Ray Dalio, Manager Of The World's Largest Hedge Fund, Totally Clueless On Inflation

It's hard to figure out what to make of this Barron's interview with Ray Dalio, CIO of Bridgewater Associates (subscription required):

Explain why the printing of money won't cause inflation.

The printing of money will offset the deflation that is coming from the weak demand for goods and services due to weak credit growth. For example, in March of 1933 the U.S. printed a whole lot of money, and that had the effect of converting deflation into modest inflation, but not a high rate of inflation.... My point is, in developed countries there is too much of most things at the moment, and that's creating a deflationary environment. There is too much manufacturing capacity. There is too much labor. There is too much housing stock. As Europe's economy weakens and its debt crisis worsens, the printing of money does not mean that it will produce an accelerating inflation because simultaneously there is also less being purchased, and the surpluses are already causing deflationary pressures. That is why, contrary to almost everybody's belief, I believe the bonds in countries that can print money will be good investments.

If you've been reading Economic Policy Journal at all recently, you are probably clenching your teeth as you read that last line. The only conclusion a person can come to when Dalio says that the bonds of countries that can print their own money, specifically, will be good investments, is that Dalio and his clients are about to be run over by an inflationary bus.

Marc Faber: "Pattaya Is The Capital Of Sin In The World!"

To little fanfare, unfortunately, it looks like the LvMI media team has posted the full video of Marc Faber's speech, "Mirror, Mirror on the Wall, When is the Next AIG to Fall?" from last Saturday's Mises Circle in Manhattan, to their media page. You can find the video here: Marc Faber's speech video at Mises Media

Or, you can just watch the whole thing on YouTube, right here:


Remember, if you have trouble seeing the PowerPoint presentation that accompanies Faber's speech in the video, you can download your own copy and open it in a window side-by-side.

By the way, even if you aren't interested in economics, the video is worth watching if only for the free stand-up comedy act buried within. Faber really knows how to entertain a crowd. His opening remarks about being a young Wall Street analyst sent off to the Southeast Asian hinterlands -- and what finally convinced him to stay -- are classic! They're also wildly inappropriate for the culturally conservative, middle-aged LvMI-types populating his audience, which just made it and his other off-color remarks that much funnier. The man is bold in every sense of the word.

Did Transocean Purposefully Let The Deepwater Horizon Rig Explode To Collect Insurance?

That's the story being trotted out by SHTFPlan.com blogger Mac Slavo:

BP and Transocean let their safety processes slide, as did the regulators, and 11 people died as a result. Someone’s father, brother, son - and for what?

According to these reports, it was for money. What motivation do corporations have to protect their employees? When they can still profit from disaster, even after people die, then the only motivation is profit. Even after settlements with the families, these companies will come out ahead.

Will anyone be prosecuted? Like Goldman Sachs, there will be a show - heck look at the circus they’ve made of it now! In the end, no one, at least not those directly responsible, will be criminally charged with manslaughter or negligence, and as a result, corporations like BP, Transocean, Goldman, JP Morgan, et. al. will continue with business as usual - killing people, destroying lives, destroying sovereign economies, manipulating currencies & stock markets, and a host of other crimes against humanity, while our politicians turn a blind eye, because they, too, have been bought and paid for.

Is this guy serious? He appears to be-- Mises's famous "no way to avoid the final bust" dictum headlines the site, presumably as words of wisdom making sacred everything else the SHTFPlan bloggers write about.

But where is the logic in this? If Transocean was willfully negligent in its safety and maintenance measures and essentially purposefully allowed the rig to explode to collect an insurance payment, this would constitute fraud. Presumably, Transocean's insurers (and re-insurers) did not write a contract with Transocean that stated it'd be just fine if they sabotaged their own rig and forced the insurer to pay out on it. This is the same reason a person can't light their house on fire and collect homeowner's insurance, or murder their spouse and collect the life insurance.

If what Slavo is accusing Transocean of is true, it's hard to believe the insurance companies would've paid up so quick. What's more, we will likely see them take Transocean to court for insurance fraud and demand a clawback of the money if so.

My guess is Slavo is out there... his attempt to tie the Deepwater Horizon debacle to Goldman Sachs and other regulatory capture events is weak and seems like a maneuver to get some additional Goldman Sachs-hatred related search hits on his blog.

I'm calling BS on this one until Transocean's insurers take the rig operators to court for insurance fraud.

Skip Oliva Reports From The Front In The ObamaCare War On Life Expectancy

Last year, EPJ's Robert Wenzel explained why life expectancy will decline under ObamaCare. Today, Skip Oliva gives us a look at some of Wenzel's principles in practice in a blog post at the Mises Institute website wherein he announces that the DOJ declares war on doctors:

This case is a watershed for two reasons: First, until now the Federal Trade Commission, not the Justice Department, has taken the lead in prosecuting physicians. Since 2000, the FTC has brought about three dozen cases against physicians (all but one of which settled without any trial). But the FTC only has civil and administrative jurisdiction; the Antitrust Division has civil and criminal jurisdiction. The Sherman Act makes no distinction between civil and criminal “price fixing,” so in a case like this, it’s entirely a matter of prosecutorial discretion whether to charge the doctors with a civil or criminal offense. Based on the descriptions in the Antitrust Division’s press release, there’s certainly no reason they couldn’t have prosecuted the doctors criminally and insisted upon prison sentences — and there’s little doubt such threats were made or implied to obtain the physicians’ agreement to the proposed “settlement.”

The second reason this is a landmark case is that the Justice Department has unambiguously stated that refusal to accept government price controls is a form of illegal “price fixing.” The FTC has hinted at this when it’s said physicians must accept Medicare-based reimbursement schedules from insurance companies. But the DOJ has gone the final step and said, “Government prices are market prices,” in the form of the Idaho Industrial Commission’s fee schedule. The IIC administers the state’s worker compensation system and is composed of three commissioners appointed by the governor. This isn’t a quasi-private or semi-private entity. It’s a purely government operation.

What’s more, the Antitrust Division has linked a refusal to accept government price controls with a refusal to accept a “private” insurance company’s contract offer. This lives [sic] little doubt that antitrust regulators consider insurance party contracts the equivalent of government price controls — and physicians and patients have no choice but to accept them.

It's worth reading Skip's entire post because it includes specific details of the "price-fixing" allegations leveled at these doctors. His conclusion-in-the-form-of-a-prophecy is as tragic as it is chilling:

this policy will quickly degenerate into political demagoguery. It’s just too easy to label physicians “price fixers” and scapegoat them for the failure of government planning of the healthcare industry.

Skip is the man to follow on the FTC, DOJ and other government "antitrust" (aka competition-bullying) measures.

Will Warren Buffett Play The Role Of Hank Rearden?

ZeroHedge is carrying a report by Fortune of Warren Buffett's subpoena by the Financial Crisis Inquiry Commission to appear before them and provide testimony in Washington:

On May 12, Buffett, the CEO of Berkshire Hathaway (BRKA, Fortune 500), received a letter from the FCIC's executive director, Wendy Edelberg, saying that his views on a variety of subjects would be of "great value" to the Commission. The subjects, the letter said, would range from (but not be limited to) "the use and misuse of derivatives instruments, regulatory shortcomings, too big to fail, rating agencies and the shadow banking system."

To start the process, the letter said, the commission would like first to arrange a "private interview" where Buffett's views could be explored. And then, it continued, "we may request that you appear before the Commission at a hearing."

The letter said that arrangements for all this could be worked out with the general counsel of the commission, Gary Cohen.

Buffett had by that time watched some of the Commission's hearings and knew that the witnesses had mainly been people implicated in the crisis -- bankers, notably -- or charged with regulating it out of existence.

Knowing that he was in neither camp and doubtful that his testimony would indeed be of "great value," he decided to say no to this surprising invitation.

So, at his request, his assistant, Debbie Bosanek, called Cohen and said -- as she paraphrases it -- that "Mr. Buffett appreciates the invitation and is flattered by it, but he has a full plate with Berkshire and just can't do it."

Cohen was not pleased, to put it mildly. Ignoring the word "request" in the first letter, he told Bosanek sternly that "this was not an invitation but more of a command performance." He said that another letter -- "worded differently" -- would be coming.

There followed two more rounds of letters from Cohen. The first, on May 17, was indeed worded differently but signaled its general conciliatory tone by a heading that said, "Re: Renewed Request of the Financial Crisis Inquiry Commission."

Only at the letter's end did the threat come through: "We would prefer not to use compulsory process to secure your cooperation, and are sure that it will not be necessary."

But ah, it was. Buffett could by then see the likely end of this argument. But he was also determined to stick to his belief that the "private interview," followed by hearings, would neither be beneficial to anyone nor a good use of his time. So Buffett told Cohen in a phone call that he would not be volunteering to testify -- and if that meant a subpoena was in the cards, let it happen.

The subpoena -- that command in capital letters -- came on May 25. But the continuing, urgent wish of the commission to avoid coercion was contained in an accompanying letter, also dated May 25, that "respectfully" requested Buffett's testimony at a hearing on June 2 in New York City.

A silly little game of a farce, as the FCIC attempted to dance around the issue of forcing Warren Buffett to appear before them, Star Chamber-style. We wouldn't want anyone to catch on that force is the way the government operates on a day-to-day basis, now, would we?

In a perverse kind of way -- perverse because Buffett is far from a hero in this story but something of a political capitalist himself -- I am reminded of one of the best scenes from Atlas Shrugged, when the protagonist Hank Rearden is called to answer for his "crimes" and makes a mockery of the court's attempt at serving "justice" in the process. Watch as these villains dance around the issue of compulsion and force (transcription of the relevant section provided by blogger Shankar Mani):

One of the judges, acting as prosecutor, had read the charges.
"You may now offer whatever plea you wish to make in your own defence," he announced. Facing the platform, his voice inflectionless and peculiarly clear, Hank Rearden answered:
"I have no defence."
"Do you --" The judge stumbled; he had not expected it to be that easy. "Do you throw yourself upon the mercy of this court?"
"I do not recognise this court's right to try me."
"What?"
"I do not recognise this court's right to try me."
"But, Mr. Rearden, this is the legally appointed court to try this particular category of crime."
"I do not recognise my action as a crime."
"But you have admitted that you have broken our regulations controlling the sale of your Metal."
"I do not recognise your right to control the sale of my Metal."
"Is it necessary for me to point out that your recognition was not required?"
"No. I am fully aware of it and I am acting accordingly."

He noted the stillness of the room. By the rules of the complicated pretence which all those people played for one another's benefit, they should have considered his stand as incomprehensible folly; there should have been rustles of astonishment and derision; there were none; they sat still; they understood.
"Do you mean that you are refusing to obey the law?" asked the judge.
"No. I am complying with the law - to the letter. Your law holds that my life, my work and my property may be disposed of without my consent. Very well, you may now dispose of me without my participation in the matter. I will not play the part of defending myself, where no defence is possible, and I will not simulate the illusion of dealing with a tribunal of justice."
"But, Mr. Rearden, the law provides specifically that you are to be given an opportunity to present your side of the case and to defend yourself."
"A prisoner brought to trial can defend himself only if there is an objective principle of justice recognised by his judges, a principle upholding his rights, which they may not violate and which he can invoke. The law, by which you are trying me, holds that there are no principles, that I have no rights and that you may do with me whatever you please. Very well. Do it." "Mr. Rearden, the law which you are denouncing is based on the highest principle - the principle of the public good."
"Who is the public? What does it hold as its good? There was a time when men believed that 'the good' was a concept to be defined by a code of moral values and that no man had the right to seek his good through the violation of the rights of another. If it is now believed that my fellow men may sacrifice me in any manner they please for the sake of whatever they deem to e their own good, if they believe that they may seize my property simply because they need it - well, so does any burglar. There is only this difference: the burglar does not ask me to sanction his act."

A group of seats at the side of the courtroom was reserved for the prominent visitors who had come from New York to witness the trial. Dagny sat motionless and her face showed nothing but a solemn attention, the attention of listening with the knowledge that the flow of his words would determine the course of her life. Eddie Willers sat beside her. James Taggart had not come. Paul Larkin sat hunched forward, his face thrust out, pointed like an animal's muzzle, sharpened by a look of fear now turning into malicious hatred. Mr. Mowen, who sat beside him, was a man of greater innocence and smaller understanding; his fear was of a simpler nature; he listened in bewildered indignation and he whispered to Larkin, "Good God, now he's done it! Now he'll convince the whole country that all businessmen are enemies of the public good!"

"Are we to understand," asked the judge, "that you hold your own interests above the interests of the public?"
"I hold that such a question can never arise except in a society of cannibals."
"What ... do you mean?"
"I hold that there is no clash of interests among men who do not demand the unearned and do not practice human sacrifices."
"Are we to understand that if the public deems it necessary to curtail your profits, you do not recognise its right to do so?"
"Why, yes, I do. The public may curtail my profits any time it wishes - by refusing to buy my product."
"We are speaking of ... other methods."
"Any other method of curtailing profits is the method of looters - and I recognise it as such."
"Mr. Rearden, this is hardly the way to defend yourself."
"I said that I would not defend myself."
"But this is unheard of! Do you realise the gravity of the charge against you?"
"I do not care to consider it."
"Do you realise the possible consequences of your stand?"
"Fully."
"It is the opinion of this court that the facts presented by the prosecution seem to warrant no leniency. The penalty which this court has the power to impose on you is extremely severe."
"Go ahead."
"I beg your pardon?"
"Impose it."
The three judges looked at one another. Then their spokesman turned back to Rearden. "This is unprecedented," he said.
"It is completely irregular," said the second judge. "The law requires you submit to a plea in your own defence. Your only alternative is to state for the record that you throw yourself upon the mercy of the court."
"I do not."
"But you have to."
"Do you mean that what you expect from me is some sort of voluntary action?"
"Yes."
"I volunteer nothing."
"But the law demands that the defendant's side be represented on the record."
"Do you mean that you need my help to make this procedure legal?"
"Well, no ... yes ... that is, to complete the form."
"I will not help you."
The third and youngest judge, who had acted as prosecutor snapped impatiently, "This is ridiculous and unfair! Do you want to let it look as if a man of your prominence had been railroaded without a --" He cut himself off short. Somebody at the back of the courtroom emitted a long whistle.
"I want," said Rearden gravely, "to let the nature of this procedure appear exactly for what it is. If you need my help to disguise it - I will not help you."
"But we are giving you a chance to defend yourself - and it is you who are rejecting it."
"I will not help you to pretend that I have a chance. I will not help you to preserve an appearance of righteousness where rights are not recognised. I will not help you to preserve an appearance of rationality by entering a debate in which a gun is the final argument. I will not help you to pretend that you are administering justice."
"But the law compels you to volunteer a defence!"
There was laughter at the back of the courtroom.
"That is the flaw in your theory, gentlemen," said Rearden gravely, "and I will not help you out of it. If you choose to deal with men by means of compulsion, do so. But you will discover that you need the voluntary co-operation of your victims, in many more ways than you can see at present. And your victims should discover that it is their own volition - which you cannot force - that makes you possible. I choose to be consistent and I will obey you in the manner you demand. Whatever you wish me to do, I will do it at the point of a gun. If you sentence me to jail, you will have to send armed men to carry me there - I will not volunteer to move. If you fine me, you will have to seize my property to collect the fine - I will not volunteer to pay it. If you believe that you have the right to force me - use your guns openly. I will not help you to disguise the nature of your action."
The eldest judge leaned forward across the table and his voice became suavely derisive: "You speak as if you were fighting for some sort of principle, Mr. Rearden, but what you're actually fighting for is only your property, isn't it?"
"Yes, of course. I am fighting for my property. Do you know the kind of principle that represents?"
"You pose as a champion of freedom, but it's only the freedom to make money that you're after."
"Yes, of course. All I want is the freedom to make money. Do you know what that freedom implies?"
"Surely, Mr. Rearden, you wouldn't want your attitude to be misunderstood. You wouldn't want to give support to the widespread impression that you are a man devoid of social conscience, who feels no concern for the welfare of his fellows and works for nothing but his own profit."
"I work for nothing but my own profit. I earn it."
There was a gasp, not of indignation, but of astonishment, in the crowd behind him and silence from the judges he faced. He went on calmly:
"No, I do not want my attitude to be misunderstood. I shall be glad to state it for the record. I am in full agreement with the facts of everything said about me in the newspapers - with the facts, but not with the evaluation. I work for nothing but my own profit - which I make by selling a product they need to men who are willing and able to buy it. I do not produce it for their benefit at the expense of mine, and they do not buy it for my benefit at the expense of theirs; I do not sacrifice my interests to them nor do they sacrifice theirs to me; we deal as equals by mutual consent to mutual advantage - and I am proud of every penny that I have earned in this manner. I am rich and I am proud of every penny I own. I made my money by my own effort, in free exchange and through the voluntary consent of every man I dealt with - voluntary consent of those who employed me when I started, the voluntary consent of those who work for me now, the voluntary consent of those who buy my product. I shall answer all the questions you are afraid to ask me openly. Do I wish to pay my workers more than their services are worth to me? I do not. Do I wish to sell my product for less than my customers are willing to pay me? I do not. Do I wish to sell it at a loss or give it away? I do not. If this is evil, do whatever you please about me, according to whatever standards you hold. These are mine. I am earning my own living, as every honest man must. I refuse to accept as guilt the fact of my own existence and the fact that I must work in order to support it. I refuse to accept as guilt the fact that I am able to do it better than most people - the fact that my work is of greater value than the work of my neighbours and that more men are willing to pay me. I refuse to apologise for my ability - I refuse to apologise for my success - I refuse to apologise for my money. If this is evil, make the most of it. If this is what the public finds harmful to its interests, let the public destroy me. This is my code - and I will accept no other. I could say to you that I have done more good for my fellow men than you can ever hope to accomplish - but I will not say it, because I do not seek the good of others as a sanction for my right to exist, nor do I seek the good of others as a sanction for my right to exist, nor do I recognise the good of others as a justification for their seizure of my property or their destruction of my life. I will not say that the good of others was the purpose of my work - my own good was my purpose, and I despise the man who surrenders his. I could say to you that you do not serve the public good - that nobody's good can be achieved at the price of human sacrifices - that when you violate the rights of one man, you have violated the right of all, and a public of rightless creatures is doomed to destruction. I could say to you that you will and can achieve nothing but universal devastation - as any looter must, when he runs out of victims. I could say it, but I won't. It is not your particular policy that I challenge, but your moral premise. If it were true that men could achieve their good by means of turning some men into sacrificial animals, and I were asked to immolate myself for the sake of creatures who wanted to survive at the price of my blood, if I were asked to serve the interests of society apart from, above and against my own - I would refuse. I would reject it as the most contemptible evil, I would fight it with every power I possess, I would fight the whole of mankind, if one minute were all I could last before I were murdered, I would fight in the full confidence of the justice of my battle and of a living being's right to exist. Let there be no misunderstanding about me. If it is now the belief of my fellow men, who call themselves the public, that their good requires victims, then I say: The public good be damned, I will have no part of it!"

The crowd burst into applause.

Will Warren Buffett assume the role of Hank Rearden and receive the applause of the long-suffering masses in the process? It's doubtful, but it would nonetheless be a true privilege to witness if he did.

The Truth, And Lies, About The M3 Money Supply

Ambrose Evans-Pritchard, notorious inflationist, is out with his latest hit-piece-disguised-as-news-article wherein he discusses the supposedly alarming downward trend in US M3 money supply growth.

The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

Frightening, yes, I am sure. But is the drop in M3 money supply really the culprit as far as why the US is not recovering properly?

Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown "Friedmanite" monetary stimulus.

"Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty," he said.

Mr Congdon said the dominant voices in US policy-making - Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who "despise traditional monetary theory and have a religious aversion to any mention of the quantity of money". The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States - has been left to gather dust.

Oh please! How truly original for Mr. Evans-Pritchard: we'll just print out way out of it! Nevermind the fact that Japan, too, has engaged in massive QE as a monetary compliment to its fiscal policy insanity. And if you've followed Evans-Pritchard on the whole eurozone crisis, you know by now that he has called for massive money-printing and QE there, too, because the EU "must" be saved. He just never seems to get to explaining why the EU must survive, and how debasing the EU's currency actually accomplishes that goal.

Anyway, Evans-Pritchard and his infatuation with expanding money supplies are not really the point of my post-- the veracity of Evans-Pritchard's claim about M3 shrinking, is. And on that count, one anonymous blogger over at "Stock Psychology" has some harsh words for Evans-Pritchard and his claims:

The claim of a shrinking M3 can not stand the scrutiny of logic and fool even a three year old child. The US Treasury Department has been conducting bi-weekly treasury auctions of unprecedent and astronomical amounts. The treasury auctions never fail. There are always willing buyers bidding for the US treasuries at pathetically low, almost zero yields.

Regardless who those misterious US treasury buyers are and why they are buying at such low yields, any one who buys US treasury must tender US dollars to buy the treasuries. The money tendered must be US dollars in one form or another and hence must be part of the circulating M3 of US dollar.

If the total M3 is shrinking, where does the spare money come from that buys the US treasuries? Coming out of thin air? And where does the money go once they are tendered to the US treasury Department? Vanish into thin air again? A shrinking M3 makes no sense at all.

Now where does the idea of shrinking M3 come from? Read the history of M3b here. Notice that the FED stopped publishing statistics of M3 as of March, 2006. So there is no longer any official data on M3 after March, 2006. Any M3 number we see after the FED stopped publishing it, are NOT official numbers, but mere the guess work of private parties. These unofficial M3 numbers, or M3b, thus may not be accurate.

This post is getting long enough, but if the fact that M3 numbers are no longer published peaks your interest, you can read the full treatment and learn the "fatal mistake" the author has uncovered by looking at the full post here.

Marc Faber On The Next AIG

Marc Faber recently gave a speech at the Ludwig von Mises Institute's "Mises Circle In Manhattan" on May 22nd, 2010, entitled "Mirror, Mirror on the Wall, When is the Next AIG to Fall?"

Our very own Robert Wenzel picked up a summary of the speech written by a blogger in attendance, Andrew Mellon, available here.

The LvMI recently posted the audio of Faber's speech (audio link) as well as the PowerPoint file with charts and graphs accompanying the speech (PowerPoint file).

Faber gave a lively talk and moved about the stage while circling different items on the projection screen with his laser pointer, so I will be posting the full video of his speech as soon as it becomes available in the next week.

Faber also participated in a short Q&A panel at the end of the day (audio link). He didn't say much (none of the panelists really did) but it's worth listening to for a few of Faber's patented inappropriate innuendos-- especially his interplay partway through with Bob Murphy, who also sat on the panel.

One of the best speeches of the day (audio link) actually came in the early morning and was delivered by the one person on the speaking list who isn't even a "true" Austrian economist, banking analyst Christopher Whalen of Institutional Risk Analytics. This was a speech that started off a bit ambling and ambiguous but gained steam all the way into the final moments when the man really started smashing his points home, it's definitely worth a listen.

And let's not forget Bob Murphy's speech on "Only the Austrians Understand Interest Rates" (audio link), wherein Murphy absolutely crushed all non-Austrian economists with his incredible metaphorical prowess.

Of course, all the speakers were interesting and provided worthwhile contributions to the topic of Austrian Economics and the Financial Markets, so if you are interested you can listen to them all at your convenience.

The Obama (Sex) Cult Grows

Remember this bit of creepy leader-worship from the NYT in February, 2009?

The other day a friend of mine confided that in the weeks leading up to the election, the Obamas’ apparent joy as a couple had made her just miserable. Their marriage looked so much happier than hers. Their life seemed so perfect. “I was at a place where I was tempted daily to throttle my husband,” she said. “This coincided with Michelle saying the most beautiful things about Barack. Each time I heard her speak about him I got tears in my eyes — because I felt so far away from that kind of bliss in my own life and perhaps even more, because I was so moved by her expressions of devotion to him. And unlike previous presidential couples, they are our age, have children the same age and (just imagine the stress of daily life on the campaign) by all accounts should have been fighting even more than we were.”

As we all know, in journalism, two anecdotes are just one short of a national trend. I figured that my friend and I couldn’t possibly be the only ones dreaming, brooding or otherwise obsessing about the Obamas. Were other people, I wondered, being possessed by our new first family?

I launched an e-mail inquiry. And learned that they were. Often, in strikingly similar ways.

Many women — not too surprisingly — were dreaming about sex with the president. In these dreams, the women replaced Michelle with greater or lesser guilt or, in the case of a 62-year-old woman in North Florida, whose dream was reported to me by her daughter, found a fully above-board solution: “Michelle had divorced Barack because he had become ‘too much of a star.’ He then married my mother, who was oh so proud to be the first lady,” the daughter wrote me.

There was some daydreaming too, much of it a collective fantasy about the still-hot Obama marriage. “Barack and Michelle Obama look like they have sex. They look like they like having sex,” a Los Angeles woman wrote to me, summing up the comments of many. “Often. With each other. These days when the sexless marriage is such a big celebrity in America (and when first couples are icons of rigid propriety), that’s one interesting mental drama.”

But it wasn't just about the sex (though many women's minds seemed to be focused on it), there was also the humbleness, the down-to-Earthedness:

One woman wrote that when she couldn’t get to sleep at night, she “lay in bed and thought about the Obama girls in their rooms at the White House. I thought about Marian Robinson up on the third floor. And about Barack and Michelle, a couple who clearly have a ‘thing’ for each other, spooning together in bed. It helped me relax.”

I understood perfectly where these cozy dreams of easy familiarity came from. It was that sense so many people share of having a very immediate connection to Barack Obama, whether they’re black or biracial, or children of single parents or self-made strivers; or they’re lawyers or community organizers or Ivy League graduates or smokers or basketball players or Blackberry users or parents or married or Democrats. A lot of people share the fantasy that having the Obamas over for “dinner and a game of Scrabble,” as one daydreamer put it to me, is something that really could just about happen.

“This is the first president I’ve known who looks, talks and acts like a peer,” is how one Washington man explained it to me. “Notwithstanding his somewhat exotic life story, I feel like I understand what he’s like and where he’s coming from. And despite his incredible achievements, he still seems like a lot of people I know. If you stopped the clock in 2004, in fact, or maybe a couple of years earlier, he’d feel roughly like a peer in terms of accomplishments, too. Of course I know nobody with his political gifts, speaking skills and confidence, and he’s also a gifted writer and thinker. But I feel like one or two different turns for Obama or me and he could have been someone my friends and I wouldn’t think it extraordinary to have in our circle.”

That was some truly delusional stuff and the mark of a real personality cult, where Obama was not just some things to some people but was instead being seen as all things to many people. Want an Obama who can stand tall and speak eloquently like an Ivy League-trained world leader? Or do you want an Obama that you can invite over for Scrabble and share sentences that include the world "y'all" or "gonna"? Why choose? He can be the Great Leader and the Dear Friend-- or better yet, the Dear Leader. I mean, North Korea is poor and they've got one, so why not the United States?

And so, it's really hard to believe that it's already been a year since that kind of mass psychological retardation was put on display because apparently everything that Obama has done and said since then has done nothing to crush many people's odd, loving fantasies of this man who they've never met, who they share nothing in common with, who in reality sees them as a mere means to his ends yet who nonetheless has great, and growing, power over their lives.

Check out what just happened in Buffalo, NY:



A lot of what is wrong with America, a lot of the deep, structural, psychological issues of this country and its love of power that so many of the people have come to see as not only inevitable but normal and desireable, is on display in that video. Watch it, take notes and be careful if you have any of these people as neighbors because they'll be the first ones to rat you out to Big Brother, or Father Obama, as the case may be.

More On Jimmy Cayne; New Political Logic And Market Forces

In my recent post on the New Political Logic I discussed the idea that politicians are determined to fight reality in an effort to replace it with their fantasy idea of how the world should function. I discussed the idea that politicians increasingly have come to view any market behavior to the downside as baseless and devoid of any fundamental support or reasoning. The model they've come to believe in is one of continual growth, provided by their sound guidance and cautionary leadership.

Our friend Jimmy Cayne, last seen here blaming the shorts for the destruction of his firm, again ably demonstrates this NPL in further comments he made in front of the Financial Crisis Inquiry Commission about the collapse of his firm, Bear Stearns, which I recently came across in a CNBC video clip today. A brief transcript follows:

The market's loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy. Subsequent events show that Bear Stearns' collapse was not the result of any actions or any decisions unique to Bear Stearns. Instead, it was due to overwhelming market forces that Bear Stearns, as the smallest of the independent investment banks, could not resist. Only a few months after Bear Stearns collapse, the same market forces caused the collapse and near-collapse of much larger institutions such as Lehman Brothers.

How does Cayne's testimony relate to the NPL?

In Cayne's view, Bear Stearns collapse was due to sudden, irrational and unfounded rumor-based short-selling against his company, not a flawed business model or careless leadership by himself and his associates. Up until the week of March 10th, 2008, Bear Stearns was just chugging along, investing in who-knows-what-kind of garbage MBS and other securities when suddenly, out of nowhere, the model broke as credit markets seized up (for no reason), sending BSC into the tank. Were it not for that temporary absurdity, BSC would've kept on chugging-- it was, essentially, a profit factory (or, as Anthony Scaramucci recently said of Goldman Sachs, "an American dream factory"). You put some MBS in one side, and out the other side pops fresh, hot profits.

To Cayne (as proxy for others employing the NPL), "market forces" are arbitrary, irrationally pessimistic and radical. "Market forces" are rumors, speculation and uncertainty, none of which have any basis in reality or deserve any credulity when they threaten the reign of divine elites such as himself.

The truth is, not surprisingly, just the opposite. The market forces that lead to massive losses and ultimately the insolvency and collapse of Jimmy Cayne's firm, had been suspended in time thanks to Federal Reserve policies leading up to the crisis. The profits that BSC had been making the whole time were illusory. They never actually existed, yet Fed money-printing and interventions in the loanable funds market made it appear as if they did. When market forces finally overcame these interventions, reality reasserted itself, the profits were inverted into losses and the entire previous period was essentially washed out. Bear Stearns, as led by Jimmy Cayne and Alan Schwartz, was revealed to be not a profit-making machine but fantasy-based anti-gravity machine and so when the fantasy lost its conviction amongst investors, it collapsed.

Nature abhors a vacuum.

CBS News Unveils Serious Personal Privacy Breach

This is shocking and disturbing. It has all kinds of implications for private and public (government) data storage systems, which should become apparent to you on your own as you watch the full clip below.

What Logical System Operates Inside Angela Merkel's Brain?

Undoubtedly, it is the New Political Logic:

“In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.”

I think I remember some blogger or financial commentator who was nominally a libertarian talking about how Angela Merkel and the Germans "get it" and wouldn't do anything too drastic. Whoever that person was, I guess they were wrong. Not sure why that should be a surprise given that Angela Merkel is a long-time, youth-indoctrinated East German socialist.

Germany's BaFin regulatory agency is also in on the NPL:

“Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” BaFin said in the statement.

The war on reality continues, with more devastating consequences sure to follow.

More on Germany's short ban at Bloomberg.com.

Regulations Are Back In Fashion, But Were They Ever Out?

They were according to the narrative the NYT.com would like to construct:

Over the last year, the Obama administration has pressed forward on hundreds of new mandates, while also stepping up enforcement of rules by increasing the ranks of inspectors and imposing higher fines for violations.

A new age of regulation is well under way in Washington, a fact somewhat obscured by the high-profile debates over the health care overhaul and financial oversight system and by fresh calls for greater federal vigilance spurred by the oil spill in the Gulf of Mexico and the deaths of coal miners in West Virginia.

The surge in rule-making has resulted from an unusual confluence of factors, from repeated outbreaks of food-borne illnesses to workplace disasters. Some industry groups, wanting foreign competitors to adhere to the same standards they must meet, have backed new federal mandates. The push for some of the measures began at the end of the Bush administration, a tacit acknowledgment that its deregulatory agenda had gone too far.

Still, the new aggressiveness reflects the new cops on the beat, and the contrast with the Bush administration is an intentionally sharp one. While the Bush administration mostly favored voluntary compliance by industry, senior Obama administration officials argue that carefully crafted regulation can be a positive force.

“We start from the perspective that we all want a cleaner environment, longer lives, improved safety,” said Peter R. Orszag, director of the Office of Management and Budget, which reviews major regulations. “Smart regulation can make people’s lives better off.” [emphasis added]

It's funny that Orszag should mention this: the Means-Ends Debate. As Ludwig von Mises noted, everyone but the ascetics are after the same ends, those being the gradual improvement of the general, material well-being of individuals in society. And because of various axiomatic truths and conclusions arrived at via deductive reasoning from those truths, praxeology tells us that the unhindered division of labor is the best, surest and only means of improving the material well-being of individuals in society.

In other words, "smart" regulation can not "make people's lives better off," as Orszag claims. Where people may disagree about the means to shared ends, reason can be employed to arrive at a common understanding of truth. You'll notice, then, that Orszag's preferred means do not involve reason, but force-- government regulation.

Mises made this point better than I can at the present, so instead of jabbering on I'd rather quote him at length, from his passage "World View and Ideology" in Human Action:

But where earthly things are involved, the natural affinity of all men and the identity of the biological conditions for the preservation of their lives come into play. The higher productivity of cooperation under division of labor makes society the foremost means of every individual for the attainment of his own ends whatever they may be. The maintenance and further intensification of social cooperation become a concern of everybody. Every world view and every ideology which is not entirely and unconditionally committed to the practice of asceticism and to a life in anchoritic reclusion must pay heed to the fact that society is the great means for the attainment of earthly ends. But then a common ground is won to clear the way for an agreement concerning minor social problems and the details of society's [p. 180] organization. However various ideologies may conflict with one another, they harmonize in one point, in the acknowledgment of life in society.

People fail sometimes to see this fact because in dealing with philosophies and ideologies they look more at what these doctrines assert with regard to transcendent and unknowable things and less at their statements about action in this world. Between various parts of an ideological system there is often an unbridgeable gulf. For acting man only those teachings are of real importance which result in precepts for action, not those doctrines which are purely academic and do not apply to conduct within the frame of social cooperation. We may disregard the philosophy of adamant and consistent asceticism because such a rigid asceticism must ultimately result in the extinction of its supporters. All other ideologies, in approving of the search for the necessities of life, are forced in some measure to take into account the fact that division of labor is more productive than isolated work. They thus admit the need for social cooperation.

Praxeology and economics are not qualified to deal with the transcendent and metaphysical aspects of any doctrine. But, on the other hand, no appeal to any religious or metaphysical dogmas and creeds can invalidate the theorems and theories concerning social cooperation as developed by logically correct praxeological reasoning. If a philosophy has admitted the necessity of societal links between men, it has placed itself, as far as problems of social action come into play, on ground from which there is no escape into personal convictions and professions of faith not liable to a thorough examination by rational methods.

This fundamental fact is often ignored. People believe that differences in world view create irreconcilable conflicts. The basic antagonisms between parties committed to different world views, it is contended, cannot be settled by compromise. [Taylor's note-- this is why a person like Orszag must resort to regulation, i.e., governmental force, as no reason-based compromise is possible for them.] They stem from the deepest recesses of the human soul and are expressive of a man's innate communion with supernatural and eternal forces. There can never be any cooperation between people divided by different world views.

However, if we pass in review the programs of all parties--both the cleverly elaborated and publicized programs and those to which the parties really cling when in power--we can easily discover the fallacy of this interpretation. All present-day political parties strive after the earthly well-being and prosperity of their supporters. They promise that they will render economic conditions more satisfactory to their followers. With regard to this issue there is no difference [p. 181] between the Roman Catholic Church and the various Protestant denominations as far as they intervene in political and social questions, between Christianity and the non-Christian religions, between the advocates of economic freedom and the various brands of Marxian materialism, between nationalists and internationalists, between racists and the friends of interracial peace. It is true that many of these parties believe that their own group cannot prosper except at the expense of other groups, and even go so far as to consider the complete annihilation of other groups or their enslavement as the necessary condition of their own group's prosperity. Yet, extermination or enslavement of others is for them not an ultimate end, but a means for the attainment of what they aim at as an ultimate end: their own group's flowering. If they were to learn that their own designs are guided by spurious theories and would not bring about the beneficial results expected, they would change their programs.

The pompous statements which people make about things unknowable and beyond the power of the human mind, their cosmologies, world views, religions, mysticisms, metaphysics, and conceptual phantasies differ widely from one another. But the practical essence of their ideologies, i.e., their teachings dealing with the ends to be aimed at in earthly life and with the means for the attainment of these ends, show much uniformity. There are, to be sure, differences and antagonisms both with regard to ends and means. Yet the differences with regard to ends are not irreconcilable; they do not hinder cooperation and amicable arrangements in the sphere of social action. As far as they concern means and ways only, they are of a purely technical character and as such open to examination by rational methods. When in the heat of party conflicts one of the factions declares: "Here we cannot go on in our negotiations with you because we are faced with a question touching upon our world view; on this point we must be adamant and must cling rigidly to our principles whatever may result," one need only scrutinize matters more carefully to realize that such declarations describe the antagonism as more pointed than it really is. In fact, for all parties committed to pursuit of the people's welfare and thus approving social cooperation, questions of social organization and the conduct of social action are not problems of ultimate principles and of world views, but ideological issues. They are technical problems with regard to which some arrangement is always possible. No party would wittingly prefer social disintegration, anarchy, and a return to primitive barbarism to a solution which must be bought at the price of the sacrifice of some ideological points. [p. 182]

In party programs these technical issues are, of course, of primary importance. A party is committed to certain means, it recommends certain methods of political action and rejects utterly all other methods and policies as inappropriate. A party is a body which combines all those eager to employ the same means for common action. The principle which differentiates men and integrates parties is the choice of means. Thus for the party as such the means chosen are essential. A party is doomed if the futility of the means recommended becomes obvious. Party chiefs whose prestige and political career are bound up with the party's program may have ample reasons for withdrawing its principles from unrestricted discussion; they may attribute to them the character of ultimate ends which must not be questioned because they are based on a world view. But for the people as whose mandataries the party chiefs pretend to act, for the voters whom they want to enlist and for whose votes they canvass, things offer another aspect. They have no objection to scrutinizing every point of a party's program. They look upon such a program only as a recommendation of means for the attainment of their own ends, viz., earthly well-being.

What divides those parties which one calls today world view parties, i.e., parties committed to basic philosophical decisions about ultimate ends, is only seeming disagreement with regard to ultimate ends. Their antagonisms refer either to religious creeds or to problems of international relations or the problem of ownership of the means of production or the problems of political organization. It can be shown that all these controversies concern means and not ultimate ends.

Let us begin with the problems of a nation's political organization. There are supporters of a democratic system of government, of hereditary monarchy, of the rule of a self-styled elite and of Caesarist dictatorship.[1] It is true that these programs are often recommended by reference to divine institutions, to the eternal laws of the universe, to the natural order, to the inevitable trend of historical evolution, and to other objects of transcendent knowledge. But such statements are merely incidental adornment. In appealing to the electorate, the parties advance other arguments. They are eager to show that the system they support will succeed better than those advocated by other parties in realizing those ends which the citizens aim at. They specify the beneficial results achieved in the past or in other countries; they disparage the other parties' programs by relating their failures. [p. 183] They resort both to pure reasoning and to an interpretation of historical experience in order to demonstrate the superiority of their own proposals and the futility of those of their adversaries. Their main argument is always: the political system we support will render you more prosperous and more content.

In the field of society's economic organization there are the liberals advocating private ownership of the means of production, the socialists advocating public ownership of the means of production, and the interventionists advocating a third system which, they contend, is as far from socialism as it is from capitalism. In the clash of these parties there is again much talk about basic philosophical issues. People speak of true liberty, equality, social justice, the rights of the individual, community, solidarity, and humanitarianism. But each party is intent upon proving by ratiocination and by referring to historical experience that only the system it recommends will make the citizens prosperous and satisfied. They tell the people that realization of their program will raise the standard of living to a higher level than realization of any other party's program. They insist upon the expediency of their plans and upon their utility. It is obvious that they do not differ from one another with regard to ends but only as to means. They all pretend to aim at the highest material welfare for the majority of citizens.

The nationalists stress the point that there is an irreconcilable conflict between the interests of various nations, but that, on the other hand, the rightly understood interests of all the citizens within the nation are harmonious. A nation can prosper only at the expense of other nations; the individual citizen can fare well only if his nation flourishes. The liberals have a different opinion. They believe that the interests of various nations harmonize no less than those of the various groups, classes, and strata of individuals within a nation. They believe that peaceful international cooperation is a more appropriate means than conflict for the attainment of the end which they and the nationalists are both aiming at: their own nation's welfare. They do not, as the nationalists charge, advocate peace and free trade in order to betray their own nation's interests to those of foreigners. On the contrary, they consider peace and free trade the best means to make their own nation wealthy. What separates the free traders from the nationalists are not ends, but the means recommended for attainment of the ends common to both.

Dissension with regard to religious creeds cannot be settled by rational methods. Religious conflicts are essentially implacable and irreconcilable. Yet as soon as a religious community enters the field [p. 184] of political action and tries to deal with problems of social organization, it is bound to take into account earthly concerns, however this may conflict with its dogmas and articles of faith. [Taylor's note-- for reference, consider any articulated system which believes that "free lunches" can be had, to be a religious system and Mises's critique becomes even more trenchant.] No religion in its exoteric activities ever ventured to tell people frankly: The realization of our plans for social organization will make you poor and impair your earthly well-being. Those consistently committed to a life of poverty withdrew from the political scene and fled into anchoritic seclusion. But churches and religious communities which have aimed at making converts and at influencing political and social activities of their followers have espoused the principles of secular conduct. In dealing with questions of man's earthly pilgrimage they hardly differ from any other political party. In canvassing, they emphasize, more than bliss in the beyond, the material advantages which they have in store for their brothers in faith.

Only a world view whose supporters renounce any earthly activity whatever could neglect to pay heed to the rational considerations which show that social cooperation is the great means for the attainment of all human ends. Because man is a social animal that can thrive only within society, all ideologies are forced to acknowledge the preeminent importance of social cooperation. They must aim at the most satisfactory organization of society and must approve of man's concern for an improvement of his material well-being. Thus they all place themselves upon a common ground. They are separated from one another not by world views and transcendent issues not subject to reasonable discussion, but by problems of means and ways. Such ideological antagonisms are open to a thorough scrutiny by the scientific methods of praxeology and economics. [Taylor's note-- all bold emphasis is mine]

Regulation, being backed by governmental force and thereby being a form of involuntary exchange, is a rejection of the value of social cooperation (that is, voluntary exchange and the division of labor) according to Mises. It's a rejection of the entire Means-Ends debate in favor of a gun.

In other words, Pete Orszag, eat your heart out! Your anti-reason philosophy of regulation to "make people's lives better off" is a pathetic, trivial notion. Striking with an iron fist of indomitable logic through the sands of time, Ludwig von Mises has called you out, and you've been thoroughly exposed and shamed for the being the tyrant of "faith in free lunches" that you are!

Who Can Explain The Flash Crash?

In a segment entitled "Hoarders" on the Daily Show With Jon Stewart from May 13th, 2010, Jon Stewart describes the Thursday, May 6th, 2010 action in the stock market as a "twenty-minute, thousand-point, still hauntingly unexplained drop in the stock market."

I find his description of the drop being "still hauntingly unexplained" a bit confusing. Indeed, many have sought to explain it, with various theories such as computer glitches, order-pipeline jamming, lack of regulatory oversight, irrational panic and even market fundamentals being trotted out by various persons in the private and public sector alike. So, it's not as if it remains "unexplained" for a lack of people trying to explain it.

No, what's most confusing about Stewart's phraseology is the way it implies that there might be one, proper explanation that can be provided by one, proper, 'official' explainer. And I have a feeling that the person or institution from which Stewart would be most comfortable receiving an explanation would not be a member of the private sector.

It's entirely possible I am blowing this out of proportion and making a big deal out of something that was ultimately just a rhetorical flush that the writers of the Daily Show employed to make the segment more ominous and dramatic. But I think that this particular piece of semantic evidence is consistent enough with the rest of the slant of the Daily Show, and the political views of a significant fraction of the population of the United States as a whole, to be another item signalling a worrying trend.

That trend is the movement toward the psychological, intellectual and emotional-dependency of a large percentage of the population on the government. Until the government can explain a frightening circumstance, provide a reassuring, proverbial 'pat on the back', issue a collective condemnation of a person or group of people and come to the rescue of the benighted, terror-stricken People, all hope is lost. There can be no helping of ourselves, no responsibility for responding to an adverse event on our own.

Further, there can be no truth outside of the government. Until the government describes, categorizes, outlines, confirms and approves, our attempts at understanding are futile and prone to the 'ideological' manipulations of selfish individuals and groups who seek to benefit at our expense.

This is the manifestation of the New Political Logic amongst a people who have been slowly but surely indoctrinated in it, while simultaneously being inured to any alternative thought process or conception of reality.

This is really dangerous stuff. I'm not going to reduce my own credibility and the credibility of what I am saying here by making them claim that concentration camps are right around the corner, but I will say that this is totalitarian-thinking, not freedom-thinking, and once things start going this way they usually don't turn out well for the people involved.

David Gordon Shreds Bill Buckley's Biographer

David Gordon has a contra-review of Lee Edwards' new biography of (neo-)conservative icon and former-CIA agent, Bill Buckley, over at LewRockwell.com:

Buckley, Edwards tells us, began as a follower of the libertarian Albert Jay Nock; and Nock’s disciple, Frank Chodorov, guided his early writing. (To Edwards, Nock is an "archlibertarian." Whether there is a difference between "arch" and "ultra," Edwards does not disclose.) Edwards mentions Nock’s "radical antistatism" but he tells us next to nothing about the views of Nock and his great follower. From Edwards’s account, one might imagine that Nock wished merely to curtail the New Deal. In fact, of course, Nock condemned the "political means," i.e., the State, as of its nature predatory. Edwards also ignores completely Nock’s views on foreign policy. Nock opposed militarism and interventionism and his Myth of a Guilty Nation was an early revisionist classic.

Despite Buckley’s early exposure to Nock, his fundamental premise thrust libertarianism aside. Buckley stated this premise early in his career: "[I]n his January 1952 essay in Commonweal Buckley wrote that given the ‘thus-far invincible aggressiveness of the Soviet Union. . .we have got to accept Big Government for the duration.’" (p.53) Buckley here expressed no mere passing thought. Putting into action his belief in a crusade against Communism, he had after graduation from Yale joined the CIA for a brief period from 1950–51. Though he ostensibly left that agency, ex-CIA agents, as we shall soon see, played a major role in National Review.

Edwards mentions three other writers, besides Nock, as "seminal" influences on Buckley’s political thinking. Each of these was a determined enemy of Nock’s libertarianism. The first of these, Willmoore Kendall, taught Buckley political science at Yale. (Edwards, by the way, is probably wrong that "Kendall taught the young conservative [Buckley] to read with the close attention to the text that the political philosopher Leo Strauss advocated." [pp.34–5]. Kendall’s Straussian period came later than Buckley’s time at Yale.) Kendall rejected with scorn natural rights. Instead, he followed Rousseau: for him, the general will was the "deliberate sense of the community," in America best incarnated in Congress. He attacked John Stuart Mill on freedom of opinion and called for the imposition of a public orthodoxy. His position would have justified the Athenians in executing Socrates, an implication he readily acknowledged. It will come as no surprise that he too had been a CIA agent.

Uh, wow!

I had the privilege of listening to several of David Gordon's "book recommendation speeches" at recent Mises Circle events around the country. He manages to take something that could be dreadfully boring (talking about books he's read) and turns it into a lecture that is compelling, informative and often laugh-out-loud hilarious. He once had the entire audience in an uproar when he suggested the shortest book in the world that had unfortunately never been written would probably have been What I Like About The Welfare State, by Ayn Rand!

In person, David is much more elderly and much more frail in appearance than you might expect, but while he may, like anybody, have physically diminished over time the man is still a heavyweight at the top of his game when it comes to intellectual capability. He's something of a walking, talking encyclopedia for the history of philosophical, economic and political texts and ideas. It's hard to imagine a book or a chronological detail (take the Kendall and Strauss remark quoted above, for instance) of which he is ignorant.

I highly recommend reading the full article at LewRockwell.com, as well as browsing David Gordon's other writings at his LRC archive.

Will Tom Friedman's Greek Bet Pay Out?

The NYT's Thomas Friedman is out with another one of his bold predictions, this time about the chances for Greece to experience something of a renaissance:

Can Greece have a civic revolution? The odds are long, but you won’t need to consult the I.M.F. to determine the answer. Just watch Greek young people. In six months, if you see them migrating, then short Greece. If you see them sticking it out here, though, it means they think there is something worth staying for, and you might even want to buy a Greek bond or two.

Hopefully for Tom there are still Greek (euro-)bonds for sale in six months.

There's something a little odd about the way Tom Friedman's mind works; it seems he's never seen a sequential six-month period that wasn't in some way crucial.

He also seems to have trouble finding a way to distance himself enough to be critical of the policies and claims of any of his many head-of-state-cum-lunch-partners. Then again, it's likely hard to resist a man's "Obama-Zen-like calm" while sharing the latest ideas in central-planning schemes "over a lunch of Greek salad and grilled fish", all under the protective and watchful eye of a couple of burly, gun-toting, taxpayer-financed personal bodyguards (you better believe Papandreou has a couple or three or four of those around with him at all times, these days).

What is truly comical about Friedman's ridiculously predictable six month-long bets (besides the fact that he'll definitely downplay any outcome unfavorable to his prediction once the six months are up) is what Friedman ignores in making his assertion. What Friedman remains ignorant of is what may or may not have been happening in terms of Greek youth and their emigration patterns in the past six months or more. What if all the smart Greek youth have already left the country, long before this current conflagration rose to wildfire status?

Now, if only someone could dig up statistics on US citizen expatriation patterns recently, it'd be quite interesting to see if Friedman would give the US one of his trademarked 6-month prognoses...

War Of Words In Europe, War Of Weapons Looms

If you thought the trade war rhetoric between the US and China was bad, check out the trash talking the Europeans are giving one another over this bailout:

Jean-Pierre Jouyet, a former French Europe minister and the current chairman of France's financial services authority, yesterday predicted only "God would help" a rudderless Britain after it snubbed its euro zone neighbours.

"There is not a two speed Europe but a three speed Europe. You have Europe of the euro, Europe of the countries that understand the euro ... and you have the English," he said.

"The English are very certainly going to be targeted given the political difficulties they have. Help yourself and heaven will help you. If you don't want to show solidarity to the euro zone, then let's see what happens to the United Kingdom."

How much more economic saber-rattling would you need to see before this spills into actual saber-rattling? And what happens to the US military seeing as how it has major bases in most of the countries concerned?

World War I and II started in Europe, perhaps WWIII will, as well?

More economic saber-rattling at the Telegraph.

Stock Chart Of The Week: S&P500 / Gold

This is your stock market rally, priced in gold, not inflated dollars.

$SPX:$GOLD - Weekly:

via StockCharts.com

The New Political Logic

Last Thursday, May 6th, 2010, the DJIA lost over 600 points in a matter of minutes, at one point falling nearly 1,000 points before ultimately closing down about 400 points. Today, Congress is trying to figure out "what happened" on Thursday so they can craft new legislation to stop it from happening again.

This type of investigation by Congress is what I like to call "the New Political Logic" or NPL. This is the logic of busy-body government, nosy government, hypervigilant and hyperinterventionist government. This is NOT the logic of minimally invasive, limited, libertarian government, but its opposite.

In other words, this is totalitarian government in rapidly-growing fetal form.

What is driving NPL? The economic recovery is so tenuous, so fragile and so important to the political class that it necessitates further interventions and investigations into anything that might be perceived as a threat to it. The economic recovery is like a sickly, overly sensitive child and the political class is an overbearing, anxious parent-- always checking on it, asking about it, shooing away other children, constantly sterilizing everything that might come near the child and scolding other children who carelessly bump into it.

The political class has established a logical precedent-- there is no fundamental reason for the economic and financial calamities the world keeps experiencing. In the minds of the members of the political class, there is no event or circumstance that could possibly necessitate economic hardship of any severity for any period of time. They are at war with the markets, with fundamentals and with reality as it occasionally expresses itself. They will fight it all the way or die trying.

It doesn't matter to them if the economy is so frail and the stock market so unstable in its absurd, nearly unabated recent growth that a sudden, 1,000-point drop is actually supported by economic and financial fundamentals-- they won't permit these kinds of market behaviors to occur. Ultimately, this logic leads to the idea that all downside market behaviors are a threat and therefore they must be crushed, a belief that will be realized through mass inflation. As Dick Fuld might say, they're going to "burn the shorts," whatever the cost may be-- let nothing get in the way of their fabrication of reality-as-they'd-like-to-see-it.

Don't believe me? Consider this from the NYT.com:

Federal financial regulators forged ahead on Monday to try to prevent a repeat of last week’s roller-coaster stock ride, though they had not determined the cause of the sudden, steep decline in prices on Thursday.

They don't know what happened on Thursday and they don't care. The political class is already cobbling together new regulation to make sure it doesn't happen again.

This New Political Logic is the logic of totalitarianism-- nothing out of the reach of the government, everything within it. Reality will be what they make of it, not what reality actually is.

FT's Gideon Rachman Actually Gets It

Well, there's at least one sensible person writing about the recent eurozone bailout over at the FT.com, and his name is Gideon Rachman:

Yet if Europeans do not accept austerity now, they will eventually be faced with something far more shocking – sovereign debt-defaults and collapsing banks. For many Europeans that is the kind of thing that only happens in Latin America. The discovery that Latin Europe – and maybe northern Europe, too – can also hit the financial wall will come as a horrible shock.
[...]
This weekend’s bail-out essentially extends one last, massive credit-line to those European governments that might need it. But, for all the talk of pan-European solidarity, one cost of this credit-line will be a sharp increase in political tensions within the EU. There is already much bitter talk in Greece about the loss of national sovereignty; matched only by bitter talk in Germany about the costs of bailing out feckless southern Europeans. Last week, I spoke to one much respected member of the EU establishment. He shook his head sorrowfully at the bitter recriminations between Greeks and Germans and the way the crisis has “set two peoples against each other”. This, he said, is as close as it comes to war in modern Europe.

Well done, Mr. Rachman, and keep it up or we might find out sooner rather than later how much closer to actual war in modern Europe things still can come.

Where's The Outrage? Dylan Ratigan Forgets The Fed

This weekend ZeroHedge posted the following video of Dylan Ratigan explaining Thursday's crash, causes and consequences:



Ratigan and his guest both seem outraged about this crash and other similar Wall Street shenanigans because they think these events are examples of average Americans getting jerked around and screwed by Wall Street.

When I watch a video like this, however, I wonder, why is everyone so outraged?

Ratigan acts like, before the whipsaw-crash, all that market cap-value really existed as wealth held by the public. According to Ratigan, after the crash, it arbitrarily evaporated. This isn't right.

The wealth never existed! The crash is actually good because it's a demonstration of reality presiding over fantasy, if only for a few short minutes on Thursday. The fantasy was the stock market's valuation prior to the crash-- the reality is the stock market during the crash.

When the Fed sets off to print money, lower interest rates and generally kick-off a false boom, all the "wealth" that is created subsequently is also false. It doesn't actually exist, it just appears to thanks to market participants temporarily being fooled by Fed money-printing.

Think of it like this: if you created a really great counterfeiting machine in your garage and used it to print up a bunch of $100 bills, you'd suddenly feel quite rich. This is the boom. Then, when you go to spend them at the store and the cashier realizes they're fakes and doesn't allow you to make your purchase, you feel quite poor again. This is the crash.

If you're Dylan Ratigan and his guest, you become outraged when the cashier hands you your phony $100 bills back. You accuse the cashier of destroying your hopes and dreams and decimating your wealth. But if you're a bit more sensible than that, you realize that the real outrage was that you thought you could print up phony money and pass it off as real wealth to others in the first place. The dream-crushing happened the moment you turned on your counterfeiting machine, not when the cashier rejected your fraudulent wealth.

The same thing goes for the complaining about the fall in home values. That wealth was all illusory to begin with. When home prices fell, no one really lost anything because they hadn't actually gained anything when house prices rose. It was an unsustainable, fraudulent accumulation of wealth in the first place that only needed enough time to be realized as such.

Unfortunately, Dylan and his guest don't talk about the Fed and its money supply manipulations. If you followed my example, you should realize by now that that's where the real outrage should be aimed.

Wall Street Echo Chamber: Jimmy Cayne Blames The Shorts

Are Jimmy Cayne and Dick Fuld two peas in a pod or what?

Both former masters of former Wall Street investment banks, Bear Sterns and Lehman Brothers. Both, thanks to the financial crisis, former billionaires (well, okay, Dick only half-a-billionaire, but still). And both absolutely, positively sure that it was those damn shorts that were responsible for the failure of their firms! (FT.com)

Mr Cayne, 76, said the lack of an “uptick rule”, which places restrictions on investors betting on a fall in a company’s share price, allowed for a “self-fulfilling precipitous drop that couldn’t be checked”.

Couldn't be checked, Jimmy? Not even by the shorts eventually covering -- assuming they were not of the belief that Bear Stearns was ultimately a big, fat ZERO -- and not even by intense buying by confident, knowledgeable insiders such as yourself, who would know a good bargain when they saw one?

Say it ain't so, Jimmy!

While Fuld was full of piss and vinegar throughout the ordeal, threatening to "burn the shorts" (alas, Dick, it was your shorts that ended up getting singed), Jimmy Cayne looked so tired and depressed today while giving testimony it was a surprise he stayed awake for the whole thing.

Mr Cayne said in hindsight the bank had taken on too much debt.

As we all know, and as Jimmy Cayne is starting to find out, sometimes coming to terms with reality can be utterly exhausting.

Can The United States Government Really Protect Its Citizens Against Terrorist Attacks?

Nearly nine years after the security lapses of September 11th, 2001, another individual has attempted an attack, this time a car-bombing in Times Square in New York City, and were it not for his bumbling he likely would've both succeeded in his bombing and in his escape.

In the aftermath of the current debacle, someone is going to begin asking if intelligence agencies and the security arm of the government had any leads on this guy before he attempted his attack. If they did, people are going to wonder why he almost blew up a bomb in Times Square anyway. If they didn't, people are going to wonder how this individual managed to elude suspicion and notice and almost pull off such an attack as something of a complete surprise-- especially if it turns out that he had some kind of foreign backing or training.

Already, politicians are beginning to scratch their collective heads about how they all blew it, yet again, amidst bouts of apparently uncontrollable self-congratulatory praise and appreciation, according to the New York Times:

Top Obama administration officials and some members of Congress on Tuesday praised the government’s handling of the investigation, noting that Mr. Shahzad was identified, tracked and arrested before he could escape.

Yes, except Mr. Shahzad was not "identified, tracked and arrested" before he attempted to blow up a car-bomb in Times Square. Definitely a praiseworthy effort seeing as how the bomb luckily did not go off.

But Mayor Michael R. Bloomberg, while saying he was reluctant to criticize those in charge of airport security, added: “Clearly the guy was on the plane and shouldn’t have been. We got lucky.”

Clearly, Mike Bloomberg is the only politician thinking clearly about who (or rather, what) was responsible for this man's successful apprehension-- LUCK.

Senator Susan M. Collins, Republican of Maine, said she applauded the work of law enforcement officials in quickly solving the case. Still, she added, “A key question for me is why this suspect was allowed to board the plane in the first place. There appears to be a troubling gap between the time they had his name and the time he got on the plane.”

A key question for me is why anybody in this country still believes the government is capable of protecting anybody from these types of attacks. Is it not obvious that for every rule or regulation they create, ex post facto, to address the circumstances of a plot that already played out, future plotters will simply change their strategy and take into account these new obstacles which they will subsequently work around?

Personally, when I get on a plane or a subway or what have you, I figure I am just gambling. I don't actually believe I am safe from terrorist attacks. I just figure that they're still relatively rare occurences and therefore I will take my chances.

At a news conference in Washington, Attorney General Eric H. Holder Jr. said that despite the break in physical surveillance, he had never been concerned that Mr. Shahzad would get away.

“I was here all yesterday and through much of last night, and was aware of the tracking that was going on,” Mr. Holder said. “And I was never in any fear that we were in danger of losing him.”

Imagine this excuse given to you by the baby-sitter that experienced a momentary "break in physical surveillance" of one of your children you had tasked them with watching. Would you buy that excuse?

Janet Napolitano, the Homeland Security secretary, called the capture of the accused terrorist “a great team effort.” She added: “The law enforcement work in this case was truly exemplary.”

GOOOOOO TEAM! And since no one died THIS time, I think we can all head to the bar for happy hour to celebrate without anyone getting on our case too much!

This whole thing is a farce. If Shahzad had been a bit more anxious to get out of the country, as in "leave less than 24 hours after attempting to bomb Times Square"-anxious, he'd be in Dubai right now, if not already back in Pakistan, kicking up his sore feet and enjoying a tasty non-alcoholic beverage to celebrate a job well done.

Martin Wolf Believes In The Primacy Of Hope Over Reality

Martin Wolf has a new piece out over at FT.com in which he states that a bail-out for Greece is just the beginning.

This story, in short, is not over.

For the eurozone, two lessons are clear: first, it has a choice – either it allows sovereign defaults, however messy, or it creates a true fiscal union, with strong discipline and funds sufficient to cushion adjustment in crushed economies – Mr Buiter recommends a European Monetary Fund of €2,000bn; and, second, adjustment in the eurozone is not going to work without offsetting adjustments in core countries. If the eurozone is willing to live with close to stagnant overall demand, it will become an arena for beggar-my-neighbour competitive disinflation, with growing reliance on world markets as a vent for surplus. Few are going to like this outcome.

The crises now unfolding confirm the wisdom of those who saw the euro as a highly risky venture. These shocks are not that surprising. On the contrary, they could have been expected. The fear that yoking together such diverse countries would increase tension, rather than reduce it, also appears vindicated: look at the surge of anti-European sentiment inside Germany. Yet, now that the eurozone has been created, it must work. The attempted rescue of Greece is just the beginning of the story. Much more still needs to be done, in responding to the immediate crisis and in reforming the eurozone itself, in the not too distant future.

Truth be told, it's difficult to determine what, exactly, Mr. Wolf seems to think is beginning amidst all his confusing personalization of the "eurozone" (ie, "it has a choice," "if the eurozone is willing to live with...", etc.).

Rather than write a lengthy piece trying to wade through the unnecessary complexity in an attempt at understanding what Wolf is talking about and then attempting to offer some comment on it, I'd rather just make the following points:

• There is nothing that will "work" for Greece in terms of any kind of bailout or cost/burden-shifting program designed by third parties.
• Talk of the "eurozone" being both necessarily permanent and necessarily in need of reform seem to be contradictory concepts and ultimately likely signal the impending doom of the arrangement entirely.

By way of brief explanation of these two points, I offer a few elaborations.

First, Greece is not a math problem. Greece is not a physics problem. The Greek economy is suffering from both the entitlement culture and the entitlements themselves of a socialist dependency, or what is known in more polite circles as a "socialist economy." Government expenditure is not productive expenditure, not in the former USSR, not in the current USA and not in Greece. There is no way for Greek politicians, EMU dignitaries or IMF consultants to come in, tweak a few numbers here, throw a few billion Euro there and then, voila! the Greek economy magically springs to life and begins to be able to service the debt anew. There will be pain, there will be hardship, there will be repudiation of the debt now and eventually, there will be repudiation of the entire Greek "economic" system.

The bust can not be avoided, just put off with more stimulus-induced booms. Mises figured out as much. There is no such thing as a free lunch.

Second, the Euro and the eurozone will fail because they must-- the EMU is a contradiction. The EMU, as it stands now, demands that its member governments enact fiscal discipline on themselves while simultaneously (if this current arrangement is actually executed) offering members who violate these rules a free-pass in the form of a dilution of the outstanding Euro-supply handed over as a bailout. That's called moral hazard. The EMU has effectively incentivized violation of its first premise via institution of its second premise. This is what we're witnessing now. Should the member governments seek to "reform" the EMU to resolve this contradiction, the EMU as it stands now will cease to exist.

In other words, for the EMU, it's safe to say that "that's a wrap!"

After that, those crazy euros will be rolling tanks across each others' forests and hillsides in no time, especially with those rascally Germans taking on an "anti-European" populism. Gee, I think I've heard this joke before, something about goose-stepping, kaisers and blitzkrieg.