The Big Shut-Down

Chances are, if you were born before 1988 or so, you probably remember the prime time TV drama “Dallas.”  I remember my mom watching “Dallas.”  We watched it together, and she always made me be quiet so that she could hear what was happening.  I still love that show, even today.  Who doesn’t love watching the diabolical J.R. Ewing try to scheme his way out of a sticky situation, usually of his own creation?  There was an episode in, I believe it was season three or four, called “The Big Shut-Down.”  J.R. tries to put Clayton Farlow, an oil refiner, out of business for harboring his ex-wife Sue Ellen and their son, John Ross.  J.R. ends up garnering huge losses for Ewing Oil, and Miss Ellie has to step in and negotiate with Clayton to buy up their oil.  In the end, in spite of his scheming to be top dog, J.R. ends up getting himself removed as president of the company.  More and more, the U.S. is starting to remind me of J.R.

The U.N. just had a vote about whether or not to intervene in Syria.  China and Russia, as was predicted, vetoed any action in Syria.  China suggested the U.N. turn its relief efforts towards Somalia, which has been going through on of the worst famines in recent memory.  This is hardly surprising, given the fact that there is a strong bond between China and Russia, and Russia has long had ties to Syria and other countries in the Middle East.  Russia is Syria’s main arms supplier.  Russia forgave most of Syria’s Soviet-era debt.  Syria allows Russia use of its port of Tartus, where Russia maintains a Mediterranean fleet.  Russia also has at least one major natural gas project going in Syria that is reportedly worth into the billions.  It is not surprising, therefore, that Russia isn’t keen to oust President Bashar Assad.  Things have gone fairly well for Russia in Syria.

If the U.N. (i.e. mostly the U.S. with Europe in the backseat) goes into Syria on one of its “peacekeeping” missions, it seems inevitable that Russia will lose out, probably in a big way.  Its natural gas project could be nationalized.  It could lose the right to keep its navy in Tartus.  Hardly a satisfactory situation.  No country would be happy about another country or group of counties messing with its cash flow.  One might also assume that, given Russia’s veto of the U.N. intervention, if the U.N. decides to go into Syria anyway, Russia will see little benefit from it, in oil or gas trade or otherwise.

The Sino-Russian link is becoming stronger and stronger.  They have been showing solidarity against the West as of late.  China has been working hard to broker the influence of the yuan in the Middle East.  China and the UAE just reached a deal worth about $5.5 billion dollars.  The UAE has agreed to hold renminbi (yuan) in its vault, which will give increasing prestige to the Chinese currency.  Make no mistake about it: Russia and China generally, and China most particularly, are looking to strengthen their ties with the Middle East, and one of the ways that they want to do that is by pushing the renminbi as a viable trading currency.

Something to keep in mind is that China strictly controls its currency flow, as of right this minute.  That is, it only allows for a certain amount of transactions to be done in its currency.  That said, the writing is on the wall, in terms of how China is looking to the future.  There will come a day when China will loosen its currency policy, and it is making inroads to ensure that the renminbi emerges as a currency of favor.  It is estimated that by 2025, China will import three times as much oil from the GCC as the U.S. would need.  Let’s face it: money talks – and walks.

Unfortunately, we are pursuing an increasingly dangerous path in the Middle East.  We are continually intervening for the sake of maintaining the dominance of the petrodollar, which is vital to the continuation of the loose money policy of the Fed.  I could hazard to guess that were it not for the petrodollar and the use of the U.S. dollar as the main reserve currency, the dollar would already be belly up like a goldfish in a dirty bowl.

Frankly, I’m beginning to get extremely worried about the situation that is unfolding in the Middle East.  The U.S government is making it fairly clear at this point that “nothing is off the table,” and if you believe what the news media is saying, war with Iran is practically a foregone conclusion.  I’ve talked at length about why this is probably true.  Follow the money, find the incentive, and you will understand what is happening today.  The same is true about Syria.

The root of this evil lies with the Federal Reserve.  The Federal Reserve has inflated our currency, and now, in order to maintain reasonable purchasing power at home, we are going into foreign countries in an attempt to maintain our ill-gotten standard of living.  It is completely and utterly unsustainable, and people are dying along the way.  It is still incredible to me that the peaceniks I heard who were calling out for Bush’s impeachment are strangely silent now, in spite of the fact that the “war for oil” is nowhere near at its conclusion.

I am afraid of where this constant foreign intervention is leading us.  We are making more and more enemies abroad while further destabilizing an already perilous situation at home.  It is high time that we heed the words of the Founding Fathers and cease our foreign entanglements.  It is time to audit and finally abolish the Fed.  We must return to sound money, for if we don’t, we will only continue down a violent path that will lead to our own inevitable destruction.

While I know that the “gloom and doom” scenario gets tiresome and depressing, there are things that we can do about it.  The first thing that we can do is educate ourselves.  Start reading Mises, Hoppe, Rand, Rothbard, and other Austrian/libertarian philosophers.  Get acquainted with liberty.  It is, for lack of a better word, liberating.  Also, get out there and vote for Ron Paul.  I know that some states have already held their votes, but if you’re on the fence, get off it and go vote for Paul.  Read some of his speeches and articles.  They can be found for free.  Go to the Mises Institute.  There is so much free information available to us, if only we will take the time to go out, find it, and read it.  There is still time to turn this situation around.

Bailout Blowback: We Aren’t Picking a Fight with Iran Over Nukes

My husband was doing his evening check of the BBC World News yesterday evening, and he stumbled across an article from a week or two ago about how London is setting itself up to be the new global leader in Chinese yuan (remnibi) trading.  London has long been the world leader in currency trading, and the fact that several key news outlets are reporting the desire of the city’s financial institutions to wade into the pool of serious yuan trading sends a clear signal about a change in the world money markets.

China and other nations have made it known over the past several years that they would like to begin moving away from the US dollar as the major reserve currency.  This is not a big secret nor is it breaking news.  China is quite keen to throw its hat into the arena, and there are a variety of reasons for that, but the big one is that every time the Fed turns on the printing presses, China, as a large holder of US debt, loses wealth.  Let’s face it: no country or business in their right mind wants to run the risk of continually flushing their own wealth down the toilet.  It doesn’t make sense.

Instead, over the last year or so, China and Russia have been leaning towards using the yuan as a settlement currency.  A settlement currency is exactly what it sounds like: currency that is used to settle financial agreements.  For example, many oil exporting nations trade in US dollars, euros, etc.  These would be settlement currencies for those nations.  Notable, at this point, is that Iran doesn’t accept the US dollar as a settlement currency.  Hold that thought, and we’ll come back to it.  (You may also refer back to my earlier article, “The Usual Suspects,” where I briefly discussed Iran’s oil bourse.)

Back before the Iraqi invasion, Saddam Hussein made the decision to sell Iraqi oil in exchange for “petroeuros,” which would have put the dollar out of business in Iraq by making the euro the settlement currency for its oil trade.  Shortly thereafter, President Bush declared war on Iraq.  We all know how that event went for Saddam, and we all know what Iraq looks like today.  It is fair to say that the US government doesn’t take well to other leaders messing with their cash flow.  We have a strikingly similar situation going on in Iran today.

Why are petrodollars so important?  Well, it essentially allows the Fed to continue printing money (monetizing the debt) without that money creation having a drastic effect on prices at home.  Why is that?  Because foreign countries will buy up that money and use it to trade for oil and gold.  China has long been the biggest financier of the US trade deficit by keeping the price of the yuan artificially low, which directly harms Chinese consumers and businesses by subsidizing the US markets.

However, China is now making its move to push the yuan to international stardom.  For those paying attention, the signs are there.  China is attempting to push the yuan to the forefront as a potential replacement for the US dollar.  France and other countries have participated in talks with China concerning a move away from the US dollar.  That said, a changing of the guard for reserve currencies is not something that will happen overnight.  According to an article by Ron Hera entitled “China’s Dragons: Oil, Gold, and the US Dollar,” the removal of the US petrodollar as the settlement currency of choice will big a large nail in the coffin of the US dollar’s dominance in the world markets.

Why is that true?  Hera uses Paul van Eeden’s Actual Money Supply (AMS) model to show how large the US monetary base (M3 line) has grown since 1971.  Assuming a rate of approximately 8% monetary inflation per year with interest compounding yearly, the monetary base has grown by about 1,863% since 1971.  However, Hera goes on to point out that the prices of US consumer goods has only risen 533%, which leaves 1,330% hanging out there in the wind.  How has this been possible?  Petrodollars.  Most of those dollars that have been printed by the Fed have been used on the global markets for dollar-based transactions (oil, gold, currency reserves, etc.), rather than kept at home and allowed to inflate the price of goods in the home market.

At this point, the picture is becoming clearer and clearer.  Let’s go back to the subject of Iran.  Iran is accepting most anything for its oil except US dollars, and China recently signed a deal with Iran that promised expansion of trade, with the provision that those deals not be settled in dollars or euros.  In fact, Iran stopped trading its oil for dollars in 2007.  China gets about 11% of its oil from Iran, according to CIA data from June 2011.  Interestingly, this 11% of China’s oil amounts to 22% of Iran’s oil exports.

So why is the US getting belligerent about Iran?  Is it because Iran is a threat to US national security with its supposed nuclear weapons?  While the government and its media drones would like for the masses to believe that is the case, the reality of the situation leads us down an entirely different avenue.  It seems more likely that the US is trying to protect its economic interests, rather than merely maintain a stranglehold on the world’s oil supply.  I have long heard so-called intellectuals beating the drum of “no war for oil,” but the reality of the situation is hardly so simple.  The US is not going to war for oil: it’s going to war to prevent economic shutdown.  The petrodollar is arguably one of the major assets keeping the dollar – and the US economy – above the water.

But we must also look at this as an act of aggression against China, in some respects.  China is a direct competitor for oil, for China is a mass consumer  of oil, second only to the US, and it will need more as production and economy expand.  The US is standing directly in China’s way, and although many are neglecting to look at this important perspective, it should not simply be ignored.  The battle of currencies and oil is pertinent and of the utmost importance to the national and world economies.  While we are fighting a secret cold war with China right now, most hot wars are fought for economic reasons, and I do not believe that it would be out of the question for this to turn warmer as time wears on.

The bottom line for the US is this: we must begin to live within our means immediately, and we must work to shrink the money supply.  To fail to curtail spending and monetization of debt will be our (silent) undoing.  The majority of Americans do not understand this, not because they are stupid, but because they are grossly misinformed by the government and media.  We are being made to believe in a terrorist threat that may or may not exist so that the people will approve of these endless wars in the oil-producing nations.  If the worst comes to pass, and the public ever discovers the truth, I believe that there will be hell to pay.

Please pass along this information.  Educate yourself, your family, and your friends about these issues.  If we ignore the reality of this situation, we will surely reap exactly that which we have sown.  God help us.

Please read the article by Ron Hera.  I found it compelling and interesting.

China’s Dragons: Oil, Gold, and the US Dollar

A New Reserve Currency to Challenge the Dollar: What’s Really Going on in the Straits of Hormuz” by Golem XIV

Nobody Understands Debt… Least of All Paul Krugman

Good evening, freedom lovers!

A friend of mine posted a link on Facebook to this Paul Krugman article in the New York Times.  Call me an onerous libertarian, call me a stickler for the Austrian school of economics, but honestly, it blows my mind that people listen to this man.  What he says has no basis in reality at all.

If you don’t feel like reading it, the basic idea behind it is that the US debt is irrelevant, because it’s mostly money that we owe to ourselves.  He also says that it’s not that big a deal because as long as our tax base is growing faster than our debt, we’re fine.  Does this sound like shaky ground to anyone besides me?

He talks about people waiting for interest rates to go soaring, citing the Heritage Foundation in particular as a group that has been waiting for this very action.  Well, the Federal Reserve holds the key to the interest rates; it keeps them artificially low.  Were it not for the Fed, interest rates likely would be soaring.  Interest rates serve as a marker for malinvestment, but when those rates are kept low such as we are seeing right now, there is no cue for businesses to stop investing in an area that doesn’t serve the market.  Instead, the malinvestment continues, and the market never rights itself.

What Krugman never points out here is that continual debt creation is a necessity in a fractional reserve banking system.  I have explained in previous articles how banks create money out of thin air to be loaned to other people.  I am not going to give you a re-tread, but you would like a refresher on how the fractional reserve system works, check out this article from the Mises Institute by Robert P. Murphy.  Essentially, if all debts, government and private, were to be paid off, the money supply would effectively cease to exist.  As such, the debt is a fairly decent indicator of how much money exists on the market today.

So why is that problematic?  Easy.  Hyperinflation.  Remember Weimar Germany?  They turned on the printing presses, and look how that worked out for them?  By the time it was all said and done, their money was better suited for heating the house than for buying goods and services.  And unfortunately, we are running headlong down a path that ends with the same fate.

This is not some ruse to scare people.  I am not irritated and going against Krugman just for the sake of being contrary.  When the money supply continues to expand at ever-increasing rates, it is natural that the value of the money will go down because the money is not scarce.  Now, that might not be easy to see in the eyes of the average American.  A lot of folks are struggling to put food on the table.  Money, for these people, does seem like a scarce thing.  However, it isn’t scarce for banks and other direct benefactors of the Federal Reserve’s policy of easy money.  It’s interesting that most Keynesians are so vehemently against “trickle down economics” when it seems like that’s what they’re advocating: pump more money into banks and hope that the American people get some of it!  Well, the middle classes and the poor are the very last people to see that money.

As for the WWII debt not mattering, well, our economy flourished in spite of our debt after the war.  Why?  Because most every other country in the world had to buy goods from us to get their economies up and going again.  America mobilized in a way never before seen in history in order to help win the war.  We were a manufacturing powerhouse, and that’s not bragging; it’s a simple fact.  Because we suffered very little on our home soil, we were in an excellent position to bail others out in the post-war era.  Thus, we were able to pay down our debt.  As everyone knows, the times have changed.

My final (major) beef with this article is the insinuation that the government should be spending money on unemployment.  The government should be doing no such thing.  Taxes do not create wealth.  The government never has and never will be the creator of wealth.  Only the private sector can create wealth, and by increasing taxes on the American people, the result will only be a further destruction of jobs.

For example, let’s say that the rate of taxation for small business is increased by 6%.  That seems like a relatively small number, right?  Let’s then assume that the business has an annual gross income of $950,000.  Now, let’s say that the business has three employees, plus the owner-CEO.  The owner pays himself an annual salary of $75,000.  The three employees are each paid an annual salary of $32,000.  This amounts to exactly 18% of the company’s gross.  An annual 6% tax increase would cost $57,000 for that business.  That is nearly equivalent to the yearly pay for two of the three employees.  When looked at from this perspective, it is much easier to see why that business owner might want to keep that money for the business.  Maybe the business needs new equipment.  Maybe the employees need/want a better health or dental plan.  Maybe the owner wants to increase the size of the business and hire another employee.  These prospects potentially go out the window with the tax hike.

When you judge Krugman’s logic from all angles, it makes you wonder what he’s thinking.  In a nutshell, he is advocating that the Fed continue printing money, that the government raise taxes on all Americans, and that the government spend more money.  How the hell does he think we got into this mess, anyway?

Why a Non-Interventionist Foreign Policy is Safer Than Nation-Building

Ron Paul has been catching a lot of flack from other Republican presidential hopefuls lately for his ideas about foreign policy.  It is no secret to those who have been watching the campaign with some degree of regularity that Ron Paul is not interested in policing the world.  He wants to wrap up Afghanistan immediately, bring troops home from South Korea and Germany, and end various other overseas engagements.  He has also taken a “soft” stance on Iran, saying that it is none of our business if they have nuclear capability or not.

Honestly, I have no idea how mainstream America really feels about this, because most of my friends are quite liberal and are directly in line with Paul’s thinking on this.  So am I.  I don’t believe we have any business starting unconstitutional wars or spending decades and literally trillions of dollars on endless foreign engagements.  For one thing it is foolish.  For another, we simply do not have the money.  There are plenty of Americans at home who need help right now, and because we are spending so much money on foreigners, we are unable to take care of our own.

Still, there are some people out there – I don’t know them, but I’m sure they exist – who fear the US taking a less aggressive military stance.  The argument is that if we “allow” Iran to have nuclear weapons, that they will surely use them on us.  Another argument, of course, is that they might destroy Israel.  In that same line of thinking, some people are religiously motivated to protect Israel at any cost.  The final argument is the one that seems to emerge most often and to me seems like nothing more than a scare tactic: if we go home, the terrorists will come out in full force and destroy life as we know it.  Let’s address these fallacies one-by-one.

There are several points to make about Iran generally and nuclear weapons particularly.  First off, the US is mainly taking a hard line against Iran because of Kish Island and the fact that Iran refuses to trade using T-bills.  In other words, Iran has refused to help the US monetize its debt, given the fact that the US has been sanctioning Iran since the 1970s.  As I’ve mentioned before, Saddam stopped trading in T-bills prior to the US invasion, and look how that turned out for him.  Gaddafi apparently had plans to create an African gold dinar, which would help bring wealth back into Africa and allow Africa to have some bargaining power in a post-petroleum world.  From a strictly common sense standpoint, this is not a bad idea.

Of course, we all know what happened to Saddam and Gaddafi.

On the subject of nukes, it is frankly none of our business what Iran or any other country wants to do with their military defense arsenal.  How would Americans react if suddenly Great Britain was threatening to invade us because we have nuclear weapons?  I don’t think most Americans would react warmly to that scenario.  In fact, I think they would be downright ticked off.  It is none of our business how Iran spends its money.

This is usually the point where people argue that Iran is planning to do bad things with its theoretical nuclear arsenal.  How do we know that?  What proof do we have?  Iran doesn’t have the capability to launch a missile all the way to the US.  In that sense, they are not a direct security hazard to Americans.  The next argument that usually pops up is that they are a direct threat to Israel.  What most people seem to forget is that Israel is armed to the teeth.  They have a sizable nuclear arsenal.  They are more than capable of managing their own defense without our help.  In fact, one might make the argument that giving Israel monetary and military aid only makes them beholden to another country, which directly undermines that country’s sovereignty.

People say that we have a religious duty to protect Israel.  I argue that in our country, according to our founding laws, there is a clear and distinct separation of church and state.  Our government is not allowed to endorse one religion over another.  Religious conflicts are none of our business, and by giving Israel guns to kill Muslims, we are effectively condoning the Hebrew faith and throwing Islam under the bus.  I know that Christians and Muslims don’t have the best history, all told, but we should not be endorsing religions with gun power.  It breeds animosity and puts American, Israeli, and other countries’ citizens in mortal danger.

Of course, the final and usually most vitriolic argument is that if we withdraw from all of these countries that we will be annihilated overnight.  I hardly think that will be the case.  Bringing our troops home means that our nations’ borders will be protected.  How about devoting some troops to the US-Mexico border to help crack down on illegal immigration?  I certainly support that over building a fence.  (The thing to remember about fences is that they can just as easily keep people in as out.)

Some think that by withdrawing from places like Korea and Japan that we will be more at risk from China, a country that is clearly on the way to becoming a formidable military power in and of itself.  I have a lot of faith in American submarines, and I believe that a strong submarine patrol will go a long way towards maintaining our national defense, in that respect.

Most neocons would never admit this, but we create more problems for ourselves by trying to force other countries to bend to our will.  The CIA has admitted that terrorist events are largely the unintended result of a foreign policy that tells everyone else what to do: what weapons they’re going to have, who their leaders will be, and what they’re going to do for us.  Contrary to popular opinion, most suicide bombers are motivated by anger and disillusion, not by religion.  Religious groups tend to be a lightning rod for disenfranchised individuals who are making a protest.  Think about it: would you seriously consider blowing up an embassy in the Middle East because you hate Islam?  Probably not.  Again, contrary to popular belief, Muslims are not completely insane, irrational people.  I would be willing to bet that they are far more angry about American drones blowing up their houses or their grandmother being shot to death by US troops.  That would be a far more likely reason to join a retaliatory group.

The fact of the matter is that most of these terrorist cells are not a direct threat to American citizens.  They have neither the means nor the know-how to carry off mass plots against the US.  The US government talks about “terrorism” as though it is a person, as though a particular group of people or countries directly embody “terrorism.”  Terrorism is a tactic, not a person, not a country, and not a war.  We will never be through fighting a war against terrorism, because there will always be terrorists.  The notion that we can defeat a tactic is foolhardy and dangerous.

Far more dangerous, at this point, is the US government directly intruding into the lives of US citizens in the name of “security.”  The TSA putting their hands down your child’s pants does not make any of us safer.  What is does do is instill the notion in our minds – especially in the minds of young people – that we are all criminals, guilty until proven innocent.  The sheer notion of doing these dangerous X-Ray screenings and invasive pat-downs rests on the fact that you must prove your innocence.  Our country was founded on the principle of “innocent until proven guilty.”

A last point that I would like to make is from an extremely practical standpoint: we can no longer afford these lengthy foreign engagements.  As of the moment I wrote this article, the US national debt was tallied at $15,172,262,100,000, approximately (I can’t type quickly enough to keep up with it, actually).  The US debt per citizen is at about $48,000 per person and $134,00 for each taxpayer.  This information can be gotten from the US Debt Clock.  You may also be interested to know that over 47 million people receive food stamps, about 23 million people are unemployed, there are almost 67 million retirees/Social Security claimants, and 4.3 million federal employees out of a total population of 312,877,758 people in the US.  That means that 15% of the US population receives food stamps, 21% receive Social Security benefits, 1.3% are employed by the federal government, and 7.4% are unemployed.  Does that sound like a population that can afford to be building a new military base in Australia, keeping up an Iraq embassy bigger than the Vatican, and fighting on in Afghanistan, among other places?

From a philosophical standpoint, we shouldn’t be in these countries.  From a practical standpoint, we can’t afford it.  So why in the world are we there?  And why in the world are some of the Republican candidates beating the war drums against Iran?  What are they thinking?  Have they completely lost their minds, or don’t they know how to do simple math?  In either case, I worry a lot for the state of our nation.

At the end of the day, there is only one candidate who is talking about real change, and that’s Ron Paul.  He’s talking about getting out of our foreign entanglements, ending the perpetual monetization of our debt, and getting us back on the road to prosperity.  What are the others talking about?  Imposing their religious beliefs on others?  Attacking another nation for refusing to fund our credit addiction?  As for Obama, I think his record speaks for itself, particularly his willingness to sign off on the NDAA.

It is time for peace.  It is time to dial down the debt.  It is time for our country to have some good old-fashioned common sense again.  We will be infinitely better off for it.

Bloomberg Publishes Fed Bailout Data

Merry Christmas!!!  Bloomberg has just published the data acquired from the Federal Reserve concerning the recipients of the 2007-2009 bank bailouts.  Fox Business had to take the Federal Reserve to court to get this information (the suit alleged violation of the Freedom of Information Act), so this did not come without a fight.  That alone should tell us a lot about the Fed’s willingness to be transparent.  I am linking the original article in Bloomberg.  From there, you may download the whole of the information that is being made public.

The material will come in a ZIP file and includes an explanation from Bloomberg about how to read the (overwhelming pile) of Excel spreadsheets that accompanies the download.  I am also including this link to Bloomberg, which includes a graphic of the bailout that can be sorted by debt amount, industry (groups like McDonald’s and Toyota got bailouts, too, FYI), or by country.

This is vitally important information that needs to be spread as quickly as possible and to the maximum number of people.  I know that this website is not read by many people, so do us a favor and pass this around.  People need to know who got bailed out and to what extent.  I can’t stress enough how important it is for as many people, American and otherwise, to know about this information.

The list of bailed out parties includes but is not limited to:

JP Morgan (to the tune of almost $120 billion)
Bear Stearns
Deutsche Bank
Bavaria (the state)
Credite Suisse
Bank of America
Royal Bank of Scotland
American Express
BMW (Bayerische Motoren Werke)
Bayerische Landesbank
Societe Generale
Chrysler Financial Corp.
Ford Motor Co.
Merrill Lynch
Shinhan Bank (That’s over here, where I am!)
Washington Mutual

The list goes on and on.  Not all banks received tremendous bailouts like JP Morgan, Goldman Sachs, and others.  Some banks received relatively small  amounts, but the list is extremely extensive.  There are banks from Kansas City all the way to Sweden, China, and Argentina.  Quite a few German and French banks were on the receiving end of this wave of easy money, compared to other countries.

Looks like Christmas came right on time to the Lady Libertarian – a pile of incriminating documents courtesy of the Federal Reserve!  Now that calls for a little spiked eggnog to celebrate!

Ron Paul on Jay Leno – Friday, December 17th

Here is the Ron Paul interview on Jay Leno.  I thought it was a very good interview, actually.  Paul gets a good floor to talk about his positions.  This is better than the debates, if you’re interested in hearing more about Dr. Paul.  One thing’s for sure: the crowd loved him!  Very encouraging!


Ron Paul Debate Highlights 12/15

For those of you who aren’t devoted “Paulistinians,” sorry – this is another post about the good doctor.  These are the debate highlights from last night’s Iowa Republican debate.  I will readily admit that public speaking is not Ron Paul’s strength, but what he lacks in smooth transitions, he more than makes up for in decent talking points.  They really went after him about Iran, but I think he speaks excellently about war and peace.  Also, if you can’t stand Michele Bachmann – and I am among those who can’t – Ron Paul essentially hands her posterior back to her when she starts in about taking an aggressive stance with Iran.

I thought he did rather well, and he certainly came across as being more assertive than he has in the past, which is a good thing.  It bugs that me that Bachmann gets so much applause for wanting to attack Iran, but I have to remind myself that this is technically a Republican (read: hawk) debate, not a libertarian one.  I have to confess, I generally forget about the other candidates.  I try to block out the mainline Republicans as much as possible, because I think they’re about as useful as tits on a bull.

Even if you aren’t a big Paul supporter, I recommend viewing the video, particularly if the issue of peace is near to your heart.  Ron Paul is the only guy up there talking about bringing our troops home permanently, and that is music to my ears.

MF Global: Another Government-Funded Debacle

I just read about an article about UK hedge fund baby MF Global going bankrupt.  The filings were made back in October, and Congress has decided to investigate the whole thing, in light of the fact that $1.2 billion in client money has gone missing.  What a paltry sum, eh?  No worry.  Just add it to the pile of missing money in America.

If anyone thinks that issues like MF Global going tits-up are unrelated to the central banks and practices that closely mirror fractional reserve banking, they’re kidding themselves.  Unfortunately, central banks like the Fed and the ECB just feed the monsters.  Fractional reserve banking is nothing but a swindle, and this type of investment practice is the same thing: embezzlement.

Let’s start with fractional reserve banking made easy.  This will give you a fair idea of how the system works.  Let’s say I go to Bank A and deposit $100 in cash.  According to fractional reserve guidelines, the bank is required to keep 10% of my deposit on-hand at any given time.  They also make that promise to pay me back all of my deposit, should I ever wish to withdraw it.

We then move on to Mr. Jones, who either borrows $90 that Bank A lends him, or he receives it from another borrowing individual or entity, who pays him the money.  Mr. Jones then goes to Bank B, where he deposits that $90.  Bank B again loans out $81 to Mr. Smith, and the same story keeps repeating on down the line.  $90+$81+72.90+$65.61 = $309.51.  Thus, we can see that four transactions down the line, approximately $300 has been loaned out based upon the original $100 investment.  This is no problem, provided that there are many customers and none of them recall their deposits at the same time (a bank run).  It bears noting that, once the bank loans out a certain amount of money, they are no longer capable of paying back all of their depositors.

Why is this problematic?  Simple.  Banks are creating counterfeit claims to real wealth, which remains unchanged.  Yes, one can make the argument the banks, and therefore customers, are benefitting from interest paid on the loans, but this is a foolhardy notion.  Inflation will eat away whatever is gained through interest payments.  The creation of fake receipts doesn’t create more true wealth.  And if you hold claim to 10% of the real wealth before the loan goes out, you’ll claim even less later, after inflation is through with it.  You can make the argument that the banks are making life more convenient, but it always comes at a price – a cleverly disguised one, at that.

Why is this important to our discussion on MF Global?  Well, they were sort of doing the same thing.  They were putting up assets as collateral against bonds they were buying up – mostly European bonds, funnily enough.  According to Doug French of the Mises Institute, MF Global was using a neat little trick called a “repo,” which is basically putting up collateral that has the same maturity date as the loan. (The assets can be repurchased.)  Therefore, the transaction can be considered a “sale” and moved off of the balance sheet.  Ah, those off-balance-sheet transactions.  God love ’em.  The Fed sure does!

In any case, the customers were essentially taking the risk on the investments while MF Global sat back and collected the money.  French’s article states that the company moved something like $16.5 billion in assets off the balance sheet and went on to expose itself to debt that was worth more than five times the total value of the company.

The company also practices something called rehypothecation – pledging collateral for a loan, similar to a mortgage.  The company uses assets to secure its trading and borrowing.  In the US, companies can rehypothecate to the tune of 140% of the client’s liability to the broker.  This creates liquid capital, but there is nothing behind it, should the house of cards fall in on itself.  And the collateral ends up being promised to multiple creditors.  So what happens when four or five different creditors are fighting over the same piece of pie?

I highly recommend reading Doug French’s article for a clearer understanding of what’s really going.  I hope that MF Global isn’t the new Lehman Brothers, but with some economists predicting that rehypothecation is the newest and most dangerous credit bubble, it seems like that could be the case.  I suggest you look at the numbers in the article, because MF is the new Lehman Brothers, we are going to be in for a world of hurt – more so than we already are, financially speaking.

I think I’ll end this article with a nice little quote from Atlas Shrugged: “Look around you: what you have done to society, you have done it first within your soul; one is the image of the other.  This dismal wreckage, which is now your world, is the physical form of the treason you have committed to your values, to your friends, to your defenders, to your future, to your country, to yourself.”

Check out Doug French’s article “MF Global’s Fractional Reserves” at The Mises Institute online.



Ron Paul on Freedom Watch, December 8th, 2011

This video is a few days old, but there’s some interesting banter between Judge and Dr. Paul about the Fed.  In any case, Judge has been very good about giving Dr. Paul the attention he deserves.  I know Fox News has a bum rap, and rightly so in most cases, but I do enjoy Fox Business, and I particularly like Judge Napolitano.  Toss Glenn Beck and the rest of the neo-con pundits, but Judge, Stossel, and Varney are mostly okay in my book.  Anyway, give it a lesson.  Videos are always more interesting than listening to me talk anyway, right?

Ron Paul on Freedom Watch, December 8th, 2011

Bring the Bars Back Home

Gold bars, that is.  The Wall Street Journal recently reported back in August (I missed it) that Venezuelan president Hugo Chavez made the decision to pull most, if not all, of Venezuela’s gold reserves back from Barclay’s London and the Bank for Internetional Settlements in Basel.  There has been some speculation as to what Chavez may be up to.  I say speculation since he isn’t exactly keen to share his train of thought with Washington.

There are a variety of reasons why Chavez may want to pull his gold back into Venezuela.  For one thing, China has extended a credit line to the Venezuelan government, and so far, they have been meeting that obligation with payments of oil.  China is the international equivalent of a Hummer H4 towing a motorhome – it sucks gas faster than a fat kid sucks down a milkshake.  Another reason may have to do with the fact that Venezuela is embroiled in 17 arbitrations with companies who lost out big when Chavez nationalized pretty much everything Venezuela had to nationalize.  There is, however, one more theory, and it has to do with Libya.

Chavez made a vague mention of “the powers of the North” that robbed Libya through sanctions and so on.  Remember that article I wrote about Qaddafi and his gold dinar scheme?  Is it possible that Chavez is alluding to what some have called the real reason for our invasion of Libya?  It certainly wouldn’t be the first time that he has cast a dubious eye at the U.S. and its allies.  Of course, assuming for a moment that the gold and the oil was the real reason that we invaded Libya, Chavez might be onto something.  You don’t have to agree with everything that comes out of the man’s mouth, but if he is legitimately concerned about the same fate befalling him and his country, you can at least imagine what’s going through his head.

But back to the gold.  According to Zero Hedge, Chavez has gold deposited with JP Morgan, Barclay’s, and The Bank of Nova Scotia.  JP Morgan has reported almost exactly 10.6 tons of gold, which is exactly the amount that Chavez has recalled from storage in his bid to nationalize Venezuelan gold.  Great, so Chavez likes the stuff that glitters.  Who doesn’t?  What’s the problem?  The problem is that JP Morgan and others are using this gold to help back deposits.  Deposits which, in terms of the fact that they’re worthless paper money, are becoming more worthless by hour.  What is likely to happen is that gold prices are going to surge to new highs going into the new year, and the financial situation is going to become more precarious.  The race to find more gold is on.

This even took place all the way back in August, and at the time, JP Morgan was predicting that gold could potentially reach $2,500 per ounce.  I think that’s a bit of an exaggeration, as gold currently stands at around $1,725 per ounce and originally was not predicted to go higher than $1,850 in 2011.  I think that’s a more realistic expectation, but I certainly don’t look for the price of gold to go down anytime soon.  And it certainly seems to be worth noting that skeptics in the US aren’t the only ones who noticed something fishy about the whole Libya situation.  In a time when the economy is flagging and people and governments are ever-more desperate to keep the wheel grinding on for as long as possible, hang on to your gold.  Chavez might not be the most popular guy in America, but he’s not wrong about some things.  You know, the United States government has demanded that people hand over all of their bullion before.  From where do you think that old joke came about burying your valuables in the backyard?  It would appear, alas, that there’s more going on in the world than meets the eye, and I think we would all be wise to keep our eyes on our coin purses right now.

If you want to check out the sources, here they are:

“Venezuela Plans to Move Reserve Funds”The Wall Street Journal
“Chavez Emptying Bank of England Vault as Venezuela Brings Back Gold Hoard”Bloomberg
“Chavez Decrees Nationalization of Gold Industry Amid Surging Bullion Price”Bloomberg
“Perfect Storm Sees Gold and Silver Surge” – Gold Seek
“As Chavez Pulls Venezuela’s Gold from JP Morgan, is the Great Scramble for Physical Starting?”Zero Hedge

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