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August 2009
Monday August 31, 2009
The Collapse of America? The Dire Message of Mr. David Walker
Posted by: rob_92183 at 11:00AM CST on August 31, 2009

A person who is in the pay of the government is not always free to speak publicly about the most pressing issues he confronts. Administrators who are appointed to perform specific tasks are generally not free to contradict or even to challenge policies. They often cannot advocate for specific proposals, even if they think that such proposals will be needed to prevent catastrophe.

When Dr. Alan Carlin, a federal Environmental Protection Agency official, wrote a report in March, 2009 that criticized the EPA’s process of formulating regulations, the report was squashed both internally and publicly. Emails from EPA officials state that “a very negative impact on our office” made use of the report impossible. To protect the bureaucracy, Dr. Carlin was told to cease his criticisms.

Such officials must often make a choice: to remain silent and keep their jobs, or to resign and speak the truth. Faced with this dilemma, on March 12, 2008, David Walker chose to resign.

David Walker is the former Comptroller General of the United States, and former head of the Government Accountability Office. As the nation’s chief accountant he was appointed by President Clinton. He resigned near the end of George W. Bush’s second term. He had no authority to decide how a single penny of government funds should be collected or distributed. His job was to count those funds.

Mr. Walker’s enormous range of mind extends far beyond a single budget year. His long-range perspective allows him to project fiscal trends decades into the future, and to assess, through simulations, the impacts of policy decisions beyond their immediate effects. He truly understands the economic maxim, promoted by Henry Hazlitt, to look beyond the visible effects of any given policy and to consider its unseen consequences.

When Walker plotted these trends, and considered demographics among many other factors, what he found was “chilling.” If fundamental reforms are not begun now, he concluded, the United States will experience a financial and political collapse comparable to the fall of Rome.

In a presentation to the National Press Foundation, January 17, 2008, Mr. Walker brought forth the following facts and projections:

1.  From 1966 to 2006, the percentage of federal funds spent on Medicare rose from 1% to 19%. This trend will grow exponentially as millions of “baby boomers” enter the entitlement pool.

2.  For the same period, spending for mandated government commitments rose from 26% to 53% of the total budget. The budget is increasingly out of the control of government officials.

3.  As of 2007, Medicare is running in arrears. In 2017 Social Security will be in deficit. By the year 2040, Medicare and Social Security alone will be running annual deficits of nearly 900 billion dollars.

4. Medicare spending from now until 2032 will be 235% of economic growth. By 2040, Medicare will be spending about 10% of the nation’s Gross Domestic Product annually, and the annual deficits of the United States will total some 20% of the total Gross Domestic Product. 

The bottom line is this: mandated fiscal entitlements, projected into the future, are over 52,000 billion dollars. That will equal 90% of all household wealth in the U.S., and will place a burden of over 450 thousand dollars on every household in the land. This is almost ten times the present median household income level.

Mr. Walker concludes that “We face large and growing structural deficits largely due to known demographic trends and rising health care costs.” Further, “GAO’s simulations show that balancing the budget in 2040 could require actions as large as cutting total federal spending by 60 percent, or raising federal taxes to two times today's level.”

To close the revenue gap through growth, the United States economy would need to expand in the double-digit range for the next seventy-five years. During the boom years of the 1990s, the economy grew at an average rate of 3.2%. Walker concludes, succinctly: “we cannot simply grow our way out of this problem.”

Health care entitlements constitute by far the largest single piece of this economic disaster. Those who think that creating thousands of billions of dollars in new government entitlements—in a health care bill that adds tens of millions of Americans to government programs—will do anything except hasten the coming bankruptcy are out of touch with reality.

Mr. Walker has taken his show on the road, in an attempt to educate Americans about the financial disaster they are creating. He was accompanied by both the Brookings Institute on the left, and the Heritage Foundation on the right. He stresses that this coming financial meltdown is known by everyone in Washington--but no one wants to acknowledge it. 

The Rasmussen poll shows that almost twice as many Americans think that cutting the deficit, rather than health care reform, should be the president’s top priority. Another poll shows that twice as many people think that the reform legislation will drive up costs than think it will lower costs. Perhaps these Americans grasp Mr. Walker’s point better than their elected representatives do.

A nation that violates the rights of its citizens cannot, in the long run, escape the consequences of its moral failure. When a nation with the unique strength of the United States does so systematically and over decades, the results must necessarily be catastrophic. The dire economic forecast of David Walker illustrates the connection between the moral and the practical. To regain our economic viability we must regain our moral viability.


John David Lewis (website) is a Visiting Professor of Political Science, Duke University. He has been a Senior Research Scholar in History and Classics at the Social Philosophy and Policy Center, and an Anthem Fellow. He is a contributing writer for Capitalism Magazine, and a Consulting Editor for The Objective Standard.


Thursday August 27, 2009
Viewing the Economy Through Beer Goggles
Posted by: rob_92183 at 8:38PM CST on August 27, 2009
     If you're not familiar with the term "beer goggles", it refers to drinking until something looks good.  If you haven't been following the economy lately, everything from the government and mainstream media is claiming that the worst is behind us.  They've had eight years of bad days at work under Bush, and now with Obama they're treating it like opening call at the bar.  Everyone's downed a few and they're starting to feel fuzzy and warm and happy about the future.  The problem with beer goggles is that eventually you're going to pass out and wake up the next morning laying next to someone (for the sake of the metaphor, say, Lady Liberty) and she looks NOTHING like how she appeared the night before.

     I feel like the shock and hangover is coming, despite the rosy picture painted by the White House.  The first piece the media is claiming revolves around the fact housing sales were up 9%.  While this is true, the average price of these homes were around $225,000 and just three years ago they were $500,000 homes.  You have to realize there's still a record number of empty homes out there and then add in the fact there are still people trying to pay off their $500,000 homes and half of those mortgages will be underwater (more debt than market value) by 2011.  You thought the whole subprime fiasco was a meltdown?  They were only the sixth largest debt held by banks.  Wait until the superprime meltdown with all those expensive homes going underwater.  As an addition to that, USA today is reporting that only one of three workers (the kind of people still paying these mortgages) has only enough savings to last a week or less.

     The second little fact the talking heads seem to hinge on is that employment went down one tenth of a percentage point last month.  Yet almost 300,000 people were laid off.  Now, I'm no math genius, but if almost 300,000 people lose their jobs, how is it possible for unemployment to go down?  Ah yes, the numbers reflected the people who have actively ran out of unemployment claims and the unemployed who would like to be employed but have actively given up looking for a job.  This isn't a matter like it was years ago where a company would just lay someone off for a short time and invite them back.  These job losses are permanent and they're starting to reach beyond just the factory and manufacturing into areas like finance and law. 

     But perhaps the most telling is in part what I mentioned earlier in the week.  A federal judge ordered the Federal Reserve to disclose by name the recipients of your $2 trillion dollars of bailout money.  The kind of transparency that there should have been in the first place required a lawsuit to achieve.  What was the banking industry's response?

(If you're not prepared to face the hangover, I'd recommend you stop reading.  This is actually pretty shocking stuff.)


The Clearing House submits this declaration because the Court's Order threatens to impair the ability of our members to access emergency funds through the New York Fed's Discount Window without suffering the severe competitive harm that public disclosure of their identity will cause.

Our members have accessed the New York Fed's Discount Window with the understanding that the Fed will not publicly disclose information about their borrowing, especially their identity. Industry experience, including very recent and searing experience, has shown that negative rumors about a bank's financial condition - even completely unfounded rumors - have caused competitive harm, including bank runs and failures.


The Clearing House Association consists of ABN Amro, Bank Of America, The Bank Of New York, Deutsche Bank, HSBC, JP Morgan Chase, US Bank and Wells Fargo. Somehow they believe that rumors come from actively showing your statements to the public as opposed to hiding everything from your eyes, even though it is your money being tossed around and you were promised transparency. But wait, there's more.

If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls - which would be a natural inference from having tapped emergency funds - has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution's customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position.


Essentially arguing that banks should at all times hide their status from the people investing in them even when they are in trouble. As a customer and an investor in a bank, this is an outrageous idea. I wish I could say that's it, but there's actually more statements that were made.

In sum, our experience differs from the factual conclusions the Court appears to have reached about the nature of competition in the banking industry:
* The competitive harm to institutions that are publicized as needing emergency funding is not "speculative," but demonstrated by the recent multiple failures of financial institutions whenever information about their funding difficulty has been disclosed. * The disclosure does not involve mere "embarassing publicity" but information that could result in the immediate demise of an institution. * The disclosure would not merely "stigmatize [ ]"the institution or make it "look [ ] weak," but goes to its very viability. * The disclosure of accessing emergency funding is not an "inherent risk" of market participation, but an extraordinary risk in extraordinary circumstances. * Competitors can use the disclosure to advertise or publicize that they are financial stronger because they don't need emergency funding.


That's right, if this information is made public the entire banking system will collapse. If it's not made public, can you really trust the entire system to survive on smoke and mirrors or that everything really will turn out fine if you're just kept in the dark? This is why I believe an entire systemic collapse is inevitable and every bailout has just been propping up the entire charade that much longer. THAT will be the point where a REAL recovery starts. Until then, the only thing left of value is silver and gold.

And, I might add, it's about time to take off the beer goggles in Washington and realize exactly how bad the situation is for the constituents. Because you just may wake up one morning with that figurative hangover, laying in bed with your voters, wondering where the beauty of lady liberty went only to be replaced with someone foaming at the mouth about you doing things like lying to them, insulting them, stealing from them, bankrupting from them, and generally driving their quality of life into the ground.

Wednesday August 26, 2009
Last Week in Self Defense: DEMOCRATIC STATE SENATOR
Posted by: rob_92183 at 5:15PM CST on August 26, 2009
I wonder why the news killed this story?  And before the stereotype that all Democrats are anti-gun, I've searched his voting record and really couldn't find anything.  In fact, the NRA has supported him in more than one election.  Still, it's surprising to read a headline that a Democrat own a gun.  But a good surprise!

TABOR CITY, N.C. — Most people know R.C. Soles as the state's longest-serving senator. Over the past few years, however, he has been the central figure in a string of odd happenings, starting with former legal clients trespassing at his home and ending with him shooting one of them over the weekend, authorities say.

Soles, 74, a Democrat and soft-spoken attorney, has spent four decades in the General Assembly. Over the past two years, a house he paid for a former client to build himself has caught fire and young men he describes as former law clients have been charged with trespassing. A former client claimed recently that Soles molested him a decade ago, but the accuser later said he made the story up.

The latest — and most violent — confrontation was Sunday, when Soles shot Kyle Blackburn, 22, after he and Billie J. Wright, 23, tried to kick in the door of his Tabor City home, Columbus County Sheriff Chris Batten said. Soles' attorney said the senator fired a handgun. Blackburn is in fair condition and no charges have been filed.

Soles says he tries to help his neighbors and clients — some with criminal records or dysfunctional families — by giving them thousands of dollars to help them pay rent and college tuition and buy cars. Soles doesn't have a family and instead focuses on Tabor City and his Senate district, offering to help clients find jobs, places to live and drug treatment, his attorney, Joe Cheshire, said Monday.

"That is just who he is," Cheshire said. "That is why the people of this district continue to elect him."

Some of those neighbors in the town along the South Carolina line are starting to wonder just how well they really do know him.

"I never thought something like this would come up in a little small town like this," said Louise Elliott, a restaurant worker who has lived for 55 years in Tabor City, a town of 2,700 people in one of the state's poorest regions.

Cheshire says Soles was acting in self-defense and the shooting was captured by security cameras on the property. Soles declined to comment, citing the investigation.

Numbers listed for the men who came to Soles' house were either disconnected or answered by people who did not know them. However, Wright told WECT-TV in Wilmington that he went there to speak to Soles about taxes on a trailer he used to own.

"He did ask us to leave numerous times," Wright said. "Kyle had a few things to drink. They were arguing back and forth and he asked him to leave again. He didn't kill him, just a minor wound to his leg. I bandaged him up and drove him to the hospital."

State records show Blackburn was released from prison in June 2008 after serving a year and seven months for felony breaking and entering, communicating threats and several other misdemeanors.

He had been arrested in September 2008, accused of trespassing at Soles' home and breaking and entering. Wright was released from prison two weeks ago after serving nearly 2 1/2 years for larceny and nearly a dozen misdemeanors, according to state records.

Soles has called local police for help at least nine times in the past two years to warn of five different men whom officers have charged with trespassing at his home, which is tucked away from the road among pine trees and encircled by a white fence with a tan iron gate. Often, Soles declined to press charges, but he did pepper-spray one of them, according to police reports and Soles.

Then there was the fire late last month. One former Soles client said he had to leap from the second floor of a house, built with contributions from Soles, when a blaze started there. Police have said it was likely arson.

And state investigators continue to look into Soles' relationship with a former client who, in a televised interview aired earlier this month, accused Soles of fondling him when the client was 15 years old.

The man, once charged with filing a false police report for claiming Soles hit him, recanted last week and said he was high on drugs when he did the interview.

Soles choked up after hearing the allegation had been withdrawn, saying it was a relief.

On Monday, cafes on Tabor City's main drag were crowded with farmers and workers sitting at tables scattered with newspapers from Wilmington and Myrtle Beach, S.C., whose front pages described the shooting. Locals said they like the work Soles has done for the area, such as the jobs that will come with a new prison being built nearby.

Said Richard Dameron, 62, whose family owns a drug store and who has known Soles all his life: "He tries to look out for the people in his district."

http://www.washingtonexaminer.com/nation/ap/54627252.html


Tuesday August 25, 2009
Fabricating Fear: The Swine Flu
Posted by: rob_92183 at 11:00AM CST on August 25, 2009
Oh, what a day for news. First, President Obama continues Dubya's Texas philosophy that bigger is better by projecting record deficits ($1.6 trillion this year, $9 trillion for a ten year outlook). And then, a Federal Judge ordered the Federal Reserve to release the names of the $2 trillion dollar bailout recipients.

I'm not going to spend too much time on them other than to say the first is no surprise as we knew government spending is out of control, and the second was a welcome surprise even though Ben Bernanke threatened complete economic collapse if it ever happened.

The stories I'm more worried about all revolve around Swine Flu. As of right now, it's no more dangerous than the regular flu. In fact, most doctors are saying you can protect yourself from it simply by taking vitamin D-3 supplements. So why are we seeing pictures of people wearing surgical masks and hearing that one out of every two people could catch it and up to 90,000 could die?

It's just good showmanship. Really. After all, what's going to make people rush to get a vaccine more than conjuring up fear that it's not ok to breathe without it, and if you catch what's in the air you might die? But what's the truth behind the vaccine?

Well, back in April, Baxter sent out a live swine flu sample inside of what was supposed to be a vaccine to 18 different countries. Luckily, the first batch of the "vaccine" was first used on ferrets, which proceeded to all die before any human could be injected. Baxter refused to answer how the mix-up could occur, first invoking that it was trade secret, and then saying it was purely an accident. Weeks later they were chosen to head the vaccine production.

Even if this was purely accidental, there are still genuine concerns over the vaccine itself. Back in 1976, when Swine Flu first appeared, the vaccine literally killed more people than Swine Flu itself. 500 cases of Guillen Barre (brain disorder causing paralysis and inability to breathe) were detected, 25 people died immediately from paralysis and breathing complications, and those who received the vaccine were eight times more likely to contract Guillen Barre in their lifetime. After ten weeks, the vaccine was revoked and government was forced to pay out millions of dollars.

But government apparently has learned its lesson, because Kathleen Sebelieus, Secretary of Health and Human Services, has offered complete legal immunity to the makers of Tamiflu and Relenza, as well as immunity to future swine flu vaccines and “any associated adjuvants”.

And perhaps the most telling story that you're not hearing: One in three nurses will refuse the swine flu vaccine. This is not a small sample, either. 500 out of 1500 nurses said they would flat out refuse it.

Right now, I think that's the smartest bet. I'll definitely be refusing mine.

Monday August 24, 2009
Next Stimulus: "Cash for Refrigerators"
Posted by: rob_92183 at 11:37AM CST on August 24, 2009
The United States government doesn't get it.  After years and years of excesses and expenditures we are bankrupt.  We're bankrupt as people, we're bankrupt as a country, we might as well start printing world maps with the United States wearing a cardboard sign saying "Will Work For Food."

But where are we going to work?  We've become the mouthpiece for cheaply made goods for the entire world.  Between that and our regulations, all of our manufacturing jobs have moved to wherever they can sell us our crap at the cheapest possible price.  We've skyrocketed the supply of the world economy and completely tanked the demand (The Chinese stock market dropped 6% last Monday).  Even if the manufacturing jobs returned here, I think it's safe to assume we've stopped buying things like the singing Big Mouth Bass and Tickle Me Elmo.  We don't have the money for things that aren't essential right now.

Which comes as a double shock, seeing as how the American Government keeps pushing this idea that nothing about the economy has changed.  We spent the last few decades on a huge spending bubble comprised mostly of debt only to see a complete collapse of the economic system felt everywhere across America and yet the government wants to keep pushing this same idea, that somehow you'll be o.k if you only spend more.

Cash For Clunkers was the first example of this.  We created billions of dollars of debt to move the future sales of automobiles into the present.  Sure, we stimulated the auto market.  But they were artificial sales made to either people who could afford it without taxpayer money, or people who couldn't (or still can't) afford it and may now become another toxic asset on a bank sheet.  What happens if they can't pay off the Cash For Clunkers loan, are we going to bail them out too?  What happens to the auto industry now that the free money is gone?  As with any debt, we've removed their future sales and pushed them into the present.  What's on the horizon now?  More bankruptcies, more bailouts?

And now we're simply just moving into other areas of the economy.  "Here, have some taxpayer money.  It's free!  Buy a television, buy a fridge, buy a washing machine, a dishwasher!  Environmentally safe for all!"

Once again, all this does is punish people who have saved responsibly and lived within their means and rewarded the source of the problem in the first place.  Cheap, easy money that can be spent now without thinking about paying it back in the future, which will undoubtedly be held on the heads of the people who haven't spent recklessly.


Friday August 21, 2009
Who's full of crap?
Posted by: rob_92183 at 12:12PM CST on August 21, 2009
Ben Bernanke claimed today that the United States was, "On the cusp of recovery!"  ON THE CUSP!  I haven't heard news this good since Dewey defeated Truman!  Wait a minute, Dewey didn't defeat Truman?  And that was almost sixty years ago?  Aw, shucks.

On the other hand, you have an opinion editorial piece from Warren Buffett (not to be confused with Jimmy Buffett, although alcohol and cheeseburgers aren't necessarily a bad investment) that ends with, "...unchecked greenback emissions will certainly cause the purchasing power of currency to melt."

In Philosophy, there is a theory that when you have two conflicting statements, only one can be true.  Not surprisingly, this is called the corresponding theory of truth.  Using this model, who of the above is full of crap?

The problem is that economics is mostly a guessing game.  Even the best educated are sometimes reduced to guessing what people will do with their money.  In modern times though, it's a bit easier to understand the exact direction of the country and I think Warren Buffet really hits it on the head: The treasury, after auctioning off as much debt as they can, will have roughly $1.8 trillion dollars to finance.  To do this, the Federal Reserve can continue printing money, tax individuals, or raise interest rates.

But in order to understand the ramifications of these actions, you have to understand the cause and effect relationship of everything mentioned.  If you keep printing money into circulation, you lower the value of a dollar.  If you raise interest rates, you scare off investors from the stock market.  If you raise taxes, you're going to see more bankruptcies and foreclosures, which directly impact the banks.

As much as I've been called a "fear-mongering gloom-and-doomer", these are all valid concerns that are finally starting to be addressed from the top levels of government.  Well, except Ben Bernanke.

"The U.S. economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression."

Once again, almost 300,000 people lost their job last month.  Wages haven't increased and personal debt is being payed down.  Consumers aren't spending which is pretty much the backbone of ANY economic recovery.  Jobs aren't being created except at the federal level, so what basis is there for a claim that things are getting better?

Even worse, for every dollar that Bernanke's Federal Reserve prints, it's robbing from the people who have actually saved responsibly.  What happens to their money?  Well, I can tell you firsthand that the only things we spend it on are canned goods, bottled water, ammunition, and precious metals because it's obvious Mr. Bernanke is the one full of crap here and we're headed for a complete meltdown financially.

Should it be any surprise that firearm sales are STILL through the roof?  Obama has been in office months now and offered up no suggestions to ban anything weapons related.  But people are still going out in droves and buying up anything that's available.  Why?  Well, I'm no psychologist, but I'd venture a guess that the average reasonable person can tell something terrible is on the horizon and that collective subconscious of average, reasonable people in America is telling them that they need to be prepared.

Wednesday August 19, 2009
I feel like I'm on crazy pills!
Posted by: rob_92183 at 2:30PM CST on August 19, 2009
I've felt like snapping at every stupid, idiotic, liberal driven comment I've heard today.  This all started with Mayor Barrett's press conference about his assault and recovery and being lauded as a hero only to hear people say things like, "Well it's a good thing we don't have concealed carry because he might have been killed!"

Yes, a 20 year old with a restraining order is obviously going to get passed for a concealed carry license despite the fact he's a year too young to buy a handgun legally and lying about the restraining order is a felony!  Not to mention the mayor usually has armed guards in the event something out of the ordinary happens, say, the mayor is attacked with a lead pipe by a nutjob off his meds!

And then I find out two men tried to rob a store in Milwaukee with BB guns, only to be shot and killed by an innocent bystander with a REAL gun and it made me feel a bit better until I find out the hero ran off, which I understand completely since the state would obviously make a criminal out of him for expressing his right not to die at the hands of thugs, but might be lost on the unassuming public that has no idea how liberalism has driven the right to defend their life straight out the door with arguments like, "What about the innocent bystanders?"

WHAT ABOUT THE ROBBERS ENTERING A STORE WITH A GUN?  I don't buy this, "just give them what they want and they'll leave you alone" crap.  It worked great for the Miller executive who handed over his wallet and was shot in the neck for his troubles, yet another case of a victim denied his rights and is dead as a result while the taxpayers foot the bill for his killers for the next eighty or so years.

But that also includes their medical bills as prisons are a great example of public health care.  It's a great parallel to the United States government because a prison is forced to operate on a state budget, yet must provide basic medical services to all their inmates.  If an operation doesn't meet the bottom line, guess what?  The prisoner doesn't get it.  They'll get the cheapest available option that won't get the prison sued for neglect and that's it.  Now Wisconsin is about six billion dollars in debt, what kind of medical treatment do you think prisoners are getting these days?

AND YET LIBERALS THINK UNIVERSAL HEALTHCARE IS A GREAT IDEA EVEN THOUGH IT'S MAKING PRISONERS OUT OF PEOPLE WHO OTHERWISE MIGHT AFFORD PRIVATE POLICIES.

I tried explaining this to a woman I met in the post office in the nicest possible way, but she kept yammering on about "The fifty million uninsured people" and this and that, and I couldn't take it anymore.  I wanted to throw my head into the wall just to drown out her voice.

Finally I said the only logical thing that I think she's ever heard in her life.  "Where do you think government gets the money for policies like this?  The people.  If the people couldn't already afford these privately, there's no way the government could afford a public policy."

Her jaw dropped open slightly for a minute as she regurgitated through her mind all the liberal talking points (notice I don't call them THINKING points, because liberals are unable to think, only repeat what others have said...not unlike a parrot).

But then I realize I'm faced with a quandry.  I believe this country is headed for a meltdown, probably facing complete bankruptcy and a market collapse, yet I'm advocating the private sector can actively afford private policies.  Is this an irresponsible position?  I'm going to argue no, because we weren't in this position ten years ago before two wars and reckless spending by both parties left us with a twelve trillion plus dollar deficit with nothing left but collapse.  This entire situation was created by government deficit spending a fiat currency into the ground and we're just now reaping exactly what everyone in economics who actually knows a thing or two has predicted, the government is spending money they don't have by printing money that's not backed by anything and when the people finally get wind of this they'll realize that suggesting more government intervention is like asking the person you caught stealing from you to be your accountant.  However, the people most likely won't get wind of this until their bank collapses and they realize the FDIC is bankrupt and all those little slips of green paper mean nothing and they can't afford to do things like feed their children although they'll probably be more upset that they won't be able to see the next season of American Idol or watch a football game.

And there I will be sitting on my rooftop with an assault rifle and pounds of precious metals and yelling, "HAH!  WHERE IS YOUR GOD NOW, LIBERALS?"  Except it won't make sense because we all know they're godless athiests so I'll probably be yelling where is DARWIN now, as they've completely ignored the theory of evolution which suggests only superior members of society survive and you can't be a surviving, superior member of society while relying on anyone but yourself to be responsible for your survival.

So for the superior, surviving members of society that might still be reading this, it's not too late.  Silver is $13.80 an ounce right now which is a nice dip in price and come November you'll be thanking yourself to have the foresight of buying it now while it was low and your dollar was worth something, especially when you realize that silver MUST rise to about $60 an ounce just to get back to the historical average of the value ratio to gold.  Combine that with the fact gold is expected to go up anywhere from $400-$1100 an ounce once the dollar tanks and you'll realize why it's a better investment that worthless green paper.


Coming Soon: Bank Crisis of Historic Proportions.
Posted by: rob_92183 at 12:30PM CST on August 19, 2009

With everyone (well, almost everyone - I am one of the lonely skeptics) convinced that we have stepped back from the "edge of the abyss", the title of this article may be viewed as laughable. When you connect the dots, as I will in this article, you will at least stop laughing, and, maybe, realize that we still have a big problem.

We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We'll hit these factors one at a time.

First Factor: Banks Are Not Doing Enough Business

Commercial bank credit growth has dropped to 2%, according to Jesse's Cafe Americain (here). The recent history of credit growth is shown in the following graph.

Now, it is a good thing that banks are conserving capital, since they need to increase capital to offset bad loans.

But, if asset valuations deteriorate (and that is quite possible), the banks need to increase earnings to "earn their way" out of their problem. Interest paid by the Fed for reserves on deposit there (by the commercial banks) are not producing nearly the same level of income as new credit issued commercially under our fractional reserve banking system with much higher interest .

If credit issuance does not increase year over year, banks can not improve their financial condition unless the quality of their existing loan portfolio improves.

As discussed in the third factor, below, just the opposite is anticipated for loan portfolios.

So the first factor in this perfect storm is that the banks are not doing enough business.

Second Factor: Banks Are Failing at a Rate Not Anticipated Two Months Ago

In his article, Jesse mentions reports by Bloomberg that 150 banks are in trouble. Some of these will be larger than many of the 77 (mostly community) banks that have gone under FDIC receivership so far in 2009.

Banks mentioned as being in trouble by Bloomberg (here) include Wisconsin’s Marshall & Ilsley Corp. (MI), Georgia’s Synovus Financial Corp. (SNV), Michigan’s Flagstar Bancorp (FBC), Chicago-based Corus Bankshares Inc. (CORS), Austin-based Guaranty Financial Group Inc (GFG), and Colonial BancGroup Inc. (CNB) in Montgomery, Alabama.

These six banks became five at the close of business Friday, Aug. 14, as Colonial BancGroup was taken over by the State of Alabama and the FDIC. This was the largest bank failure since IndyMac Bank went under in the summer of 2008.

The following table shows some data regarding the six banks singled out by name in the Bloomberg article.

On July 5, Bill Cassill wrote (here) that he projected 125 bank failures for 2009 and 230 in 2010.

However, as of that date, Bill projected 82 closings by 9/30 and we have already reached 77 on 8/14. We still have half the quarter to go. With the 150 additional banks estimated by the Bloomberg article, and the 77 already closed thus far this year, we could be closer to 230 closings in 2009 than the 125 estimated just six weeks ago. Bill is not alone. I recall hearing other estimates of bank failures for 2009 of the order of 100 for the entire year.

The following graph (and the prediction below it) was provided on July 12 (here) by Colin Peterson.

How is Colin's prediction doing? The following graph shows how bank failure rates have been trending.

Give Colin the handicapper award here. Not only have bank failure rates spiked, the current annualized rate would be in a virtual three-way tie for second highest in history if maintained for another nine months.

And a lot of the banks going under are a lot larger than the average savings and loan in the previous crisis.

According to About.com (here): Between 1986-1995, over 1,000 banks with total assets of over $500 billion failed. Even if the current crisis falls far short of the 1,000 bank total, the total assets involved will still be vastly larger. Just in the failures of Wachovia Bank and Washington Mutual, the total assets were $619 billion. Add to that the IndyMac failure and the six banks in the troubled list above and there is another $164 billion.

And I am not even mentioning the shadow banks (Merrill, Bear Stearns, Lehman and AIG are examples), which add hundreds of billions more.

There should be no false comfort taken in the prospect that we may have far fewer bank failures this time compared to the S&L crisis. The dollar amounts are likely to be many times larger.

Third Factor: Defaults Are Going to Increase for Several More Quarters

With home mortgage foreclosure rates remaining very high (and possibly increasing) and with the bulk of the commercial real estate defaults yet to come, the failure rate of banks is likely to increase further in the next nine to twelve months, not decline. The situation will be compounded if commercial and industrial (C&I) loans also default at higher rates because of a weak or non-existent recovery.

Reading some of the latest quarterly reports for a number of banks, C&I loan portfolios have generally been performing better than many other categories, but will that continue?

A reference for this subject is a Jeffrey Bernstein article published in late May entitled "C&I Loans Are Starting to Unravel" (here), which discussed the status of a wide variety of loan portfolio categories. C&I defaults may, at this time, be like an iceberg, with 90%+ still not visible above water.

Default rates in all credit areas have started to rise, although some have yet to reach levels of other recent recessions (see Bernstein article here). Residential mortgage defaults have been the elephant in the room. We have to continue to worry that problem may increase further, but we better also worry about all the baby elephants.

We may have "saved the financial system", but it seems likely that we will lose banks at levels far exceeding anything seen in our history. Even if we fall short in number of the approximately 1,000 S&Ls, the assets involved will be much larger.

We need one hell of a recovery here to prevent disaster. Muddle through will not do it. A return to 3% GDP growth may not do it. We need a couple of years at 4% (or higher) GDP growth to have any chance that some of these banks can earn their way out of the quagmire.

I don't think that type of economic growth can be realized. It certainly is not going to happen if commercial bank credit growth doesn't expand drastically and quickly.

Fourth Factor: The FDIC Is in Trouble

Rolfe Winkler (here) points out that the accelerating rate of bank failures may exhaust the Deposit Insurance Fund (DIF) at the FDIC, requiring that agency to draw on its credit line with the Fed. Rolfe calculates that the FDIC is currently on the hook for $8.3 trillion in insured deposits, had only $41.5 billion in reserves as of March 31 and has drawn that lower since.

Since only a small portion of deposits actually are paid out of DIF (failed banks have assets that cover most deposits), FDIC needs only a small fraction of covered deposits in reserve.

However, less than 0.05% is most likely several fold too small in a distressed banking system. The section title says the FDIC is in trouble. That is a polite way of saying they are bankrupt.

Fifth Factor: We May Be Going to Historic Lows in Bank Credit

Because we are approaching the one year anniversary of a growth spike in bank credit in September, 2008 (see the first graph in this article), there is likely to be continued pressure on the year-over-year growth rate. The year over year growth of credit may be driven much lower than the current 2% within the next couple months due to the negative effect on comparison due to the spike a year earlier.

As shown below, this would be an historic low.

There is one possible piece of good news here. Looking at a longer history from the Fed FRED data base (here), the current situation is similar to those seen after the end of the recessions of 1973-75, 1990-91, and 2001. A similar minimum was also reached in 1997.

It should be noted that several minima in commercial bank credit have occurred that were not associated with the end of a recession. This indicates there are non-recessionary factors related to dips in commercial credit.

All recessions have dips in commercial bank credit, but all dips in commerical bank credit are not associated with recessions.

This time, the minimum may not have been reached yet because of the spike in credit volume in September, 2008 (mentioned above). If September 2009 does see a minimum in commercial bank credit, this would be another sign that the recession probably ended earlier in the year.

However, the banks need far more than an end to the recession; they need a recovery of unlikely proportions.

One cautionary note: Although the minimum was much higher in the 1981-82 recession, the lowest point occurred about a year before the recession actually ended. That could always happen again.

Is There Any Hope?

Well, since so many people are predicting a weak recovery, that has a good chance of not happening, based on the observation that, in economic matters, agreement by a majority is often wrong. So, if the majority is wrong, which way do you think things will go? Back into recession? The robust recovery predicted by only a few?

I'll leave a definitive answer to the reader - after all I can't do all the work. I'll just share my bias, based on all the factors I can collect: An advance in real GDP of 4-5% in 2010 and 2011 (2-2.5% per year) seems to me to be the very best that might be obtained, but less is more likely.

Without a strong recovery, there is little hope of a good outcome for the non-oligarchy banks. With a return to recession, in 2010 (and possibly 2011 and 2012) there could be carnage in regional and local banks not seen since the early 1900s, and maybe even worse than what occurred then.

I hope we don't have to compare what happens in 2010 to 1873.

The banking crisis of 1873 started what has been called "The Long Depression". This consisted of a period of rolling recessions that continued for almost 40 years and included additional banking crises in 1893 and 1907. This long period of economic and financial turmoil was a major motivator in the formation of the Federal Reserve Bank. The Fed was the first true central national bank for the U.S. since the dissolution of the Second Bank of the United States in 1837 by Andrew Jackson.

Hat tip to Phil's Stock World.

Disclosure: No positions in any stocks mentioned.

Article was written by John Lounsbury, http://seekingalpha.com/article/156269-coming-soon-banking-crisis-of-historic-proportions?source=article_sb_popula


Tuesday August 18, 2009
Last Week in Self Defense: Milwaukee, Military and Store Clerks
Posted by: rob_92183 at 9:26AM CST on August 18, 2009

A 17-year-old killed Thursday by a man he was trying to rob had been ordered to stay out of trouble in March after he pleaded guilty to taking a woman’s car on a joy ride.

Kevin Ollie, also known as Devin, was supposed to participate in a substance abuse treatment program, stay in school or hold down a job and perform 20 hours of community service, according to a deferred prosecution agreement he signed March 23.

Less than a month later, Ollie tested positive for THC, according to a July 11 letter from a juvenile justice program that was monitoring him.

On Friday, the Milwaukee Police Department Sgt. Mark Stanmeyer identified Ollie as the teen killed early Thursday as he and a 19-year-old associate tried to rob a man in the 2600 block of N. 1st St.

The deceased teen shot his accomplice during the robbery attempt, according to police.

The district attorney’s office is reviewing the shooting to determine whether charges will be brought against the target of the robbery, Police Department spokeswoman Anne E. Schwartz said.

When the suspects confronted a 22-year-old man on the street he pulled out his own gun and shot the younger teen, Stanmeyer said. Somehow, the older teen was shot and suffered a non-life threatening injury, Stanmeyer said.
From the August 14, 2009 Milwaukee Journal-Sentinel

Police had been watching Vincent Goff for years, convinced he was the masked man who sexually assaulted couples at gunpoint on the Mississippi coast. But before investigators closed in, they say Goff picked the wrong victim and was beaten nearly to death with his own rifle.

Goff, a 37-year-old unemployed Biloxi man with a wife and two stepsons, was being held Wednesday in the Harrison County Jail after spending five days in a hospital recovering from severe head wounds. Little is known about Goff's background or the unidentified man who beat him so hard that the wood stock of the rifle broke. But authorities say Goff's arrest caps a terrorizing series of attacks that began on the sandy banks of the Biloxi River in 2006.

Goff allegedly approached a man and woman last Thursday afternoon on an isolated logging road in Harrison County and forced them into the woods with a rifle, Sheriff's Maj. Ron Pullen said Wednesday. They were forced to strip off their clothes and told to perform sexual acts when the male victim, described as a physically fit member of the military in his mid-30s, wrestled the gun away.

"He beat him until the stock broke over his head and then continued to beat him until he thought he had him incapacitated," Pullen said.
From August 12, WCVB channel 5 (Boston)

It was pouring rain just after 1 p.m. Monday, July 20, when a man burst into a Honduran grocery store on NW 36th Street in Miami. A shirt was wrapped around his face as he gripped a black semiautomatic handgun. Twenty-year-old Charles Bell shoved the pistol into the face of a manager behind the counter. Then he demanded the contents of the cash register and cartons of cigarettes in a plastic bag.

Next he began herding customers to the back of the small market.

But when he returned to the counter to collect his loot, a short, well-built 24-year-old manager named Valentin Fiallos pointed a .38 and squeezed the trigger. As Bell scampered from the store, he turned and shot back several times. Fiallos, shielding himself, squeezed off several more rounds.

The would-be robber missed every time, but the manager's aim was true. Bell burst out of the store and ran several steps before flopping onto the wet asphalt. A bullet to the chest killed him.

Cops termed it "justifiable homicide." The ruling is backed up by former Gov. Jeb Bush's 2005 "Stand Your Ground" law, which offers wide-ranging legal protection to violent-crime victims who open fire on their aggressors before trying to make peace.
From the Miami News Times of August 4, 2009


As of Friday August 14, 2009, FDIC is Bankrupt
Posted by: rob_92183 at 8:29AM CST on August 18, 2009

Bank Failure Friday is in full swing. Tonight there were 5 more failures, numbers 73 through 77 on the year. In the biggest failure since WaMu, BB&T Takes Over Colonial.

Colonial BancGroup Inc., the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp. in the biggest bank failure since Washington Mutual Inc. collapsed last year.

Branches and deposits of Colonial, Alabama’s second-largest bank, were turned over to Winston-Salem, North Carolina-based BB&T in a deal brokered by the Federal Deposit Insurance Corp., the regulator said today. The failure of Montgomery-based Colonial followed a Florida expansion that saddled the lender with more than $1.7 billion in soured real-estate loans.

Colonial’s failure will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said. The fund, which the agency uses to pay customers of a failed bank for deposit losses up to a $250,000 limit and is generated by fees paid by banks, stood at $13 billion at the end of the first quarter, according to the FDIC. The agency has set aside an additional $25 billion for bank failures, agency spokesman David Barr said.
Is There Any Money Left In The Fund?

Tonight, inquiring minds are asking "Is There Any Money Left In The Fund?"

For clues, please consider Saxo Bank Research FDIC’s Shrinking Deposit Insurance Fund – A Testimony of Current Accounting Standards.
As late as in the end of April just before the release of the bank stress tests, Ms. Bair Chairman of the FDIC said they would not need any additional bailouts from the U.S Treasury within the immediate future according to The Bulletin. After three new bank failures last Friday, the FDIC’s Deposit Insurance Fund (DIF) diminished by another $185 million for a total remaining balance of $648.1 million.

Below is a graph showing the DIF capital as a percentage of total bank deposits insured by the FDIC. Note that this graph is based on the old insurance limit with a maximum coverage of $100.000/account. This limit has been changed to cover up to $250.000/account until January 1st 2014. Estimates say that the change increases the deposits covered under FDIC insurance to approximately $6 trillion in total.

FDIC Reserve Ratios & Insured Deposits



click on chart for sharper image

The current reserve ratio of 0.014%1 strongly indicates how bad this crisis has affected U.S financial institutions. However, this is not the entire story. If we take a closer look at non-current loans and charge-offs from banks one realizes that the FDIC still has a lot of work to be done. Combined non-current loans and charge-offs amounted to nearly $100 billion in Q109 compared to $15 billion/quarter pre-crisis. Moreover, according to analysts at the Royal Bank of Canada the U.S still has banking failures in the thousands to face before the crisis is over. In turn that should result in the FDIC requesting the pre-approved funding signed by the Congress in May 2009, including $100 billion from the U.S Treasury Department.
Tonight's Bank Failures

Dwelling House Savings and Loan Association, Pittsburgh, Pennsylvania

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $6.8 million. PNC Bank, National Association's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Dwelling House Savings and Loan Association is the 73rd FDIC-insured institution to fail in the nation this year, and the first in Pennsylvania. The last FDIC-insured institution to be closed in the state was Metropolitan Savings Bank, Pittsburgh, on February 2, 2007.

Colonial Bank, Montgomery, Alabama


The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $2.8 billion. BB&T's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Colonial Bank is the 74th FDIC-insured institution to fail in the nation this year, and the first in Alabama. The last FDIC-insured institution to be closed in the state was Birmingham FSB, Birmingham, on August 21, 1992.

Union Bank, National Association, Gilbert, Arizona

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $61 million. MidFirst Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Union Bank, N.A. is the 75th FDIC-insured institution to fail in the nation this year, and the second in Arizona. The last FDIC-insured institution to be closed in the state was Community Bank of Arizona, Phoenix, also today.

Community Bank of Arizona, Phoenix, Arizona

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $25.5 million. MidFirst Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Community Bank of Arizona is the 76th FDIC-insured institution to fail in the nation this year, and the first in Arizona. The last FDIC-insured institution to be closed in the state was NextBank, Phoenix, on February 7, 2002.

Community Bank of Nevada, Las Vegas, Nevada

The cost to the FDIC's Deposit Insurance Fund is estimated to be $781.5 million. Community Bank of Nevada is the 77th bank to fail this year and the third in Nevada. The last bank to be closed in the state was Great Basin Bank, Elko, on April 17, 2009.

Taxpayers Bailout FDIC

If indeed $641 million was all that remained of the DIF, the FDIC is now bankrupt. Of the $641 million left, Community bank used up 781.5 million and Colonial Bank $2.8 billion

Here is more from the Saxo Report
The real total cost for Q1 09 turned out to be almost twice the amount of the estimates. If that will be even close to reality for Q2 09 the FDIC’s DIF will (very) soon be out of funds completely. [Mish: as of tonight the DIF is bankrupt.]

We believe the main reason for this observation lies in a de facto relaxation of accounting standards, even before the FASB 157 amendment on March 15th earlier this year. Basically the relaxation allows banks to only write-off parts of their losses due to market impairment and they may themselves decide a fair price that the asset could have been sold for during normal market conditions to keep in their books. Allowing banks to control how they mark-to-market their assets, will likely backfire and when they ultimately end up failing, imply greater closure costs for the FDIC. From the graph [below] one can infer that the average yearly DIF costs/bank assets have increased at an alarming rate to almost reach 31% in 2008 and 2009.

Yearly Average DIF Costs / Bank Assets



click on chart for sharper image

So, what does that imply? Basically it means that when valuating any U.S bank, their assets should probably be marked down significantly relative to their book value, much because of how they nowadays are allowed to manipulate their balance sheets in order to appear more solvent than they in fact are.
The Moral Hazard of FDIC Insurance

Friday, In reference to Colonial, Shelia Bair made the following galling claim:

"The past 18 months have been a very trying period in the financial services arena, but the FDIC and its staff have performed as Congress envisioned when it created the corporation more than 75 years ago," said FDIC Chairman Sheila C. Bair. "Today, after protecting almost $300 billion in deposits since the current financial crisis began, the FDIC's guarantee is as certain as ever. Our industry funded reserves have covered all losses to date. In fact, losses from today's failures are lower than had been projected. I commend our staff for their excellent work in assuring once again a smooth transition for bank customers with these resolutions. The FDIC continues to stand by the nation's insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits."

The Seen and the Unseen

Nowhere does "Shelia the Fool" state the cost of this insurance. Without FDIC, banks like Colonial, Bank United, Corus Bank, and possibly even banks like Washington Mutual would have failed long before they mattered.

By offering above market rates on CDs, those bank attracted plenty of capital to the detriment of banks lending responsibly. In order to offer high rates on CDs and deposits, the banks had to take high risks.

Bank United and Corus Bank funded all sorts of risky housing projects including condo towers in the biggest bubble cities. Colonial Bank is under investigation for Fraud.

No one in their right minds would have deposited money at those institutions without FDIC. And if they did it should be their problem not yours or mine.

Total Up The Unseen

  • Looming taxpayer bailouts of the FDIC
  • Taxpayer bailouts of failed banks
  • Taxpayer bailouts of mortgage reductions to keep people in their homes
  • Rising property taxes because of increased speculation
  • The FDIC's role in the housing boom and bust
  • Fraud costs
  • Investigatory costs
  • Stock market crash
  • Cost to pension plans dumb enough to buy debt in failed banks simply because they were "growing"

For more on the Seen and Unseen please see Government Bailouts and the Stock Market - The Seen and the Unseen and Cash For Clunkers For Housing Market Is 'No Brainer'

FDIC Is Asinine Model

There were no bank failures for a very long time during the credit boom. Thus, FDIC insurance seemed to work very well for a while. The reality is such schemes always produce fat tails.

Instead of spreading a small number of small bank failures out over a large number of years, a large number of big failures are all clustered together.

If this is not an asinine model what is? Note this is a failure caused by regulation. There should not be an FDIC in the first place.

Shelia brags "In fact, losses from today's failures are lower than had been projected."

She needs a math lesson. The cost of FDIC is staggering, and the benefits are negative.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

http://globaleconomicanalysis.blogspot.com/2009/08/as-of-friday-august-14-2009-fdic-is.html

Thursday August 13, 2009
YOU DO NOT HAVE A RIGHT TO HEALTH CARE
Posted by: rob_92183 at 10:33AM CST on August 13, 2009
Most people who oppose socialized medicine do so on the grounds that it is moral and well-intentioned, but impractical; i.e., it is a noble idea—which just somehow does not work. I do not agree that socialized medicine is moral and well-intentioned, but impractical. Of course, it is impractical—it does not work—but I hold that it is impractical because it is immoral. This is not a case of noble in theory but a failure in practice; it is a case of vicious in theory and therefore a disaster in practice. So I'm going to leave it to other speakers to concentrate on the practical flaws in the Obama health plan. I want to focus on the moral issue at stake. So long as people believe that socialized medicine is a noble plan, there is no way to fight it. You cannot stop a noble plan—not if it really is noble. The only way you can defeat it is to unmask it—to show that it is the very opposite of noble. Then at least you have a fighting chance.

What is morality in this context? The American concept of it is officially stated in the Declaration of Independence. It upholds man's unalienable, individual rights. The term "rights," note, is a moral (not just a political) term; it tells us that a certain course of behavior is right, sanctioned, proper, a prerogative to be respected by others, not interfered with—and that anyone who violates a man's rights is: wrong, morally wrong, unsanctioned, evil.

Now our only rights, the American viewpoint continues, are the rights to life, liberty, property, and the pursuit of happiness. That's all. According to the Founding Fathers, we are not born with a right to a trip to Disneyland, or a meal at Mcdonald's, or a kidney dialysis (nor with the 18th-century equivalent of these things). We have certain specific rights—and only these.

Why only these? Observe that all legitimate rights have one thing in common: they are rights to action, not to rewards from other people. The American rights impose no obligations on other people, merely the negative obligation to leave you alone. The system guarantees you the chance to work for what you want—not to be given it without effort by somebody else.

The right to life, e.g., does not mean that your neighbors have to feed and clothe you; it means you have the right to earn your food and clothes yourself, if necessary by a hard struggle, and that no one can forcibly stop your struggle for these things or steal them from you if and when you have achieved them. In other words: you have the right to act, and to keep the results of your actions, the products you make, to keep them or to trade them with others, if you wish. But you have no right to the actions or products of others, except on terms to which they voluntarily agree.

To take one more example: the right to the pursuit of happiness is precisely that: the right to the pursuit—to a certain type of action on your part and its result—not to any guarantee that other people will make you happy or even try to do so. Otherwise, there would be no liberty in the country: if your mere desire for something, anything, imposes a duty on other people to satisfy you, then they have no choice in their lives, no say in what they do, they have no liberty, they cannot pursue their happiness. Your "right" to happiness at their expense means that they become rightless serfs, i.e., your slaves. Your right to anything at others' expense means that they become rightless.

That is why the U.S. system defines rights as it does, strictly as the rights to action. This was the approach that made the U.S. the first truly free country in all world history—and, soon afterwards, as a result, the greatest country in history, the richest and the most powerful. It became the most powerful because its view of rights made it the most moral. It was the country of individualism and personal independence.

Today, however, we are seeing the rise of principled immorality in this country. We are seeing a total abandonment by the intellectuals and the politicians of the moral principles on which the U.S. was founded. We are seeing the complete destruction of the concept of rights. The original American idea has been virtually wiped out, ignored as if it had never existed. The rule now is for politicians to ignore and violate men's actual rights, while arguing about a whole list of rights never dreamed of in this country's founding documents—rights which require no earning, no effort, no action at all on the part of the recipient.

You are entitled to something, the politicians say, simply because it exists and you want or need it—period. You are entitled to be given it by the government. Where does the government get it from? What does the government have to do to private citizens—to their individual rights—to their real rights—in order to carry out the promise of showering free services on the people?

The answers are obvious. The newfangled rights wipe out real rights—and turn the people who actually create the goods and services involved into servants of the state. The Russians tried this exact system for many decades. Unfortunately, we have not learned from their experience. Yet the meaning of socialism (this is the right name for Obama's medical plan) is clearly evident in any field at all—you don't need to think of health care as a special case; it is just as apparent if the government were to proclaim a universal right to food, or to a vacation, or to a haircut. I mean: a right in the new sense: not that you are free to earn these things by your own effort and trade, but that you have a moral claim to be given these things free of charge, with no action on your part, simply as handouts from a benevolent government.

How would these alleged new rights be fulfilled? Take the simplest case: you are born with a moral right to hair care, let us say, provided by a loving government free of charge to all who want or need it. What would happen under such a moral theory?
 
Haircuts are free, like the air we breathe, so some people show up every day for an expensive new styling, the government pays out more and more, barbers revel in their huge new incomes, and the profession starts to grow ravenously, bald men start to come in droves for free hair implantations, a school of fancy, specialized eyebrow pluckers develops—it's all free, the government pays. The dishonest barbers are having a field day, of course—but so are the honest ones; they are working and spending like mad, trying to give every customer his heart's desire, which is a millionaire's worth of special hair care and services—the government starts to scream, the budget is out of control. Suddenly directives erupt: we must limit the number of barbers, we must limit the time spent on haircuts, we must limit the permissible type of hair styles; bureaucrats begin to split hairs about how many hairs a barber should be allowed to split. A new computerized office of records filled with inspectors and red tape shoots up; some barbers, it seems, are still getting too rich, they must be getting more than their fair share of the national hair, so barbers have to start applying for Certificates of Need in order to buy razors, while peer review boards are established to assess every stylist's work, both the dishonest and the overly honest alike, to make sure that no one is too bad or too good or too busy or too unbusy. Etc. In the end, there are lines of wretched customers waiting for their chance to be routinely scalped by bored, hog-tied haircutters some of whom remember dreamily the old days when somehow everything was so much better.

Do you think the situation would be improved by having hair-care cooperatives organized by the government?—having them engage in managed competition, managed by the government, in order to buy haircut insurance from companies controlled by the government?

If this is what would happen under government-managed hair care, what else can possibly happen—it is already starting to happen—under the idea of health care as a right? Health care in the modern world is a complex, scientific, technological service. How can anybody be born with a right to such a thing?

Under the American system you have a right to health care if you can pay for it, i.e., if you can earn it by your own action and effort. But nobody has the right to the services of any professional individual or group simply because he wants them and desperately needs them. The very fact that he needs these services so desperately is the proof that he had better respect the freedom, the integrity, and the rights of the people who provide them.

You have a right to work, not to rob others of the fruits of their work, not to turn others into sacrificial, rightless animals laboring to fulfill your needs.

Some of you may ask here: But can people afford health care on their own? Even leaving aside the present government-inflated medical prices, the answer is: Certainly people can afford it. Where do you think the money is coming from right now to pay for it all—where does the government get its fabled unlimited money? Government is not a productive organization; it has no source of wealth other than confiscation of the citizens' wealth, through taxation, deficit financing or the like.

Some people can't afford medical care in the U.S. But they are necessarily a small minority in a free or even semi-free country. If they were the majority, the country would be an utter bankrupt and could not even think of a national medical program. As to this small minority, in a free country they have to rely solely on private, voluntary charity. Yes, charity, the kindness of the doctors or of the better off—charity, not right, i.e. not their right to the lives or work of others. And such charity, I may say, was always forthcoming in the past in America. The advocates of Medicaid and Medicare under LBJ did not claim that the poor or old in the '60's got bad care; they claimed that it was an affront for anyone to have to depend on charity.

But the fact is: You don't abolish charity by calling it something else. If a person is getting health care for nothing, simply because he is breathing, he is still getting charity, whether or not President Obama calls it a "right." To call it a Right when the recipient did not earn it is merely to compound the evil. It is charity still—though now extorted by criminal tactics of force, while hiding under a dishonest name.

As with any good or service that is provided by some specific group of men, if you try to make its possession by all a right, you thereby enslave the providers of the service, wreck the service, and end up depriving the very consumers you are supposed to be helping. To call "medical care" a right will merely enslave the doctors and thus destroy the quality of medical care in this country, as socialized medicine has done around the world, wherever it has been tried, including Canada (I was born in Canada and I know a bit about that system first hand).
 
I would like to clarify the point about socialized medicine enslaving the doctors. Let me quote here from an article I wrote a few years ago: "Medicine: The Death of a Profession." [The Voice of Reason: Essays in Objectivist Thought, NAL Books, © 1988 by the Estate of Ayn Rand and Leonard Peikoff.]
 
"In medicine, above all, the mind must be left free. Medical treatment involves countless variables and options that must be taken into account, weighed, and summed up by the doctor's mind and subconscious. Your life depends on the private, inner essence of the doctor's function: it depends on the input that enters his brain, and on the processing such input receives from him. What is being thrust now into the equation? It is not only objective medical facts any longer. Today, in one form or another, the following also has to enter that brain: 'The DRG administrator [in effect, the hospital or HMO man trying to control costs] will raise hell if I operate, but the malpractice attorney will have a field day if I don't—and my rival down the street, who heads the local PRO [Peer Review Organization], favors a CAT scan in these cases, I can't afford to antagonize him, but the CON boys disagree and they won't authorize a CAT scanner for our hospital—and besides the FDA prohibits the drug I should be prescribing, even though it is widely used in Europe, and the IRS might not allow the patient a tax deduction for it, anyhow, and I can't get a specialist's advice because the latest Medicare rules prohibit a consultation with this diagnosis, and maybe I shouldn't even take this patient, he's so sick—after all, some doctors are manipulating their slate of patients, they accept only the healthiest ones, so their average costs are coming in lower than mine, and it looks bad for my staff privileges.' Would you like your case to be treated this way—by a doctor who takes into account your objective medical needs and the contradictory, unintelligible demands of some ninety different state and Federal government agencies? If you were a doctor could you comply with all of it? Could you plan or work around or deal with the unknowable? But how could you not? Those agencies are real and they are rapidly gaining total power over you and your mind and your patients. In this kind of nightmare world, if and when it takes hold fully, thought is helpless; no one can decide by rational means what to do. A doctor either obeys the loudest authority—or he tries to sneak by unnoticed, bootlegging some good health care occasionally or, as so many are doing now, he simply gives up and quits the field."
 
The Obama plan will finish off quality medicine in this country—because it will finish off the medical profession. It will deliver doctors bound hands and feet to the mercies of the bureaucracy.

The only hope—for the doctors, for their patients, for all of us—is for the doctors to assert a moral principle. I mean: to assert their own personal individual rights—their real rights in this issue—their right to their lives, their liberty, their property, their pursuit of happiness. The Declaration of Independence applies to the medical profession too. We must reject the idea that doctors are slaves destined to serve others at the behest of the state.

I'd like to conclude with a sentence from Ayn Rand. Doctors, she wrote, are not servants of their patients. They are "traders, like everyone else in a free society, and they should bear that title proudly, considering the crucial importance of the services they offer."

The battle against the Obama plan, in my opinion, depends on the doctors speaking out against the plan—but not only on practical grounds—rather, first of all, on moral grounds. The doctors must defend themselves and their own interests as a matter of solemn justice, upholding a moral principle, the first moral principle: self-preservation. If they can do it, all of us will still have a chance. I hope it is not already too late. Thank you.

 

Copyright © Leonard Peikoff. All rights reserved.


Tuesday August 11, 2009
The Genius of Government
Posted by: rob_92183 at 10:54AM CST on August 11, 2009
“It is critically important that Congress act before the [debt] limit is reached,” Tim Geithner wrote over the weekend in a letter to lawmakers, “so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”

Yes, treasury secretary Timothy Geithner was on the record this weekend, trying to get government to address rampant spending get Congress to raise the debt ceiling!  Currently, the glass ceiling in debt is right around 12.1 trillion dollars, and Geithner wants to ensure Congress can dig deeper than that so other countries don't lose faith in our ability to repay debts.  Ha-ha!  The more government spends the more you can trust they'll pay it back!  I live in a world gone mad!

The U.S budget deficit rose $181 billion in July to a record $1.3 trillion dollars.  Tax receipts are plunging while spending just keeps going up.  (You get what you vote for!)  Revenues are down 17%, outlays up 21%.  All in all, $530 billion dollar spending increase from last year.

So I probably shouldn't mention Congress just earmarked $550 million in a defense spending budget for a new fleet of planes.  After all, these planes will be economically friendly, cheaper to maintain and replace older, out-of-date models.  It's just a coincidence they want this passed before they all go on vacation.  Yes, coincidence!

Sorry to inconvenience your day, now carry on with the who's who of nazi-calling in healthcare.

Monday August 10, 2009
What's holding up healthcare? You might be surprised.
Posted by: rob_92183 at 12:10AM CST on August 10, 2009
While the press throws out stories of "Who's who in the nazi-name calling business", actual healthcare negotiations are going on behind closed doors far out of the reach of the unassuming public who would apparently rather beat each other up than search for the real bully.  I'll give you a hint, it's not the hecklers that are showing up to shout down Democrats in favor of the bill.  It's also not the President, nor his followers.

No, the REAL issue here is Big Pharmacy.  The top Pharmaceutical and Biotech companies have been secretly negotiating with the president behind closed doors, and apparently they've got him in a headlock because he agreed to block any congressional effort to extract cost savings beyond $80 billion dollars. 

Obama, being the sweetheart that he is, promised his lobbyists two key points:

1) Medicare cannot negotiate lower prices on bulk purchases of pharmaceutical drugs.
2) Medicare cannot import cheaper drugs from Canada.

Before you on the right start salivating at the chance to rip Democrats over their handling of this, lest we not forget that Bush Jr. gave vaccine makers almost unlimited liability protection from lawsuits while Big Pharmacy handed out some $800 million in campaign funds and lobbying.

It's a fundamentally flawed argument to even say we live in a Representative Republic anymore.  The White House is openly inviting special interests to take a position at the negotiation table so they can advocate a position directly in opposition to what will benefit the American People.  It's a disgrace that the President is openly entertaining the idea.

For the record, I'm in favor of changing the current system.  We have the most expensive system in the world without even ranking in the top ten.  No, I don't believe government can do it more efficiently and yes, some of the proposals are downright frightening.  Not just the scope of what's being proposed, but the unintended consequences of turning what's essentially a good/service into a right.  You want to demand healthcare of your government?  Don't be surprised when they demand you stop killing yourself with sugar, McDonalds, speed limits that are too high, smoking, alcohol, and anything else the FDA may declare to be unhealthy.  This is what happens when you give up your rights to a government in exchange for government funded service.

Since I can feel my fellow right-wingers start to salivate at this point, I'm just going to pass out napkins again and remind everyone that it was Bush who appointed more than 100 top officials (lobbyists, lawyers and spokesmen) into government positions overlooking the industries they represented.

So what is the solution when you have politicians who want more money from lobbyists, lobbyists who want more money from the people, and people who want more from the health industry for less?

Unfortunately we'll never know as long as every argument devolves into who can call the other party a nazi the fastest.

Sunday August 9, 2009
California Won't Accept Its Own IOUs
Posted by: rob_92183 at 10:55PM CST on August 9, 2009
By MARIA DINZEO

SAN FRANCISCO (CN) - Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors' federal class action claims the state is trying to balance its budget on their backs.
     Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California "paid" her with an IOU that two banks refused to accept - yet she had to pay California sales tax on the so-called "sale" of the uniforms.
     The class consists mostly of small business owners, many of whom rely on income from government contracts to keep afloat. They say California has used them as "suckers" as it looks for a way to bankroll its operations while avoiding its own financial obligations.
     "Instead of seeking funds through proper channels, the State has created a nightmare," the class says. "Many of these businesses will not survive if they are required to wait until October 2009 to have these forced IOUs redeemed by the State."
     The class claims the state is violating the Fifth and Fourteenth Amendments. It demands that California be ordered to honor its own IOUs, plus interest. They are represented by William Audet.

http://www.courthousenews.com/2009/08/04/California_Won_t_Accept_Its_Own_IOUs.htm

Friday August 7, 2009
Unintended Consequences: Obama and Illegal Immigrants
Posted by: rob_92183 at 4:41PM CST on August 7, 2009
I have to hand it to President Obama, even though he said it would be impossible to deport all the illegal immigrant in the United States, he sure is trying.  Since there are so few jobs and the dollar is losing purchasing value, illegal immigrants have been leaving in droves.

But if you stretch this train of thought further, what's the next statistic that pops out into the limelight?  President Obama, through deficit spending and hostility to the business climate, has effectively driven out nearly two million illegal aliens, and made the streets a safer place?

Can it be true?  Well, according to the Phoenix Business Journal, it's a direct cause-and-effect relationship.  Phoenix has seen a 25% drop in crime this year compared to 2007 when the economy first started to slow.  Violent crime in Phoenix is down 12%.  In Mesa, 19% decrease in total crime, 10% drop in violent crime.  Tempe has seen a 25% total drop.  At the same time, the amount of illegal immigrants in-state has dropped nearly 33%.

Can it be that strange of a thought that if you allow people to live in your country illegally and do all you can to set them up comfortably while they are here illegally, that maybe they will just...I don't know, disregard the laws since you refuse to enforce even the basic ones by allowing them to be here?

It should be mentioned that while Obama has been working valiantly to deport these illegal immigrants, now he wants to mess that up by offering them free government healthcare under his plan, AND offer them amnesty.  I say stick to the original plan, Mr. President.  You're doing a fine job on the illegal immigrant problem, don't mess it up now.

Source article: http://www.bizjournals.com/phoenix/stories/2009/07/27/daily89.html


Thursday August 6, 2009
URGENT UPDATE
Posted by: rob_92183 at 10:39PM CST on August 6, 2009
Last week I wrote about poor showings in the Treasury bond auctions, which is where we auction off our debt to other countries.  The two year bonds and five year bonds both had poor showings, which meant other countries had significant worries about our ability to pay back debt.  China and Japan, our biggest purchasers of debt so far, didn't even bother to show up.

The last auction was for seven year bonds, which had a pretty decent sale and seemed to calm the markets down a bit and kept them stable.  But something was off, it's just that nobody knew exactly what was wrong.  Well, now we know.

Less than a week after the auction, the federal reserve went out and bought $14 billion dollars worth of bonds that the treasury had just auctioned off.

This 14 billion dollars represents freshly printed money appearing out of thin air.  This is the basis of all things inflation related and extremely bad news.  There was NO interest in our long-term debt and you cannot blame nations for not wanting to buy these bonds.  And yet the government is going to ask for another $100 billion this week and another $400 billion in the next quarter.  Oh, and just another trillion dollars for heathcare, it'll be alright.  And the economy is running a bit slow yet, maybe another bailout is in order.  Sure, and maybe another couple billion dollars for cash for clunkers.

We've officially hit the debt wall and there's nowhere to go but down.  We cannot keep spending money, but you cannot explain that to this government.

If you haven't started preparing for the big collapse yet, you're going to get caught when it all comes down.  Food, water, ammunition.  Gold if you can afford it, silver if you can't.

http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880
http://www.ny.frb.org/markets/pomo/display/index.cfm?showmore=1&opertype=orig (federal reserve purchase sheet)

Wednesday August 5, 2009
GDP-US Debt Parity Approaches - by Mogambo Guru
Posted by: rob_92183 at 1:20PM CST on August 5, 2009

08/05/09 Tampa Bay, Florida

The wife and kids are whining that I need to give them more money because things cost more. Usually I just ignore them or politely tell them something like, “Go to hell, ungrateful parasites!” lock myself in the Secure Mogambo Bunker (SMB) and peer at them through the periscope until they go away and/or shut up.

This time, however, I just showed them an essay I printed out from The Huffington Post which brings us the bad news that “Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.”

In case you were wondering, the author of the Huffington Post piece is wrong; the deficit will NOT “balloon” to “a record $1.8 trillion”, but instead, the budgeted deficit for this year alone brings us ANOTHER $1.8 trillion deficit to add to the $11.6 trillion in accumulated federal deficits, taking us to almost 100% of GDP! Hahaha! We’re freaking doomed!

The message to my kids, of course, is that their lack of income means, “Welcome to the club, jerks!” in that the essay clearly shows that neither I, nor anybody else, has more money these days, and in fact we all have less money, so obviously I don’t have any money to give them.

Of course, I am thinking to myself that if I did have any money, I would spend it on getting away from all of them and their whining and complaining by having a night out with my hoodlum friends, hopefully to drink myself into such a stupor that I can hopefully forget, for even one lousy minute, that I even have kids! Hahaha!

They immediately objected, of course, and so I just held up the printout in their faces and rudely said, “Tell it to the essay!”

In fact, speaking of taxes, it makes your hat fly up comically off your head in astonishment when you realize that total income and corporate taxes are less than this year’s federal budget deficit alone! And then you really start screaming your guts out in anger when you then realize that the total federal budget is 400% of total federal revenues! They are spending four times as much as they take in! Four times as much!

And then you start vomiting up blood and thinking dark, homicidal thoughts in Ultimate Mogambo Outrage (UMO) when you find out that the national debt already went up by over $2 trillion in the last year alone, thanks to Congress’s sneaky Supplemental Appropriations tricks, which was before the big budget deficits even started kicking in!

The statistics are, gathered from an Associated Press analysis, “Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.”

In fact, “The last time the government’s revenues were this bleak, the year was 1932 in the midst of the Depression.”

Bloomberg called it “The worst U.S. economic slump since the Great Depression”, as the Commerce Department reported that “Gross domestic product shrank at a better-than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months.”

Later on in the article, we find that “The Commerce Department’s figures today, which included benchmark revisions to past years, showed that GDP has tumbled 3.9 percent since the second quarter of last year – the biggest drop since quarterly records began in 1947. GDP has fallen four straight quarters, the longest ever.”

This all makes sense when looking at other data, like how Karl Denninger of Market-Ticker.Denninger.net has been looking at “freight loadings both road and rail, along with port traffic data.”

He contends that this is the kind of “leading indicator” that is really important if you want to know what is going on, and the Bad, Bad News (BBN) is that “both import and export demand has effectively collapsed! We are now anywhere from 40 to 60% below comparable levels on imports and exports.”

Add it all together and you will be forgiven for getting the disquieting feeling that I am going to launch into a Loud Mogambo Tirade (LMT) about how history shows that you should be buying gold and silver with your depreciating dollars that will buy less and less, because they will almost certainly never again have the buying power that they have Right Freaking Now (RFN), which is something you will probably be able to say most every sorry day of the next, umm, decade or so. We’re freaking doomed!

So you were right: I did launch into a LMT about buying gold and silver! And you are also right if you thought, “Whee! This investing stuff is easy!”

The Mogambo Guru

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning , and other fine publications.


Pick a Poison, any Poison.
Posted by: rob_92183 at 1:35AM CST on August 5, 2009
Next wave of corporate bankruptcies to hit 14% of businesses.

How safe is your FDIC insured bank account? Not very.

Especially since the typical bank has only 4 cents of tangible equity for every dollar of assets. That means a 4% drop in asset value wipes out the equity, making your bank insolvent. Considering the sub-prime mortgages were only the sixth largest toxic risky loans banks are dealing with, there's no signal to the end of financial problems.

Economists are expecting another severe stock market decline. ...our fear is that we are going to get a Zig-zag pattern, with a potential downside target close to zero. Maybe zero to 1,000 in the Industrials, and zero to 100 in the S&P 500.

A lot of good folks are collecting severances or unemployment checks, which have expiration dates. This means consumer spending, which accounts for 70 percent of GDP, is not going to rise much any time soon.

But the silver lining is that I like this idea...

A $13 trillion tax rebate program would instantly revive this economy, a refund of three years income taxes to every household, with a minimum payment of $50,000. Half the rebate should be required to pay back debt, which would clean up credit markets, and restore capital levels, asset quality, and liquidity of lenders.

Although they admit the likelihood is probably somewhere negative of 0%.

And, as always...MAKE SURE YOU HAVE SUFFICIENT CASH, GOLD, AND OTHER ESSENTIALS FOR THE CHAOS THAT COULD BE COMING.


Monday August 3, 2009
Signs of the Times
Posted by: rob_92183 at 3:56PM CST on August 3, 2009
Rumors have it China is now asking for US Bonds to be issued in Yuan instead of the dollar.  It's safe to say they're very wary about buying anything more that's related to the dollar.  That's pretty bad news in itself but that's not the point of this article, which holds some bad news of it's own.

First off, the government has sold all wheat reserves.  All of them.  There is not one bushel of wheat left in the "emergency food pantry".  In fact, there's nothing.  In the eighties we had 358 million bushels, which is enough to feed every American in times of a catastrophic event (say, impending national bankruptcy).  Since the government has no plan for wheat stocks, pricing has fallen back to the free market (which have no plans to protect availability or pricing).  On-farm wheat stocks are just under 26 million bushels, which is about a half a loaf of bread for every family in America.  The current crisis has been a direct result of America exporting more wheat than what we are producing, which also means that any wheat production decline globally could wipe out American wheat stocks.

But wait, there's more...

The Ug99 fungus is threatening 80% of the world's wheat stocks.  We can create plants immune to the fungus, but it's a process that takes 9-12 years and it's just starting now.

Higher food prices are inevitable.  The only question is how bad are things going to get?  Stock up on food.  Canned goods, flours, beans, rice, oats, anything you can either buy canned or keep relatively dry. 

http://www.marketskeptics.com/2009/07/us-govt-completely-out-of-wheat.html
http://articles.latimes.com/2009/jun/14/science/sci-wheat-rust14


DID YOU NOTICE? WERE YOU PAYING ATTENTION?
Posted by: rob_92183 at 5:47AM CST on August 3, 2009
The SHTF moment happened last week, did you notice?  It went completely unreported in the mainstream media, let's see who's really paying attention.

First, the government auctioned off five year bonds.



The important number is the bid-to-cover ratio, which explains the difference between the dollar amount being bid, and the dollar amount being offered.  The lower the number (especially under 2) indicates serious, serious problems in our ability to sell our debt.

On Thursday, our government sold Seven Year Bonds.  The sale went relatively well, earning about $28 billion.  The problem is that the buyers were all indirect, which is a word that describes anonymous overseas bidders.  Nobody knows where the source of the demand for this debt came from and it won't be released for weeks.  We do know, however, that it wasn't China or Japan.  They were completely absent from both the five and the seven year bond sales.

Who's buying our debt?  Someone spent enough money to pick up the slack for the largest two countries financing us, and they did it completely anonymously.  But the real story is the absence of the countries and what it signifies in the future of the US bond market, the dollar, and ultimately our country.  These are all extremely serious signs of inflation, devaluation, and eventually bankruptcy.


Saturday August 1, 2009
The Mogambo Guru tackles Minimum Wage Increase
Posted by: rob_92183 at 2:59AM CST on August 1, 2009
To show you the kind of idiocy that passes for economics, The Wall Street Journal , in a story about the imminent rise in the minimum wage to $7.25 an hour from $6.55, notes that the Economic Policy Institute "estimates that the minimum-wage increase will add $5.5 billion to the economy" which makes me laugh - Hahaha! - in a mocking-yet-scornful way as my humble way of saying, "These guys are idiots!"

If another lousy 70 cents an hour will add $5.5 billion to the economy, then raise the minimum wage by $7 an hour and add $55 billion! Or raise the minimum wage by $70 an hour and add $550 billion! Hahaha!

So I've got a real Hot Mogambo Tip (HMT) for these Economic Policy Institute ("a liberal think tank", says the WSJ) weenies: Wrong-o! Morons!

For one thing, money does not appear out of nowhere, including that $5.5 billion. It has to come from somewhere. And since these dorks obviously have no idea what in the hell they are talking about (which explains why the WSJ called them a "liberal think tank", which is a euphemism for "idiots in a room"), the fact is that the businesses that pay the higher wages are going to have to charge more for their output to make up for the higher labor expenses or make $5.5 billion less in profits, which does not even include the higher charges for the employer-half of taxes on wages, higher unemployment insurance premiums or other expenses linked to wages.

In short, the whole $5.5 billion that will theoretically end up in the paychecks of low-wage employees will all be spent by them paying the higher prices that businesses will have to charge! Surprise! No free lunch! Hahaha!

And the businesses and employees that buy materials and supplies, but do not have any minimum-wage employees, will end up paying the higher prices charged by businesses that do, and they will have to raise prices, too! Hahaha! Surprise!

Apparently, the halfwits at the EPI never heard of the famous book by the famous Austrian-school economist Henry Hazlitt, Economics In One Lesson, where the One Lesson is that "The art of economics consists in looking not merely at the immediate but the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

And although some doofus "economist" named Heidi Shierholz at the EPI says "it is actually a good time" for an increase in the minimum wage, the fact is that businesses are not making any money as it is with the lower minimum wage ... Bankruptcies are soaring, businesses are folding, consumers are broke and the economy is in a mess, which is NOT a "good time" to be raising the prices of anything, including labor, although the idiot state and local governments think it is a FINE time to raise taxes! Hahaha!

And for proof of the decline in the economy, all one needs to do is look at the earnings of the S&P500, the 500 biggest corporations in America, which are down to a measly $6.86 in earnings, down from last year's $84, which, with a current price of $896 for the index, gives a laughable P/E ratio of 130 for the S&P500! Hahaha! "Invest for the long-term by buying stocks that are so ridiculously overpriced that it makes you laugh so hard that it would make [senators Lindsey] Graham and [Chris] Dodd pee in their pants!" Hahaha!

Bill Bonner here at The Daily Reckoning sums it up as, "No consumer spending, no sales. No sales, no revenues. No revenues, no one can stay in business. No small businesses. No new jobs. No new jobs, no economic recovery. No economic recovery and the meddlers are back on the Hill asking for more power and money."

You can almost hear the sarcasm in his voice when he says, "No surprise there."

And if you want another surprise, go look at the last 4,500 years of history and see how gold and silver fared against everything else, particularly paper currencies, economies based on paper currencies and assets whose value is reliant on paper currencies, and then you, too, will come to the conclusion, "Whee! This investing stuff is easy!"

Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

(copyright 2009-The Daily Reckoning)

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