mercoledì 28 novembre 2012

The IMF in Egypt: revolution or coming full circle?

The IMF in Egypt: revolution or coming full circle?

COMMENT|AMR ADLY|26 NOVEMBER 2012
http://www.brettonwoodsproject.org/art-571539
The Egyptian government has finally concluded an initial loan agreement with the International Monetary Fund (IMF) following two years of continual negotiations. The agreement is to be finalised by the IMF board and then signed and ratified by the Egyptian president who holds both executive and legislative powers following the parliament’s disbanding several months ago. The government hopes that the loan will help to overcome Egypt’s chronic fiscal and financial problems that have become pressing due to the political turmoil following Mubarak’s ouster in February 2011.
The Egyptian economy is suffering from an ever-widening fiscal deficit that has exceeded 11 per cent of GDP in the last fiscal year. The deficit is expected to increase to 13 per cent by the end of the current fiscal year. Moreover, the Egyptian economy has been suffering from dwindling foreign reserves and a deteriorating balance of payments position, with large capital outflows, low investment rates and a slow recovery in the tourism sector.
The IMF loan is seen as a way out of these complex crises. The government claims that Egypt’s foreign debt stock is not that big (around $32 billion) and that the cost of foreign borrowing is far lower than domestic borrowing. They support their argument by asserting that the IMF loan will open the door to more capital inflows including through borrowing from other international financial institutions and via attracting foreign investments.
However, the IMF loan does not really provide a way out of Egypt’s economic troubles, for many reasons. To start with, the IMF loan is worth 30 billion Egyptian pounds($4.9 billion), which is hardly sufficient to cover the projected budget deficit that is expected to range from 170 to 200 billion Egyptian pounds.
Secondly, even if the IMF agreement opens the door to additional loans, most of the money will go to cover current expenses unless Egypt’s budget undergoes serious restructuring. It is noteworthy that the new regime has proven to be quite incapable of tackling sensitive economic issues, such as energy subsidies, the exchange rate and taxation policies. The restructuring of public expenditure is a medium-term issue that is contingent upon the new rulers’ political will and their capacity to forge a broad socio-political alliance that may enable them to undertake the necessary reforms. This process is completely independent of the IMF loan and is related to broader political settlements in post-revolutionary Egypt. If no restructuring takes place, foreign loans will just mean a cycle of increasing debt incurred for the sake of financing recurrent expenses with little or no return, making the whole process of indebtedness far from sustainable.
Thirdly, the government claims that the IMF loan will serve as an indicator that the Egyptian economy is on track for recovery and that the country has a clear set of policies. This is expected to support Egypt’s drive for recovery by attracting foreign direct investment and thus generating higher rates of growth. This argument hardly stands as there are other variables which attracting investment is contingent upon: political stabilisation, the international financial crisis and domestic security, to name a few.
One can safely say that the IMF loan will barely contribute to Egypt’s economic recovery. The IMF loan agreement is likely to attempt to solve the state’s fiscal problems through higher indirect taxes, slashing subsidy and devaluation of the local currency. The loan is not inevitable or necessary to support the economy and pull it out of an imminent recession. Rather it risks pushing Egypt into a spiral of public indebtedness that will deepen its fiscal and financial crises and undermine genuine chances of democratisation.
What the IMF loan offers is support for a set of political-economic choices that are predominantly conservative and that aim to reproduce the same old economic settings and interests without the least change following the revolution. The IMF package simply holds the broader base of Egyptians liable to pay for the readjustment of the economy. The package's likely reforms significantly contradict the Egyptian people’s aspirations to remodel the country’s development paradigm to be more just and inclusive.
Amr Adly is director of the economic and social justice unit at the Egyptian Initiative for Personal Rights; and a member of the Drop Egypt's debt campaign.


We welcome submissions from representatives of Southern civil society organisations for the “comment” feature. If you are interested in contributing please contactcomment@brettonwoodsproject.org.

martedì 27 novembre 2012

Thomas Greco Newsletter–November 2012


Newsletter–November 2012

In this issue

Tour report—Europe/UK

Musings on Travel in Britain

Recent Posts


Report—2012 Tour of Europe and UK

I recently completed a five week tour of Europe and the UK during which I gave a total of 15 presentations and workshops to various groups, in addition to consultations and discussions, and had occasion to meet up with many kindred spirits and colleagues working in the realm of societal transformation. Now, back in Tucson, I'm tying up loose ends and gradually adjusting to a more leisurely pace. The last two weeks of the tour in England were the most physically demanding. I was back and forth between London, York, London, Ambleside, Lancaster, Cambridge, and back to London. The tour has resulted in some new friendships and collaborations, and opened up exciting new possibilities for our work.

Here’s an outline summary of my activities during the 5 week tour.

Geneva.

I left Tucson on October 1, arriving in Geneva on the 2nd where I was hosted by Tim Anderson of Community Forge (http://communityforge.net/home).

On October 3, I was one of three presenters on a panel session titled, Solidarity Economy & Alternative Finance, at the United Nations Palais des Nations. The session was moderated by Hamish Jenkins of the UN Non-Governmental Liaison Service (NGLS). The other panelists were:

- Peter Utting, United Nations Research Institute for Social Development (UNRISD) who spoke about general trends and issues relating to the solidarity economy, and

- Frederic Lepeyre, who spoke about his research with the ILO.

You can find a full report of the session at the NGLS website: http://www.un-ngls.org/spip.php?article4134



On October 5 and 6, I conducted a workshop on moneyless exchange for a group of Community Forge associates.



You can view my photo album of Geneva at: https://picasaweb.google.com/112258124863172998784/201210Geneva



Crete.

I was on the island of Crete from the 6th to 14th of October, during which time I participated in a two day workshop on Community Exchange Systems and Alternative Currency Systems for Sustainable Communities, led by Prof. Jem Bendell, as part of the International Sustainability Summit that was held at the European Sustainability Academy (Sharon Jackson, Director).



My presentation was titled, The Emerging Butterfly Society: Making the shift to a steady-state economy and a world that works for all.

The 2-day workshop included a sharing of experiences and ideas by leaders of local exchange groups from Crete and from Volos on the Greek mainland. The latter was represented by Giannis Grigoriou one of the co-founders of the Volos credit clearing exchange (called TEM) that has gotten considerable coverage in the international media, including the New York Times, PRI, and the BBC.



A concrete result of the workshop was an agreement to publish The Drapanos Declaration on exchange alternatives. Here is the text of the Declaration in English:

Individuals, communities and environments are the true source of our wealth and well-being.

Therefore we develop alternative means of exchange between individuals and organisations to foster more cooperative and equitable relations.

Although we may focus on our own communities, we share this principle with other communities.

Therefore we commit to work together in Greece and worldwide, to improve our practices, so that more communities connect to their own abundance.

Our efforts are part of a greater movement to make economic activity more accountable, socially beneficial and environmentally sustainable.

Our work must develop ever expanding circles of cooperation, exchange and learning.

We invite others who share these aims to join us in a growing movement and emerging profession on community exchange.



We are asking others to join in endorsing this Declaration. You can do so by adding your name in a comment to the post at http://jembendell.wordpress.com/2012/11/08/drapanosdeclaration/, where it is also available in Greek.



You can view my photo album of Crete at: https://picasaweb.google.com/112258124863172998784/201210Crete?authkey=Gv1sRgCMGYobzDmaroCQ



Volos.

Following Crete, Sergio Lub and I flew to Thesoloniki where we were met by Andreas Andreopoulos who had helped to organize our mainland tour. The following day, Andreas transported us to Volos where we met up again with Giannis who had arranged for us to conduct a workshop for a dozen or so of the core people in the TEM exchange. He also arranged for me to do a brief interview with a local TV channel, and for us to meet with the Mayor, who has been very supportive of this grassroots effort to cope with the financial austerity being imposed on Greece by the IMF and the EU.



My urgent message to the TEM organizers, as well as to the other groups that I addressed throughout my tour, was this.

In order for a mutual credit clearing exchange to be scalable and successful over the long-run:

(1) it must be anchored in the local business community, especially the small- and medium-sized enterprises that form the backbone of every local economy, and

(2) the allocation of credit lines cannot be arbitrary, but must be based primarily on the level of sales by each account into the exchange.



The fundamental objective of mutual credit clearing is to create liquidity within the local economy, i.e., to provide a means of payment by which associated producers can buy and sell with one another without having to rely on the availability of scarce official money. That liquidity must logically be founded upon local productivity. It is therefore the most productive enterprises that should be allowed to carry negative balances in the system. Because they have demonstrated their earning power, they are the ones that can be trusted to spend before they earn. Except for small credit lines allocated to new members who bring goods or services ready for sale to the market, all others should be required to earn credits before they can spend.



After Sergio’s departure to return to the U.S., I stayed on in Volos for two more days during which Giannis took me to meet with the Archbishop and to do an interview on the Diocesan radio channel. He also took me to visit the twice weekly TEM market to observe the variety of things being offered, and to talk with some of the participants.



Athens. On October 18 I took a motor coach to Athens where I met up with some like minded colleagues and participated in a festival on the Solidarity Economy during which organizers of several exchanges came together to discuss how their local exchanges might be networked together. My thanks to Anthi Theiopoulou for providing hospitality during my Athens stay.



You can view my photo album of Mainland Greece at: https://picasaweb.google.com/112258124863172998784/201210MainlandGreece?authkey=Gv1sRgCPLJ4KvFz9KTbw



UK. On October 23 I flew to London, then journeyed onward by train to York to give a presentation at the York LETS Conference. I then traveled back to London on the 26th to do a colloquium at the New Economics Foundation (NEF) and two workshops for LETSLink UK on the 27th and 28th, finishing on the evening of the 28th with a presentation in Brixton sponsored by NEF and the Brixton Pound.



I next travelled to Ambleside in the heart of the Lake District to give a presentation, Beyond Money, Banks, and the Left-Right Divide, for executive MBA students at Cumbria University.



The following day (October 31), after joining the MBA group for a boat ride on Lake Windermere and spending a couple hours at the Ruskin Museum in Conniston, we proceeded to Lancaster where I gave a lecture to a mixed audience at the Lancaster campus of Cumbria University, then followed up the next day with a workshop that was supposed to last 3 hours but stretched on closer to five.



All in all, I was quite pleased with this tour. I think we accomplished some significant results, and I was encouraged to meet up with so many dedicated and able people along the way.



You can view my photo album of England at:

https://picasaweb.google.com/112258124863172998784/201210UK?authkey=Gv1sRgCKik98HWgZzhtwE

__________________________________________________________________________

Musings on Travel in Britain

The British rail system is extensive and rather good in terms of coverage, comfort, promptness, and convenience, but it is outrageously expensive. It seems that privatization in Britain has been taken to absurd extremes of exploitation. Going from London to the Lake District (Windermere), a journey of about 3 and a half hours, cost £92 plus a £1booking fee, plus a £4fee for using a credit card to pay—even though I had to do all this myself online (£97 amounts to about US$156). Furthermore, I had to pick up my ticket from an automated kiosk at the station, which required that I insert the credit card that I used to pay for the ticket. (Is it any wonder that we have an unemployment problem?) That is presumably for security purposes to track who bought the ticket and determine the identity of the traveler. That poses a major problem when the traveler and the purchaser of the ticket are not the same person.

The best (and most necessary) things in life are no longer free.

Another gripe I have is that there are no free toilets or drinking fountains at the stations. If you wish to quaff your thirst, you are obliged to purchase overpriced bottled water from one of the many vendors who sell it at about the same price as soft drinks or juice. Then, in order to relieve oneself, s/he is obliged to pay 30 pence (fifty US cents) and negotiate a narrow turnstile to enter the lavatory (imagine doing that with a large bulky suitcase). It should be obvious to everyone that the bare necessities of life should be freely available to everyone. In a society in which our common birthright has been carved up and appropriated by those who are best at gaming the system, indeed, at rigging the system to serve their narrow self-interests, that would seem to be the least that might be done. I propose that the Brits launch a popular campaign (and this is one where the graffiti artists can play a useful role) with the slogan: Free to Pee! Abolish Pay Toilets.

As a side note on that point I might also mention that Ryan Air, a British low cost carrier, has begun charging passengers to use the lavatories aboard their planes. I happened to see a TV interview with the head man of Ryan Air in which he expressed his desire to eliminate all but one of the lavatories on his planes so that he might install additional seats “to carry more passengers at low fares.” Well, sir, maybe when your passengers begin to mess their pants on-board, you will realize that there can be too much of a good thing. Perhaps this is all an experiment to determine just how much indignity and abuse people will put up with to save a few dollars, pounds, euros, or whatever. All of that, together with the shopping mania that becomes especially intense as the holiday season begins, is evidence of the extreme degree to which money has come to dominate our lives, with its scarcity forcing us to focus ever more of our energies on the material aspect of life.

I think too that perhaps the Brits have become a bit too compliant and tolerant overall. You can walk the streets of London and see some people covered from head to toe with only an open slit for the eyes to peer out. These people are presumably women, but who knows? There are security cameras everywhere but what good are they if you cannot see a person’s face or any other identifying features? This seems to me to be a serious gap in the government’s security net. In the US one cannot enter a bank or public building wearing even sun glasses or a hat.

Travails of Travel

It’s interesting how life often shows us things in sharp contrast. I've had occasion on this tour to live both high and low. After being comfortably hosted in people’s homes or lodged in some pretty nice B&Bs, I had occasion to experience one of the rudest accommodations ever. At the very end of my tour, I arrived in London by train from Cambridge late on a Friday evening. I had expected to find an affordable bed at one of the many hostels around King’s Cross station, only to find that they were all booked up. The friends I tried to contact all either had guests or were unreachable. After dragging my heavy suitcase all over town I was desperate and willing to sacrifice a week’s income for a night at the Travelodge, but even they were full. An online search turned up a vacancy at a hostel (No. 8) in an outlying area, which was twice the price of any of the others, but at that point I had no other option so I phoned (via Skype) to assure my place.

After an hour’s journey on the Tube and on foot I arrived around 10 PM to find the place to be not only expensive, but far below par. Exhausted and demoralized I decided to grit my teeth and resign myself to my fate. I had to drag my heavy luggage up two narrow wooden staircases to reach my room which I had to share with three other people. Each step of the way revealed the place to be even a worse hovel than it first appeared. I flopped into my bunk and tried to sleep despite the lumpiness of the mattress and my doubts about the cleanliness of the sheet and coverlet.

Waking in the morning not much refreshed, I was determined to not stay in that place a moment longer than necessary. I got online to explore further options and to work out a plan. My fortunes took a turn when I discovered one of my London friends online and available for a Skype chat, which ultimately resulted in a pleasant visit and comfortable couch to sleep on.

The moral of this story is: Never go to London on a weekend without having made prior arrangements for lodging.

A further tip for London visitors: Hotels are typically terribly expensive. The many AYH hostels in the area provide a high quality, safe, and low-cost option, if you don’t mind dormitory rooms and shared toilets and showers. My favorite is the St. Pancras hostel which is very pleasant, clean, and conveniently located across from the St. Pancras Tube station and the Kings Cross train station. From there it’s easy to reach any place you might care to go, including the airports and destinations throughout the UK. I’ve since learned that there are also a number of budget hotels in that neighborhood, but I cannot vouch for any of them. I find Trip Advisor (http://www.tripadvisor.com/) to be a good source of travel information.

__________________________________________________________________________

Recent Posts

I recently posted Richard Logie’s TEDx talk about Complementary Exchange Systems. Richard has operated a successful commercial trade exchange for almost twenty years, so he knows what works and what doesn’t. Exchange organizers at the grassroots can learn a great deal from Richard and others in the commercial trade exchange business so I strongly urge them to watch this.

Please pay particular attention to the method Richard uses to determine the credit lines to be provided to members' accounts, as well as the list of advantages that membership in a credit clearing exchange provides and the elements that need to be standardized in order for exchanges to be effectively networked together.

These are the issues that need to be adequately handled in order for moneyless exchange based on mutual credit clearing to become robust and to achieve significant scale.

_____________________________________________________________________________

Finally, if you’ve not yet gotten your copy of The Wealth of the Commons, you can order it from Levellers Press. Read more about it at, http://www.onthecommons.org/magazine/commons-transformative-vision. My chapter is titled, Reclaiming the Credit Commons (p. 230), which I have also posted on my website. You can read it here.

Wishing you a pleasant pre-holiday season,

Thomas

--
Thomas H. Greco, Jr.
thg@mindspring.com
PO Box 42663, Tucson, AZ 85733

The secrets of central banking


Do gold manipulation deniers really know the secrets of central banking?

 Section: 
5:56p ET Monday, November 26, 2012
Dear Friend of GATA and Gold:
A couple of common assertions that are frequently made to dismiss complaints of manipulation of the gold market have come up again in recent days and may deserve rebuttal.
First, interviewed in part about gold market manipulation last week by Max Keiser on Russia Today's "The Keiser Report," Charteris Treasury Portfolio Managers CEO Ian Williams remarked, "We've always worked on the theory that the market is bigger than any one particular player":
This claim that the market is bigger than anyone and always wins in the end may often be true. But exactly when is the end, and is there not a question of justice in the intervening time?
And is the market always bigger than any one particular player? Would such an assertion always be true even when one particular player has the power to create infinite amounts of the world's reserve currency? Would it always be true not only when one particular player has such power but also when players allied with it have the power to create infinite amounts of the currencies of their own countries?
Would such a claim always be true when, in addition to the money-creation powers of the reserve currency-issuing player and its allies, those players were also the dominant participants in a particular market, as central banks are the dominant participants in the gold market?
Might not the power of infinite money creation tend to create a force bigger than any market?
Second, in his latest gold market commentary, financial letter writer Clive Maund says: "The long-term chart for gold also makes clear that all the talk about it being manipulated and suppressed is arrant nonsense. With it having risen from about $250 at its low at the start of the bull market to its latest peak around $1,900 last year, it doesn't look like the manipulators have had much success, does it? The fact of the matter is this: If currencies get debased, and they are being debased at an ever-increasing rate, then gold, which is real money, is going to go up to compensate":
And yet the enduring disparagement about gold is that, despite its steady rise over the last decade, it has not kept up even closely with standard measures of inflation and money creation. Gold's disparagers and deniers of market manipulation never seem to pose the obvious question. That is: Why has gold, almost alone among commodities, lagged behind?
Since central banks are the biggest participants in the gold market and since they impose greater secrecy on their gold trading than their governments impose on their nuclear weapons, and since, within living memory, central banks rigged the gold market in the open, having perceived their great interest in doing so --
-- might that interest continue today and might its pursuit be facilitated by secrecy? Might gold's price be substantially higher in a free and transparent market, in a world where the absolute power of central banking had at least to operate entirely in the open?
And if it is acknowledged, as it generally seems to be, that the world long has been operating with a fractional-reserve gold banking system -- that there are many more claims to gold than can be covered by actual metal -- might there be still another powerful interest to restrain the gold price, the interest of the big financial houses dealing in gold?
Might gold's ascent actually be a controlled retreat by the issuers of currencies that compete with gold?
In any case, those who maintain that there is no manipulation of the monetary metals markets should remember that they are, in effect, purporting to prove a negative. Maybe it can be done, but it is hard. And can it be done in this case without knowing exactly what central banks and their agents are doing in the markets? Have those who deny gold market manipulation ever tried asking a central bank about its market interventions? Are the deniers aware of the secrecy on which central banks insist, and has this secrecy ever prompted the deniers to get a little curious?
Having gotten quite curious -- curious enough even to bring lawsuits -- GATA has obtained over the years grudging admissions from the Federal Reserve, Bank of England, Bank for International Settlements, and German Bundesbank that they are secretly active in the gold market and that they will be damned if they let the world know exactly how and why they are active. If Williams, Maund, and others who contend that the gold market is completely free of surreptitious controls are so confident in their assertions because they have been made privvy to the great secrets of central banking, it would be awful nice of them to let us know.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

lunedì 19 novembre 2012

Basel III And Gold

Basel III And Gold
November 18, 2012
Disclosure: I am long UGL, RGLD, FNV, SAND. (More...)
http://seekingalpha.com/article/1016161-basel-iii-and-gold

In the never-ending and important debate over whether gold is money, there is a voice that has recently spoken, and you might want to hear what it said. Many voices worth listening to have said gold has no utility. For example, Warren Buffett is famous for saying that we dig gold out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility, he says. Anyone watching from Mars would be scratching their head.
But there is another voice, much more important than Buffett, that has, in the last 6 months, uttered the opposing view. It's not the voice of a newsletter or any analyst or expert, or any one person, although many agree with this voice, including me. It is actually the voice of a group, a club, that has been described as the most exclusive, secretive and powerful club in the world. The New York Times has called them "the secretive panel that establishes global banking rules" - the central banks' central bank. They meet four times a year in a little town called Basel in Switzerland. Edward Jay Epstein did an article on them forHarper's Magazine back in 1983 where he describes their shyness about publicity and the sophistication of their clubhouse. They have a nuclear bomb shelter in the basement, an entire hospital, as well as some 20 miles of subterranean archives. They make the Fed look like a lemonade stand.
It's an important voice. When did it speak and what did it say? Well, they have spoken, with comprehensive new rule sets, "frameworks" they call them, only three times since their inception in 1974. In 1988, they issued Basel I and in 2004 it was Basel II. And now in 2012, they are issuing Basel III. They are men of few words. They issue no binding legislation, but in the banking world, what they say goes. Both Basel I and II took the then fashionable view of what money is - government bonds, mortgage backed securities, cash, etc. Gold was included in what they allow as capital, but as a "tier 3 asset" (not real money), and thus was only allowed to be reserves for loans at just 50% of its market value, much like, say an art collection would be. Since 2004, a lot has changed with all that. Mortgage-anything has become ultra-toxic, major countries are teetering on bond defaults, and the race to debase cash is raging. These developments have moved the Basel Committee to make some changes, but I'll focus on just two here.
The most significant change is moving gold from its tier 3 status to tier 1 capital as 100% loan-backing reserves, the same as cash and bonds. For the first time in 42 years, gold is being brought back into our financial system as money. All the world's banks are now storing this metal, not as some 3rd rate "asset," but as all the world's working capital - its money. So it's not just any voice, it is the ultimate voice on what is money that has spoken. Gold was removed from our system by Nixon in 1971, when he took us off the gold standard by disallowing foreign governments to exchange their dollar reserves for US-held gold. Ironically, they were doing this in great volume because of Washington's lack of fiscal discipline. Now, as gold has appreciated from $35 to $1700 in the unofficial gold standard interim, Washington's lack of fiscal discipline is again an issue, and we are now being forced to recognize gold as official money again.
You probably were not aware of any kind of return to gold as official money, but these Basel III rules are set to go into effect January 1, 2013 and have prompted Brian Hicks to call it "The Secret Return to the Gold Standard." Brian Hicks is the managing editor and chief investment analyst of The Wealth Advisory. In addition, Brian is a contributor toWealth Daily and Crisis And Opportunity. He has been a keynote speaker at international investment conferences, as well as a guest commentator on the financial television networks, CNBC, and others. Hicks was part of a small minority opinion (including me) years ago, the peak oil nuts, saying that with oil going to a then shocking $70, we were entering a new age of higher oil. This was in the face of the prevailing opinion verbalized best by Steve Forbes when he said that market forces would fix the oil "spike," and we would soon be back to a normal $40. Now we are paying $110 Brent in a really bad global economy. He was right about oil, and so far, he has been right about what is happening with gold.
In his "Secret Return" report, Hicks points out several news reports lately that investors seem to have glazed over. He mentions John Butler, managing director of Deutsche Bank of London, saying "In what might be the most under-reported financial story of the year" we are seeing an "important step in the re-monetization of gold." Reuters, he says, has quietly reported that "Banks are already preparing for the full implementation of gold's dominance as the new first class security for banking." The Basel Committee is not alone in this new trend to re-monetize gold. Major brokerage firms such as JP Morgan have started accepting gold as collateral in a role typically filled with Treasuries or their equal. Even back in February, 2011, when the Basel move was just being whispered about, The Wall Street Journal online ran a story J.P. Morgan Will Accept Gold As Type Of Collateral; the lead sentence was: "Gold hasn't reinvented itself as a currency yet. But it is getting closer."
However, there are those who are buzz-killing the possible effect of Basel III on gold, such as Jon Nadler, Senior Metals Analyst at Kitco. At his blog, In The Lead, he recently wrote an opinion, "In The Lead - Basel Bull", where he calls on Jeff Christian's CPM Group to explain how the tier 1 change will not induce more gold buying by the banks:
Much hard money newsletter noise has recently been made about gold and its role in the international banking system. The focus by the writers has mostly been on central bank purchases and on the putative Tier One asset status to be conferred upon gold by the Basel Committee. Well, not all is what it appears to be. Central bank purchases have not been overly large compared to historical levels seen in recent years and the massive gold purchases that certain banks are envisioned as making immediately in the wake of gold's attaining Tier One status are simply wishful thinking. But, hey, don't take our word(s) for the above. Let's look at a cogent take on these matters by the good folks over at CPM Group New York.
In their May 31 Market Alert, the researchers at CPM bravely expose certain myths and misconceptions surrounding gold and banks -central or otherwise- as follows:
There is an aura of desperation in the internet gold press, as those who still expect gold prices to rise grasp for any-thing that could be interpreted as being potentially bullish for gold. The collapse of the euro, a stock market crash, a Chinese 'recession,' and other potential catastrophes are pointed to with glee. Other potential developments within the gold market are being trotted forth by gold marketing groups as reasons to believe gold prices inexorably must rise sharply...
As for the Basel Committee's re-rating of gold, CPM Group reminds us that "First, one must point out that it is not at all clear that the Basel Committee on Bank Supervision, which sets these guidelines, will re-rate gold. Even if it did, the purpose on the part of commercial banks in seeking this change is not to allow them to buy more gold. They want to use their existing gold deposits - deposits their clients have made with them of gold - as Tier One assets for the purpose of meeting the tighter liquidity ratios. They are not planning to buy more gold. It would be highly unlikely that any bank would purchase any gold, transferring funds to gold from currencies."
The CPM Group is a respected authority on commodities in general. While not being outright bearish on gold, they are viewed by gold bulls as an official wet blanket that has been dragged kicking and recanting all the way along gold's bull market so far. In fact many use CPM Group's forecasts as a contrarian indicator. For example, Jesse's Cafe Americain, a popular gold website, responded on March 27, 2012, when CPM projected flat gold prices for the next of couple years:
In one of the more bullish developments for precious metals, the CPM group has announced that 'The Top' is in gold (Jeff Christian and CPM Calls 'The Top' In Gold), Given their track record in forecasting the metals, this is rather bullish.
Both Nadler and Christian got put on a roster with Dennis Gartman recently in the unflattering piece titled "Grandich vs. "The Three Stooges of Gold Forecasting" - Gartman, Nadler, and Christian". munkee.com had this to say about that unpleasantness:
The fight started last Wednesday when Peter Grandich, the well-known goldbug and author of The Grandich Letter, wrote a scathing missive that called out fellow investment newsletter writer Dennis Gartman on his assertion earlier this week that gold is now entering a bear market ... as reported in an article by Bloomberg entitledDeath of Gold Bull Market Seen by Gartman:
Gartman has since made news with such articles as "I'm Back Into Gold: Dennis Gartman" last March wherein he proclaims "I was wrong." Gartman has a distinguished style of speech in his analysis where he says "I'm short of sugar" or "I'm long of corn." After the gold change, this induced Tyler Durden to name a Zero Hedge piece "Dennis Gartman Now Long Of Flip Flopping In Laughing Stock Terms". Gold bulls like to point out the persistent error on the bearish side of gold for all three of the stooges. And they like John Maynard Keynes as Shemp.
Brian Hicks strongly disagrees with the above bland outlook of Nadler and Christian on recent bank purchases of gold in light of currency debasement. He writes in "Secret Return":
The biggest gold-buying spree we've seen over the last four decades is going on right now, as banks have begun to stockpile more of it. In fact, the World Gold Council revealed net central bank purchases in 2011 exceeded 455 tonnes (14.5 million ounces), the largest purchases since 1965. And it reported banks will purchase 700 tonnes (22 million ounces) of gold for this year alone...(The Secret Return To The Gold Standard)
There is a definite trend away from bonds, mortgage-based "products" and even national currencies among the bankers, especially among the emerging Asian banks. Most of the increase in gold purchases since 2008 has been by these banks pushing the total to 400 tonnes a year and possibly beyond.
The second of the Basel III accords I want to focus on is the requirement to, not only include gold in tier 1, but to raise minimum tier 1 capital reserve backing of loans and all other risk assets, the tier 1 capital ratio, from the current 4% to 6%. This is a 50% increase, which is a big jump for this fairly stable number. While 4% is the minimum, 6% or better is recommended, and the banks of the world have been averaging a steady 8%-9% in recent years. So the raise in the minimum to 6% does not demand any global increase in tier 1. If you assume that banks like to operate at a certain margin of safety relative to Basel, they would seek to do at least the 50% ramp-up recommended by Basel III.
Moving the bank held gold up from current levels is something that may be happening with or without Basel III as this graph shows:
(click to enlarge)
After the last bout with currency problems in the '70s, a high 35000 tonne gold level persisted for years before a slide back down from 1992 to 2008 - the careless age of debt-based reserve. That trend has been in clear reversal since 2009. With Basel III, the new trend may increase in intensity. Just how far a reversal might go is strikingly illustrated by this chart:
(click to enlarge)
This shows the vast switch that has taken place since the '70s in bankers' confidence away from gold reserves into the blizzard of printed money as reserves. Keep in mind that the supply of new gold is flat while the supply of new paper money is boundless. To just get back to the gold/currency balance averaged over the decade of the '80s, gold would have to increase in price some 15 fold. Many investors fear gold when they look at a price chart (especially a linear one) and see the sharp rise well beyond the 1980 high. The word "bubble" floats into their mind. But if a monetization trend is to be a major fundamental driving gold, charts like the two above (and there are many more) suggest we are nearer the beginning of a bubble than the end. The price may seem so overextended only because you have such a massive amount of "money" wanting into such a small space. The move of this money could still be in the early stages.
As if the bank currency reserves were not unstable enough, I think there could be rotation soon away from bonds into gold as a safe haven not only by banks, but by all investors. The bond market is 14 times the size of the gold bullion market. The supply of bonds can be increased willy nilly while the investment gold supply is increasing at just 0.5% a year. It wouldn't take much of a rotation to force the price of gold sharply higher.
In response to Basel, it has been noted in a piece "Is The Next Big Thing 1700 tonnes Of Gold Purchases?" that if we would see a modest 2% a year migration away from debt counterparty to gold in all the commercial bank tier 1 capital in the world, this would be about 1700 tonnes of gold a year at current prices. To put such a possible trend of tier 1 capital into perspective, think of jewelry. Gold jewelry gobbles up over 60% of the measly 2400 tonnes a year in new mine production (just 1.4% of the above ground supply). So gold price analysts like to study every small variation that happens there, because it moves the needle on the gold price. A mild 2% a year tier 1 migration into gold is roughly equivalent to the entire demand coming from jewelry! Heaven forbid there should be any kind of panic out of bonds and/or currencies.
In light of this possible migration of tier 1, let's consider the assertion by Jeff Christian above that commercial banks are not interested in buying any gold because the Basel change automatically boosts their tier 1 capital via the re-rate of the gold already deposited with them. It's true, that will be a big boost. According to World Gold Council figures, the world total for privately held investment gold currently (end of 2011) stands at 33,000 tonnes. Of this, a large amount (estimates are scarce) is placed in storage services outside the realm of banking, but let's assume it is only about 10% leaving 30,000 tonnes deposited with the banks. There is about $4.3 trillion of tier 1 capital in the commercial banks. At a current gold price of $1700 and a current average tier 1 capital ratio running around 9%, you can calculate that, of the 50% increase in tier 1 ratio the banking world seeks, the re-rating of gold to tier 1 accomplishes around a 40% tier 1 ratio increase. That leaves some 10% to be made up by either bonds, currencies, and other endangered species of money - or new gold purchases. If they would prefer to make all of this increase with gold, and that certainly is the growing preference, you can also calculate that this amounts to 5 times the entire demand coming from jewelry spread out over however many years the banks want to take for the implementation of a 50% increase. They may want to do more than 50%. Heaven help us if our bankers like Basel and gold too much.
And they do like gold more and more. There is a definite trend afoot. If you take the Nadler/Christian view on bank buying of gold, you must (1) deny any trend to higher reserves over and above requirements, and (2) deny any migration of reserves into gold. But there is now a shocking trend by banks in both of these things. To illustrate point, one need only to look at a chart of excess reserves (those beyond required):
(click to enlarge)
I think it's safe to say there is a trend here in our post Lehman world. And as for point, clearly, banks want more of this reserve cushion in gold as discussed in a recent Moneynews article Banks Across the World Catching Gold Fever. Speaking of Basel III, the article said:
This move, if adopted, could cause more banks to invest in gold to dress up their own balance sheets. U.S. Treasury bill rates are so low that many bankers will ask, "Why not hold at least 10 percent in gold, giving us the chance to earn a lot more than 1 percent per year in a 'currency' that no government can inflate?... What this possible new banking regulation means, in practical terms, is that individuals who hold gold in their bank account might soon be able to take out a bank loan using nearly 100 percent of their gold's market value as collateral.
If the trend continues, the WGC (World Gold Council) might need to add another category to its gold demand reports.
If the trend continues, your neighborhood banker may be offering more than a free toaster to open up a gold deposit. Commercial banks will now want gold reserves for the same reasons central banks want them - and there is a definite new trend there since 2009.
Like Basel II, there is a long implementation time-frame for Basel III. There is a schedule with full compliance required by January 1, 2019. Basel II was gradually done in the sleepy years until the Lehman debacle. Then Basel II was sped up and Basel III was hatched (a little like QE II, QE III, and QE Infinity). The implementation of Basel III may be quick. As Wikipedia phrases it:
Politically, it was difficult to implement Basel II in the regulatory environment prior to 2008, and progress was generally slow until that year's major banking crisis caused mostly by credit default swaps, mortgage-backed security markets and similar derivatives. As Basel III was negotiated, this was top of mind, and accordingly much more stringent standards were contemplated, and quickly adopted in some key countries including the USA.
Banks have been reluctant to loan, but when the much discussed uncertainty log-jam breaks and tier 1 capital begins competing for new customers, banks will want to have their Basel ducks in a row. If banks prefer gold for any new loan making capacity, as they seem to be doing more and more, it could put a strain on mining capacity and the price of gold.
The best way for investors to benefit is not with short-term trading, but with at least a year or two planned hold of a good spot price ETF like (UGL). This is an 2X tracking fund that returns twice the movement of the gold price and tracks well over long periods. It is not an ETN, which is structured as a debt instrument, a definite negative in today's world. It does not promise to hold gold for you, which is also a potential problem.
As another choice, the small gold miners come to mind as a way to leverage a gold move. However, these are fraught with problems that are hard for investors to analyze. The ones with a high level of insider ownership reflect the cases that have been "analyzed" and liked by the most knowledgeable of people, the ones running the company. I like to call them the high "IH" cases (Insider Held), and it's the first thing I look for in a miner. I don't know gold mining, but they most certainly do. I like to keep tabs on how the IH is changing. Miners that have a sharply decreasing level tend to be poor performers, and ones with stable or climbing levels seem to do well. A non-miner investor can look at the financial results and see a good buy per current production, but the IH factor says a lot about future production, the part that is not baked into the stock price already. And with a raw speculation with all of their gold still in the ground, it is about the only solid thing to go by.
If you don't like miner risk, you can invest in one of the royalty companies. These serve as capital sources which fund a small miner's costs where a bank would hesitate. In return, they contract to buy a percent of future production at current gold prices. Depending on the development period, this usually means buying a stream of current gold at years-ago prices from when the capital was provided. A royalty company gets discounted gold minus the miner risk. The royalty stocks tend to be more stable in the gold stock selloffs, and individual miner catastrophes don't buffet you. My favorite is Royal Gold (RGLD), but Franco Nevada (FNV) and Sandstorm Gold (SAND) are two other choices.

sabato 17 novembre 2012

Ron Paul’s Farewell Address to Congress

Ron Paul’s Farewell Address to Congress

2026 Responses

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Ron Paul: This may well be the last time I speak on the House Floor.  At the end of the year I’ll leave Congress after 23 years in office over a 36 year period.  My goals in 1976 were the same as they are today:  promote peace and prosperity by a strict adherence to the principles of individual liberty.
It was my opinion, that the course the U.S. embarked on in the latter part of the 20th Century would bring us a major financial crisis and engulf us in a foreign policy that would overextend us and undermine our national security.
To achieve the goals I sought, government would have had to shrink in size and scope, reduce spending, change the monetary system, and reject the unsustainable costs of policing the world and expanding the American Empire.
The problems seemed to be overwhelming and impossible to solve, yet from my view point, just following the constraints placed on the federal government by the Constitution would have been a good place to start.

How Much Did I Accomplish?
In many ways, according to conventional wisdom, my off-and-on career in Congress, from 1976 to 2012, accomplished very little.  No named legislation, no named federal buildings or highways—thank goodness.  In spite of my efforts, the government has grown exponentially, taxes remain excessive, and the prolific increase of incomprehensible regulations continues.  Wars are constant and pursued without Congressional declaration, deficits rise to the sky, poverty is rampant and dependency on the federal government is now worse than any time in our history.
All this with minimal concerns for the deficits and unfunded liabilities that common sense tells us cannot go on much longer.  A grand, but never mentioned, bipartisan agreement allows for the well-kept secret that keeps the spending going.  One side doesn’t give up one penny on military spending, the other side doesn’t give up one penny on welfare spending, while both sides support the bailouts and subsidies for the banking and  corporate elite.  And the spending continues as the economy weakens and the downward spiral continues.   As the government continues fiddling around, our liberties and our wealth burn in the flames of a foreign policy that makes us less safe.
The major stumbling block to real change in Washington is the total resistance to admitting that the country is broke. This has made compromising, just to agree to increase spending, inevitable since neither side has any intention of cutting spending.
The country and the Congress will remain divisive since there’s no “loot left to divvy up.”
Without this recognition the spenders in Washington will continue the march toward a fiscal cliff much bigger than the one anticipated this coming January.
I have thought a lot about why those of us who believe in liberty, as a solution, have done so poorly in convincing others of its benefits.  If liberty is what we claim it is- the principle that protects all personal, social and economic decisions necessary for maximum prosperity and the best chance for peace- it should be an easy sell.  Yet, history has shown that the masses have been quite receptive to the promises of authoritarians which are rarely if ever fulfilled.

Authoritarianism vs. Liberty
If authoritarianism leads to poverty and war and less freedom for all individuals and is controlled by rich special interests, the people should be begging for liberty.  There certainly was a strong enough sentiment for more freedom at the time of our founding that motivated those who were willing to fight in the revolution against the powerful British government.
During my time in Congress the appetite for liberty has been quite weak; the understanding of its significance negligible.  Yet the good news is that compared to 1976 when I first came to Congress, the desire for more freedom and less government in 2012 is much greater and growing, especially in grassroots America. Tens of thousands of teenagers and college age students are, with great enthusiasm, welcoming the message of liberty.
I have a few thoughts as to why the people of a country like ours, once the freest and most prosperous, allowed the conditions to deteriorate to the degree that they have.
Freedom, private property, and enforceable voluntary contracts, generate wealth.  In our early history we were very much aware of this.  But in the early part of the 20thcentury our politicians promoted the notion that the tax and monetary systems had to change if we were to involve ourselves in excessive domestic and military spending. That is why Congress gave us the Federal Reserve and the income tax.  The majority of Americans and many government officials agreed that sacrificing some liberty was necessary to carry out what some claimed to be “progressive” ideas. Pure democracy became acceptable.
They failed to recognized that what they were doing was exactly opposite of what the colonists were seeking when they broke away from the British.
Some complain that my arguments makes no sense, since great wealth and the standard of living improved  for many Americans over the last 100 years, even with these new policies.
But the damage to the market economy, and the currency, has been insidious and steady.  It took a long time to consume our wealth, destroy the currency and undermine productivity and get our financial obligations to a point of no return. Confidence sometimes lasts longer than deserved. Most of our wealth today depends on debt.
The wealth that we enjoyed and seemed to be endless, allowed concern for the principle of a free society to be neglected.  As long as most people believed the material abundance would last forever, worrying about protecting a competitive productive economy and individual liberty seemed unnecessary.

The Age of Redistribution
This neglect ushered in an age of redistribution of wealth by government kowtowing to any and all special interests, except for those who just wanted to left alone.  That is why today money in politics far surpasses money currently going into research and development and productive entrepreneurial efforts.
The material benefits became more important than the understanding and promoting the principles of liberty and a free market.  It is good that material abundance is a result of liberty but if materialism is all that we care about, problems are guaranteed.
The crisis arrived because the illusion that wealth and prosperity would last forever has ended. Since it was based on debt and a pretense that debt can be papered over by an out-of-control fiat monetary system, it was doomed to fail.  We have ended up with a system that doesn’t produce enough even to finance the debt and no fundamental understanding of why a free society is crucial to reversing these trends.
If this is not recognized, the recovery will linger for a long time.  Bigger government, more spending, more debt, more poverty for the middle class, and a more intense scramble by the elite special interests will continue.

We Need an Intellectual Awakening
Without an intellectual awakening, the turning point will be driven by economic law.  A dollar crisis will bring the current out-of-control system to its knees.
If it’s not accepted that big government, fiat money, ignoring liberty, central economic planning, welfarism, and warfarism caused our crisis we can expect a continuous and dangerous march toward corporatism and even fascism with even more loss of our liberties.  Prosperity for a large middle class though will become an abstract dream.
This continuous move is no different than what we have seen in how our financial crisis of 2008 was handled.  Congress first directed, with bipartisan support, bailouts for the wealthy.  Then it was the Federal Reserve with its endless quantitative easing. If at first it doesn’t succeed try again; QE1, QE2, and QE3 and with no results we try QE indefinitely—that is until it too fails.  There’s a cost to all of this and let me assure you delaying the payment is no longer an option.  The rules of the market will extract its pound of flesh and it won’t be pretty.
The current crisis elicits a lot of pessimism.  And the pessimism adds to less confidence in the future.  The two feed on themselves, making our situation worse.
If the underlying cause of the crisis is not understood we cannot solve our problems. The issues of warfare, welfare, deficits, inflationism, corporatism, bailouts and authoritarianism cannot be ignored.  By only expanding these policies we cannot expect good results.
Everyone claims support for freedom.  But too often it’s for one’s own freedom and not for others.  Too many believe that there must be limits on freedom. They argue that freedom must be directed and managed to achieve fairness and equality thus making it acceptable to curtail, through force, certain liberties.
Some decide what and whose freedoms are to be limited.  These are the politicians whose goal in life is power. Their success depends on gaining support from special interests.

No More ‘isms’
The great news is the answer is not to be found in more “isms.”  The answers are to be found in more liberty which cost so much less.  Under these circumstances spending goes down, wealth production goes up, and the quality of life improves.
Just this recognition—especially if we move in this direction—increases optimism which in itself is beneficial.  The follow through with sound policies are required which must be understood and supported by the people.
But there is good evidence that the generation coming of age at the present time is supportive of moving in the direction of more liberty and self-reliance. The more this change in direction and the solutions become known, the quicker will be the return of optimism.
Our job, for those of us who believe that a different system than the  one that we have  had for the  last 100 years, has driven us to this unsustainable crisis, is to be more convincing that there is a wonderful, uncomplicated, and moral system that provides the answers.  We had a taste of it in our early history. We need not give up on the notion of advancing this cause.
It worked, but we allowed our leaders to concentrate on the material abundance that freedom generates, while ignoring freedom itself.  Now we have neither, but the door is open, out of necessity, for an answer.  The answer available is based on the Constitution, individual liberty and prohibiting the use of government force to provide privileges and benefits to all special interests.
After over 100 years we face a society quite different from the one that was intended by the Founders.  In many ways their efforts to protect future generations with the Constitution from this danger has failed.  Skeptics, at the time the Constitution was written in 1787, warned us of today’s possible outcome.  The insidious nature of the erosion of our liberties and the reassurance our great abundance gave us, allowed the process to evolve into the dangerous period in which we now live.

Dependency on Government Largesse
Today we face a dependency on government largesse for almost every need.  Our liberties are restricted and government operates outside the rule of law, protecting and rewarding those who buy or coerce government into satisfying their demands. Here are a few examples:
  • Undeclared wars are commonplace.
  • Welfare for the rich and poor is considered an entitlement.
  • The economy is overregulated, overtaxed and grossly distorted by a deeply flawed monetary system.
  • Debt is growing exponentially.
  • The Patriot Act and FISA legislation passed without much debate have resulted in a steady erosion of our 4th Amendment rights.
  • Tragically our government engages in preemptive war, otherwise known as aggression, with no complaints from the American people.
  • The drone warfare we are pursuing worldwide is destined to end badly for us as the hatred builds for innocent lives lost and the international laws flaunted. Once we are financially weakened and militarily challenged, there will be a lot resentment thrown our way.
  • It’s now the law of the land that the military can arrest American citizens, hold them indefinitely, without charges or a trial.
  • Rampant hostility toward free trade is supported by a large number in Washington.
  • Supporters of sanctions, currency manipulation and WTO trade retaliation, call the true free traders “isolationists.”
  • Sanctions are used to punish countries that don’t follow our orders.
  • Bailouts and guarantees for all kinds of misbehavior are routine.
  • Central economic planning through monetary policy, regulations and legislative mandates has been an acceptable policy.

Questions
Excessive government has created such a mess it prompts many questions:
  • Why are sick people who use medical marijuana put in prison?
  • Why does the federal government restrict the drinking of raw milk?
  • Why can’t Americans manufacture rope and other products from hemp?
  • Why are Americans not allowed to use gold and silver as legal tender as mandated by the Constitution?
  • Why is Germany concerned enough to consider repatriating their gold held by the FED for her in New York?  Is it that the trust in the U.S. and dollar supremacy beginning to wane?
  • Why do our political leaders believe it’s unnecessary to thoroughly audit our own gold?
  • Why can’t Americans decide which type of light bulbs they can buy?
  • Why is the TSA permitted to abuse the rights of any American traveling by air?
  • Why should there be mandatory sentences—even up to life for crimes without victims—as our drug laws require?
  • Why have we allowed the federal government to regulate commodes in our homes?
  • Why is it political suicide for anyone to criticize AIPAC ?
  • Why haven’t we given up on the drug war since it’s an obvious failure and violates the people’s rights? Has nobody noticed that the authorities can’t even keep drugs out of the prisons? How can making our entire society a prison solve the problem?
  • Why do we sacrifice so much getting needlessly involved in border disputes and civil strife around the world and ignore the root cause of the most deadly border in the world -the one between Mexico and the US?
  • Why does Congress willingly give up its prerogatives to the Executive Branch?
  • Why does changing the party in power never change policy? Could it be that the views of both parties are essentially the same?
  • Why did the big banks, the large corporations, and foreign banks and foreign central banks get bailed out in 2008 and the middle class lost their jobs and their homes?
  • Why do so many in the government and the federal officials believe that creating money out of thin air creates wealth?
  • Why do so many accept the deeply flawed principle that government bureaucrats and politicians can protect us from ourselves without totally destroying the principle of liberty?
  • Why can’t people understand that war always destroys wealth and liberty?
  • Why is there so little concern for the Executive Order that gives the President authority to establish a “kill list,” including American citizens, of those targeted for assassination?
  • Why is patriotism thought to be blind loyalty to the government and the politicians who run it, rather than loyalty to the principles of liberty and support for the people? Real patriotism is a willingness to challenge the government when it’s wrong.
  • Why is it is claimed that if people won’t  or can’t take care of their own needs, that people in government can do it for them?
  • Why did we ever give the government a safe haven for initiating violence against the people?
  • Why do some members defend free markets, but not civil liberties?
  • Why do some members defend civil liberties but not free markets? Aren’t they the same?
  • Why don’t more defend both economic liberty and personal liberty?
  • Why are there not more individuals who seek to intellectually influence others to bring about positive changes than those who seek power to force others to obey their commands?
  • Why does the use of religion to support a social gospel and preemptive wars, both of which requires authoritarians to use violence, or the threat of violence, go unchallenged? Aggression and forced redistribution of wealth has nothing to do with the teachings of the world’s great religions.
  • Why do we allow the government and the Federal Reserve to disseminate false information dealing with both economic and  foreign policy?
  • Why is democracy held in such high esteem when it’s the enemy of the minority and makes all rights relative to the dictates of the majority?
  • Why should anyone be surprised that Congress has no credibility, since there’s such a disconnect between what politicians say and what they do?
    Is there any explanation for all the deception, the unhappiness, the fear of the future, the loss of confidence in our leaders, the distrust, the anger and frustration?   Yes there is, and there’s a way to reverse these attitudes.  The negative perceptions are logical and a consequence of bad policies bringing about our problems.  Identification of the problems and recognizing the cause allow the proper changes to come easy.

Trust Yourself, Not the Government
Too many people have for too long placed too much confidence and trust in government and not enough in themselves.  Fortunately, many are now becoming aware of the seriousness of the gross mistakes of the past several decades.  The blame is shared by both political parties.  Many Americans now are demanding to hear the plain truth of things and want the demagoguing to stop.  Without this first step, solutions are impossible.
Seeking the truth and finding the answers in liberty and self-reliance promotes the optimism necessary for restoring prosperity.  The task is not that difficult if politics doesn’t get in the way.
We have allowed ourselves to get into such a mess for various reasons.
Politicians deceive themselves as to how wealth is produced.  Excessive confidence is placed in the judgment of politicians and bureaucrats.  This replaces the confidence in a free society.  Too many in high places of authority became convinced that only they,   armed with arbitrary government power, can bring about fairness, while facilitating wealth production.  This always proves to be a utopian dream and destroys wealth and liberty.  It impoverishes the people and rewards the special interests who end up controlling both political parties.
It’s no surprise then that much of what goes on in Washington is driven by aggressive partisanship and power seeking, with philosophic differences being minor.

Economic Ignorance
Economic ignorance is commonplace.  Keynesianism continues to thrive, although today it is facing healthy and enthusiastic rebuttals.  Believers in military Keynesianism and domestic Keynesianism continue to desperately promote their failed policies, as the economy languishes in a deep slumber.
Supporters of all government edicts use humanitarian arguments to justify them.
Humanitarian arguments are always used to justify government mandates related to the economy, monetary policy, foreign policy, and personal liberty.  This is on purpose to make it more difficult to challenge.  But, initiating violence for humanitarian reasons is still violence.  Good intentions are no excuse and are just as harmful as when people use force with bad intentions.  The results are always negative.
The immoral use of force is the source of man’s political problems.  Sadly, many religious groups, secular organizations, and psychopathic authoritarians endorse government initiated force to change the world.  Even when the desired goals are well-intentioned—or especially when well-intentioned—the results are dismal.  The good results sought never materialize.  The new problems created require even more government force as a solution.  The net result is institutionalizing government initiated violence and morally justifying it on humanitarian grounds.
This is the same fundamental reason our government  uses force  for invading other countries at will, central economic planning at home, and the regulation of personal liberty and habits of our citizens.
It is rather strange, that unless one has a criminal mind and no respect for other people and their property, no one claims it’s permissible to go into one’s neighbor’s house and tell them how to behave, what they can eat, smoke and drink or how to spend their money.
Yet, rarely is it asked why it is morally acceptable that a stranger with a badge and a gun can do the same thing in the name of law and order.  Any resistance is met with brute force, fines, taxes, arrests, and even imprisonment. This is done more frequently every day without a proper search warrant.

No Government Monopoly over Initiating Violence
Restraining aggressive behavior is one thing, but legalizing a government monopoly for initiating aggression can only lead to exhausting liberty associated with chaos, anger and the breakdown of civil society.  Permitting such authority and expecting saintly behavior from the bureaucrats and the politicians is a pipe dream.  We now have a standing army of armed bureaucrats in the TSA, CIA, FBI, Fish and Wildlife, FEMA, IRS, Corp of Engineers, etc. numbering over 100,000.  Citizens are guilty until proven innocent in the unconstitutional administrative courts.
Government in a free society should have no authority to meddle in social activities or the economic transactions of individuals. Nor should government meddle in the affairs of other nations. All things peaceful, even when controversial, should be permitted.
We must reject the notion of prior restraint in economic activity just we do in the area of free speech and religious liberty. But even in these areas government is starting to use a backdoor approach of political correctness to regulate speech-a dangerous trend. Since 9/11 monitoring speech on the internet is now a problem since warrants are no longer required.

The Proliferation of Federal Crimes
The Constitution established four federal crimes.  Today the experts can’t even agree on how many federal crimes are now on the books—they number into the thousands.  No one person can comprehend the enormity of the legal system—especially the tax code.  Due to the ill-advised drug war and the endless federal expansion of the criminal code we have over 6 million people under correctional suspension, more than the Soviets ever had, and more than any other nation today, including China.  I don’t understand the complacency of the Congress and the willingness to continue their obsession with passing more Federal laws.  Mandatory sentencing laws associated with drug laws have compounded our prison problems.
The federal register is now 75,000 pages long and the tax code has 72,000 pages, and expands every year.  When will the people start shouting, “enough is enough,” and demand Congress cease and desist.

Achieving Liberty
Liberty can only be achieved when government is denied the aggressive use of force.  If one seeks liberty, a precise type of government is needed.  To achieve it, more than lip service is required.
Two choices are available.
  1. A government designed to protect liberty—a natural right—as its sole objective.  The people are expected to care for themselves and reject the use of any force for interfering with another person’s liberty.  Government is given a strictly limited authority to enforce contracts, property ownership, settle disputes, and defend against foreign aggression.
  2. A government that pretends to protect liberty but is granted power to arbitrarily use force over the people and foreign nations.  Though the grant of power many times is meant to be small and limited, it inevitably metastasizes into an omnipotent political cancer.  This is the problem for which the world has suffered throughout the ages.  Though meant to be limited it nevertheless is a 100% sacrifice of a principle that would-be-tyrants find irresistible.  It is used vigorously—though incrementally and insidiously.  Granting power to government officials always proves the adage that:  “power corrupts.”
Once government gets a limited concession for the use of force to mold people habits and plan the economy, it causes a steady move toward tyrannical government.  Only a revolutionary spirit can reverse the process and deny to the government this arbitrary use of aggression.  There’s no in-between.  Sacrificing a little liberty for imaginary safety always ends badly.
Today’s mess is a result of Americans accepting option #2, even though the Founders attempted to give us Option #1.
The results are not good.  As our liberties have been eroded our wealth has been consumed.  The wealth we see today is based on debt and a foolish willingness on the part of foreigners to take our dollars for goods and services. They then loan them back to us to perpetuate our debt system.  It’s amazing that it has worked for this long but the impasse in Washington, in solving our problems indicate that many are starting to understand the seriousness of the world -wide debt crisis and the dangers we face. The longer this process continues the harsher the outcome will be.

The Financial Crisis Is a Moral Crisis
Many are now acknowledging that a financial crisis looms but few understand it’s, in reality, a moral crisis.  It’s the moral crisis that has allowed our liberties to be undermined and permits the exponential growth of illegal government power.  Without a clear understanding of the nature of the crisis it will be difficult to prevent a steady march toward tyranny and the poverty that will accompany it.
Ultimately, the people have to decide which form of government they want; option #1 or option #2.  There is no other choice.  Claiming there is a choice of a “little” tyranny is like describing pregnancy as a “touch of pregnancy.”  It is a myth to believe that a mixture of free markets and government central economic planning is a worthy compromise.  What we see today is a result of that type of thinking.  And the results speak for themselves.

A Culture of Violence
American now suffers from a culture of violence.  It’s easy to reject the initiation of violence against one’s neighbor but it’s ironic that the people arbitrarily and freely anoint government officials with monopoly power to initiate violence against the American people—practically at will.
Because it’s the government that initiates force, most people accept it as being legitimate.  Those who exert the force have no sense of guilt.  It is believed by too many that governments are morally justified in initiating force supposedly to “do good.”  They incorrectly believe that this authority has come from the “consent of the people.”  The minority, or victims of government violence never consented to suffer the abuse of government mandates, even when dictated by the majority.  Victims of TSA excesses never consented to this abuse.
This attitude has given us a policy of initiating war to “do good,” as well. It is claimed that war, to prevent war for noble purposes, is justified.  This is similar to what we were once told that:  “destroying a village to save a village” was justified.  It was said by a US Secretary of State that the loss of 500,000 Iraqis, mostly children, in the 1990s, as a result of American bombs and sanctions, was “worth it” to achieve the “good” we brought to the Iraqi people.  And look at the mess that Iraq is in today.
Government use of force to mold social and economic behavior at home and abroad has justified individuals using force on their own terms.  The fact that violence by government is seen as morally justified, is the reason why violence will increase when the big financial crisis hits and becomes a political crisis as well.
First, we recognize that individuals shouldn’t initiate violence, then we give the authority to government.   Eventually, the immoral use of government violence, when things goes badly, will be used to justify an individual’s “right” to do the same thing. Neither the government nor individuals have the moral right to initiate violence against another yet we are moving toward the day when both will claim this authority.  If this cycle is not reversed society will break down.
When needs are pressing, conditions deteriorate and rights become relative to the demands and the whims of the majority.  It’s then not a great leap for individuals to take it upon themselves to use violence to get what they claim is theirs.  As the economy deteriorates and the wealth discrepancies increase—as are already occurring— violence increases as those in need take it in their own hands to get what they believe is theirs.  They will not wait for a government rescue program.
When government officials wield power over others to bail out the special interests, even with disastrous results to the average citizen, they feel no guilt for the harm they do. Those who take us into undeclared wars with many casualties resulting, never lose sleep over the death and destruction their bad decisions caused. They are convinced that what they do is morally justified, and the fact that many suffer   just can’t be helped.
When the street criminals do the same thing, they too have no remorse, believing they are only taking what is rightfully theirs.  All moral standards become relative.  Whether it’s bailouts, privileges, government subsidies or benefits for some from inflating a currency, it’s all part of a process justified by a philosophy of forced redistribution of wealth.  Violence, or a threat of such, is the instrument required and unfortunately is of little concern of most members of Congress.
Some argue it’s only a matter of “fairness” that those in need are cared for. There are two problems with this. First, the principle is used to provide a greater amount of benefits to the rich than the poor. Second, no one seems to be concerned about whether or not it’s fair to those who end up paying for the benefits. The costs are usually placed on the backs of the middle class and are hidden from the public eye. Too many people believe government handouts are free, like printing money out of thin air, and there is no cost. That deception is coming to an end. The bills are coming due and that’s what the economic slowdown is all about.
Sadly, we have become accustomed to living with the illegitimate use of force by government.  It is the tool for telling the people how to live, what to eat and drink, what to read and how to spend their money.
To develop a truly free society, the issue of initiating force must be understood and rejected.  Granting to government even a small amount of force is a dangerous concession.

Limiting Government Excesses vs. a Virtuous Moral People
Our Constitution, which was intended to limit government power and abuse, has failed.  The Founders warned that a free society depends on a virtuous and moral people.  The current crisis reflects that their concerns were justified.
Most politicians and pundits are aware of the problems we face but spend all their time in trying to reform government.  The sad part is that the suggested reforms almost always lead to less freedom and the importance of a virtuous and moral people is either ignored, or not understood. The new reforms serve only to further undermine liberty.  The compounding effect has given us this steady erosion of liberty and the massive expansion of debt.  The real question is: if it is liberty we seek, should most of the emphasis be placed on government reform or trying to understand what “a virtuous and moral people” means and how to promote it. The Constitution has not prevented the people from demanding handouts for both rich and poor in their efforts to reform the government, while ignoring the principles of a free society. All branches of our government today are controlled by individuals who use their power to undermine liberty and enhance the welfare/warfare state-and frequently their own wealth and power.
If the people are unhappy with the government performance it must be recognized that government is merely a reflection of an immoral society that rejected a moral government of constitutional limitations of power and love of freedom.
If this is the problem all the tinkering with thousands of pages of new laws and regulations will do nothing to solve the problem.
It is self-evident that our freedoms have been severely limited and the apparent prosperity we still have, is nothing more than leftover wealth from a previous time.  This fictitious wealth based on debt and benefits from a false trust in our currency and credit, will play havoc with our society when the bills come due.  This means that the full consequence of our lost liberties is yet to be felt.
But that illusion is now ending.  Reversing a downward spiral depends on accepting a new approach.
Expect the rapidly expanding homeschooling movement to play a significant role in the revolutionary reforms needed to build a free society with Constitutional protections. We cannot expect a Federal government controlled school system to provide the intellectual ammunition to combat the dangerous growth of government that threatens our liberties.
The internet will provide the alternative to the government/media complex that controls the news and most political propaganda. This is why it’s essential that the internet remains free of government regulation.
Many of our religious institutions and secular organizations support greater dependency on the state by supporting war, welfare and corporatism and ignore the need for a virtuous people.
I never believed that the world or our country could be made more free by politicians, if the people had no desire for freedom.
Under the current circumstances the most we can hope to achieve in the political process is to use it as a podium to reach the people to alert them of the nature of the crisis and the importance of their need to assume responsibility for themselves, if it is liberty that they truly seek.  Without this, a constitutionally protected free society is impossible.
If this is true, our individual goal in life ought to be for us to seek virtue and excellence and recognize that self-esteem and happiness only comes from using one’s natural ability, in the most productive manner possible, according to one’s own talents.
Productivity and creativity are the true source of personal satisfaction. Freedom, and not dependency, provides the environment needed to achieve these goals. Government cannot do this for us; it only gets in the way. When the government gets involved, the goal becomes a bailout or a subsidy and these cannot provide a sense of  personal achievement.
Achieving legislative power and political influence should not be our goal. Most of the change, if it is to come, will not come from the politicians, but rather from individuals, family, friends, intellectual leaders and our religious institutions.  The solution can only come from rejecting the use of coercion, compulsion, government commands, and aggressive force, to mold social and economic behavior.  Without accepting these restraints, inevitably the consensus will be to allow the government to mandate economic equality and obedience to the politicians who gain power and promote an environment that smothers the freedoms of everyone. It is then that the responsible individuals who seek excellence and self-esteem by being self-reliance and productive, become the true victims.

Conclusion                                                                                                                                                    
What are the greatest dangers that the American people face today and impede the goal of a free society? There are five.
1. The continuous attack on our civil liberties which threatens the rule of law and our ability to resist the onrush of tyranny.               
2. Violent anti-Americanism that has engulfed the world. Because the phenomenon of “blow-back” is not understood or denied, our foreign policy is destined to keep us involved in many wars that we have no business being in. National bankruptcy and a greater threat to our national security will result.                                                         
3. The ease in which we go to war, without a declaration by Congress, but accepting international authority from the UN or NATO even for preemptive wars, otherwise known as aggression.                                        
4. A financial political crisis as a consequence of excessive debt, unfunded liabilities, spending, bailouts, and gross discrepancy in wealth distribution going from the middle class to the rich. The danger of central economic planning, by the Federal Reserve must be understood.                                               
 5. World government taking over  local and US sovereignty by getting involved in the issues of war, welfare, trade, banking,  a world currency, taxes, property ownership, and private ownership of guns.
Happily, there is an answer for these very dangerous trends.                                                     
What a wonderful world it would be if everyone accepted the simple moral premise of rejecting all acts of aggression.  The retort to such a suggestion is always:  it’s too simplistic, too idealistic, impractical, naïve, utopian, dangerous, and unrealistic to strive for such an ideal.
The answer to that is that for thousands of years the acceptance of government force, to rule over the people, at the sacrifice of liberty, was considered moral and the only available option for achieving peace and prosperity.
What could be more utopian than that myth—considering the results especially looking at the state sponsored killing, by nearly every government during the 20th Century, estimated to be in the hundreds of millions.  It’s time to reconsider this grant of authority to the state.
No good has ever come from granting monopoly power to the state to use aggression against the people to arbitrarily mold human behavior.  Such power, when left unchecked, becomes the seed of an ugly tyranny.  This method of governance has been adequately tested, and the results are in: reality dictates we try liberty.
The idealism of non-aggression and rejecting all offensive use of force should be tried.  The idealism of government sanctioned violence has been abused throughout history and is the primary source of poverty and war.  The theory of a society being based on individual freedom has been around for a long time.  It’s time to take a bold step and actually permit it by advancing this cause, rather than taking a step backwards as some would like us to do.
Today the principle of habeas corpus, established when King John signed the Magna Carta in 1215, is under attack. There’s every reason to believe that a renewed effort with the use of the internet that we can instead advance the cause of liberty by spreading an uncensored message that will serve to rein in government authority and challenge the obsession with war and welfare.
What I’m talking about is a system of government guided by the moral principles of peace and tolerance.
The Founders were convinced that a free society could not exist without a moral people.  Just writing rules won’t work if the people choose to ignore them.  Today the rule of law written in the Constitution has little meaning for most Americans, especially those who work in Washington DC.
Benjamin Franklin claimed “only a virtuous people are capable of freedom.”  John Adams concurred:  “Our Constitution was made for a moral and religious people.  It is wholly inadequate to the government of any other.”
A moral people must reject all violence in an effort to mold people’s beliefs or habits.
A society that boos or ridicules the Golden Rule is not a moral society.  All great religions endorse the Golden Rule.  The same moral standards that individuals are required to follow should apply to all government officials.  They cannot be exempt.
The ultimate solution is not in the hands of the government.
The solution falls on each and every individual, with guidance from family, friends and community.
The #1 responsibility for each of us is to change ourselves with hope that others will follow.  This is of greater importance than working on changing the government; that is secondary to promoting a virtuous society.  If we can achieve this, then the government will change.
It doesn’t mean that political action or holding office has no value. At times it does nudge policy in the right direction. But what is true is that when seeking office is done for personal aggrandizement, money or power, it becomes useless if not harmful. When political action is taken for the right reasons it’s easy to understand why compromise should be avoided. It also becomes clear why progress is best achieved by working with coalitions, which bring people together, without anyone sacrificing his principles.
Political action, to be truly beneficial, must be directed toward changing the hearts and minds of the people, recognizing that it’s the virtue and morality of the people that allow liberty to flourish.
The Constitution or more laws per se, have no value if the people’s attitudes aren’t changed.
To achieve liberty and peace, two powerful human emotions have to be overcome.  Number one is “envy” which leads to hate and class warfare.  Number two is “intolerance” which leads to bigoted and judgmental policies.  These emotions must be replaced with a much better understanding of love, compassion, tolerance and free market economics. Freedom, when understood, brings people together. When tried, freedom is popular.
The problem we have faced over the years has been that economic interventionists are swayed by envy, whereas social interventionists are swayed by intolerance of habits and lifestyles. The misunderstanding that tolerance is an endorsement of certain activities, motivates many to legislate moral standards which should only be set by individuals making their own choices. Both sides use force to deal with these misplaced emotions. Both are authoritarians. Neither endorses voluntarism.  Both views ought to be rejected.
I have come to one firm conviction after these many years of trying to figure out “the plain truth of things.”  The best chance for achieving peace and prosperity, for the maximum number of people world-wide, is to pursue the cause of LIBERTY.
If you find this to be a worthwhile message, spread it throughout the land.