Capitalism versus Cronyism and Big Govt

From ZeroHedge:

One common claim is that capitalism exploits the masses for the benefit of the few. Many people who think capitalism exploits workers advocate increasing government power over the economy. Professor Matt Zwolinski suggests, however, that government power may be more exploitative than free-market capitalism. After all, in the marketplace, individuals have power over how they spend their money. The government, however, possesses the power to coerce citizens to pay for policies or programs they may not support, like bank bailouts. Zwolinski argues that bigger government makes citizens more vulnerable to exploitation.
Here's his short but good video:







Bigger government ultimately means more corruption and a loss of your liberty. The US Federal government spending was only 8% of our GDP just 60 years ago, was steady at about 19% for decades and has rocketed to 25% thanks to Bush and Obama. Slowly but surely, the reach of Big Brother becomes oppressive and intrusive when Government has virtually unlimited power to tax and fund itself.  To maintain their hegemony over the citizens, Big Government becomes coercive thenWe need a "no growth"or shrinking government (demand more productivity). Ron Paul was always the right choice for President. I have my doubts about Romney, but Obama is, and has been, wrong for America.

US Ghetto Culture and Growth Industries

Food Stamp Nation
Over one in seven Americans are now using Food stamps.  And, as the government runs $1+ Trillion deficits for the 4th year in a row, the government is running ads to get more people enrolled in the program.  The cost of this program alone is some $80 billion per annum and rising rapidly.

According to CNN Money, the USDA is running ads to encourage more enrollment of eligible people. There are some 46 million people on this supplemental assistance program up from 27 million in 2007.  Obviously the ongoing recessionary conditions are hurting the poor more than anyone else--as is always the case.

WalMart's Gain

From Mike Krieger at Zero Hedge, reports that from 25 to 40% of some of WalMart's store revenue come from the Food Stamp program. Not surprisingly then, as Food Stamp and Social Security disability rolls continue to rocket higher (more on Social Security Disability in an upcoming blog), WalMart stock is up 14% this year to date. Welcome to one of the few growth businesses in America!

I've been in plenty of WalMarts and I've wondered many times if I'm in a 3rd world country.  I alternate between feeling if I'm in West Africa, in Central America or in Mexico.   Or did the prison buses just arrive?   I'm not wrong about the criminals either.  I know two people who have been assaulted in WalMart parking lots.

Ghetto Culture
As if you needed further reminder of the US Ghetto culture, Mike Krieger also notes the Corrections Corp of America stock price is up 41% this year! The ticker symbol is CXW. Now, that's a great stock! I wished I owned it!

Obviously they build and operate prisons. I'm sure they will help to incarcerate a large number of those 3rd world nationals frequenting WalMart and spending Food Stamp money.

So, there you have it.  America's growth industries are prisons and businesses who benefit from Food Stamp money!   I guess you could add gambling casinos, marijuana production, and lotteries as US "growth" industries to complete the picture of increasing US cultural decay.

Definitions to Understand "Liberal Speak"

A fun guide to Liberal "buzz" words and phrases from Cliff Asness and Zero Hedge:

Failed Policies of the Past

Definition: Limited government, free markets, personal responsibility, liberty.

Social Darwinism

Now is defined as "any attempt by conservatives and libertarians to rein in the unsustainable spending of out of control government."

Entitlement

Definition: Something provided by other men and women’s labor that some claim as their right, sometimes claiming to have paid for it during their lifetime, when all forms of modern mathematics and accounting reject that notion.

Rights

Used in a sentence: “I have a right to healthcare.”

Definition: A more extreme form of “entitlement” defined above. Note that modern usage throws out the long tradition of natural rights only of a negative nature, that is, the right not to have something done to you, for rights of a positive nature, that is, the right to certain goods and services, like health care, Apple products, and soy milk. Since, no matter how important these items are, these modern positive rights must still be produced and taken from others, essentially the word “rights” now often stands for a system of slavery and theft.

Paul Ryan

Definition: A “Paul Ryan” is a Hollywood monster which kills and devours old people simply by showing them a preliminary reasonable plan to grow spending slower than we currently are, while keeping any obligations already made to the elderly.

Reform

Definition: To make something (e.g., government) bigger, more intrusive, less efficient, and more dictatorial.

Bipartisan

Definition: We found one old sap from the other party dying for one last shot at relevance who will add his name to our highly partisan effort.

Right Wing Extremist

Definition: Someone objecting in any way to left wing extremism.

Conservative

Definition: Moron

Liberal

Definition: A word that when applied to yourself conveys an instant halo of goodness that does not have to be justified with actions, logic, or even the slightest examination of what the policies you support have wrought. Works particularly well for rich hypocrites (Wall Street) and rich morons (Hollywood).

Progressive

Definition: A rebranding of “liberal” post-Dukakis, going back to an older word, that means essentially the same thing, but contains the very positive word “progress” within it, and the always welcome “ive” ending.

Libertarian

Definition: A philosophy held by annoying bastards who happen to be right about nearly everything. Fortunately, due to the frustration that comes with being right about nearly everything, in a world wrong about those same things, there are only 19 of them, and we’re going to find the bastards soon.

The Party of No

Definition: Legislators who are rightly demonized by the press and progressives for being elected to bring down the size of government and then actually trying to do so.

Trickle Down Economics

Definition: A brilliant marketing phrase for denigrating the truth: that a freer economy helps everyone. Not to be confused with “trickle up poverty” a perfect definition of socialism.

Democracy

Definition: An excellent form of government where if you can cobble together 51% of the people, by promising them other people’s stuff, or scaring them that you’ll take away their stuff, you can rule as a dictator. It is decidedly not the form of government originally chosen by the United States of America, which is a constitutional republic with limited government. Thankfully we’ve mostly done away with that nonsense.

Socialism

Definition: A word that is a hate crime if used about an American politician who wants us to be more like Europe. Or, alternatively, a word used by many European politicians to define themselves.

Get Ready for a Lehman's-Style Credit Crunch

Everyone has heard of the end of the world supposedly predicted by the Mayan calendar at the end of 2012.

Well, the end of our financial and economic well-being may be coming this year--by the end of 2012.  Events are playing out in such a way to climax this fall and into the end of the year.

The upcoming calamity is a complete collapse of the world of credit and banking that will usher-in something akin to the Great Depression--but perhaps worse.   Raoul Pal outlined a sequence of events in my blog that may very well result in the biggest financial crisis that the world has ever seen--the "Great Reset".   Events are now moving faster than feckless politicians can react--especially in Europe.   Europe is basically "ground zero" of the impending Armageddon.

Sounds crazy?  Perhaps.

But now, in a statement from a Bank of England policymaker and spokesman, comes a warning that the cross border liquidity crunch building in Europe is already reducing liquidity and that everyone should get ready for a Lehman's style credit collapse.   To refresh your memory, such a collapse ends with a halt of credit for trade and a seizing-up of finance across the world; where world-wide commerce grinds to a halt as in the 2008 Lehman aftermath.   The ultimate version of the credit crunch this time is that there will be no trade finance, no finance for farmers, no shipping finance,  no leasing, no bond market, no nothing.

Now from The Telegraph and Bank of England policymaker Robert Jenkins

Cheap and ready access to the liquid assets that oil the financial markets are under threat from both state-imposed capital controls and flagging confidence in the euro, Robert Jenkins, a member of the Bank’s Financial Policy Committee, told the Global Alternative Investment Management conference in Monaco.

Without easy access to liquidity, markets could seize in a re-run of the credit crunch after the collapse of Lehman Brothers, he warned.

“Those of you who traded asset backed securities in 2008 can testify to the speed with which liquidity can disappear,” he said. “Yet despite these examples, many continue to assume that ... ‘liquidity’ is free and will be freely available.

“Short-selling bans in Europe and bond purchase penalties in Brazil are a foretaste of the future. I recommend that you send your best and your brightest to the library to research state intervention in the post war period. It could come in handy. For like clean air and water, market liquidity is no longer limitless and no longer free.”

His comments came just minutes before the Bank launched its first £5bn emergency liquidity auction under the arrangements unveiled last week to protect Britain’s lenders from a crunch. At least £60bn will be made available to Britain’s banks over the next 12 months. 

Mr Jenkins’ comments in Monaco illustrated the urgency of the scheme. Markets are facing another crisis due to the resurgence of “cross-border” risks in the eurozone, he warned, and a calamity will not be averted unless confidence is comprehensively restored in the single currency project.

“The spectre of cross border risk is back. Its impact is difficult to quantify but must not be underestimated,” he said. “Capital is leaving the very countries that need it – and flowing to the countries that don’t. At the same time financiers are cutting back on credit while they determine and manage their cross-border risk.

“It is not enough to contain an accident. The challenge is no less than to restore faith in the entire euro construct. Confidence must be such as to completely banish cross-border risk from financial planning.

"Until and unless this is accomplished the euro zone credit system has the potential unravel, the free flow of capital will be impaired and the economic recovery constrained."

My recommendation is that you have enough cash around to survive several months of "banking holidays" where ATM machines don't work and there will be limited access to cash.   I know it sounds crazy, and it's still not the most likely scenario, but don't say that you weren't warned.  Dollars and gold will be the great safe havens in the most extreme crunch envisioned.

Pictures of Koh Samui and Koh Tao Thailand

In a break from 'hard news,' please enjoy the following recent vacation pictures in Thailand.  There is a blog coming in the near future about Thailand and my impressions after 15 years of visiting here.

Exercising in Lumpini Park (sorry, no picture yet of me actually exercising!)

Koh Samui and Koh Tao

I hope you enjoyed them.  Click any/all for larger image.

The Scariest Outcome Ever Imagined

From Zero Hedge and Raoul Pal

• We don’t know exactly what is to come, but we can all join the very few dots from where we are now, to the collapse of the first major bank…
• With very limited room for government bailouts, we can very easily join the next dots from the first bank closure to the collapse of the whole European banking system, and then to the bankruptcy of the governments themselves.
• There are almost no brakes in the system to stop this, and almost no one realizes the seriousness of the situation.
• The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives…
• Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations
• From an EU crisis, we only have to join one dot for a UK crisis of equal magnitude.
• And then do you think Japan and China would not be next?
• And then do you think the US would survive unscathed?
• That is the end of the fractional reserve banking system and of fiat money.
• It is the big RESET.

It continues:

• Bonds will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
• The whole bond market will be dead.
• Short selling on bonds - banned
• Short selling stocks – banned
• CDS – banned
• Short futures – banned
• Put options – banned
• All that is left is the Dollar and Gold

• We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses.
• Spend your time looking at the risks of custody, safekeeping, counterparty etc. Assume that no one and nothing is safe.
• After that…we put on our tin helmets and hide until the new system emerges
• From a timing perspective, I think 2012 and 2013 will usher in the end.
• You have to understand that a global banking collapse and massive defaults would bring about the biggest economic shock the world has ever seen.
• There would be no trade finance, no finance for farmers, no shipping finance,  no leasing, no bond market, no nothing.
• The markets are at the frankly terrifying point of realising that LTRO, EFSF, QE etc are not going to prevent this collapse..
• The next phase as Spain and Italy go, will be the nationalisation of banks and the assumption of the bank debts on Government balance sheets.

• Then expect to be shut out of financial markets……

America's Road to 3rd World Status

The following is a good article on how the US headed to 3rd World country status if there are not fundamental reforms.    Have a look at  How the United States Will Become a 3rd World Country by Ron Hera at Hera Research LLC and published in www.marketoracle.co.uk

Here's an excerpt:

The United States increasingly resembles a 3rd world country in terms of unemployment, lack of economic opportunity, falling wages, growing poverty and concentration of wealth, government debt, corporate influence over government and weakening rule of law.  Federal Reserve monetary policies and federal government economic, regulatory and tax policies seem to favor the largest banks and corporations over the interests of small businesses or of the general population.  The potential elimination of the middle class could reshape the socioeconomic strata of American society in the image of a 3rd world country.  It seems only a matter of time before the devolution of the United States becomes more visible.  As the U.S. economy continues to decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate.  There is little evidence of political will or leadership for fundamental reforms.  All other things being equal, the U.S. will become a post industrial neo-3rd-world country by 2032.

Nothing is etched in stone, but when a nation runs a $600,000,000,000 dollar trade deficit year after year, it transfers that amount of wealth to China, Korea, Oil Producing Countries, etc EACH YEAR.  Those other parties except paper notes (IOUs) in exchange for real goods until there is a loss of confidence in those promissory notes.  When that happens, there may be a rapid loss of purchasing power as the dollar drops and inflation rises.  The slide to 3rd World Status will be relatively quick on historical timeframe.

Four more years of gridlock in Washington might cause this loss of confidence.  Obama, true to his African ancestry, will continue to act (or, more importantly, to not act) to help the descent into 3rd World status.  That's why my blogs Washington's Anti-Energy Policy, A Real Energy Plan For America, US Govt Policies Are Not Working and Washington is Corrupt All the Way to the Top  are relevant to reversing trade deficits, reversing counter-productive government policies and improving some sort of "rule of law" in this country.

Charles Biderman: Austerity is a Dirty Word

Charles Biderman, with TrimTabs, nicely summarizes in under 4 minutes how we (and Europe) got to where we are today with 30 years of perspective.

Washington's Anti-Energy Plan

While the President drifts off onto another relatively irrelevant topic of gay marriage, the real issues of the day are ignored.

There's never been an administration with any real national energy plan in my lifetime.  The difference today is that there's real potential to improve our trade balance and energy security with the shale oil and gas boom increasing domestic production on private lands (land under Federal jurisdiction has seen a decline in production due to slower permitting and the overreaching drilling ban after the BP disaster).

So, why the Congress and President dither on irrelevant issues, some people have serious ideas for substantial improvements in our energy security and trade balance.  See my A Real Energy Plan For America. 

In an May 10th interview with CNBC, T. Boone Pickens says that he is finished with Washington and national politicians.  He's not finished with business but finished with Washington. He said "that they don't care about energy independence." Pickens has been trying to cajole and promote a plan to the President and Congress to convert the nation's trucking fleet to natural gas and displace as much as 2 million barrels per day of oil with new found shale gas.   His goal is improve the country's national security by reducing our reliance on imported oil.   Saying of Washington, "the whole deal is designed to fail."

I don't how Boone Pickens was to benefit or profit from his negotiation with Washington politicians as the shale oil and gas boom goes on despite Washington.

There has never been any energy plan in my lifetime, but with the hydrocarbon adverse, hand-wringers in Washington, we now have an anti-energy plan with this administration.

Washington Is Corrupt All The Way To The Top

We've heard Obama and the administration were going to go after the bad actors on Wall Street back in the "bail-out" days of 2009.   But why are there no prosecutions?  No one is in jail.  The SEC remains completely asleep at the wheel and Eric Holder's department of justice prosecutions of fraud and securities violations are at a 20 year low.

Well, it turns out that Obama's talk is just  rhetoric:  hypocritical and cynical politics---Chicago style.

From Breitbart.com's "Justice for Sale at Holder's DOJ"

Holder and Obama’s anti-Wall Street “law and order” rhetoric has turned out to be a smokescreen that allows the Obama campaign to talk the talk of the 99% while taking money from Wall Street’s 1%.  The result is extortion by proxy.  As President Obama put it to the Big Finance executives who met with him at the White House just two months into his presidency, “My Administration is the only thing between you and the pitchforks.”

Not surprisingly, of the elite bundlers who made up Obama’s 2008 campaign, the second most represented industry after law was the securities and investment industry.  It’s a level of hypocrisy that has outraged even committed leftists.  Industrial Areas Foundation activist Mike Gecan put it squarely: “I’m from Chicago, I’ve seen this game played my whole life."

So what have the securities and banking industries received for their political contributions? 

As Boyer and Schweizer report entitled "Why can't Obama Bring Wall Street to Justice?", Department of Justice criminal prosecutions are at 20-year lows for corporate securities and bank fraud.  And while large financial institutions have faced civil prosecution, those typically end in settlement fees with the major banks that represent a fraction of their profits, often paid through special taxes on mortgage-backed securities.  

It’s the most crass and cynical brand of politics imaginable, the Chicago Way writ large: pay to play justice from the nation’s highest law enforcement official. 

Washington is, in part, in the hands of Chicago mobsters.

Austerity? What Austerity?

Paul Krugman is on a rant these days; raging about how "austerity" is causing all of the problems in Europe.  But there is scant evidence of any spending cuts at all.   Here's a chart below (click to enlarge) that shows that spending has been increasing in nearly every country.  Only Greece, Spain, Italy (and slightly in Ireland) is where there is some actual drop in spending but only reversing some large prior increases--all are only reduced back to 2008 levels (2007 for Greece).

You've heard about all the austerity in Britain.  Forget it, spending is increasing.  Hat tip to Brian Doherty at Reason for the chart reference.

Francois Hollande just won an election in France denouncing "austerity" but you can see from the chart below that French government spending is up, up and away.  No austerity in sight.  What opium is the French population smoking??   There is a price to be paid however.  French Government bond yields are now over 1.8 percentage points greater than German bonds (3.4% ten year French yield vs. 1.6% ten year German yield).

There is certainly no austerity in the US either.  Obama is lambasts reduced INCREASES in spending as "cuts" in govt spending.  The "Ryan budget" increases federal outlays from roughly $3.6 trillion this year to nearly $4.9 trillion in 2022.  But Obama called this a "cut" because he wants to increase spending to $5.8 trillion in 2022.  He has called Ryan's attempt at sanity a "radical right wing" tactic and "social Darwinism".   Do you think it's campaign season?   If American's buy this, then they deserve what they get.

Perhaps the chart is misleading as it's expressed in current prices and based on purchase power parity/

That said, my point is that we live in a time, where in political circles,  reductions of spending increases are lambasted as "cuts".   Nonsense!   Basically politicians never actually cut spending until horrific crises intrude.

Crises are coming as sure as the sun rises in the East.

The US Gov't Economic Policies Are Not Working

Did you ever notice that Bernanke keeps citing the Great Depression of the 1930s for his lessons in the current environment?    But the government of FDR never did get the nation out of the depression--until all-out wartime spending in 1941.

The current government's policies of "stimulus", TARP, QE, stock market 'jimmying', and starving savers with zero percent interest rates are also NOT WORKING!  

From a great article by Jim Grant, called "A Piece Of My Mind," Jim asks why don't we look at the depression of 1920-21 under President Harding instead?

If Chairman Bernanke were in the room, I would respectfully ask him why this persistent harking back to the Great Depression? It is one cyclical episode, but there are many others.

I myself draw more instruction from the depression of 1920-21, a slump as ugly and steep in its way as that of 1929-33, but with the simple and interesting difference that it ended. Top to bottom, spring 1920 to summer 1921, nominal GDP fell by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was inexactly measured, topped out at about 14% from a pre-bust low of as little as 2%. And how did the administration of Warren G. Harding meet this macroeconomic calamity? Why, it balanced the budget, the president declaring in 1921, as the economy seemed to be falling apart, "There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures." And the fledgling Fed, face to face with its first big slump, what did it do? Why, it tightened, pushing up short rates in mid-depression to as high as 8.13% from a business cycle peak of 6%. It was the one and only time in the history of this institution that money rates at the trough of a cycle were higher than rates at the peak, according to Allan Meltzer.

But then something wonderful happened: Markets cleared, and a vibrant recovery began. There were plenty of bankruptcies and no few brickbats launched in the direction of the governor of the New York Fed, Benjamin Strong, for the deflation that cut an especially wide and devastating swath through the American farm economy. But in 1922, the first full year of recovery, the Fed's index of industrial production leapt by 27.3%. By 1923, the unemployment rate was back to 3.2%. The 1920s began to roar.

If you object to using the template of 1920-21 as a guide to 21st-century policy because, well, 1920 was a long time ago, I reply that 1929 was a long time ago, too. And if you persist in objecting because the lessons to be derived from the Harding depression are unthinkably at odds with the lessons so familiarly mined from the Hoover and Roosevelt depression, I reply that Harding's approach worked. The price mechanism is truer and enterprise hardier than the promoters of radical 21st-century intervention seem prepared to acknowledge.

In notable contrast to the Harding method, today's policies seem not to be working. We legislate and regulate and intervene, but still the patient languishes. It's a worldwide failure of the institutions of money and credit.

I'd like to see Jim Grant as the next Chairman of the Federal Reserve.

What would he do? He would begin to normalize interest rates, argue to make the Fed's sole mandate to maintain price stability (remove the full employment mandate) and study the re-establishment of a modern day gold standard.