Guest Post

Access to Fed backup support “leads you to subject yourself to greater risks,” Herring says. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.” All of this might conceivably make citizens revolt against an entity that uses their money to secretly fund the “Wall Street aristocracy.” It might make them vote for a Gary Johnson or a Ron Paul, someone who favors dismantling the Fed. Or not. When a story as big as this one generates a bare minimum of media coverage, you know it’s probably headed for that huge waste bin in the corner of the parking lot. The one marked Bailout Fatigue.

tyrants, of all-out forcible insurrection in the name of freedom and change. From a celestial perspective, however, ‘revolution’ denotes one complete orbit of a planetary body around its center, as in the earth’s revolution around the sun. In other words, after a revolution, you end up right back where you started. Same word, two completely different meanings– on one hand you have change, and on the other you have more of the same. This is exactly what has happened after Egypt’s revolution this year....When you think about it, this is how things usually work out in politics. How many people have campaigned on the ‘change’ platform, only to end up following the same path as the last guy? As the saying goes, ‘the more things change, the more they stay the same.’  Egypt is due to hold parliamentary elections in a few months’ time. It’s questionable whether Tantawi will give up his supreme, unchecked power… but whatever happens, one thing is clear: a new power elite will emerge in Egypt that helps itself to wealth and privilege at the expense of everyone else. This is the great weakness in any political system: ‘government’ is based on the idea that some individual or organization is awarded power than no human being should possess– the power to kill, to declare war, to steal, to defraud, to counterfeit.

I've been asked to comment on the work of a few noted deflationists who are calling for a top in commodity prices here. Their argument is pretty clear cut: Because inflation is a function of available money plus credit (their definition), and because credit has fallen, deflation is what comes next. When looking about for things to deflate in price, commodities are an obvious candidate for attention because they have risen so much over the past decade. In this view, three things have to be true: i) Demand for commodities has to fall below supply. After all, as long as demand exceeds supply, prices will typically rise. ii) Money, including credit that would normally be used to buy commodities, has to shrink. That's the definition of deflation that we're analyzing here. iii) People's preference for money has to be greater than their preference for 'things,' with commodities being very obvious 'things.' That is, faith in money has to be there or people will prefer to store their wealth elsewhere. These are all just versions of the old supply/demand argument for commodity prices, except that our consideration also includes the important element of the Austrian economic view of demand for money.

...Taking a step back, we are looking at potential Nations defaulting, plus augmenting further austerity measures to try and reduce debt (which will stifle any growth for years to come), the spiral of banks coming close to nationalisation across the developed world, consumer deleveraging, rising unemployment, falling house prices and a rising loss of faith with government along with discontent and civil unrest. Why on earth would you sell gold when the outlets for safe havens are being radically reduced since the SNB move and the threat from Japan to intervene? Plus the fact that currencies offer less in the form of stores of value also. A massive shift from currency investment to precious metals could take place. Currency wars will exacerbate this and whilst the SNB move is from a small nation, what happens if one of the big boys like Japan join in? Carnage basically and trade wars and border issues will ignite and G20 could implode. Just what the world is ill-prepared for but it looks like it is brewing. Civil unrest and regime changes around the world will add to the soup.

The global consumer society funded by credit is in its end-game, and is the "Central State as guarantor of private consumption" model in which governments borrow/print vast sums of fiat currency to distribute to their citizenry to prop up consumption. Once exports go away, then domestic economies the world over implode. Ironically, perhaps, the one nation which doesn't depend on exporting its surplus production for its stability is the U.S. This is one reason why the Swiss pegging their fiat franc to the Euro will fail to hold back the ceaseless tide eroding the Euro. You can play games with currency pegs for awhile, but ultimately the value and utility of a fiat currency is established by trade, energy and the geopolitical issues outlined above. If we don't understand trade flows, surplus production, the surplus in labor and the resultant decline in its share of national income, credit and currencies in this Marxist-inspired historical perspective, we cannot make sense of the financial/political crises which are sweeping over the global economy. The end-game is at hand, and we need models that are up to the task of explaining the vast forces now in play.

Yes, equity markets in Europa and the US are getting the Axe treatment, but the event that is most forboding is still being overlooked by the media. At the end of the day, this will be the cause of continuation of the 2009 global market collapse... CONTAGION!!!

Holy Red Screen, Batman! If you haven’t seen the news, the Swiss National Bank has just announced that it is putting a ceiling on the franc’s appreciation against the euro… effectively abandoning its economic sovereignty and putting its future in the hands of woefully corrupt and incompetent bureaucrats. On the news, the franc fell off a cliff, dropping almost 10% INSTANTLY. Gold priced in Swiss francs jumped from 1497 to 1620 per troy ounce, all in about 45 seconds. Precious metals are now all alone as the only forms of sound money that are truly safe havens.  Since then gold has soared roughly 20%, and as of this morning, the SNB has imposed capital controls to thwart the rise of its currency. This is just the beginning. The Swiss government has basically told the world that they will print as much money as it takes, and buy up as much crap sovereign debt as they can, to competitively devalue the currency. This essentially puts Switzerland in the same sinking boat as Italy, Greece, and Portugal… with one key difference: Switzerland has 0% interest rates. In other words, you can now borrow in francs at 0% and buy government-backed euro garbage yielding 5%, 10%, 30%…. with absolutely no downside currency risk.

Following the lovely goose egg of a jobs report last week, markets started the week with an Asian Invasion rout led by the Hang Sang down 3%, and the Kospi shedding 4.4%. The second act of this sonata was Europe getting hammered led by a German Blitzkrieg 1-2 punch with the DAX losing 5.28% but more uniquely, the German 10-yr setting a new record below 2%. With all these trick-or-treats haunting the markets one has to ask, ‘Is the Ticking Time Bomb Going Off and the Inception-Style Dream Collapsing?’ We think so and we will begin by looking to a place that would seem most odd…the institutional players.

While NATO members, led by France, piously proclaimed at the onset of their military offensive in Libya that their concerns were solely humanitarian, a covert tussle to gain a commanding lead in developing the country’s energy riches in light of Colonel Gaddafi’s departure is well underway. The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95 percent of export earnings, 25 percent of GDP, and 80 percent of government revenue. Prior to the outbreak of conflict, Libya was exporting about 1.3-1.4 million barrels per day from production estimated at roughly 1.79 million barrels per day, of which approximately 280,000 barrels per day were indigenously consumed. But analysts believe that with reconstruction Libya could soon be exporting 1.6 million barrels per day of high-quality, light crude. But current production is the proverbial mere drop in the bucket. Libya has the largest proven oil reserves in Africa with 42 billion barrels of oil and over 1.3 trillion cubic meters of natural gas. Causing oil company executives from Houston to Beijing to drool on their Gucci loafers, only 25 percent of Libya’s territory has been explored to date for hydrocarbons.

Welcome to the new reality. Executive agencies in the United States have extraordinary unchecked power. They can seize your assets, freeze your bank accounts, intercept your emails, comb through your credit card transactions, and even take away your children… all without so much as a court order or any form of oversight. We’ve explored before how you can end up on the wrong side of a government agency, even if you haven’t done anything illegal. If you are so much as suspected of wrongdoing, they can come after you… even if you’re just in the wrong place at the wrong time, they can come after you. These are two cases where the government has come after its citizens– even when they are doing the RIGHT thing. Think about it: two of the most unlikely people in the country have become enemies of the state: an eleven-year-old girl who wants to save a baby bird, and a manufacturing company that has managed to stay in business (and continue hiring!) in the midst of the worst recession in the nation’s history. This is why we internationalize. This is why we have a plan.

I used to think like a statist, and I used to agree with them. It's appealing to redistribute wealth, especially when it's not fairly achieved. But what I've realized is that the solution to creating distortions in the market is not to create more distortions by attacking the symptoms. What ends up happening when you do that is that you create a hugely complex set of rules and regulations that hinder the market, make it inefficient and most importantly makes it ripe for abuse via regulation in favor of those who make the right campaign donations to the right politicians. This is the situation we find ourselves in now: A very broken market setup to benefit those who've made the right political moves. On the other hand, you can simply end the sole cause of the problem to begin with. That sole problem is bad monetary policy. You might say that we should replace everyone in charge of the Federal Reserve with the "right" people. But even if you were able to do that, it's really a temporary fix. So how do we fix this? Sound money, debt forgiveness and a truly free market that isn't guided by the hand of the government and is instead determined by what the aggregate investor pool thinks is the right direction. Gordon Gecko was wrong overall, but he was right that greed is good. The profit motive is the key to good decisions and long-term thinking. That doesn't mean we need to be miserly dickheads who only care about ourselves, but self-enrichment and the unfettered ability to be as successful as possible is the only route to a truly higher standard of living.

Americans pay 43 cents in taxes out of the $3.70 they pay at the pump for a gallon of gasoline. A driver in the UK is paying $4 per gallon in taxes out of the $9 per gallon cost. Gasoline costs between $8 and $9 per gallon across Europe today. The extreme level of gas taxes certainly reduces car sizes, consumption and traffic. Too bad the mad socialists across Europe spent the taxes on expanding their welfare states and promising even more to their populations. Maybe a $6 per gallon tax will do the trick. Forcing Americans to drive less by doubling the gas tax is a quaint idea, but it is too late in the game. Europe is still made up of small towns and cities with the populations still fairly consolidated. Biking, walking and small rail travel is easy and feasible. The sprawling suburban enclaves that proliferate across the American countryside, dotted by thousands of malls and McMansion communities, accessible only by automobiles, make it impossible to implement a rational energy efficient model for moving forward. We cannot reverse 60 years of irrationality. Even without higher gas taxes, the price of gasoline will move relentlessly higher due to the stealth tax of currency debasement.

Although I am not as convinced as Stefan that the US government has brought about all our economic ills through deceit, I give it ample credence; but also give a good share of the blame to a citizenry at large vested with waste and greed. On my drive back, ruminating on that blame placed on the government as the mastermind and source of deceit I thought of my friend back in Portland. Was he really the victim of deceit, or did he really invite deceit by his own self-deceit? By entering into a romantic relationship two years before with a woman less than half his age with a compromising polyamorous background, one which was not much different from that which she is exhibiting, and blamed for, today!? Is it really economic, political or romantic deceit we are sometimes victims of, or is it more often than not a case of unfulfilled wishful thinking, of self-deceit?

In America, in the midst of economic crisis and government driven moral hazard, millions of people are scrambling for “solutions”. The term is used rather haphazardly and often without proper context. There are, indeed, very evil men out there in the dark precipices of global infrastructure, and, these men often instigate very bad events. However, “doing away with them” is NOT a solution. It is NOT a plan. It is merely a goal. A solution requires more than an end result; it also involves the steps necessary to achieve said result. The Liberty Movement, as it is commonly called, tends to run into so much frustration and angst, I believe, because it consistently attempts to skip to the end of the story without traveling the rest of the very necessary journey. End the Fed! Sue the Fed! March on Washington! Vote the bums out! Take up arms! These are not actions, but reactions triggered by the confusion of the moment. Not only are they single minded responses that lack the strategy and logistics inherent in a successful counter-offensive, but such cries ignore the other devious culprit responsible for our national heartache; ourselves. Yes, the world must change, and soon, if our principles are to survive. But, for this to happen, we must change first. Instead of looking up, down, and all around us for some magical all encompassing answer, we have to question our very assumptions and world views. 

Let's take a quick look at some numbers: 8, 160, 400, 350, 12 and 5. There have only been 8 weeks out of last 160 weeks that unemployment claims have been below 400 thousand claims. In normal circumstances we are worried about recessions when claims are rising above 350 thousand claims. Furthermore, jobless claims tend to plunge below 350 thousand a week within 12 months after the end of a recession. Currently we are still holding above 400 thousand claims after more than two full years since the recession statistically ended. Those are some pretty ugly numbers, but the most important number is 5. The reason that we think unemployment might move sharply higher is that every time the STA Composite Employment Index drops to a level of 5 or less the economy has been in a recession. Of course, it is during recessions that unemployment claims rise sharply as businesses cut back on their labor force to reduce costs. This is clearly seen in the chart.