecast.
First up, climate change. We’d love nothing more than to leave this debate to Al Gore and Wall Street Journal editorialists. And for the most part, we will. But as you know, the House passed their climate change bill late Friday, and the entire energy industry is targeted for reform. Here’s the rundown in case you didn’t get to read its 1,200 pages — as all of our representatives in Washington surely did:

• Greenhouse gasses must be cut 17% by 2020 and 80% by 2050. Emissions from factories, power plants, refineries and energy distributors will make up most of the cut. The infamous cow fart emission cap was taken out
• A cap-and-trade system will cut these emissions. The government will issue a limited number of 1-ton permits each year, which companies will have to obtain if they wish to emit greenhouse gasses. Each year, the government will issue fewer permits. Thus, companies will have to clean up operations, use more green alternatives or invest money in “offset projects” — like a paper mill planting more trees
• 12% of power from electric utility companies must be from renewable resources by 2020
• New office buildings must be 30% more efficient by 2012
• The Congressional Budget Office expects the current rendition of this bill to cost U.S. households $175 a year. We’ve heard alternative estimates as high as $2,000.

“Rome is burning,” says our energy man Byron King. “Well, maybe not. This could alter our culture’s use of the metaphor. Burning Rome? Sorry, not without your carbon permit.

“After a millennium of merely tossing sticks and logs into burn pits, the Industrial Revolution was when mankind finally figured out how to use ancient forms of stored energy — coal, oil and natural gas — to build and maintain a vast manufacturing economy. In consequence of the carbon-fuelled revolution in productivity, the earth went from a population of about a billion, to near seven billion today.

“And now, per the House bill, our government has started on the way to reversing THAT Industrial Revolution. The new Big Idea is that there will be another, ‘carbon neutral’ Industrial Revolution, based on harnessing solar, wind and geothermal energy. Carbon is sooooo 20th century. Carbon neutral is the new black.

“The House legislation is 1,200 pages of special deals and giveaways, grafted onto a Soviet-style 40-Year Plan. (I should note that even the Soviets, for all their ambitions, worked in 5-year plans.) Cap and trade will be the largest tax increase in U.S. history. It’s the triumph of the tax raisers, central planners and controllers, and an arrow into the chest cavity of free market capitalism.

“So with higher energy costs throughout the economy, plus an immense new level of state control over economic activity, can the U.S. — at least as we know it — make the transition to that mythical carbon-neutral energy economy? My hunch is no. Cap and trade will breed more problems, which will lead to more taxes and even more regulations. There’s never just one cockroach. And while we live through the consequences of what’s going to happen, there will be a lot of misallocation of resources throughout the economy.

“I hope your subscription is current to Outstanding Investments, because that’s where I’ll be showing you how to invest your way around the consequences of our national hubris.”
Oil futures haven’t been fazed by the climate change bill.After all, it still needs to slither its way through the slimy halls of the Senate. Oil’s up $2 today, to $71 a barrel.
Unrest in Iran could accelerate a global energy breakthrough, reports our tech analyst Patrick Cox. We’ve been avoiding Iran’s issues lately as well. While fascinating, and certainly dynamic, it’s just not our beat… or so we thought:

“The central tension in the Iranian situation is the nuclear issue,” Patrick tells us. “That country’s autocracy is dead set on getting nuclear capabilities — and not without reason. Iran does need nuclear energy to promote economic growth. Contrary to popular wisdom, the country’s petroleum is not a good source of electrical power.

“The problem, of course, is that the technology being pursued by Iran can also be used to create nuclear weapons. This, naturally, worries a lot of people who fear the regime’s threats to destroy both Israel and America might actually lead to war. Many Iranians, in fact, are unhappy about the nuclear plans of the country’s rulers. Israel and Iran’s Sunni Arab neighbors are also plainly anxious.

“Iran’s relationships with the rest of the world would be an order of magnitude less stressful if it were not producing weaponizable fuels. This is why my sources tell me that thorium is enjoying a significant increase in interest lately. As we’ve discussed, thorium is not only a superior nuclear fuel from the technical and economic perspectives, but it solves the proliferation problem because it produces no waste products useful in weapons.

“Like every other sector, energy development has taken a big hit during this downturn… Ultimately, I believe, the superior nuclear technology will win out. In some ways, the financial meltdown has made pragmatism even more important than it was when tax revenues were flowing far more freely.”

Want to learn about Patrick’s favorite thorium play, along with the rest of his breakthrough technology picks? Check out Breakthrough Technology Alert.
“Iran has a bigger place in the global economy than most people know,” adds Chris Mayer

“The first thing that I don’t think many people appreciate is how big the country is. The population of Iran is 66 million. That makes it the 19th most populous country on the planet — more populous than France, the U.K., Italy and South Korea. Iran is in the top 10 in terms of contributing to population growth.

“Economically, Iran is an important link in the New Silk Road, that growing trade relationship between Asia and the Middle East. Iran is a big market for Asian exports. Take a look the next chart, which shows the sharp growth in trade:

“Iran has plenty of oil and gas, which it exports to pay for Asian imports of cars, clothes and other goods. Increasingly, Iran is turning to Asia for these goods, rather than Europe.

“Iran is the third largest supplier of crude oil to China. It makes up 12% of China’s total annual oil consumption. As Ilan Berman notes in a recent issue of the Far Eastern Economic Review: ‘Iran has become an engine of Chinese economic growth, and an indispensable part of Beijing’s energy plans.’

“No surprise that China will help Iran finance its $3.2 billion expansion of its mammoth South Pars natural gas field. I am sure the Chinese are watching what happens in Iran with great interest. It makes for a complicated political situation.”
The world’s rank and file of millionaires are in for quite a shake-up. Here’s some takeaways from our latest read: The 2009 World Wealth Report, by Merrill Lynch and Capgemini.

First, the number of global millionaires fell at a record rate in 2008, led by North Americans. The credit crisis wiped out 15% of the world’s millionaire population, now at just 8.6 million “high net worth individuals (HNWI),” as Merrill puts it. The total worth of the world’s wealthy fell about $7 trillion last year, to $32.8 trillion.

North America was the greatest victim of 2008, shedding 600,000 millionaires and roughly $2.8 trillion in HNWI wealth. Of course, we’re still at the top… but for how long? Check out this chart:

We should hedge this chart a bit: First, it’s from Merrill Lynch… need we say more? They use some rosy projections for global economic and market recovery for the next few years. Expecting the coffers of HNWI to grow at an annualized rate of 8.1% over the next four years is the same kind of Ivy League MBA thinking that caused Merrill’s collapse and subsequent fire sale to Bank of America.

That being said, we wouldn’t be surprised if their forecast comes true. Simple ratios alone make an Asian takeover seem inevitable: One out of every 195 North Americans are millionaires. Only one in about 1,700 Asians can say the same.

(This would be one of many reasons we’re burning the midnight oil on a BRIC report, just for you… stay tuned.)
Five banks failed this weekend, bringing the 2009 running total to 45. The five failures this weekend cost the FDIC another $264 million.

And what’s up with Georgia? Two of the weekend’s failures were there, bringing the Peach State up to 14 for the year — the most of any state. We’ve been told the lending market in Atlanta was hit exceptionally hard by the housing bust… if you’re from the area, let us know what’s going on.
Stocks are cautiously rising today after their first weekly loss since early May. The S&P 500 fell 2.6% last week, but as we write, it’s up about 1%.
The dollar index is right were we left it on Friday, just under 80.
Another sign of the times: Warren Buffett’s annual charity lunch sold Friday for 20% less than 2008’s price. Last year, a Chinese fund manager proudly bought the lunch for $2.1 million. This year, a currently anonymous Buffett disciple picked it up for $1.68 million.
No economic data to speak of today, but the next three days of this shortened trading week are jampacked with juicy numbers. We’ll see new consumer confidence and Case/Shiller home price index details tomorrow. Then there’s ADP’s employment count, construction spending, the ISM manufacturing index, pending home sales and auto sales on Wednesday. Then Thursday — the infamous Labor Department jobs report, where the unemployment rate is expected to reach 9.6%.

All interesting stuff… stick around — we’ll keep you in the loop.
Last today, one more issue we love to avoid: Bernie Madoff. He was sentenced to 150 years in jail today. CNBC spent most of their morning debating whether the 71-year-old should get 25, 50, 100 or 150 years in prison and recounting the sob stories of his victims… those fools whose mothers never told them, “Don’t put all your eggs in one basket.”

Our take: Why not park the cameras outside the SEC, instead of the ninth-floor courtroom in lower Manhattan? Where’s the outrage toward a government arm that scams us all — our tax dollars in exchange for financial security… the kind that routinely arrives too little, too late. Not only is there no blood in streets in front of the SEC, but they’re on track to get more funding… crazy.

Source: The Hot Button Issue: Climate Change, Iran, Madoff and More!

• A day after posting better-than-expected quarterly earnings, Goldman Sachs Group Inc. (GS) sold $5 billion in stock to repay federal bailout money. All totaled, Goldman sold 40.65 million in shares at $123 a piece, 5.5% below Monday’s closing price, Reuters reported. Goldman received a total of $10 billion from the Troubled Asset Relief Program.
• Amsterdam-based Royal Phillips Electronics NV (PHG) said its cost-reduction program will save the company more than 500 million euros ($664 million) this year, Bloomberg reported. The announcement came with its quarterly earnings report, in which Europe’s largest consumer-electronics maker reported its second-consecutive loss.

• First quarter earnings for pharmaceutical and health care retail giant Johnson & Johnson (JNJ) fell, but beat estimates by cutting costs, Reuters reported. The company $3.51 billion, or $1.26 a share, in the first quarter compared with $3.6 billion, or $1.26 a share, in the first quarter last year. Johnson & Johnson reaffirmed its 2009 profit forecast of $4.45 to $4.55 a share.

• Singapore’s economy may shrink 6% to 9% this year, the government said in its third reduced forecast this year. To counter contraction, the government will adjust the trading range of the Singapore dollar. “The situation is really dire and the central bank’s policy will improve sentiment and help the economy,” Vishnu Varathan, an economist at Forecast Singapore Pte., told Bloomberg.

• Discover Financial Services (DFS), will cut 500 jobs in May, or 4% of its workforce, Reuters reported, citing company sources. Discover, the fourth-largest U.S. credit card network, last month posted a deeper-than-expected quarterly operating loss, cut its dividend and set aside more money to cover bad loans as defaults increase.

• In a sign bankers are gaining confidence that the worst of the financial crisis is over, the London inter-bank offered rate (LIBOR) for three-month dollar loans is dropping at the fastest pace since January, Bloomberg reported. Debt strategists at Credit Suisse Group AG (ADR: CS) Societe Generale SA (ADR: SCGLY) and Royal Bank of Canada (RY), three of the 16 banks that provide the data that sets Libor each day, say the declines will continue.

• Weak demand and a supply glut could cloud the coal industry’s prospects for the rest of the year, even as U.S. coal miners are likely to show strong quarterly profits this month, Reuters reported. But big U.S. coal producers should weather the economic downturn because they sold much of this year’s production at higher prices negotiated before the recession hit last September. Coal prices are expected to stay low throughout 2009 until production cuts by major miners begin to restrict the coal supply.

• Madoff Securities International Ltd., filed for bankruptcy protection in Florida under Chapter 15 of the federal bankruptcy code. The code is designed to block U.S. lawsuits against foreign companies reorganizing overseas that have U.S. operations, Bloomberg reported. Bernard Madoff pleaded guilty last month to 11 counts including fraud and money laundering for directing the largest Ponzi scheme ever.

Source: Global Investment News Briefs Wednesday April 15, 2009

We’re in the “anger” stage, writes John Authers in the Financial Times. No more denial…now, people want blood.

After the South Sea Bubble blew up, in the 18th century, the Walpole government was faced with similar anger. It seized the property of the company’s directors and used it to pay off the victims. Then, a resolution was proposed in Parliament by which the bankers involved in the scandal would be tied up in sacks filled with snakes and tipped into the Thames River.

So far, Congress has not proposed stoning Fannie Mae or sending AIG directors to the bottom of the Potomac. But it must be warming to the idea.

“Congress is looking for heads to cut off,” says the French press.

One member of Congress – Senator Grassley – retreated from his call for AIG executives to commit suicide. It would be all right with him if they just showed a little contrition, he says now.

But all over the world – and especially in Washington DC – the mobs are out in the streets with liquor on their breath and ropes in their hands.

The proximate cause of this anger is the bonuses paid out by AIG – after the company got a taxpayer bailout of $170 billion. According to the New York Attorney General, 73 AIG execs got $1 million + bonus checks.

“Livid Democrats demand AIG return bailout bonuses,” says a headline in today’s financial press.

We hope you realize, dear reader, that all of this, of course, is just a cynical sideshow. It’s a distraction…a self-indulgent tantrum; the real story lies elsewhere…which we’ll come to in a minute.

First, the rally is still going on. Stocks have recovered about 10% of their losses so far. And yesterday, the Dow rose another 178 points.

Don’t forget, this is not a new bull market. It is a bear trap…a rebound in an on-going bear market. After this phase of anger passes…people will probably feel that the worst is behind us. They’ll squint and see a “light at the end of the tunnel.” Later on, they’ll realize that the light is an on-coming freight train!

Yesterday’s up-move was traced to a surprising report from the housing industry.

“Housing starts unexpectedly increase on condos,” explains a Bloomberg headline.

And today, the Fed meets. Analysts are betting that the Fed will begin more “massive buying” of assets – especially U.S. Treasury bonds – in order to get more money into the system.

All the news is not favorable, of course. Auto loan delinquency rates are running 9% ahead of last year. Thornburg Mortgage is apparently headed towards Chapter 11. Caterpillar says it will lay off more than 2,000 workers; less construction means less need for heavy equipment. And AMEX says even its best customers are falling behind on their bills.

But let’s go back to into the theatre and take our seats: The politicians give money to their pet projects…and then pretend to be outraged when the companies use it to pay their bills. Among their bills were billions in payments to other companies –notably Goldman Sachs, former employer and major source of wealth for the man who designed the bailout, Hank Paulson – and thousands of employment contracts with AIG’s salarymen.

What did the feds think when they gave AIG the money? That they were donating to charity?

No, dear reader…the fix was in. And it’s still in. And while the press and politicians huff about a few million in bonuses to AIG’s hacks, billions more is being paid out to AIG’s counterparties.

It’s not only a waste of money, says our old friend Jim Rogers, the bailouts actually retard a recovery. How so? In the obvious way. Like any kind of subsidy or welfare payment, they invite people to keep doing what they’ve been doing – no matter how unproductive it is. Instead of letting AIG and its bosses and counterparties go broke, the feds give the whole brain-dead system a transfusion of taxpayers’ money. So the executives don’t have to go out and find other work. And AIG can continue peddling its mortgage insurance. And its counterparties, too, are protected from their mistakes.

Of course, the government doesn’t want to raise taxes in order to keep these incompetents in business, so it bleeds the money from the next generation of taxpayers – who aren’t around to protest. Instead of letting the debt be reduced by the natural process of deflationary default, in other words, the government adds more debt.

Already, as we pointed out yesterday, there’s about $20 trillion worth of debt debris that must be brushed aside before the economy can begin rebuilding on a solid foundation. At the present rate of savings, it will take about 45 years to do the job. Which suggests to us that it ain’t gonna happen. We don’t think the feds can sit still that long. And they’re not sitting still now. In fact, they’re adding to the public debt faster than the private debt is getting paid down.

By our calculations, the private economy is paying off about $420 billion – net – per year. (Just based on higher rates of saving…not counting write-downs, and defaults.) But the federal deficit is expected to run to $2 trillion! In other words, the feds are adding debt 4 times faster than the private sector is paying it down.

This is not a formula for putting this problem behind us. Instead, it just pushes it ahead.

Now, we turn to Baltimore, to see what Addison has for us…

“‘We do want foreign capital to come in here and we want private capital,’ our favorite stammering Rep, Barney Frank said yesterday.

“After emerging from a House Financial Services Committee meeting,” writes Addison in today’s issue of The 5 Min. Forecast, “Frank found a few mics to spit into… and the off the cuff pontifications proffered fourth. This was our favorite:

“‘We just had the Chinese raising the specter of not buying our Treasuries. Well, that would be troubling. I think they’re bluffing, personally.’

“Ha!

“Bluffing? We thought bluffing meant you were acting strong despite a lousy hand… like this:

“This game is played with the cards up…and China’s holding all aces.”

Addison writes every day for The 5 Min Forecast an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments — in five minutes or less.

Back to Bill, in the land of wine and cheese…

Newsweek magazine offers bad advice: “Stop Saving Now!”

We didn’t read the magazine’s account; giving the editors the benefit of the doubt, we will guess they were being ironic.

All over the nation – and perhaps the world – people are cutting back, making do, and doing without. “Frugal families doing own chores,” says one headline. “Beat the recession by growing your own vegetables,” says another. And a popular new website, called Mint.com, is a runaway success; it helps people plan their budgets and find ways to spend less money.

All of this financial rectitude is having a deleterious effect on the economy. The old economists called it the ‘paradox of thrift.’ The man who plants his own vegetables spends less with the green grocer. Then, the grocer spends less with his suppliers. Then the suppliers spend less with their suppliers. And so forth. Soon, everyone is spending less money…and you have a depression.

So, a civic-minded reader might think he should step up his shopping – if he were an idiot. He might think we’d all be better off if he spent more money…and everyone else did the same.

But that’s not how it works. We’re not all better off when we all do something stupid. We’re only better off when we all do something smart. And when people have spent too much money – and gone too far into debt – the smart thing to do is to spend less, not more.

*** Income-on-Demand’s Wayne Burritt on last week’s market bounce:

“As you can see from this chart of the S&P 500 – a good gauge of the broader U.S. stock market – last week’s bounce has ignited a mini-rally that is just plain joy to see. In fact, from a low last Monday, the S&P 500 has surged a mind-blowing 15%. Wow!”

“Even better: The market’s latest action snapped a series of down days that had just about everyone running ragged, me included.

“The market also bounced on higher volume, another big plus for a straightforward reason: When up-market moves are accompanied by higher-than-average volume, it’s a clear sign that bullish investors are attracted by the positive market action and are willing to buy shares to prove it.

“But that’s not all. Last week’s bounce was not just a big volume day: It was the highest-volume day out of the previous seven trading days. I have to go all the way back to the bounce of late November to find a similar surge in buying volume.

“Significant? You bet. When the market bounced late last November, it immediately began a run that didn’t end until the S&P 500 hit 944 on Jan. 6 of this year. From the November low of 741, that run marked a massive 203-point surge.

“Translation: A bounce similar to last week’s ushered in a whopping 27% upside bullish run on the S&P 500 just a few months ago. Given that we’ve moved 15% in just a matter of days, this run could best last November’s by a long shot.

“Now, I’m not about to say that it’s time to pop open the champagne. But facts are facts, and current market action is certainly a step in the right direction.”

That’s going to do it for us today. Keep reading for today’s guest essay from Bill Jenkins who will explain how he sees signs of socialism more and more in today’s headlines.

Source: The Fix Is in at AIG

Item: GDP contracts an annualized 6.2% in the fourth quarter.

Comment: Let’s break down the four major components of GDP.  Consumer spending?  Down the worst since 1980.  Business investment?  Down the worst since 1975.  Exports?  Down the worst since 1971.  Government spending?  Up slightly.  Lots more where this came from, I’m afraid.

Item: U.S. government taking 36% stake in Citi.

Comment: I love how in journalistic shorthand, these sorts of stories become, “U.S. taxpayers will soon own a big share of Citigroup (NYSE:C).”  Like hell I do.  If I own a piece of it, where do I sign up for the dividend checks?

Item: War spending no longer to be done off-budget.

Comment: As much as the new president’s first budget proposal is an abomination, let’s at least give him credit for declaring an end to the practice of “supplemental” appropriations for Iraq and Afghanistan.  Doing so accounts partly for the mind-bending $1.75 trillion deficit.

Of course, the officially-announced deficit is never the number to watch anyway.  It’s the year-over-year increase in the national debt that really matters.  By that measure, there never was a “balanced budget” during Clintontime.

Item: SEC had a heads-up about Allen Stanford’s shenanigans in 2003.

Comment: Asleep at the switch on Madoff.  Asleep at the switch on Stanford.  Whatever the next one is, I’m sure we’ll hear similar revelations too.  It’s hard to root out real fraud when you’re busy pursuing “insider trading” witch hunts against Martha Stewart, Marc Cuban, and Joe Nacchio.  Nacchio, by the way, lost his latest appeal this week.  He’s running out of chances to avoid doing prison time for his heroic refusal to act as enabler for the government’s warrantless wiretapping schemes.

Item: Lefty economist nails the flaws with TARP.

Comment: An altogether remarkable speech by James Galbraith (son of John Kenneth):

“Guaranteeing bad assets will not stabilize the price of housing. It will not stabilize incomes and profit opportunities in the economy. Therefore it will not solve the credit problem.

“Meanwhile the guarantees will support incumbent management and shareholders. They will add vast sums to the public debt – directly or contingently – making achievement of the president’s other priorities more difficult. And they will distort the distribution of wealth, by guaranteeing the financial position of an elite group while that of so many others is collapsing.

“Keeping the existing management in place means that we will not arrive at clean and trustworthy audits of the banks. Therefore no one will know to what degree they actually are, or actually are not insolvent. No one will know just how bad the bad assets are, and most will (prudently) suspect the worst. This collapse of trust means that lending to the banks, including by other banks, will continue to be impaired.

You can’t fix a problem until you correctly identify what it is.  You have folks running the gamut from Galbraith to Rick Santelli (hey, I’ll give credit where it’s due) to the chief of U.S. Bank who can identify the problem, even if they’d probably come to blows over how to address it.  Contrast that with the clueless relay teams of Bush-Obama and Paulson-Geithner who actually make the decisions.  (And then change them.)

Item: Zimbabwe’s Mugabe plans $250,000 birthday party.

Comment: None necessary.  Have a good weekend.

Source: Friday Potpourri

So it is with Madoff’s scheme. The mystery isn’t how one person was able to fool a few. The scheme in which yesterday’s “investors” are paid off with the money of today’s victims is known in all places and probably all times – and it always goes belly up to the originator’s complete disgrace. It is a classic example of how moral laws are self-enforcing in the world of economics.

The critical difference this time is that Madoff ran his scheme during an economic boom, a time when people’s normal sense of incredulity is put on the shelf. This is part of the grave cultural distortion introduced by funny money. Money is the most widely demanded good in society, and the Fed is making new quantities of it not as a reflection of new real wealth, but purely as an administrative decree.

There is a sense in which funny money literally drives everyone crazy, leading to what is sometimes called the “madness of crowds.” Guido Hulsmann explains it all in his remarkably timely and revealing new book: The Ethics of Money Production. With artificial stimulation from the credit machine, multitudes are willing to believe in something that cannot possibly be true. In Madoff’s case, it was that he could, even in falling markets, earn 15-20% a year without risk.

Why not? Most everyone believed in some version of the myth. We believed that house prices would go up and up despite the reality that houses are physical things that deteriorate from the instant they are finished, just like cars or computers or anything else. Why did we believe this about houses? Again, you have to look to the fraudulent money system to see why.

And we believed that we could all become millionaires by putting our money in the stocks of companies that weren’t actually earning money or paying dividends, companies whose wealth was entirely based on infusions of cash from the stock market which in turn were based on the belief that others would buy the stocks and so on. In other words, we believed that something out of nothing was possible, and anyone who didn’t believe it was a chump. It’s exactly what people believed during the other great inflations of history.

What’s more, we believed that buying these stocks constituted not consumption, but savings for the future. In fact, people routinely attacked official savings data on grounds that they did not include what people were “saving” in terms of their stock market accounts. In a similar way, people were measuring our national wealth not in terms of accumulated capital, but rather through consumption data, as if granite kitchen counters in bigger houses were a measure of wealth instead of the opposite: the depletion of wealth.

The left is big on attacking the salaries of investment bankers, and they were indeed outlandish. But these too represented not a unique problem, but more evidence of inflationary finance. In a bubble economy, the money chases what is most fashionable, and financial services qualified. So the salaries were market. What was wildly distorted was the market itself.

Now let’s talk about government finance during these years. The market tried to correct itself from 1999-2001, but the government wouldn’t tolerate it. Instead, it used every sign of downturn as an excuse to keep the illusion going, creating billions and billions in new dollars. The Fed drove interest rates lower and lower despite the non-existence of savings available to back them up.

(Low interest rates in a sound money system are a reflection of accumulated capital and deferred consumption. When you see the Fed pushing them down during a boom, it is creating a dangerous mirage.)

Did anyone stop and wonder where the government was getting all this money to pump up the system? Yes, the Austrian economists warned us. The pages of Mises.org and LewRockwell.com were filled with alarms. But it was something people wanted to ignore. We are talking about human nature: the desire to believe in things that do not exist. The government was happy to fuel this sense because it gave the Fed, its connected industries, and the state more power and more money in the short term.

Madoff’s scheme played into the belief that wealth was not something to work for, but something to scheme for. It could be generated by playing your cards right, hooking into the right networks, and finding the right “investments.” The people with whom he dealt had, it turns out, some internal sense that there was something a little bit shady about the whole operation. But they dispensed with this sense when the fat checks arrived, and concluded that whatever was making this perpetual motion machine operate, it did work.

But listen: the government right now is using the same tactic to convince you that it is saving you from the recession. The whole scheme partakes of the same sense of denying reality that characterized Madoff’s scheme. And I’m not just talking about Social Security, which is almost an exact replica of the Ponzi version, except that at least Charles Ponzi didn’t force people to give him money. I’m speaking of something broader.
The entire financial system that is propped up by the Treasury and the Fed is based on the same idea: that something out of nothing is possible.

So they will jail Madoff. Wall Street would flog him if it could. He is disgraced for all of history. But meanwhile, the likes of Bush, Bernanke, Paulson, Obama, and all the rest are still riding high, even though their scheme is far larger and more egregious.

Most of us like to believe that we wouldn’t have been tricked by Madoff. But are you being tricked by the elites who claim that they can conjure up a trillion dollars to stabilize our economy by clicking a few buttons on a computer screen? Most people are. Certainly the press seems to have bought it. Many people were outwitted by Madoff. Many more people are today being outwitted by the government and its central bank. And it will all end in disgrace and disaster, only on a far, far grander scale.

Source: Madoff as Metaphor