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TIP OF THE WEEK - Gold is a crisis hedge. Own some before the next crisis.

Gold is a crisis hedge.  Own some before the next crisis.

Jason Brizic

October 14th, 2011

Gold is a crisis hedge.  Rich people buy gold when they are fearful.

There are several good reasons for the wealthy to be fearful right now.  They own more that 80% of all stocks and bonds.  The European sovereign debt crisis is real, the USA will be bankrupted by welfare and warfare programs, and the Chinese economic bubble is going to pop.  Bonds aren’t safe, stocks aren’t safe, and interest rates are at historic lows in many economies.  Gold is a refuge from these crisis events that will not be solved through political means.

The gold price will continue to go up so long as central bankers run their printing presses.  Central bankers such as Ben Bernanke believe in Keynesian economics.  Keynesian economics can be summed up in four words: “Deficit Spending Overcomes Recessions”.  It doesn’t work, but they is what they believe and they are in charge of governments and central banks.

The Federal Reserve under Ben Bernanke has tripled the monetary base since 2008.

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Most of this money is being held by the large commercial banks as excess reserves.  It is not being loaned into the economy.

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Despite gold’s price increases it has not increased in proportion with the inflation of the monetary base.  It has not risen as much because most of the money created by the Federal Reserve has not flowed into the economy to increase the prices of everything.  The newly created money is locked away in the excess reserves of the large commercial banks.  If they were to lend it out, then prices would rise more than the 300% increase in the monetary base due to fractional reserve banking process.  Basically, one dollar added to the monetary base could become 7-10 more dollars in the M1 money supply (depending on how profligate the bankers loans are).

These are the best gold prices since the July-August 2011 timeframe.  Take this opportunity to make your first purchases of some gold coins.  Politicians will announce solutions to the sovereign debt crisis, the FED will announce better economic numbers, and the Chinese will deny they are in a bubble until it obviously pops.  Don’t believe them.  Greece will default.  They are the first domino to fall.  Nobody talks about the Medicare and Social Security unfunded liabilities.  They are too huge.  They are dozens of trillions of dollars.  The Chinese mercantilists have been inflating they currency and their economy.  When they stop their will be a severe recession in China.

Go to www.apmex.com and take a look at the one ounce gold coins from your country’s mint.  Then buy one if you have none already.  I had a good experience with American Precious Metals Exchange in the past.  I get no commissions or anything from them.

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

The Greatest Anitwar Ad Ever

The Greatest Antiwar Ad Ever
 
 
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TIP OF THE WEEK - A Second Worldwide Financial Crisis is Coming

A Second Worldwide Financial Crisis is Coming

Jason Brizic

October 7, 2011

The Euro crisis is real and the Euro is doomed.  This will trigger the next global financial crisis and worldwide recession.

<a href=”http://lewrockwell.com/north/north1039.html”>Busted Euro, Busted Dream</a>

The Eurozone is just beginning to implode starting with the PIIGS.  Those governments made welfare promises that they can’t pay for (in Euros).

The PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are running budget deficits above 3% of GDP. This violates EU rules.  But the European bureaucrats are powerless to stop the violators.  You can view this on the following graph. Only Estonia had a balanced budget as of last spring. Germany was slightly above the 3% limit.

http://www.bbc.co.uk/news/business-13366011

Greece will default first.  That is obvious because one year Greek government bonds are yielding over 100%.  Ireland will likely be next and then the rest of the PIIGS will tumble which have much bigger sovereign debts.

Do you want to see how small Greece is in the whole European debt crisis?  Look at <a href:http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html>this</a> from the New York Times back in December 2010.

The northern European banks lent trillions to the PIIGS.  They will need massive bailouts that dwarf the previous bailouts.  The northern European banks bought default insurance from the American banks.  The US banks are exposed to the European soverign debt crisis also.  The yield curve is flattening and we are going into a second recession.  Plan accordingly.  Read this site to sidestep as much of the calamity as possible.

There will be a time to buy high dividend stocks with earning power and strong balance sheets down at the bottom like in March 2009.  But we aren’t there yet.

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

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Busted Europe, Busted Dream.

Busted Europe, Busted Dream

by Gary North

Recently by Gary North: Gold Confiscation: A Highly Unlikely Threat

 
  

The European Monetary Union is going to break down. This will be followed by a break-up of the European Union.

This is denied by the New World Order's promoters of international unification. They have been planning for this since the end of World War I. They have been actively implementing this by stealth since the early 1950s. They used treaties to bring this political unification to pass. They used economic unification as the bait. The hook of political unification was always buried in the bait.

The threat facing the NWO is that the economic bait has turned out to be poison. The EMU is based on a common central bank and a common fiat currency. But without a common system of government, there can be no fiscal union. There can be no central planning by Keynesian means.

The nationalism implied by Keynesian fiscal manipulation has led to the Greek crisis. The EMU rested on an unlikely premise: the wisdom of Europe's commercial bankers, who had spent their careers in highly regulated domestic markets. Always before, bankers in large banks could count on their national central banks to bail them out. But, in this new world banking order, the European Central Bank does not have the flexibility to bail out all of the large national banks that are now in big trouble. There are members of the ECB's board who are part of the German-Dutch axis, which favors tighter money and stable prices. The Board must placate them to some degree. This reduces the ECB's response time.

The Party Line of the EU and the ECB is that there is no unity-threatening problem or series of problems facing the central government. They insist that the current problems are temporary.

We have heard all this before.

THE BREAKDOWN OF COMMUNISM

The greatest event of my life was the suicide of the Soviet Union on December 31, 1991. The Communist empire went under without a shot being fired. The Communist Party's senior officers looted the Party's funds and sent the money to Swiss bank accounts. Then they privatized the state's main economic assets so that they and their cronies became incredibly rich.

The second greatest event was the decision of Deng Xiaoping in 1978 to free up Chinese agriculture. That led to the most rapid economic growth in human history. Nothing like it had ever happened to so many people. South Korea's per capita economic growth, 1950 to 1990, was greater, but South Korea was a much smaller nation.

Communism was the most powerful ideology of tyranny in man's history. It failed operationally in the USSR in less than 75 years. It failed in Communist China in less 30 years.

The cash nexus seduced the vanguard of the proletariat. The inevitable socialist victory was exposed as a gigantic fraud. The messianic religion of Marxism went down with the two Communist ships.

Today, the rag-tag army of tenured Marxist professors in Western universities have as their only surviving models Cuba and North Korea. The satellite photo of the two Koreas – bright lights in the south, one light in the north – is the most powerful epitaph of Communism there is.

Now another victory of liberty over centralized politics is unfolding. It is taking place in Western Europe. It is not going to be reversed. The New World Order's number-one poster child – the European Union – has begun to fall apart. Nothing will reverse this.

There are those in the West who will deny this. There are also those who from 1992 until today insist that the collapse of the USSR was in fact a gigantic deception. The Communists are still in control, they tell us. These people cannot bring themselves to admit that Communism lost the battle. Like the original Communists, they believe in the absolute sovereignty of political power. They believe that the West could not possibly have won, because the Communists were better at intrigue and military power. But the West did win, because the Communist leaders gave up the dream of a socialist world and decided to go for the money.

Let me tell you how I knew that the Communists had failed completely. First, the new Russian government changed major cities' names back to their pre-Bolshevik names. Leningrad became St. Petersburg. Stalin re-named Volgagrad to Stalingrad in 1925. Khrushchev changed it back in 1961 as part of his de-Stalinization program. Both changes revealed the nature of politics in Russia. The names of cities were testimonies to the ruling power. That was why the name changes after 1991 were significant.

Second, mobs of people pulled down statues of Soviet leaders. One of the statues that disappeared was that of Pavlik Morozov, the 13-year-old boy who informed on his father. He had been made a hero by Stalin after he was murdered at age 15. He had the boy's relatives executed for the crime, although they all denied that they had done it. The Morozov story was taught to Soviet children until the very end of the regime. His statue has disappeared from the public park built in his memory.

The fall of the Soviet Union was no deception. It was real. That was two decades ago.

There is another fall coming.

BREAKDOWN TO BREAK-UP

I will state it again. The breakdown of the European Monetary Union will be followed by the break-up of the European Union.

The EMS is breaking down. A few columnists in the West are now admitting this. On the whole, however, the Party Line of the media follows the Party Line of the EU bureaucrats: "The crisis in Greece is a temporary aberration. It will be solved by EU, IMF, and ECB policies."

The problem with the Party Line is that Greece keeps flaring up. Short-term interest rates are over 100%, indicating a loss of faith by investors in the Greek government's ability to make interest payments in euros. If the EU, the IMF, and the ECB had a plan to deal with the underlying problem in Greece – its looming inability to make interest payments in euros – they would have implemented it. They keep announcing temporary bridge loans. These "bridge loans" are in fact sinkhole loans. Everyone presumably knows this, yet they do not invest accordingly. The various stock markets' wild gyrations in Europe indicate that hope and fear are balanced, unlike any government's budget.

Hope will degrade into fear as reality sets in. What is reality? That large European banks bought Greek government bonds, because they assumed that no member of the EMU would pull out as a way to default on euro-based debt. But it is clear that this is exactly what Greece will do. The default is statistically inevitable. The sinkhole is a bottomless pit.

The euro was the poster child of European unification, just as European unification was the NWO's poster child for worldwide unification, the dream of the Trilateral Commission. The euro was rammed down the throats of Europe's national central bankers in 1999. They had enjoyed considerable autonomy. National politicians also resented the fact that they would no longer have great influence in domestic monetary affairs. They would henceforth have to persuade the bankers at the European Central Bank to follow policies that would sustain national welfare state policies.

That world is gone, but there are domestic politicians in PIIGS nations who would very much like to restore it. They are being pushed hard by voters to break free of the "austerity" programs being rammed down their throats by the IMF and ECB.

The Bible teaches, "The rich ruleth over the poor, and the borrower is the servant to the lender" (Proverbs 13:22). This ticks off the borrowers. The Bible also teaches, "The wicked borroweth and payeth not again" (Psalms 37:21a). This really ticks off the borrowers. "That's an insult to our integrity!" Then, when their governments announce limited cutbacks in domestic spending, the threatened employees take to the streets. "You owe us what you have promised!"

In short, voters want to impose austerity on the creditors. They do not want creditors to impose austerity on their welfare state governments.

Some interest groups are going to get stiffed. The Party Line at the EU, ECB, IMF is that employees of high-deficit countries are going to get stiffed. The Party Line in the Greek trade unions is that the ECB, IMF, EU bureaucrats are going to get stiffed. Politicians in PIIGS nations claim that no one is going to get stiffed if the ECB, IMF, and EU will just lend more money to tide them over. The commercial bankers want the EU and ECB to serve as lenders of last resort to banks, so that, when the PIIGS default, the bankers will not lose their bonuses. Voters in Germany don't want to get stuck with the tab for bailing out PIIGS or banks. Investors in European stocks keep sounding like Rodney King. "Can't everyone just get along?"

The New World Order's promoters are wringing their hands and pleading, "We worked so hard to sneak through this deal. We are not quite finished with our plans. Now voters are trying to kill it. It's just not fair!" I think of a classic video scene that best describes the present predicament of the NWO.

THE BEST-LAID PLANS

The Wall Street Journal published a report on the breakdown of the EMS. I liked the way it started out:

When the history of the rise and fall of postwar Western Europe is someday written, it will come in three volumes. Title them "Hard Facts," "Convenient Fictions" and – the volume still being written – "Fraud."

The author says that the first hard fact was military necessity in the post-War period. The Cold War began.

The next hard fact was hard money. He correctly identifies this as "the gift of Ludwig Erhard, author of the economic reforms that created the Deutsche mark, abolished price controls, and put inflation in check for generations." Erhard was a disciple of Wilhelm Roepke, who was a disciple of Ludwig von Mises. In mid-June, 1948, Erhard unilaterally abolished the entire Allied military system of price controls, fiat money, and rationing. The next day – literally – the "German economic miracle" began.

The author continues: "The third hard fact was the creation of Jean Monnet's common market that gave Europe a shared economic – not political – identity." The author has fallen for the ultimate fraud. Monnet had been working for political unification ever since he and Raymond Fosdick, John D. Rockefeller, Jr.'s agent, sat together at the Versailles Peace Conference in 1919. In 1919, Fosdick sent a letter to his wife. He told her that he and Monnet were working daily to lay the foundations of "the framework of international government." [July 31, 1919; in Fosdick, ed., Letters on the League of Nations (Princeton, New Jersey: Princeton University Press, 1966), p. 18.] Fosdick returned to New York City in 1920, where he took over running the Rockefeller Foundation for the next 30 years.

Monnet was the front man for the New World Order. He promoted political unification by wrapping it in the swaddling clothes of economic unification.

The author accurately describes the suicide of Western Europe.

In 1965, government spending as a percentage of GDP averaged 28% in Western Europe. Today it hovers just under 50%. In 1965, the fertility rate in Germany was a healthy 2.5 children per mother. Today it is a catastrophic 1.35. During the postwar years, annual GDP growth in Europe averaged 5.5%. After 1973, it rarely exceeded 2.3%. In 1973, Europeans worked 102 hours for every 100 worked by an American. By 2004 they worked just 82 hours for every 100 American ones.

He argues that "It was during this general slowdown that Europe entered the convenient fiction phase." One fiction was that adding new members to the EU would enable the European economy to rival the output of the United States. Another fiction was that there was a central core of outlook and values that would unify the new collective. Here, he is woefully naive. That had been the assumption of the United Nations Organization from the beginning, and the League of Nations before it. That was the heart of Monnet's vision. It did not start in 1973.

And there was, finally, the whopping fiction that Europe had its own "model," distinct and superior to the American one, that immunized it from broader international currents: globalization, Islamism, demography. Europeans love their holidays and thought they were entitled to a long holiday from history as well.

He's got that right!

Then he lists the frauds. First, Greece was allowed into the European Monetary Union. But that was not a fraud. The critics in the 1990s said that all of the Club Med nations would run deficits. They warned that the euro could not hold.

There was no fraud involved in letting in the PIIGS. This was basic to Monnet's vision from 1919. It had to work. It must work. It is ordained to work. This is the NWO's religion.

The non-PIIGS bankers thought it would work. They loaded up on PIIGS sovereign debt.

This was not fraud. This was the implementation of a deeply political religion. This was self-deception on a continental scale.

Yet he is right on this point.

There was the fraud of the so-called Maastricht criteria – the fiscal rules that were supposed to govern the euro only to be quickly flouted by France and Germany and then junked altogether in the current crisis. There was the fraud of the European Constitution, overwhelmingly rejected wherever a vote on it was permitted, only to be revised and imposed by parliamentary fiat.

What is now happening in Europe isn't so much a crisis as it is an exposure: a Madoff-type event rather than a Lehman one. The shock is that it's a shock. Greece was never going to be bailed out and will, sooner or later, default. The banks holding Greek debt will, sooner or later, be recapitalized. The recapitalization will be borne by German taxpayers, and it will bring them – sooner rather than later – to the outer limit of their forbearance. The Chinese will not ride to the rescue: They know not to throw good money after bad.

And then Italy will go Greek. Europe's crisis will lap on U.S. shores, and America's economic woes will lap on Europe's – a two-way tsunami.

He sees that this fraud is not going to hold together. There is a reason for this.

The "fiscal union" that's being mooted will never come to pass: German voters won't stand for it, and neither will any other country that wants to retain fiscal independence – which is to say, the core attribute of democratic sovereignty.

He makes a forecast: "What comes next is the explosion of the European project." Then he makes an assessment: "Given what European leaders have made of that project over the past 30-odd years, it's not an altogether bad thing." I'll say not. It is a great thing. It is, in fact, the greatest thing that is likely to happen in the first two decades of the 21st century. It is the extension of the two break-ups of the 20th century.

But it will come at a massive cost. The riots of Athens will become those of Milan, Madrid and Marseilles. Parties of the fringe will gain greater sway. Border checkpoints will return. Currencies will be resurrected, then devalued. Countries will choose decay over reform. It's a long, likely parade of horribles.

CONCLUSION

The price of the break-up of the ECB, the EMU, and the EU will be high because of the frauds and convenient fictions that preceded them. If Europe's voters had not created welfare states, if they had not consented to a common fiat currency, but instead had abolished all central banking and had allowed competing private currencies, and if they had abolished tariffs and not created a bureaucratic monstrosity of non-governmental agencies with the power of government – the WTO and its peers – there would be low transition costs. But they listened to Monnet. They will now pay the price.

So will all of its trading partners. So will the large American banks that sold credit default insurance to European banks.

September 24, 2011

Gary North [send him mail] is the author of Mises on Money. Visithttp://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North

The Best of Gary North


Link to original article: http://lewrockwell.com/north/north1039.html

The FED's Operation Twist will be a bust and how can you profit from it.

The Federal Reserve announced that it will buy $400 billion of long
term bonds over the next year. They are calling it Operation Twist.
The FED says that it will pay for the purchases with the proceeds from
the sale of short term bonds. I'll believe that when I see it. I
will be monitoring their balance sheet. I think that the FED will
grow its balance sheet over the next year because they don't want to
admit that QE2 failed.

None of the FED's actions will help the economy. The FED's
counterfeiting will actually do harm to the purchasing power of every
holder of dollars. The FED has tripled the monetary base since late
2008. Thankfully, The loss of purchasing power through price
inflation is not occurring at the same rate of FED's money supply
expansion. This is happening because the big banks that are selling
bonds to the FED are holding over one trillion dollars as excess
reserves. The banks are holding most of the money that the FED
printed out-of-thin-air for them. They are barely lending. If the
bankers loaned this money into the economy, then the money supply
would expand at a much greater rate and prices would increase easily
into double digits. This is how the fractional reserve banking
process work in a nutshell.

The US equity markets lost another 3% yesterday. A new batch of
investors figures out that Keynesian economics doesn't work each week.
I hope that you are aware of this. Keynesians run governments,
corporations, the FED, and the economics profession. This is what
people are taught in school.

There is another school of economic thought known as Austrian
economics. They are opposed to the Keynesians. The Austrian school
believes in sound money and free markets. The most famous Austrian
economists are Ludwig von Mises, F.A. Hayek, and Murray Rothbard.
Visit www.mises.org to learn more for free.

We are in a bear market. The market is heading lower. You have to be
patient to wait for low prices to maximize dividend yields and
potential price appreciation.

I would be selling the stocks in your portfolio that are trading at
over 20 times average adjusted earnings. Buy physical gold coins on
the dips with the proceeds from your stock sales. The gold price will
continue to trend up so long as the central bankers continue to create
more digital money to bailout banks and to fund Keynesian deficit
spending. Build your gold reserves while the market tanks. Your high
dividend stocks will continue to pay dividends, but the price of the
shares will fall in this bear market. That will wipe out you gains.

Subscribe today for free at www.myhighdividedstocks.com/feed to
discover high dividend stocks with earning power and strong balance
sheets.

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Peter Schiff schools the jobs committee.

Peter Schiff schools the jobs committee.  The video is in two part and each is almost 15 minutes long.  This is not boring government testimony because of Peter Schiff's candidness.  Unfortunately the government has encroached so much into the market that they can't be ignored.
 
 
Interest rates will go higher; just ask the Greeks!
 
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Ron Paul's best interview to date. Economics in one interview.

I just finished watching CNBC's "Meeting of the Minds" show with some of the most elitist people I've ever seen.  The video link is not the one I just watched, but the posted videos are typical of the republocrat solutions.
 
They were all a bunch of republocrat hardcore Keynesian statists.  Even former General Electric CEO sounded like a 80% free market / 20% socialist.  They had no solutions because they don't understand Austrian economics.  They don't understand capitalism.  That means that they don't understand that the customers are in charge in a capitalist society because they hold the most desirable commodity - money.  Government regulation prevents producers from competing against one another to please customers.  Regulaton does this by creating barriers to entry more commonly know as liceansing and bureaucratic redtape.
 
None of the so-called "minds" had anything to say about the crux of the problem.  The problem is a lack of sound money and individual liberty.  Ron Paul explains this better than any economist at the Federal Reserve.  See the video below.
 
The people calling themselves the government and the Federal Reserve are destroying the environment for accumulating capital.  This is not good because our standard of living will worsen due to the policies since 1913 (the creation of the Federal Reserve).

The Best Ron Paul Interview Ever?
Ron Paul schools neocon Chris Wallace, who is suddenly respectful of his surge

Recently by Ron Paul: The Illusion of Safety

Ron Paul joins Chris Wallace on Fox News Sunday to discuss his rise in the mainstream presidental polls (to #3 on the latest Gallup) and the hot issues of the day. It is impossible not to notice how these interviews have changed. The normally belligerent neocon host was respectful as Ron smoothly and convincingly stated his positions.

Since this interview coincided with the media hysteria about Hurricane Irene, Wallace first asked Ron why he was opposed to FEMA. As the representative of a Gulf Coast district, Ron knows full-well the damage the weather can do. Indeed, he says: "It has the worst reputation for a bureaucracy ever. It hinders local people keeps people away from their homes. It's a system of central economic planning that is deeply flawed.....and it's broke."

Ron also rips the US intervention in Libya. He schools Wallace about the consequences of our destructive foreign policy. When asked about Gaddafi, Ron reminds him that "we've been very bad at picking dictators around the world. We may be delivering al-Qaida another prize."

Regarding Austrian economics – which Ron is actually asked about – he describes his solution for a healthy economy as, government “hands off, free markets, property rights, no bailouts, and sound money.” The Fed has caused endless problems with its policy of keeping interest rates artificially too low for too long. It has to stop monetizing debt.

When asked if he's in it to win it, Ron says Yes – but he wants to take a different approach – Not to seek power, but to seek to diminish it, to diminish dependency on government. People are waking up and saying "Ron Paul is right," he notes. Darn right!

See the Ron Paul File

August 30, 2011

Dr. Ron Paul is a Republican member of Congress from Texas.

These Threats Will Not Collapse America's Economy by Gary North

These Threats Will Not Collapse America's Economy

by Gary North

Recently by Gary North: Jackson Hole: Bernanke as a Magician

 

   

For over half a century, I have read warnings that free trade is a threat to America. The freer it gets, the more we are told that slave labor in Asia is threatening the workers of America.

We hear calls for fair trade. Who is to decide what is fair trade? Congress. Ah, yes: Congress. The source of fairness if ever there was one. No special interests there, putting their PAC-filled fingers on the balance scale of justice.

The evil dragon used to be Japan. Now it's China. India will get its turn soon enough. Americans are supposedly out of work because of China.

The fact is, Chinese imports are marginal to the U.S. economy. How marginal? You tell me. (Then I will tell you.) What percentage of Americans' personal consumer expenditures (PCE) is met by imports from China? Take a guess. Here was the correct answer in 2010.

Chinese goods account for 2.7% of US PCE, about one-quarter of the 11.5% foreign share. Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and shoes. In the clothing and shoes category, 35.6% of US consumer purchases in 2010 was of items with the "Made in China" label.

Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the US retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the US workers and managers who staff these operations.

You probably guessed that this figure was much higher. Because we see "Made in China" stickers on our clothes, we imagine that Chinese exports are a major factor in replacing jobs in the USA. If you are employed as a low-wage textile worker in South Carolina, you feel the pain. But you are probably not a low-wage worker making socks.

As an aside, why should there be a Federal law requiring "Made in China" (or anywhere else) on products we buy? Do you think this may be the result of special-interest legislation from some political action committee? As a consumer, I don't care. I just want cheap socks, so that I can save money to invest, or spend on some other service or product, which is probably made in the USA.

WHY URBAN ASIANS ARE GETTING RICHER

Why is urban Asia growing richer? Mostly, because Asian governments have moved away from the older state economic controls. They have freed up their economies.

China is the obvious example. It has moved from Communist economics under Mao to mercantilist economics, funded by the central bank. This is surely better for the Chinese people than Communist economics. That system killed at least 60 million people. It is far better for the government to subsidize one sector of the market economy – the export sector, which is relatively small – than to turn the entire economy over to the state sector.

We think of the export sector as small. But China has 1.3 billion people. There are no internal regional tariffs. It is the largest free trade zone on earth. China must feed itself, house itself, transport itself. To imagine that the export sector is the main sector is a mistake. It is the most innovative sector. It is where growth is transferred from an elite to the masses. But China is a huge nation. Do not forget that.

There is something else. For any sector of an economy to receive an operationally significant subsidy from the government, it has to be a small sector. There has to be a much larger sector in order to siphon off enough funds to make the subsidized sector profitable, long-term. Put in the form of a metaphor, a parasite needs a large, healthy host. When the parasite gets too big, it kills the host. This is simple to understand, but people don't make the connection to economics.

The free market and the price system reward people who implement ideas that customers are willing to pay for. People with good ideas have an incentive to implement them. This benefits customers. With a population of 1.3 billion, there are a lot of people with good ideas.

Then toss in India, with its 1.15 billion people. All those people. All those ideas.

The thought of the sheer numbers of productive, creative people out of almost three billion cheers me up as a customer. Of course, the same idea depresses people with widely used products that are likely to be replaced. But all of life is about replacement. We replace one condition for another until the day comes when we are replaced. Dust to dust, and all that. But, in the meantime. . . .

To imagine that all those Chinese and Indians are waiting breathlessly for a few of us Westerners to buy something from them, is a bit silly. Besides, one reason why we can afford to buy something from them is because the US Treasury has sold debt to Chinese and Indian central banks. They created the money out of thin air, bought dollars, and then bought US government IOUs.

Yet from what I read in some "sky is falling" websites – the sky is tipping, but not falling – the United States economy is headed for a collapse because Asian central banks are lending money to our government. Have you heard this?

I am here to tell you that we are facing major economic problems. A big one is the fact that the Federal government is getting bigger, because Asian central banks keep lending it money at cheap rates. Then the government spends this money.

That's not what the collapse-is-imminent sites say.

SOME REALLY SILLY ARGUMENTS

Here are some arguments from a site that predicts collapse. Here are some of the reasons.

Our politicians simply do not care that America is bleeding jobs. Amazingly, even with rampant unemployment plaguing this nation, Obama administration officials continue to declare that it is okay that we are losing manufacturing jobs because a lot of cheaper products are things that "we don't want to make in America" anyway.

The politicians talk about little else than creating jobs, as if the government had the power to create jobs. The government has the power to reduce business regulations, reduce taxation, and let entrepreneurs create jobs.

Yes, we are losing manufacturing jobs. We have been losing them since 1950. How many Americans send their kids into a factory job instead of college. "Son, I want you to work in a factory. Forget about college." No? I thought not. (Actually, a factory job in a high tech factory is probably a better idea these days than a B.A. in sociology.)

What the handwringers never mention is that the USA is the largest manufacturing nation on earth, with 20% of the world's total manufacturing output. Wikipedia reports: "The United States is the world's largest manufacturer, with a 2007 industrial output of US$2.69 trillion. In 2008, its manufacturing output was greater than that of the manufacturing output of China, India, and Brazil combined, despite manufacturing being a very small portion of the entire US economy as compared to most other countries."

Second, they also do not tell you that the percentage of all Western nations devoted to manufacturing has fallen since 1980 on average from 23% of GDP to about 17%. The USA is about 13%. In other words, this has been a steady decline for three decades. Collapse? I don't think so.

Unemployment these days comes mainly in the construction sector. This is not a sector threatened by imports. What has hurt this sector is Federal Reserve policy, which created a housing bubble and then popped it.

Here is another reason.

State and local governments all over the country are dead broke, and an atmosphere of austerity is sweeping the nation. Right now state and local governments are slashing jobs at an unprecedented rate.

This is bad? The states are firing people? This means less bureaucracy. I see this as one of the greatest developments in my lifetime. The states' payrolls are shrinking.

In the past, government jobs were considered to be very secure and they definitely paid a lot higher than average. But now that era is coming to an end, at least on the state and local government levels.

According to the Center on Budget and Policy Priorities, state and local governments have eliminated more than half a million jobs since August 2008. UBS Investment Research is projecting that state and local governments in the US will cut 450,000 more jobs by the end of 2012.

Or, as another commentator remarked in a different context, "Free at last! Free at last. Thank God almighty, we're free at last!"

Then we are informed about the following:

As I have written about so many times before, the "global economy" is really bad for American workers. When we merged our economy with the economies of nations where it is legal to pay slave labor wages, we made it inevitable that we would start losing massive amounts of jobs.

I have heard this for 50 years. Slave wages. Folks, slave wages are paid to unproductive people. It was what Communist governments paid workers. Those economies exported raw materials and tanks. So, with the end of Communist control over China, people are being paid free market wages. The result: exports. Yet we are told that slave wages are being paid. I see. Freedom is slavery.

If this is bad for American workers, let American workers quit buying imports. What's that? You say they won't stop buying imports? You say they need to be told by men with badges and guns not to buy imports? You say that America's workers need the government to enforce what's good for Americans? I see. Slavery is freedom.

Unfair trade is absolutely killing our economy. It would be one thing if the US was running a massive trade deficit solely because we were incompetent. But the truth is that a big factor is that a number of our "trade partners" are economic predators that are purposely trying to prey on us. . . .

China massively subsidizes their biggest corporations, they brazenly steal technology from anyone that they can, they openly manipulate exchange rates and they allow their workers to be paid slave labor wages.

The Chinese government subsidizes which corporations? The ones that are export-driven? Or the state-owned factories that don't produce anything worth exporting? What percentage of the export sector is subsidized? By how much?

What does it matter? With only 2.7% of consumer expenditures going for Chinese-made goods, what does it matter how much of a subsidy corporations get?

The United States government subsidizes all sorts of projects. The Chinese government has learned this from the USA, where Keynesianism reigns and where agriculture is regulated. I see the pot calling the kettle black.

Today, we spend about 4 dollars on imports from China for every 1 dollar that China spends on imports from us. China now even makes more beer than we do. Even the new Martin Luther King, Jr. Memorial on the National Mall was made in China.

So what? They produce what they are good at. We produce what we are good at. We can't compete in certain areas. You can't compete in most areas. You do a few things well enough to be employed. So do I.

Do you care what percentage of goods people in your state sell to people in some other state, vs. how much they buy from people in your state? Of course not. Then why should you care about China? What difference does an invisible judicial line make regarding the profitability of your trade with someone else? Why do you care whether the other guy is named Wong or Brown? UPS will still deliver. So will FedEx.

Until our politicians start insisting on a level playing field, all of this is going to continue.

Yes, I see! We need more regulations! We need more people with guns and badges making things fair for us. Slavery is freedom.

Small businesses are traditionally one of the primary engines of job growth in this country. But right now, small businesses all over America are having a really hard time getting anyone to loan them money. A big reason for this is that the Federal Reserve is actually paying banks not to make loans. Unfortunately, if small businesses can't get the money that they need, then they can't hire people.

The critic fails to mention interest rates. The Federal Reserve pays a maximum of 0.25% on excess reserves. Businesses borrow at 7% or more. So, this guy thinks that 0.25% is a more powerful incentive than 7%. I see. Loss is profit.

Fact: small businesses are not borrowing because they don't want to borrow. This is the report, month after month, of the National Federation of Independent Business, a lobbying group for small businesses. For July, we read:

Four percent reported financing as their #1 business problem, so for the overwhelming majority, "credit supply" is not a problem. Ninety-two (92) percent reported that all their credit needs were met or that they were not interested in borrowing. Eight percent reported that not all of their credit needs were satisfied, and 51 percent said they did not want a loan. . . .

CONCLUSION

The problem is not China. It is not India. It is not imports. The problem is the endless call from each special-interest group for the government to Do Something to Save America. The problem is that the government has done way to much for too long, all in the name of Doing Something to Save America.

August 27, 2011

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North

Art Laffer on the stalled economy and why it will get worse

This video contains a lot of common sense and he mentions excess reserves.  That means he is following the money and understand cause and effect.
 
 
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Day of Reckoning

Day of Reckoning

by Llewellyn H. Rockwell, Jr.

Recently by Llewellyn H. Rockwell, Jr.: Ideas and the Culpability for Violence

 

 

 

The trigger that apparently caused the market meltdown was the ever-so-slight suggestion from Standard & Poor's that the US government’s fiscal health might not be all that it is cracked up to be.

This was not a case of the little boy noting the emperor has no clothes. It is more like the little boy suggested that the emperor's clothes, while beautiful, might have been more carefully tailored to suit the imperial dignity. Hysteria followed, and the entire Obama cult called for the kid to be stoned.

Finally the emperor himself spoke in defense of his rainment. That’s when the market crashed.

But the downgrading of a government’s debt from AAA to AA+ can only have triggered a market avalanche if the truth is in fact much worse, and most everyone knows it.

S&P doesn’t have clean hands, of course. It holds a government monopoly, wants higher taxes, and rated crazed housing bonds AAA. But imagine, for just a moment, that US government debt were rated in the same way that municipal bonds or regular corporate debt are. Imagine that government bonds, like normal bonds, carried a default premium. Imagine, in other words, that the Federal Reserve were not in a position to pay everyone from welfare recipients to banksters with newly created money.

Under such actual market conditions, federal debt would not be rated as AA+. It would be worth even less than junk bonds. In fact, it wouldn’t even qualify for a market rating at all, because it would be utterly worthless and the institution that issued it would be in default and the whole rotten apparatus of the state would be seen to be bankrupt at its very core, in every sense.

We know this for one simple reason: There is no way that the government can fund its debt on taxes alone. There would be a revolution in this country in a heartbeat, and, probably, the entire American empire, domestic and foreign, would come crashing down, along with its banking and monetary systems.

If this actually happened, there would be no more "ongoing negotiations" about the budget and the debt. The cuts would be swift, extreme, gigantic. The federal government would have to behave like state governments, balancing the budget year to year. There would be no more plans for fake cuts in the planned increases, gradually phased in over ten years. The federal government would face actual market discipline. The S&P downgrade is only a slight taste of what would follow.

And let’s not just look at the downside. Hundreds of billions in resources would be freed from government control. The private sector would experience a huge infusion of energy. Interest rates would probably go through the roof, which means that people would actually be rewarded for saving, and saving is exactly what people would do as hundreds of banks went belly-up, large portions of the business sector had their credit lines cut, and merchants of death had to close their bloody doors.

There would be wailing and gnashing of teeth, but there would be no turning back. Within a few months, we would start seeing massive resource shifts and pockets of growth would return. New jobs would be available. New businesses would spring up. New financial firms would displace the old ones. Within a year or 18 months, we would be on a growth path, and this time it would be real and sustainable.

Of course this is not going to happen. Instead, the powers-that-be will continue their long game of "let’s pretend" as the economy sinks deeper and deeper, incomes fall, and the US gradually heads toward 3rd-world basket case status.

It’s not only the government that is bankrupt, of course. It’s the entire ideological apparatus that backs the state and its eternal expansion. The New York Times struggled for something to say about the obvious failure of the second stimulus. All they could come up with was: "shift every available resource toward jobs," "increased investment in infrastructure," more relief for homeowners, and another extension of unemployment benefits.

The only thing that this asinine editorial left out was the need to lower interest rates. And that’s because interest rates are already 0%, which has killed saving, terminated growth, and denied the public the fundamental freedom to sock away money in time deposits and let it earn something in exchange. The Federal Reserve is completely out of policy options, unless it is ready to embrace the Zimbabwe-Weimar solution.

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Of course, the whole theory that the government can stimulate through control and robbery is wrong and counterproductive. It only ends up rewarding government and its friends while the rest of us suffer. If we ever get out of this depression, it will be because government is forced to stop this nonsense, and the economy really stimulated by taking a meat axe to the planning-spending-inflating apparatus.

This is the underlying reality that informed traders understand. The whole system is being propped up by the power to print, and that power alone. No matter how many miracles some people think that paper money can accomplish, there is an underlying realization that the whole system is a hoax.

But don’t take my word for it. Let S&P and many more competitive rating agencies go to town on US bonds and rate them as they would any bond in the private sector or even the public sector not backed by a printing press. Let reality speak, and let us listen.

August 10, 2011

Llewellyn H. Rockwell, Jr. [send him mail], former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com. See his books.

Copyright © 2011 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

Link to original article: http://lewrockwell.com/rockwell/day-of-reckoning188.html

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