Politics is not about what works, it’s about what you can get away with. And what you can get away with is often exactly what doesn’t work at all.

Our beat is money, here at the Daily Reckoning. We specialize in fraud and folderol. We leave the homicide beat to someone else.

What the US is getting away with, from a financial point of view, in addition to counterfeiting, is very grand larceny on a Super-Madoff scale. It is borrowing trillions of dollars even though it has no way to honestly pay back the money.

Still, so eager are the lenders to part with their money that the yield on the 10-year T-note fell yesterday to 3.64%. The more the feds borrow, apparently, the more lenders are willing to lend.

We’re in the Third and Fatal stage of a great country – the political stage. In this stage, money and power migrate from the financial community to the political community. The politicians get away with taking trillions out of the productive economy and spending them on their pet projects and private corruptions.

Warren Buffett described the America of the Bubble years as “Squanderville.” Private citizens were living beyond their means, he pointed out. But he hadn’t seen nothin’. Now, the squandering is done by government. The politicians are spending trillions they don’t have on projects nobody was willing to pay for even when they had some money in their pockets.

What the government can get away with now – under cover of a financial crisis – is a big grab for money and power. It ‘works’ in the sense the feds are able to get away with it. But it will prove fatal to the dollar… and to the US economy.

We will return to that subject below…

Back in the markets, the Dow fell modestly yesterday, down 16 points. Oil clung to the $69 level. Gold was up $3 to $924. And the dollar saw its biggest drop in weeks as speculators waited for word from the Fed on its next move.

The Fed is expected to talk about an “exit strategy.” It is intervening in markets as no Fed ever has. Its balance sheet – a measure of how much intervention it has done – has shot up in a way that is not only unprecedented, but almost unbelievable. In an effort to provide liquidity, it has bought up the contents of every neglected refrigerator on Wall Street. The smelly, furry stuff – “toxic” derivatives… SIVs… MBAs… no one seems to know exactly what it is – enters the Fed’s books as an asset. Altogether, along with its not-so-pungent holdings of US Treasury bonds, the Fed’s balance sheet shows more than $2.7 trillion worth of assets.

What happens next?

We don’t know. But it is far too early to worry about it. The Fed is in no position to head for the exit. It will have to stay on this road for much, much longer.

Why? Because the “green shoots” are shrivelling up. There is no real economic revival. And there can’t be one until the underlying problems are corrected.

One of the big problems is too much capacity. We mentioned it yesterday. During the Bubble Epoque the squanderers would buy anything. So, you could make an almost unlimited amount of money by providing them with things to buy. This meant building factories… buying trucks… and renting retail space. Now, however, the squanderers have come to their senses. They want to save their money. So, no need for so much retail space in the malls, so many trucks on the highways or so many factories in China.

America’s middle class has rediscovered thrift.

There are a number of sit-down restaurant chains that cater to the middle class – Applebee’s… Chili’s… Ruby Tuesday and a few others. They expanded greatly during the ‘90s and ‘00s in order to meet the desires of the big spending masses. But now that the masses aren’t so free and easy with their money, New York Times reports that they are in desperate competition for remaining diners. This competition is manifesting itself as price deflation.

Applebee’s offers dinner for two for only $20. Chili’s advertises entrees (the main course in America) for just $7. Ruby Tuesday’s is going for a 2-for-1 deal. Buy one meal, get one free. All of them are making heavy use of discount coupons.

Oversupply is producing deflation. Prices are falling as suppliers fight for demand by offering more for less. And over at the Red Roof… the roof has already caved in as the chain has defaulted on its mortgage debt.

This is what you’d expect at the end of a long period of credit expansion. EZ credit brought forth too much demand and too much supply. Now, the demand is disappearing… and the suppliers struggle to hold on.

This is natural, normal and perhaps necessary to a market economy. And it will take years to sort out. Roofs have to fall in on thousands of enterprises, speculators and households. Then, the rebuilding can begin.

But the Bernanke Fed is not about to let nature take her course. The Fed is on the road to ruin… and it’s not about to “exit” yet. Deflation is still enemy number one. Don’t expect any tightening from the Fed anytime soon, dear reader… it is far too soon for that.

*** More news from Manraaj Singh on why “captains of industry” are furiously selling out of shares in the companies they run.

“Insiders are selling-out. Investors have increasingly reached the point where they been questioning the sustainability of the rally.

“The signs of a coming sell-off have been rising sharply recently. Share valuations in both emerging and developed markets have reached unsustainable levels. And another key indicator of a coming market correction has been the scale of insider selling within the big US companies. This is a measure of whether the top managers of publicly-listed companies have been buying or selling shares in the companies that they run. And the data has not been good.

“So far this month, company insiders in the US have sold 22 times more shares than they have bought. In other words, the majority of people who run listed companies in the US just don’t consider their own companies worth investing in right now. The data for June, up to now, shows that insiders of S&P 500 listed companies have sold $2.6 billion in shares, compared with just $120 million in purchases.

“This is a very important clue as to where markets are heading. Because the last time there were more U.S. corporations with executives reducing their share holdings than adding to them was during the week that ended 19th June 2007. Global stock markets went into meltdown shortly after that. I expect to see the same thing happen over the next couple of weeks.

“Right now, the chaps with ring-side seats of the US economy see plenty more pain head. And as the US economy goes, so goes the world economy… ”

Editor’s note: Manraaj Singh believes the sell-off is a good thing for long-term investors. The sharper the falls, the cheaper the price at which we can get into the investments that we want. Manraaj is Chief investment strategist of Profit Hunter, which looks to profit from special situations around the world. To learn more about his service and discover his latest investment recommendation, click here.

And more thoughts… .

*** Governments are essentially parasites on productive activity. So the best governments are the smallest – meaning, the least parasitic. “The government with governs best governs least,” is how Jefferson put it.

But now we are in the third and fatal stage of a great country – the political stage. In this stage, the parasites take over. Government governs a lot. And governing a lot costs a lot of money. In England, the government budget is bumping up against half the total GDP of the nation. In America, health care is still largely a private matter, so the government spends a smaller percentage of GDP… but it is a percentage that is rising quickly.

Where will the money come from? Taxes. Gordon Brown has already put the income tax rate up to 50%. Michael Caine, an English actor who moved to California to escape the high taxes of the ‘70s, says he will tolerate 50%… but not a penny more.

“If it goes to 51% I will be back in America,” he says.

Ahem… he might have to try somewhere else. Everybody’s gunning for the rich – in America as well as England. Obama has pledged to raise taxes on the rich. The states, notably California, are desperate for more revenue too. Add federal, state and local levies… and private health care costs… and you could easily be over the 50% bracket in America too.

But when you rob the productive Peters to pay the parasite Pauls two things happen. The Peters get their backs up. And you’ve soon cleaned them out anyway.

So, governments need to find other sources of financial support. Typically, they borrow money.

The history of European monarchies is largely a history of debt. Kings and queens squeezed what they could out of the turnips. Then they turned to the moneylenders. These lenders had to be careful. They were happy to extend monarchs credit, because in this way they gained a measure of control over them. But there were many dangers.

Kings lost their heads… or went broke. Or, often, the monarchs could turn the tables on the moneylenders… and have their heads cut off. Reading the history of the loans to the French crown it is eye-opening. It is amazing anyone wanted to lend at all. The risks were great; the rewards were few. Rarely were the loans settled honorably.

What you come to see is that lending to the government – which always has the power to betray the loan and behead the lender – is merely another form of taxation. Government raises money. Sometimes it repays the loan with revenues from other taxes. Sometimes, it is the lender who pays the tax himself – either because the government defaults… or because inflation reduces the value of his money.

This week… indeed, this year… lenders are turning over massive amounts of money to the US government. There is so much demand for US paper that the yield on the 10-year note fell yesterday to 3.64% – despite the huge new supply of T-notes coming on the market. It is breathtaking to watch. But it is a story that will end badly. We predict that lenders will end up like the financiers who lent to Louis XIV and later regretted that they ever met the man.

“Every loan always diminishes the free revenue and necessitates, at the end of a certain time, either bankruptcy or the increase of taxes,” explained Turgot to a later Louis. “In times of peace it is permissible to borrow only in order to liquidate old debts, or in order to redeem other loans contracted on less advanta¬geous terms.”

Any borrowing in excess of that puts you on the road to ruin, Turgot went on to explain.

More on Turgot – a man sadly neglected by historians – in upcoming reckonings.

Source:  Grand Larceny on a Super-Madoff Scale

But today, I am writing to you about something that affects me on the most personal level (I’ll just bet it affects you the same way too), and I’m really ticked off about it.

Bandits in Academic Robes

I’ve got a statement in front of me right now by Gregory Mankiw and Kenneth Rogoff, baldly stating that they wish to take away a major portion of my hard-earned money (and yours) for years to come – and give it to idiots.

Rogoff and Mankiw are your classic ivory tower types who spend their adult lives hiding out in the nooks and crannies of our shadow government, pontificating on how the little people ought to live.

Mankiw has degrees from Harvard, Princeton and MIT, and did a stint as the Chairman of the Council of Economic Advisors. When he wasn’t busy demonstrating his skills as a chess prodigy, Rogoff managed to collect sheepskins from Harvard, MIT and Yale. Both get their schemes and rants published regularly in the top economic policy journals.

In Too Deep

Some say these are real smart guys. Certainly their word is trusted as cant in the highest circles of the land. They are exactly the kind of clowns who got us into the mess we’re in these days. So when they propose to rob us blind, I get worried – and I get mad.

These wise guys have looked around at all those poor folks who are drowning in debt: garden-variety rubes with insane mortgages no one could service… crooked corporations with loans they can’t pay off… banks that are (STILL!) sitting on toxic bonds – even Washington itself, which is now borrowing a dollar for every two dollars it spends.

The conclusion they have come to? None of these fools can possibly pay off this debt the way things are currently structured. Just can’t be done. The capital alone is mind blowing, and the daily accrual of interest is staggering.

Washington’s Secret Tax

So they have come up with a way to force you, me, and everyone we know to pay it off for them – in essence, by way of a massive secret tax that will never get voted on by Congress or be signed by any president.

Here’s how their scheme will work: They propose that Washington deliberately jack up the inflation rate three-fold. That way, all those folks who borrowed dollars of a certain size – that is to say, dollars that could purchase a certain amount of goods – could pay off those debts in dramatically smaller dollars that could buy a heck of a lot fewer goods.

Let me try and demonstrate in the simplest of terms why this is great for idiots and terrible news for regular, normal, virtuous folks like you and me.

The Wages of Sin

Let’s say you lent your ne’er-do-well nephew a hundred bucks when a strong dollar could buy a dozen eggs. Instead of investing that money in, oh I don’t know, chickens and feed, he spends that money on what he usually spends money on – horses and beer – with the usual results: a hangover and not much else.

Now his current paycheck is $10 a week, and he’s got to cover room and board with most all of it. (Yeah, I know, my wage figures are a century out of date, your nephew would never settle for a loan that small, and nobody buys chickens anymore. But they are nice round figures that are easy to understand, so let’s just go with them for now.)

It would take him a hundred years just to pay back the principal. As for interest? As they say in Jersey, “fergeddaboudit.” But what if he could earn $20 a week, without working any harder (which is good, because we all know that his allergy to working hard is what got him in trouble in the first place).

Now he can pay you back much faster, right?

Robbing Peter to Pay Paul

Yes and no. But mostly no.

That is to say, yes, your nephew could pay you back, but the only way to make double the paycheck without double the work is to halve the purchasing power of each dollar.

So while he suddenly can pay you back, each dollar he pays you can only buy six eggs. Oh and by the way, each dollar you work for at your decent job can only buy six eggs too. Also, all the money you have worked so hard to save? It just got cut in half too.

This is what Rogoff and Mankiw (and Bernanke, Geithner and Obama too, for that matter) are proposing. The only way we can avoid a massive tsunami of defaults that would make the current round of Wall Street failures and house foreclosures look like a frog hiccupping in a small pond, is to deliberately induce inflation rates between 6% and 12% for years to come.

That way, all those folks who are up to their neck in it can pay off in cheap, watered-down dollars. And all those folks like you and me, who work their rears off, save against the future, and pay off debt whenever possible? Our savings and paychecks, even our stock market gains – all denominated in dollars – get watered down too.

This Is Really Happening, and It’s Happening Right Now

Think this is just theoretical? That I am just another one of those cranky ivory tower types too?

I used eggs in my example on purpose. This week, the Labor Department announced that they have climbed 40% in the past month. Nor are eggs isolated in their increase. Also setting new multi-month highs this month are beef, cotton, coffee, vegetables, crude oil and gasoline.

View Larger Image Here

This is no theory. No sour griping. Anyone involved in dollar trading knows it’s happening already. Just take a look at the dollar index chart above and you can see that the wise guys are already bailing out.

They know the truth: Washington is looking to rob us blind. And this time, I am taking it personally.

Source: You Are Being Robbed!

Well, that and one other small quibble. Where are all the haters? Surely more of you must think I’m off my rocker, or otherwise dead wrong somehow. Let’s start off with a rare bit of snark just for sport…

The lessons learned from the past…8 years of taking us down…and now a dynamic leader trying to pull it together…and presenting a better picture of America to the world…now, can you or Rush Bimbo do that?

– TD reader NB

Rush who? I’m not up on the guy, as I haven’t paid attention to him since the early ’90s. I did go through a Rush Limbaugh phase my freshman year of college – but I also shaved my head on a dare and tried absinthe that year. Some things you just leave behind.

As for me, you’re right. I could never become leader of the free world because I could never in a million years get elected. I’m too outspoken, I’m downright lousy at pandering and posturing, and I would rather beat myself to death with a tire iron than be subject to the inanities and insanities of politics on a day-in, day-out basis.

Not to mention that, on a loss of dignity scale, pursuing the presidency has to rank somewhere between American Idol and the “Gimp” scene from Pulp Fiction. Is it any wonder that only megalomaniacs and puppets want the job?

Jimmy Carter was one of the most under rated presidents of this century. He changed 20% of this country’s power generation to Nuclear and opened up power markets. He never got us into a war. Two accomplishments that the last 10 presidents cannot match! Maybe he was not forceful enough but as a country, we have been total a–holes on the world stage for the last 15 years and we are about to get our up and comings! The day of America is done!

– TD Reader Richard

Well, we’re all entitled to opinions I guess… I’m more inclined to agree with this harsh assessment from The Economist, in a recent piece on the sad state of the GOP: “Jimmy Carter destroyed the Democratic Party for a generation because voters concluded that both he and his party were too incompetent to be trusted with the White House. George Bush may have done the same thing for the Republican Party.”

I think it is important to note that inflation will be caused by too much money supply, not by government spending. Political factors do create a link between them, but it is possible to have big spending and big deficits without inflation if the Federal Reserve does the right thing…

– TD reader Duane K.

I respectfully disagree. To dust off an old analogy, the Fed is like a jockey riding an elephant. Most of the time, the elephant is docile and controlled. But if something happens to make the elephant stampede, all bets are off.

What’s more, government spending is inherently inflationary (in the long run) because of the laws of supply and demand. In order to spend money that it doesn’t have, the government must first do one of two things. It can sell bonds or it can print dollars, both of which count as government assets. That’s the supply side of the equation. What happens after that depends on demand.

If there are plenty of buyers for the bonds (relative to supply), then all is well. If there aren’t enough buyers, though, then the price of bonds goes down – which in turn makes interest rates go up. If interest rates go up too much, that threatens to kill the economy… thus forcing the Fed to print dollars (with which to prop up bond prices) in order to keep rising interest rates from choking off growth.

The same supply and demand idea applies to dollars. As long as there is strong demand for dollars – the need for cash in a money market account, cash to lend or spend, liquidity in a bank vault, and so on – then the government-created supply of dollars is not a problem. But as soon as supply outpaces demand, the value of the dollar declines.

So all inflation is, really, is a mismatch between supply and demand for government assets (tilted towards the supply side). If there is a greater supply of treasuries or Federal Reserve Notes on the market than warranted by current demand, investors will seek to trade that excess for something else. Equities maybe… or some other country’s debt or notes… or real estate, or commodities, or hard assets like gold and silver. You get the idea.

The key thing to remember is that the Fed does not have control in the event of extreme scenarios – and on the demand side of the equation, the Fed has no say whatsoever. All the Fed can do is muck around on the supply side, shifting the bond-dollar mix as conditions warrant. On the demand side they are helpless.

And so, if the demand for treasuries and cash runs sky high as a result of global panic, the Fed can print up lots of emergency dollars (spike the money supply). But they can’t keep that cash from being stuffed into mattresses or bank vaults, leading to the threat of a deflationary death spiral. This is just what happened in the fall of 2008.

On the flip side, if the demand for treasuries and cash suddenly plummets, the Fed can’t reduce supply fast enough without killing the economy. In fact, once true recovery gets under way, there’s no way in heck the Fed will be able to pull the excess dollars from the system fast enough to avoid inflation. They will be too fearful of killing off a weak and tentative recovery, as FDR nearly did by advocating a premature tightening of fiscal conditions in the late 1930s.

This is why Ludwig Von Mises foresaw long ago – and quite correctly I might add – that government attempts to massage the boom-bust cycle always end in one of two ways. The powers that be wind up with a Hobson’s choice – sacrifice the currency or risk debt-laden economic collapse.

In a debt-laden democracy, the debtors have more votes than the creditors. This makes severe economic pain (with risk of collapse on top) a politically unacceptable choice. In contrast to that, inflation can generally be lived with… so we always wind up with inflation in the end.

I struggle with the inflationary call. As long as most people have variable rate loans for their homes inflation can only spell disaster. Labor is always on the tail end of inflation whereas the bank will bump that monthly payment up… depending on what the home owner signed up for causing more foreclosures and further bank problems. So in essence the variable loan is acting as a check against inflation or allowing the Feds to move rates up too quickly to counter inflation.

– TD Reader Denis T.

If you want more on this topic, I encourage you to read, “The Importance of Monetary Velocity.”

Not everyone thinks we have runaway inflation ahead. Those who doubt the return of inflation, even in the face of trillions upon trillions doled out with more to come, mainly do so because of the velocity question (see link above).

Their basic argument is that things are so tough on the economic front – in terms of lack of labor demand, lack of spending power, and general lack of credit – that there is just no way the economy can gin up enough velocity for the price of goods and services to rise.

This view further assumes that cash will continue piling up in bank vaults – and Treasury bonds in central bank coffers – as the global economy hobbles pitifully along.

My counter to this line of thinking runs as follows.

First off, for the Federal Reserve the mantra is “inflation or bust.” For the economy to truly get back in gear, we must have an extended period of inflation. The Fed hopes it will only be a little bit of inflation, and talks optimistically as if this will be the case. But the reality is that it will probably be a lot. When you’re in a deep hole and have to blast your way out, you overshoot. That’s just how it goes.

As soon as the prospect of real economic recovery is here and widely accepted, the trillions of dollars the Fed pumped into the system will rush back out into real goods and services. The demand for government assets, in other words, will rapidly fall – and the Fed will shy away from tightening for fear of killing the recovery.

Alternatively, if we don’t see a true recovery any time soon, then the powers that be have only one answer – keep stimulating. Keep printing more dollars. Keep selling more bonds. Keep propping up more failed or failing businesses.

We already know that governments can’t create prosperity. They would have already done so if they knew how. All they can do instead is keep pumping in paper, keep meddling with things. And that is exactly what they will continue to do if the recovery process stalls… up until the point where the world no longer has confidence in the “full faith and credit” of U.S. government obligations.

Remember, once again, that inflation is a supply and demand phenomenon, and that the Fed and Treasury only control the demand side. So what we are talking about here is an inevitable change on the demand side either way.

If the economy recovers, demand for government assets falls because investors are happy to sell treasuries and buy equities or land or copper or what have you.

In contrast, if things stay bad for a long enough period of time, then the stimulus-driven supply of government assets (bonds and cash) just expands and expands… until one day the bag holders swallow hard, look down at the thin air below their feet, and demand suddenly evaporates in the midst of a run-on-the-bank style panic.

And as I’ve said, my hunch is that interest rates remain capped throughout this whole ordeal no matter what, because high interest rates – be they on treasuries or home mortgages – are an economy killer. The Fed will thus be moved to “save” the economy by purchasing large quantities of bonds (or home mortgages) in order to keep interest rates low.

Indeed, the Fed has already done this. They may do more of it, lots more, and can do so by way of printing dollars with which to buy the bonds and mortgages… which brings us back around to the Von Mises call on destroying the economy versus destroying the currency. The latter always gets sacrificed to save the debt-laden former. And if the grocery store winds up selling milk for seventeen bucks a gallon in result, so be it.

All administrations seem bent on seeking the advice of people who are recommended by the Banking Cartel’s descendents that created the Federal Reserve Act. This Act was to end the types of crisis we had in 1907. Yet, we have had about a dozen recessions, 3 banking [crises], and devaluation of the dollar by 95% as a result of these people being in control of the money supply. Still, today, we are seeking the advice of them to fix what they caused…

With one in four jobs tied to government spending, we create a new recession every time we try to pull back the spending that got us out of the previous recession. So, all the jobs being created by this President are only creating another problem later and a bigger one because of our being past the point of no-return.

…As the Austrian economist, Von Mises, warned us, we either end it voluntarily with some pain or delay it until it collapses the currency and we have even more pain. This President has chosen to delay it and if he hadn’t made that choice would have committed political suicide. The nation doesn’t want any pain and thus, any attempt to end this voluntarily would be met with massive resistance because the majority of the people and those in Congress don’t believe we can’t tax or grow out of this. They still believe some miracle will bail us out without too much pain…

– TD Reader Jan Paul B.

Well said, thank you (including the parts of your reply I wasn’t able to excerpt). I’ve been pounding the table with that Von Mises prophecy for years now… ever since spring 2005, when I first put on an editor’s hat.

I admired Carter then and still do and I admire Obama for his genuine goodness as a person. But neither have the skills or the meanness to deal with the cutthroat bastards in Congress. The good-old-boy system is so firmly entrenched in Congress no one, short of throwing a grenade in the room, will move them. Congress is not interested in doing what’s best for the country or the average citizen they do what the money tells them to do.

They operate on the you scratch my back and I’ll scratch yours principle. They think there is honor in compromise, they will sell out their constituents in a heart beat to get what they are sure is best for the people. Just ask them. They know what is best for you. Doesn’t make any difference that you don’t want it you’re too stupid to know what is best for you.

– TD Reader Steve M.

All too true. I must add, though, that your note reminds me of two old quotations.

The first – attributed to Samuel Johnson or Saint Bernard of Clairvaux, depending on who you ask – is “The road to hell is paved with good intentions.” The second, from Bertrand de Jouvenal, is “A society of sheep must in time beget a government of wolves.”

I graduated from college in 1962, began Air Force service almost immediately as an Officer. I was assigned to a place lost in a remote desert out of touch with the mainstream. Then I spent a year in Viet Nam and a couple of years in south Florida before becoming a civilian. I found a job in 1973 driving an 18-wheeler, not union, and spent nearly 20 years doing that.

All of this time there was recession and high inflation in wave after wave. In the Air Force there always seemed to be an attitude problem on the part of the civilians. That was, of course, because they were coping with the hard times of the 1960s. I recall that between the Air Force and trucking there were jobs where clients and customers were hard to find and had tendencies to suddenly disappear.

As a long-haul truck driver I became very paranoid about keeping my job and worked very hard to do everything just right and very well. I did keep my job, found one that paid a lot better and kept it. My paranoia became ingrained and served me well. My nerves stayed frazzled but I made money to support my family. Pay increased dramatically every year but just kept pace with the costs of living…

– TD Reader Wayne M.

Sounds a lot like what we could be in for.

Source: Obama, Carter, Von Mises and the Dollar – Readers Respond

After the Berlin Wall came down… America had no enemies worthy of the name. She had a monopoly franchise on the world’s money – the dollar was the undisputed queen of the planet’s reserves. And she had a monopoly on military power too – the undisputed king of the hill, with a Pentagon budget nearly as large as all other nations’ military spending put together.

But nature abhors a vacuum and detests a monopoly. Lacking a suitable challenger, America had to become her own worst enemy. Lacking a rival who could destroy her, she had to destroy herself.

And so, when Americans went to the polls in November of 2000, they elected a president who was up to the job: George W. Bush. Eight years later, the Clinton surpluses had turned into the biggest deficits ever…an immense bubble had impoverished the middle class…and the country was engaged in two unwinnable, unnecessary, and hugely expensive wars.

Mission accomplished!

But it’s not over. The millstones of history may grind slowly…but they grind exceedingly fine… The American empire is clearly overstretched and over-indebted. If it is to save itself, it should scale back immediately…cutting the Pentagon budget in half, for example, and eliminating all unnecessary expenses (which is most of them). Instead of spending $3 trillion, it should spend…say…$1 trillion, and run a surplus.

What about the depression, you might be wondering. Isn’t this the time to increase government spending, rather than decrease it? Ah…if you are even asking the question, you are the victim of a dead economist. Keynes’ theory was that the state should run contra-cyclical surpluses and deficits – to offset the ups and downs of the business cycle. But that is too soggy a bog for us to trod in today. Instead, we will skirt it with another of our dicta:

People come to believe what they must believe when they must believe it.

When an empire is new and fresh and growing…people believe in saving, hard work, and small frugality.

When an empire is old and decaying…they think the government should spend “whatever it takes” to take care of them. This attitude helps destroy the empire…thus making room for the next one…

To sum it up, on April 23, 2009, New York Attorney General Andrew Cuomo sent a letter to Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs Chris Dodd; Chairman of the House Financial Services Committee Barney Frank; SEC Chairwoman Mary Schapiro; and Chairwoman of the Congressional Oversight Panel Elizabeth Warren.
The letter outlined how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced Bank of America’s acquisition of Merrill Lynch – even though Bank of America CEO Ken Lewis and the board of directors tried to pull the plug on the deal after it turned out that Merrill Lynch was far deeper in debt than it had admitted.
In the words of Attorney General Cuomo himself:
Immediately after learning on December 14, 2008 of what Lewis described as the “staggering amount of deterioration” at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event (“MAC”) occurred. After a series of internal consultations and consultations with counsel, on December 17, 2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter.
Bank of America’s attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced.
Meanwhile Ken Lewis has been sacked as chairman of the board at Bank of America… even though he might well have been the only conscientious and honest player in this scheme. And now the sharks have started to turn on each other: according to Cuomo, Paulson “largely corroborated Lewis’s account” and informed the attorney general’s office that he “made the threat at the request of Chairman Bernanke.” The latter has so far chosen to keep his mouth shut.

The key factor here is not that the Devious Duo forced Bank of America into a merger it didn’t want to commit to. Granted, that’s an unheard-of interference of government in the free market, but we’re quite sure that the Powers-That-Be could sweep it under the rug by invoking the “greater good.”
No, the part of the story that could really break Al Paulson and Don Bernanke’s necks is the failure to inform the Securities and Exchange Commission, as well as Bank of America’s shareholders, of the extent of toxic waste Bank of America was forced to accept. That’s fraud, pure and simple.
And that’s a pretty good sign that this is not going to go away. Some of the Casey Research editors – yes, we do have bets out – think it’s going to be huge, especially since the scandal happened on President Bush’s watch and the Democrats are in control of Congress. Chances are that either Paulson or Bernanke is going down, depending who cuts a deal with prosecutors first. Their “friends in high places” may be able to keep the Justice Department out of it, but they won’t be able to control ambitious state officials like Cuomo. There’s blood in the water, and this is a career maker for a prosecutor.
So what happens when the highest financial officials in the U.S. government are unmasked as crooks? Will there be riots in the streets? Will the average American pick up his torch and pitchfork and march on Washington D.C.? Probably not. But it may happen at some point as we are moving deeper into the Greater Depression, a term coined by Doug Casey, our resident contrarian investment guru. Read Doug’s FREE, 13-page special report about what will happen when social unrest breaks out in the United States, and what you should do to prepare your assets for that time. Click here to read it now.

Source: Bigger Than Watergate?

“Farewell, fair cruelty.”
–
Shakespeare, Twelfth Night

Like the unceremonious dumping of a codependent spouse once a new lover has come of age, America’s mainstream media seems to have stuffed the entire George W. Bush presidency into a shoebox and crammed it into the back of history’s closet…

I guess this should come as no surprise. For better or worse, a new era of American leadership dawns. And it does not serve the architects of an emergent ethos and by “architects,” I mean the mainstream media — to glorify, or even acknowledge, the achievements of past leaders…

Especially when they’re Republican.

The fundamental truth that new power is best served by erasing old power’s legacy transcends politics — and even humanity. It is written in the DNA of life itself. That’s why a young alpha male lion kills the cubs sired by the pride’s former patriarch. It’s simply the brutal nature of things…

However, among supposedly “higher primates” like humans — which (if only barely) includes newspaper and magazine editors, Big 3 network news producers and anchors, and the Sean Penns, Michael Moores, and Al Gores in whose expert opinions we all seem to put so much stock — I’d expect at least a discernible measure of gratitude to an outgoing president, no matter how anathema in their circles.

And I think this is especially appropriate when the new power owes its very existence to the former regime. You’ll see exactly what I mean as you read on here…

Along those lines, I feel an obligation to do something on behalf of my mainstream media cousins. It’s a favor that, owing to my position on publishing’s fringes and status as an unabashed editorialist, I have the freedom to do — but that they cannot, owing to their, uh… objectivity.

So, without further ado, I hereby express what every member of the major American media establishment surely feels — but can’t say…

“Thank You, President Bush.”

Let us remember that before he dethroned Democrat Harry S. Truman (nope, not Richard Nixon) as the least popular president since the Gallup people started keeping track of such things, George W. Bush held the title of most popular president in modern history, with a 92% approval rating in late 2001.

And it was precisely W’s highest-ever approval rating that gave the mainstream media a juicy target — there was nowhere for him to go but down. Kind of like his father, the second highest-rated president in modern history (89% positive approval numbers)…

But I digress: This is about the big, sloppy kiss the mainstream media owes Bush 43 for the last 7+ years of target practice. I think it’s the least they can do, given the fact that The Decider himself gave them all the ammunition they needed to shoot him into oblivion. And I’m not just talking about his butchery of the lingo and vapid, tone-deaf rhetoric. It was his crappy strategery, too.

That’s why I’m offering the following fond farewell to President George Walker Bush on behalf of a grateful mainstream media…

Thank you, Mr. President, for embroiling us in an Iraq war with no clearly articulated purpose except the asinine notion of findable WMDs, no concrete exit strategy, a price tag that has arguably spurred us into national economic free fall — and with no possibility for rewards (we won’t seize the oil, we’ll buy it like everyone else) beyond our collective pride at having spread democracy by force. Oh, and a war that carries the perpetual taint of appearing to be nothing more than therapy. No matter what history reveals to be the real forces driving this action, we in the media will always be able to at least plausibly posit that the whole damned opera was nothing more than an insecure, underachieving son dealing with his Oedipal issues by killing thousands of his own countrymen.

Thank you, Mr. President, for bloating the size, scope and expense of government on a scale that exceeds a liberal journalist’s wildest fantasies. Your unprecedented expansion of the federal footprint in the interest of a bipartisan legacy has forever rendered laughable any Republican claim of a “small government” party philosophy. Kudos for effectively taking the conservative movement’s one unsullied trump card off the table for all future elections, and awakening the American public to the reality that anyone they vote for will be a “big government” candidate — so they might as well have the Democrats’ programs and pork here at home, rather than the Republicans’ missiles, wars and spy-cameras abroad. Thanks to your re-invention of the Republican platform from “small government is better than big government” into “our big government is better than their big government,” the only truly conservative threat to Democrat victory in the 2008 Presidential race, Ron Paul, was all but laughed off the stage by his own party.

Thank you, Mr. President, for all but ignoring the one core issue your own party could still get major ideological traction with, an issue that more than 80% of Americans are concerned about even to this day: Illegal immigration. Your party’s strong rhetoric, yet nonexistent action, on this issue has given the Democrats a license to ignore it as well. We salute your lack of initiative in grappling with illegal immigration decisively in the wake of 9/11, when it would have been easy to muster Congressional support for the building of barriers and the institution of stronger anti-hiring and deportation measures in the interest of national security. But because of your poor foresight and utter inaction then, we can now spin any Obama-led immigration policy change whatsoever as a Democrat triumph on a conservative core issue the GOP couldn’t make any progress on. You’ve made us — er, I mean the Democrats — into the party that can reach across the aisle and get things done.

Thank you, Mr. President, for what policies you did enact in the interest of national security after 9/11, some of which are the least popular measures among the American populace since Prohibition. You deserve a hearty “attaboy” for spearheading the Patriot Act, which stands forevermore as a shining beacon of questionably constitutional legislation that has the potential to do more inward harm than outward good. Also, great move on the formation of the Department of Homeland Security, a confused, inefficient, yet huge and deeply funded agency that seems aimed more toward publicly showcasing the U.S. government’s inanity and inefficiency than keeping anyone safe. We left-leaning journalists admire your decision to spend billions and create tens of thousands of low-level government jobs cavity-searching random airline passengers rather than arming pilots with $500 Glocks and frangible, air-safe ammunition. Guns are evil and never save any lives — and pilots are known to be people of erratic judgment. That “Sully” guy who saved 150 people by landing his powerless plane on an icy Hudson River is a fluke. Most pilots would’ve grabbed the gun and started plugging all the passengers instead…

Thank you, Mr. President, for enough sound bites of unscripted idiocy to poison the American public toward any kind of plain-speaking presidential candidate for the rest of time. Your blathering has single-handedly assassinated the historically strong appeal of Presidents of either party with down-home, folksy, straight-talking charm — and programmed Americans to be more receptive to the slickest-tongued and most teleprompter-dependent candidates in any election. Like Barack Obama, our savior.

Thank you, Mr. President, for the thousand small things that transformed our unspoken national motto from the conservative-at-heart Kennedy’s long-enduring “Ask not what your country can do for you — ask what you can do for your country,” to “What has my country done for me lately?” Whether it’s the huge explosion in government make-work jobs, the gross expansion of Medicare and Medicaid benefits, the transparent bribing of Americans with asinine tax refund checks instead of simply cutting taxes and simplifying the tax code, or any number of other things that make this administration more emblematic than any other of the “me state,” we thank you on behalf of the Democrats for doing all their dirty work for them. And finally…

Thank you, Mr. President, for the million other things you did that helped ensure that our new lover, the Big O himself, ascended to his rightful throne. We can’t possibly list them all, but among them are: Your shady Big Oil running-mate, your sketchy Cold-War era appointments, your nonsensical economic policies, your systematic alienation of other leaders of the Free World, and your proud “God first” mentality that soured a nation on qualified Republican candidates like Mitt Romney and positioned the big-tax, soft-on-immigration, long-in-the-tooth John McCain as the only electable 2008 GOP option.

You handed us — damn, I mean the Democrats — the easy win. We’re euphoric, of course. But now we don’t have anyone to crucify anymore, since Democrat-Christian-American-of-multicultural-mixed-race-descent Barack Obama is president, and nothing will ever be wrong under the Stars and Stripes, ever again…

But God, what a ride we had with you, W. We’ll never forget you, Bushie.

Love,
The MSM

A Tragedy of Shakespearean Proportions

Shakespeare’s beloved Twelfth Night is a play about a person born of aristocracy who is freakishly thrust into extraordinary circumstances that dictate the assumption of an unnatural identity. Comedy ensues…

Sound familiar?

To me, it sounds exactly like George W. Bush’s presidency. Except that, aside from the levity of his “Bush-isms” and shoe-bomb attacks at press conferences, the cosmic author of W’s presidential play was clearly writing a tragedy…

And that’s a tough pill to swallow for someone who voted for him.

Now, with 20/20 hindsight, I’m sorry I did. Though I have no regrets about choosing dimwit W over Ketchup King Kerry in 2004, I’m now firmly convinced that my vote would have been much better spent in 2000 on the Tennessee totem pole, Al Gore.

That no doubt surprises those of you who know me well. I’ve made a good chunk of my editorial career out of skewering religions — and none more so than Gore’s militant environmentalism…

In part two of this series, coming in the next 10 days, I’ll explain exactly why this nation of ours would be miles better off right now if Al Gore had been elected president instead of George W. Bush.

I’ll also explain why it would have been the best thing to ever happen to the GOP in America, the mainstream media’s best efforts notwithstanding…

Stay tuned, Taipaners.

Jim Amrhein
Contributing Editor, Taipan Daily

P.S. Before I leave you — and all tongue-in-cheek facetiousness aside — I want to extend a very sincere, personal and public thanks to George W. Bush, the president I helped to elect twice:

Thank you, Mr. President, for putting the “good” in “goodbye.

Source: To George W. Bush, With Love (part one)

Editorial Director’s Note:

In our zeal for speaking truth to power, we are equal opportunity offenders here at the Taipan Publishing Group. You may have noticed that lately we’ve been, shall we say, a tad harsh on the new administration… so it’s only fair that Jim Amrhein, truth-speaker par excellence, now properly roasts the outgoing Prez.

Agree? Disagree? Let your feelings flow, and I’ll pass ‘em along to Jim: justice@taipandaily.com

The theme of my book, The Left, the Right, and the State, is that both sides of the political aisle represent a grave threat to liberty — though each of a different sort.  It is like two people tugging at a turkey’s wishbone: the turkey is liberty, and you are the bone.

We’ve lived through eight years of the threat from the Right. It was all about nationalism, militarism, war, torture, state secrets, attacks on privacy, the use of tax funds to subsidize “conservative values,” the outsourcing of government in a fascistic business-government partnership, the banning of products and services that government doesn’t like, the regimentation of educational life, government impositions in the name of security, and so on.

With the end of the Bush years, many of these threats have receded, if only slightly. Consider the problem of nationalism, for example. The neoconservatives who ran the country during the last two Bush terms exploited this dangerous impulse for all it was worth.

If you were not for their wars, you were against America, and hence deserving of jail without trial. The whole ideological apparatus of the Bush years was profoundly anti-intellectual, and while the neocons shouted down anyone who compared their administration to the Third Reich or Mussolini, the ideological comparison was actually quite apt: right-wing government control stems from the same motives of exalting security, discipline, and chauvinism above liberty.

In two short months, however, that ethos has subsided, and it has been replaced by a threat from the Left. It is tragic that Obama should be president at all. If we had a position called “national well-wisher,” “national greeter,” or “national symbol of accomplishment,” he would be perfect for the job. He is elegant, graceful, and articulate, and he inspires people in an unusual way. As chief policymaker, however, he has revealed himself as nothing more than a two-bit socialist.

After all the ghastly statism of the Bush years, you might think that the Left would back off from using power to achieve its aims. Instead, they have learned nothing. The Left has been lying in wait for its chance. As the Obama people entered the White House, it was as if they found a closet labeled “failed ideas of the past.” They opened it and the contents spilled everywhere. They started grabbing things and putting them in the regulatory books and in legislation.

What an amazing pile of junky, worn-out, bogus policy ideas! Equal pay for equal work. Infrastructure spending. More money to the public schools. Socialized medicine. Rock-bottom interest rates. Welfare! Every wish granted by government. Down with business. Down with business failures. Curbs on fat-cat pay. Down with Wall Street. Turn on the money spigots. Expropriate the expropriators. Subsidies for every lifestyle that flies in the face of bourgeois prejudice.

Thus are we again reminded of what a profound threat the Left represents to liberty. It’s been more than a decade now since we’ve seen this at work, and probably longer really. Clinton was a pain, but he was smart enough not to take his reigning ideological framework too seriously. He actually showed some deference to reality from time to time.

The Obamaites are different. They are woefully ignorant of economics. They seem to actually believe all that socialist claptrap that has provided an excuse for innumerable foreign dictators: the idea that government is the source of wealth and can make anything happen with the push of a button.

They see no limits to the possibility that government can make society perfect, righting every perceived social injustice, and bringing prosperity to all via stealing from the haves and giving it to the have-nots. Is there inequality? Mandate equality. Is there deprivation? Provide! Recession? Spend hundreds of billions!

What we have here is not just a profound love of the state; it is a profound confidence in the capacity of the unlimited state to create heaven on earth. How does this square with the idea of human liberty, of social cooperation, and of the rights of all? Herein lies the great mystery of leftism. The Left seems oblivious to the relationship between their chosen means and their ends. It’s not that they hate liberty as such; it is that they believe that it must always take a backseat to other social priorities, like equality. In the end, they have a tendency to build the total state and find themselves taken aback when the whole of society ends up in a cage.

Those Obamaites! So compassionate, loving, universally minded, progressive — except that their ideological cousins managed to starve and destroy whole civilizations. Loyalty to their creed means death, because their ideology is the pathway to the gulag — and for one simple reason: their preferred means of social change is the state. The state is always and everywhere a threat to liberty, and liberty is the basic building block of prosperity and civilization.

Despite the slogans about progress, the upshot of the Obama administration is as deeply reactionary as anything that Bush conjured up. Despite all the hype and hope, what Obama offers is nothing new. It amounts to the robber state and the regimentation of society, a plan that will kill off prosperity and the conditions that allow for it.

The Republicans are right to fight this tendency at every turn, for it represents a radical attack on all things truly American. Worse still, by playing with the printing presses, the policy tendency here is also deeply dangerous. It could destroy the dollar internationally and domestically, igniting a hyperinflation that no one will be able to control once it gets going. One only wishes that the Republicans had been so principled when their president was in charge!

The Obama administration says that we have to give the stimulus time to work. No need. The stimulus will not work. If we manage to pull ourselves out of this slump, it will be despite and not because of this stimulus package.

When putting together my book, I wondered which threat was actually more dangerous for us, the Right or the Left. I’m still not sure, for national socialism and international socialism are in close competition.  I ended up focusing on both.

Source: The Left in Power

All the old mechanisms that enabled our way of life are broken, especially endless revolving credit, at every level, from household to business to the banks to the US Treasury.

Peak energy has combined with the diminishing returns of over-investments in complexity to pull the “kill switch” on our vaunted “way of life” — the set of arrangements that we won’t apologize for or negotiate. So, the big question before the nation is: do we try to re-start the whole smoking, creaking hopeless, futureless machine? Or do we start behaving differently?

The attempted re-start of revolving debt consumerism is an exercise in futility. We’ve reached the limit of being able to create additional debt at any level without causing further damage, additional distortions, and new perversities of economy (and of society, too). We can’t raise credit card ceilings for people with no ability make monthly payments. We can’t promote more mortgages for people with no income. We can’t crank up a home-building industry with our massive inventory of unsold, and over-priced houses built in the wrong places. We can’t ramp back up the blue light special shopping fiesta. We can’t return to the heyday of Happy Motoring, no matter how many bridges we fix or how many additional ring highways we build around our already-overblown and over-sprawled metroplexes. Mostly, we can’t return to the now-complete “growth” cycle of “economic expansion.” We’re done with all that. History is done with our doing that, for now.

So far — after two weeks in office — the Obama team seems bent on a campaign to sustain the unsustainable at all costs, to attempt to do all the impossible things listed above. Mr. Obama is not the only one, of course, who is invoking the quest for renewed “growth.” This is a tragic error in collective thinking. What we really face is a comprehensive contraction in our activities, especially the scale of our activities, and the pressing need to readjust the systems of everyday life to a level of decreased complexity.

For instance, the myth that we can become “energy independent” and yet remain car-dependent is absurd. In terms of liquid fuels, we’re simply trapped. We import two-thirds of the oil we use and there is absolutely no chance that drill-drill-drilling (or any other scheme) will change that. The public and our leaders cannot face the reality of this. The great wish for “alternative” liquid fuels (bio fuels, algae excreta) will never be anything more than a wish at the scales required, and the parallel wish to keep all our cars running by other means — hydrogen fuel cells, electric motors — is equally idle and foolish. We cannot face the mandate of reality, which is to do everything possible to make our living places walkable, and connect them with public transit. The stimulus bills in congress clearly illustrate our failure to understand the situation.

The attempt to restart “consumerism” will be equally disappointing. It was a manifestation of the short peak energy decades of history, and now that we’re past peak energy, it’s over. That seventy percent of the economy is over, especially the part that allowed people to buy stuff with no money. From now on people will have to buy stuff with money they earn and save, and they will be buying a lot less stuff. For a while, a lot of stuff will circulate through the yard sales and Craigslist, and some resourceful people will get busy fixing broken stuff that still has value. But the other infrastructure of shopping is toast, especially the malls, the strip malls, the real estate investment trusts that own it all, many of the banks that lent money to the REITs, the chain-stores and chain eateries, of course, and, alas, the non-chain mom-and-pop boutiques in these highway-oriented venues.

Washington is evidently seized by panic right now. I don’t know anyone who works in the White House, but I must suppose that they have learned in two weeks that these systems are absolutely tanking, that the previous way of life that everybody was so set on not apologizing for has reached the end of the line. We seem to be learning a new and interesting lesson: that even a team that promises change is actually petrified of too much change, especially change that they can’t really control.

The argument about “change” during the election was sufficiently vague that no one was really challenged to articulate a future that wasn’t, materially, more-of-the-same. I suppose the Obama team may have thought they would only administer it differently than the Bush team — but basically life in the USA would continue being about all those trips to the mall, and the cubicle jobs to support that, and the family safaris to visit Grandma in Lansing, and the vacations at Sea World, and Skipper’s $20,000 college loan, and Dad’s yearly junket to Las Vegas, and refinancing the house, and rolling over this loan and that loan… and that has all led to a very dead end in a dark place.

If this nation wants to survive without an intense political convulsion, there’s a lot we can do, but none of it is being voiced in any corner of Washington at this time. We have to get off of petro-agriculture and grow our food locally, at a smaller scale, with more people working on it and fewer machines. This is an enormous project, which implies change in everything from property allocation to farming methods to new social relations. But if we don’t focus on it right away, a lot of Americans will end up starving, and rather soon. We have to rebuild the railroad system in the US, and electrify it, and make it every bit as good as the system we once had that was the envy of the world. If we don’t get started on this right away, we’re screwed. We will have tremendous trouble moving people and goods around this continent-sized nation. We have to reactivate our small towns and cities because the metroplexes are going to fail at their current scale of operation. We have to prepare for manufacturing at a much smaller (and local) scale than the scale represented by General Motors (NYSE:GM).

The political theater of the moment in Washington is not focused on any of this, but on the illusion that we can find new ways of keeping the old ways going. Many observers have noted lately how passive the American public is in the face of their dreadful accelerating losses. It’s a tragic mistake to tell them that they can have it all back again. We’ll see a striking illustration of “phase change” as the public mood goes from cow-like incomprehension to grizzly bear-like rage. Not only will they discover the impossibility of getting back to where they were, but they will see the panicked actions of Washington drive what remains of our capital resources down a rat hole.

A consensus is firming up on each side of the “stimulus” question, largely along party lines — simply those who are for it and those who are against it, mostly by degrees. Nobody in either party — including supposed independents such as Bernie Sanders or John McCain, not to mention President Obama — has a position for directing public resources and effort at any of the things I mentioned above: future food security, future travel-and-transport security, or the future security of livable, walkable dwelling places based on local networks of economic interdependency. This striking poverty of imagination may lead to change that will tear the nation to pieces.

Source: Debt Drought Kills Consumerism

The arrogance reminds me of George Bush after 9-11, who similarly believed that history owed him a gargantuan war in the tradition of FDR. And look how that arrogance led to disgrace and loss, as he unwittingly presided over the destruction of American prosperity while searching for bugbears abroad.

It just goes to show you that the presidency is something like a drug. It makes people lose all connection to reality. Part of the reality that Obama needs to recognize is that the New Deal was a calamity far worse than the initial market downturn that began it. He needs to stop basing his policies on dumbed-down civics texts versions of events and consider the economic logic.

With his rhetoric and policies, he has decided to demonize private enterprise, just as FDR did, as a way to present government as the great savior. Now, think about this. If there is a way out of the recession, it will have to be provided by private enterprise. It will come by new businesses, business expansions, entrepreneurship, new technology, and this will be the source of lasting jobs and prosperity.

You cannot make a country rich by looting taxpayers and paying people to pound nails into siding at public schools! These activities amount to capital consumption. They are not sources of investment. You can say that they are stupid tasks or wonderful tasks, but it is not a matter of ideology as to whether such public projects will make us all wealthier. They will not. They drain the sources of wealth from society. They represent a cost, not a blessing.

That was also true of Bush’s dumb stimulus program. He was only bailing out his friends at our expense. The effect was to give a little longer life to institutions that were failing anyway. It’s pathetic that the Republicans ever went along with it. You will notice that the scheme didn’t actually work.

Well, Obama is doing the same thing, though rewarding a different set of friends. This is not wealth production. This is wealth consumption. Do enough of this nonsense and you can destroy the livelihoods of an entire generation.

Americans are proud of their system of government, but consider what it has given us this time around. We had an outgoing president who thought it was his right to grab as much as he could while leaving. Now we have a new president who thinks that the election entitled him to grab as much as he can, right from the beginning. We get looted by the state coming and going. It all amounts to one massive war on prosperity and freedom.

Particularly culpable here are the official historians who have for generations heralded FDR as the great savior. It is a case study in how a civic lie can appear and fester for decades. The fact is that the New Deal did not work. It prolonged what might have been a troubling two-year downturn into a horrifying blow to world prosperity that ended up in a war that killed countless millions. It was one of the greatest acts of wreckage in world history.

And Obama is inspired by this? He wants to repeat it?

I’m not so cynical about human affairs that I believe that errors must be endlessly repeated. Obama can put a stop to his madness. He needs to know – someone must tell him frankly and openly – that his current path is going to lead not to recovery, but to an extension of suffering, and untold amounts of it.

The biggest threat facing the American economy right now is rarely even discussed. It is the massive buildup of paper bank reserves in the last quarter of 2008. This was Bush’s doing. He ordered the Fed to print like mad. Fortunately for us, the banks are still holding on to these reserves. When they start lending again, the result could be hyperinflation of Confederate-dollar proportions.

Hence the priority of the Obama administration should be to first do no evil, and second to find some means for withdrawing those reserves from the banking system before they wash through the economic structure and destroy the dollar. There is still time. He must act. Yes, that will lead to bank failures. That’s good! It will lead to business failures. That’s good and essential too.

There simply is no choice. If he acts now, he could find that recovery will come before his second term. This is precisely what happened with Reagan. He was fortunate to have advisers who insisted that he let the liquidation happen rather than attempt to fix the recession of 1981-82 with huge new government spending programs.

In any case, the hardest work to do here is intellectual. Obama’s head is filled with myths and lies, not only about FDR and the New Deal but also about the government’s power to repair the existing economic problems. With this model in his head, he can only do evil. This must change.

Nothing is inevitable. He can turn on a dime. The main message: do not repeat the actions of FDR, lest you destroy what is left of American liberty and prosperity.

Source: Obama’s Wealth Destruction

“We have tried spending money,” begins our mystery politician today. “We are spending more than we have ever spent before and it does not work. I say after eight years of this administration, we have just as much unemployment as when we started…

“And an enormous debt to boot!”

The mystery man? Henry Morgenthau Jr., Treasury secretary to then-President Franklin Delano Roosevelt.

Morgenthau uttered these words in May 1939 before the House Ways and Means Committee. Despite being a chief architect of the New Deal, Morgenthau came to the House to repent… six years after the New Deal’s inception, the unemployment rate had climbed back to 20%. The New Deal failed.

Check this out, from the Heritage Foundation:

The passing of Barack Obama’s New New Deal seems all but inevitable now. “I can tell you with complete confidence,” he hammered on the tube last night, “that a failure to act will only deepen this crisis.” How deep? “Catastrophe,” he insisted again.

It’s truly amazing. The greatest economic debate of our lifetimes has been solved with “complete confidence” by a former community organizer and civil rights attorney… a student of economics for about a year or two. He is very gifted, this man.

“It just goes to show you,” writes Lew Rockwell in today’s Mises Institute feature article, “that the presidency is something like a drug. It makes people lose all connection to reality. Part of the reality that Obama needs to recognize is that the New Deal was a calamity far worse than the initial market downturn that began it. He needs to stop basing his policies on dumbed-down civics texts versions of events and consider the economic logic.

“With his rhetoric and policies, he has decided to demonize private enterprise, just as FDR did, as a way to present government as the great savior…

“You cannot make a country rich by looting taxpayers and paying people to pound nails into siding at public schools. These activities amount to capital consumption. They are not sources of investment. You can say that they are stupid tasks or wonderful tasks, but it is not a matter of ideology as to whether such public projects will make us all wealthier. They will not. They drain the sources of wealth from society. They represent a cost, not a blessing.

“That was also true of Bush’s dumb stimulus program. He was only bailing out his friends at our expense. The effect was to give a little longer life to institutions that were failing anyway. It’s pathetic that the Republicans ever went along with it. You will notice that the scheme didn’t actually work.

“Well, Obama is doing the same thing, though rewarding a different set of friends. This is not wealth production. This is wealth consumption. Do enough of this nonsense and you can destroy the livelihoods of an entire generation.”

Regardless, the Senate successfully voted to close debate on the stimulus bill yesterday, one of the last hurdles needed to bring this bill to fruition. In a tear-jerking display of bipartisan support, the vote passed 61-36. Three Republicans voted yes.

“Senators from both parties,” beamed Harry Reid, “met the seriousness of the economic crisis with an earnest approach to solving this emergency.”

Now, if they’d only crack a history book together, we might get somewhere.

The stimulus bill also magically gained $53 billion since you read The 5 yesterday. The tab now stands at $838 billion.

“Bad bets don’t get better,” Bill Bonner reminds us, “when you lend the bettor more money. They just become more expensive.”

God forbid the government throws money at this crisis from only one department… Treasury Secretary Tim Geithner unveiled the second half of the TARP today, creatively dubbed TARP 2.0.

The New New plan has three main parts… here they are, quick and dirty:

1) The Treasury, in partnership with the FDIC and the Federal Reserve, will encourage the private sector to buy up the fabled “toxic assets.” The Treasury will make introductions and leave the price discovery to the private sector. The Fed will blow up its balance sheet and provide ultra cheap loans for these asset purchases. And the FDIC will provide some kind of backstop for investors who buy the stuff… making the FDIC a sort of secondhand “bad bank.”

The first phase program has an “initial” price tag of $250-500 billion.

2) The Fed’s existing $200 billion program to buy distressed commercial, student, auto and credit card loans will be expanded to $1 trillion.

3) The second half of the original TARP plan — $350 billion — will still be wasted on major banks.

Sounds like most of the new money will be coming from the Fed; thus, the Obama administration can side step this whole tricky process of congressional vetting and approval. And they get to use the swanky new title, too, proving how hip and down they really are.

It’s so far off the rails we don’t have much to say about this “TARP 2.0,” but this reader found a nugget: “I think this survey is telling,” he writes, bringing our attention to a survey conducted by American Banker. “I guess Congress must ‘do something’ anyway.” Telling, indeed…

“What are your expectations for TARP 2.0?

It’ll take the bailout in a bold new direction: 14%
It’ll be vague and light on specifics: 21%
It’ll be a retread of Bush administration ideas: 14%
What does it matter? The government can’t fix this: 51%”

Remember Fannie Mae and Freddie Mac? We don’t hear much from the giant mortgage enablers anymore, since they’ve taken to lumping all their losses onto Uncle Sam’s ledger. The government promised back in September to provide a $100 billion backstop for the two… surprise, surprise, today they say they need more.

Fannie Mae and Freddie Mac may need an additional $200 billion to stay afloat, Federal Housing Finance Agency Director James Lockhart said yesterday.

“When we sized the amount in September, we, obviously, looked at stress tests and what was happening in the marketplace,” Lockhart said. “There’s been some significant events since then that weren’t in our forecast.”

Gasp! You don’t say?

Sign of the times… MBA recruitment activity is likely at a record low: 56% of U.S. business schools are reporting a “significant decrease” in recruiting this winter, says a survey from the MBA Career Services Council. At least 70% of respondents say recruitment is down 10% or more.

“People have been lulled into thinking you deserve to get a job in September or October and spend the rest of the year playing racquetball,” a future master of the universe told The New York Times. But nowadays, “the economy chooses where you go for you.”

While the market for high-end bankers is circling the bowl, the world of high-end art is still doing pirouettes.

Degas’ “Petite Danseuse de Quatorze Ans” fetched over $19 million at Sotheby’s recently — a record for any Degas statue.

The art world sighed collectively after the sale. At least billionaires are still willing to shell out ridiculous sums for stylized lumps of bronze. Still, the latest Sotheby’s auction was a bust. Despite the record-setting Degas, 10 of the 29 lots at the auction sold below their estimates. Four did not sell at all. Wahh.

In the markets, stock indexes held their breath yesterday in anticipation of today’s announcement from Secretary Geithner. Most major indexes finished flat. Geithner didn’t actually announce his plan until 11 a.m. today, but his prepared statement was leaked early this morning and the Dow sank about 100 points after digesting it. Buy the rumor, sell the news, the saying goes… we don’t see how he could please the market today.

Gold, on the other hand, took off this morning when details of Geithner’s plan began to emerge. It popped about $20 right at the New York open, and goes for $910 an ounce as we write.

The dollar and oil together have been treading water this week — the dollar index at around 85 and oil in $39-41 a barrel range.

“The reason why this current U.S. administration,” writes a reader, “is going all out with the fear mongering is simple: they are supplying the political cover needed for the U.S. fed and all of its member banks to inflate, inflate and inflate some more.

“If the U.S. Fed/Treasury/presidential nexus wishes to tighten the monetary spigots, you hear every poli on the Hill talking about how strong the economy is, and when this nexus wishes to loosen those same spigots, you hear the same folks use words that you have quoted above.

“Federal Reserve figures are already pointing to inflation.”

The 5: Hey, you don’t think Ben Bernanke can pull in the reigns when it’s time, as he promised Congress? C’mon, where is your faith in your appointed officials?

“Vince Cable,” writes another, “the U.K. Liberal Democrat Shadow Chancellor of the Exchequer, raised eyebrows yesterday. When talking about bankers’ bonuses, he said bankers ‘are lucky the British have no guillotines in stock.’

“Coincidence, or is The 5 the reason Mr. Cable is widely credited for being one of the few U.K. politicians who understands what’s going down with the debt crunch? Way to go!”

The 5: Heh.

“Any way to get a list,” asks another, “of all those Dems that went on this ‘retreat’ on the taxpayers’ dime?

“Nothing ever changes. These morons don’t care what’s happening in this country as long as they can do whatever they want and it doesn’t come out of their pockets.

“If a list were published, everyone who is incensed by this should send an e-mail, a letter, whatever, to these clowns and tell them how we feel. Maybe if they got a few million responses, they’d know what we think about them spending all these tax dollars. If they want to go on ‘retreats,’ let it come out of their own pockets. Unbelievable!”

The 5: Ummm… as far as we know, all House Democrats attended. Why not just inundate Nancy Pelosi’s inbox? Try it: AmericanVoices@mail.house.gov . (Geez, if that’s not an arrogant e-mail address.) Oy.

Source: Know Your History, Stimulus Bill Closer to Fruition, MBAs in Trouble, TARP 2.0, Art Still Hot and More!