FedUpUSA

Archive for November 12th, 2012

This past week, the east coast of the US was hit by devastation and destruction… and it got hit by a hurricane too. The real damage was caused by the government response (big surprise,) the lack of preparedness of the people living there (even bigger surprise,) and the prohibition of those willing to help from actually providing that help (I am Jack’s complete lack of surprise.)

In typical socialist fashion, the government has flexed its muscles to enforce the price gouging laws. What the economic illiterates do not understand is that ”price fixing” makes the shortages worse than what they would have been without the intervention. Because of the natural disaster, many items become scarce. The pricing mechanism is the signal to move resources from one area to another. In order to get these resources moved to where they need to be, the price must increase. A full explanation is given here.

Price gouging does provide a positive social function. It limits the ability of the early shoppers to purchase all of the necessary supplies before others can get there. This would be a good example of rationing. This actually serves to prevent shortages! But the socialists in government believe it is better that people go completely without or with less, rather than somebody put forth extra work and turn an unusually large profit. Work and profit are not meant to go together. To those that defied the rules and brought supplies in… thank you for your service.

Because of the price controls, many items are now in short supply. The government, in its egalitarian wisdom, has now declared that items MUST be rationed. No matter what, you can only get a certain amount. To prove how economically illiterate these politicians are, all they would need to do is look back in history to the wage and price controls under Nixon or during World War II. They could also look to the entire history of the Soviet Union.

Of course, many of these problems could have been prevented had people been better prepared. At my local WalMart, bottled water is under $1 per gallon. Canned goods and instant soups/meals are relatively inexpensive. One of the major problems faced in this crisis is that without electricity, people were not able to use their credit cards and EBT (food stamp) cards. The fuel problem could be easily solved by purchasing a few gas cans, filling them up and putting them in a storage area. In 6 months, pour that gasoline into the car and refill the cans if you are worried about the gas going bad. If anything has been learned from the responses of different levels of government and their agencies, you MUST be able to depend upon yourself.

During a time of price controls, a woman walked into a butcher shop. She was dismayed
to see the butcher was selling steak for $10 per pound. She asked the butcher if the price
was correct and he said it was. She said, “The government has fixed the price of steak at
$6 per pound and you are charging too much. The guy across the street is selling steak at
$6 per pound.” The butcher replied, “Go buy your steak from the guy across the street
then.” The lady informed him that the guy across the street was sold out of steak. The
butcher replied, “When I am sold out, I charge $6 per pound also.”

Much of this pain could have been avoided had the politicians allowed the market to operate on its own. Let the pricing mechanism work. Don’t try to rewrite the laws of economics. And most important, don’t arrest/kidnap people for helping out those in need. It’s probably not a good idea to turn away people that have come to help, just because they don’t have the proper gang affiliation. here and here.

Lou – Freedom Feens

Democracy is for PR purposes only in corrupt neofeudal nations.

Correspondent Chris rightly critiqued me for not mentioning democracy (or the lack thereof) in my recent entry on China: Do We Have What It Takes To Get From Here To There? Part 2: China. It is indeed vital to include democracy in any discussion of corruption, for it raises this question: is democracy possible in a corrupt society?

We can phrase the question as a corollary: in honor of my new book Why Things Are Falling Apart and What We Can Do About It (print $24) (Kindle $7.95), let’s call itWTAFA Corollary #1:

If the citizenry cannot replace a dysfunctional government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only.

In other words, if the citizenry cannot dislodge a parasitic, predatory financial Aristocracy via elections, then “democracy” is merely a public-relations facade, a simulacra designed to create the illusion that the citizenry “have a voice” when in fact they are debt-serfs in a neofeudal State.

When the Status Quo remains the same no matter who gets elected, democracy is a sham. We might profitably look to Japan as an example of a nation which replaced its dysfunctional dominant party via elections to little effect (Do We Have What It Takes To Get From Here To There? Part 1: Japan).

We can ask this question of Greece: in a pervasively corrupt neofeudal society, is democracy even possible?

Neofeudalism is characterized by a carefully nurtured facade of social mobility and democracy while the actual machinery of governance is corrupted at every level.

This corruption may manifest as first-order daily-life corruption such as buying entry to college, bribing officials for licenses, and so on, but the truly serious corruption is the second-order variety that functions behind the closed doors of central banks and financial/political Elites.

Here in the U.S., the people elected Barack Obama in 2008 on the implicit promise that the politically dominant financial sector would be limited in some meaningful fashion. Instead, President Obama immediately nixed any meaningful reform.

The progressive case against Obama: The president is complicit in creating an increasingly unequal and unjust society.

Many will claim that Obama was stymied by a Republican Congress. But the primary policy framework Obama put in place — the bailouts –took place during the transition and the immediate months after the election, when Obama had enormous leverage over the Bush administration and then a dominant Democratic Party in Congress.In fact, during the transition itself, Bush’s Treasury Secretary Hank Paulson offered a deal to Barney Frank, to force banks to write down mortgages and stem foreclosures if Barney would speed up the release of TARP money. Paulson demanded, as a condition of the deal, that Obama sign off on it. Barney said fine, but to his surprise, the incoming president vetoed the deal.

Yup, you heard that right– the Bush administration was willing to write down mortgages in response to Democratic pressure, but it was Obama who said no, we want a foreclosure crisis. And with Neil Barofsky’s book Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, we see why.

Tim Geithner said, in private meetings, that the foreclosure mitigation programs were not meant to mitigate foreclosures, but to spread out pain for the banks, the famous “foam the runway” comment.

Here’s how a sham democracy works: candidates are duly paraded in front of credulous voters in a “which is better, Bud or Bud Lite?” false-choice marketing blitz, while all the meaningful codifying of Aristocratic rule is directed or purchased by the financial and political Aristocracy (two sides of the same coin).

Consider the actions of the Federal Reserve, the dominant financial force in the nation. Though the Fed is nominally under the control of Congress, it is actually like an iceberg: its public pronouncements are the visible 10% above water. The real mass of the Fed’s actions lie beneath the surface, invisible to us mere debt-serf citizens.

The Fed’s public mandate, to “promote stable prices, maximum sustainable output and employment,” is solid public relations, of course (we’re selflessly focused on the good of the nation, blah blah blah) but it’s also deeply disingenuous, as the Fed’s less PR-pretty agenda is rather transparently to preserve the banking sector’s profits and power at all costs.

We can find clues to the Fed’s real goals in its behind-closed-doors actions–the 90% of the iceberg that’s out of public view.

On the surface, the Fed increased its balance sheet by about $2 trillion since the 2008 global financial crisis. This electronically created money purchased about $1.1 trillion in mortgage-backed securities (MBS) to support the housing market and $1 trillion in Treasury bonds to keep interest rates low. These two goals–super-low interest rates, a.k.a. zero-interest policy (ZIRP), and supporting assets such as housing and stocks–are the core strategies the Fed is publicly deploying to boost growth and employment.

Supporting the banks is not mentioned, for obvious PR reasons. Yet a Government Accountability Office (GAO) audit found the Fed provided $16.1 trillion in “emergency program” loans to global banks from 2007 to 2010, and a Levy Institute study uncovered a total of $29 trillion in Fed support–roughly ten times larger than the Fed’s public programs. (For context, the annual U.S. gross domestic product is about $15 trillion.)

This suggests we should take the Fed’s assurances that its policies are all for the public good with a grain of salt roughly the size of the Fed’s headquarters at 20th and Constitution Avenue.

Did bailing out the banks truly serve the public good, or did it stymie a much-needed capitalist “creative destruction” of failed financial institutions that have grown so powerful that they are now “too big to fail”? How exactly did enabling the banks to draw upon trillions of dollars of Fed support, safe from public scrutiny, serve the public good?

The U.S. Status Quo is also like an iceberg: the visible 10% is what we’re reassured “we” control, but the 90% that is completely out of our control is what matters.

There is another dynamic in a facsimile democracy: the Tyranny of the Majority.When the Central State issues enough promises to enough people, the majority concludes that supporting the Status Quo, no matter how corrupt, venal, parasitic, unsustainable and dysfunctional it might be, is in their personal interests.

Tyranny of the Majority, Corporate Welfare and Complicity (April 9, 2010): Please read this brief excerpt by James Madison to get a flavor for the Tyranny of the Majority:

“A pure democracy can admit no cure for the mischiefs of faction. A common passion or interest will be felt by a majority, and there is nothing to check the inducements to sacrifice the weaker party. Hence it is, that democracies have ever been found incompatible with personal security or the rights of property; and have, in general, been as short in their lives as they have been violent in their deaths.”

The Tyranny of the Majority is the primary topic of the Federalist Number 10, in which Madison tackles the Achilles Heel of democracy: undesirable passions can very easily spread to a majority of the people, which can then enact its will through the nominally democratic government.

Put another way: the Power Elites of a nominal democracy can buy the complicity of the majority by showering them with government benefits and entitlements.

This document from the Congressional Budget Office (CBO) displays the Effective Tax Rates (CBO) for American households.

After including earned-income tax credits, the bottom 60% of households paid less than 1% of all Federal income taxes, and the households between 60% and 80% paid 13%.

The top 20% paid 68.7% of all Federal taxes: Income taxes, Social Security and Medicare, excise and corporate taxes. The top 10% of households paid fully 72.7% of all Federal income tax, the top 5% paid 60.7%, and the top 1% paid 38.8%.

In essence, this is a vote-buying scheme by the Status Quo: the top 1% control the policies of the State in alliance with the State’s own Elites, and together they buy the complicity of the bottom 60% majority.

This is the worst of all possible simulacra of democracy. In the Wikipedia entry linked above, Mancur Olson is cited as arguing in The Logic of Collective Action that narrow, well-organized minorities are more likely to assert their interests over those of the majority.

In other words, the Financial Aristocracy asserts its interests over the 99% and then buys the complicity of the bottom 60% with largesse paid for by the top 19% of earners.

In Who Rules America?, Sociologist G. William Dumhoff draws an important distinction between the net worth held by households in “marketable assets” such as homes and vehicles and “financial wealth.” Homes and other tangible assets are, in Dumhoff’s words, “not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale.”

Financial wealth such as stocks, bonds and other securities are liquid and therefore easily converted to cash; these assets are what Dumhoff describes as “non-home wealth” on his website “Wealth, Income, and Power in America.”

As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7% and the top 20% held fully 93%.

In a classic “divide and conquer” tactic, the State’s Power Elites have sold a slew of new taxes to fund the guaranteed-to-implode “healthcare reform” (a.k.a. increased funding of sickcare cartels) on those earning $250,000 or more.

Everyone earning 25% of that sum loudly applauds “sticking it to the rich” (the Tyranny of the Majority in full flower) while failing to note that the truly wealthy–the ones who don’t have any earned income because they don’t work in salaried jobs, the ones who own roughly half the nation’s productive assets–pay nothing but a slice of their unearned income, much of which is protected by various tax breaks.

The State is effectively operated as a fiefdom of the Financial Power Elites–and by that I mean the people earning not $300,000, but those earning $30 million or more annually– that buys the complicity of the lower 60% with enough largesse to keep them supportive of the Status Quo.

In this facsimile democracy, citizenship has devolved to advocacy for a larger share of Federal government swag. The U.S. Status Quo rules via the second-order corruption of financial Aristocracy and Tyranny of the Majority.

Is Democracy Possible in a Corrupt Society? No, it is not. Our democracy is a PR sham.

Charles Hugh Smith – Of Two Minds

Read this article carefully, and pay attention to the nuances in it.

When the housing bubble burst in 2006, U.S. policy makers looked to Japan for clues about what to do — and not do — in response. Now their attention is shifting to Europe as America gets set to follow that region with a concerted attack on its budget deficit.

Among the lessons being drawn: Don’t put off budget action until the financial markets demand it. Big, immediate cuts aren’t always the best way to reduce deficits. And central bankers should be ready to try to offset the economic impact of any fiscal contraction.

Got that?

Unicorns are real.

What’s coming out the back end of that alleged Unicorn is candy.

And it’s yummy to eat, if you will just believe what all the smart people tell you.

Let’s just get down to brass tacks: You can attempt to polish a turd, but it will always be a turd no matter how nice it looks.

Stock prices slumped last week partly on concern that Congress will allow about $607 billion in automatic spending cuts and tax increases to go ahead next year. The Standard & Poor’s 500 Index (SPX) ended at 1,379.85 on Nov. 9, down 2.4 percent on the week.

“This would be self-inflicted, disorderly contraction that would unambiguously push our country into recession,”  Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which manages more than $1.9 trillion in assets, said in a phone interview.

It would be nice if El-Erian would tell the entire truth instead of just a piece of it.  What he says is true.  The part he’s leaving out is that $607 billion is about half of the deficit spending we are doing right now and that the economy is factually in a recession and has been for the last four years with the federal government’s deficits acting as a fraudulent device in an attempt to evade recognition of that recession.

Look, it’s pretty simple when you get down to it: If you measure GDP in the unit of currency (dollars) then increasing the number of units of that currency in the system by deficit spending must be subtracted back out in order to get a unit-independent view of GDP itself.

You learn this in the first few years of school in your first algebra class but as soon as the topic turns to economics supposedly-smart people “forget” this and try to tell you that the laws of mathematics do not apply, because, well, they said so and they have fancy letters after their name like “BS”, “MS” and ”PhD.”

(Shall we discuss whether those monikers stand for bull shit, more shit and piled higher and deeper?)

GDP as currently constituted and reported allows for an outrageous amount of tampering by governments as a direct result of how it is denominated.  I would love to see GDP denominated in something that is utterly invariant within our rational governmental lifetime; say, square meters of solar energy flux at the equator.  This is a unit that we cannot “print” nor can we temporarily disrupt its equivalence (such as we can with barrels of oil, gallons of gasoline, or for that matter ounces of gold) and thus would provide us with a hard statistical base that could not be gamed.

Unfortunately we do not denominate our alleged economic output in something of that sort, although we could choose to.  As a result we wind up with articles similar to that in Bloomberg this morning where various pundits tell us that we “must not” do what Japan did (as they tell it, be “too timid”) or what Europe did (as they tell it, stop deficit spending) lest we “suffer.”

Note that nowhere in that discussion is an admission of the truth that we have been living a lie for decades.  We have presented to the world and operated in our lives as if actual economic output and demand that did not exist did; we have silently and through conspiracy and personal act stolen the accumulated wealth of both our nation and her people, expending it as if there was some limitless font from which we could draw, much like we attempted to do with oil in the ground even though we knew decades ago that the cost of extraction would rise and the cheap oil would all be burned up.  Now we’re playing the same game with “fracking” and natural gas, with pundits by the hundreds or thousands (most with something to sell you, of course) telling us that a “new golden age of energy” is here in America, without bothering to mention that mathematically when you withdraw something from a finite reservoir at 10x the rate it only lasts 1/10th as long.

Back in the 1990s when I ran MCSNet I was astonished as the firm went from serving a few hundred customers to thousands in a very short period of time, placing incredible demands on both my time and ability to think faster than the technology was evolving.  It was not the meteoric rise of the Internet that got a rocket-level boost from the introduction of Windows 95 that made me sit back in my chair and wonder how stupid everyone was; rather it was the number of pundits, analysts and various economists who all argued that the growth rates we were seeing would continue for a very long period of time — decades even.

I chuckled at such prognostications because just a few moments with a calculator led to the inescapable conclusion that at the rates of growth we were seeing every bacterium on the planet would have Internet access by 2020.   In 1998, seeing the inevitiability of what was to come but of course not knowing exactly how far the insanity would go, I sold the company and made sure I was both at minimum safe distance and was facing the other way before the bright flash burned out my eyeballs.

Likewise I look at this chart of Federal Medical Spending on the growth path from 1980 to 2011 and its forward projection and break out in peals of laughter at the prospect that we can somehow evade having the entire federal government and economy come crashing down around our ears:

Or our federal budget, which currently pays for only the interest, the light bill in the Capitol, the federal cops in their various uniforms, Medicare, Medicaid and Social Security — and then runs out of money about halfway through our $800 billion in defense:

Self-delusion is a powerful meme.  It is in fact the most-powerful and at the same time the most-dangerous, because it tends to be self-reinforcing, especially when you intentionally craft your tools toward your own deception.

A more-mundane example I have used before is found in the person who is under great pressure to perform in some form or fashion.  They discover that they can stick a little vial of cocaine in their inside suit pocket with a tiny little spoon and at 2:00pm as they begin to nod off they take a short “bathroom break” and up the nose goes one spoon.  There is that instant boost of energy, and the next three hours go by without a problem.

But the original energy deficit wasn’t actually rectified; the snort-happy guy cheated, just as we have cheated.  It is not long before the drag comes on at 1:30 instead of 2:00, and the spoon comes out earlier and earlier.  Eventually one spoon becomes two, then four, but the first step seemed so harmless, and so easy to rationalize – I only need this today; This is a temporary “pick me up”; “I’ll stop tomorrow”.

Uh huh.  Sure you will.

Six months, a year, two, five down the road and now morning coffee is no longer caffeine, it’s a full-on line of coke on the nightstand before you get out of bed.  And then one day, as you’re walking into your office, the inevitable tightness in the chest comes on – The Big One.

We have spent 30 years deluding ourselves folks, and we must stop.  I have no idea exactly how far we can go with our economic heart before it explodes, only that if we continue down the road we are on it will occur with certainty.  Obama’s re-election in the face of disgustingly-deteriorating economic fundamentals is not so much about him as it is about the vapid nature of the political challengers, none of whom had the balls to present what Ross Perot did back during his Presidential run — charts, facts and figures, showing the course of action we were engaged in.

Why not?

That’s simple: When you’re invested in a bogus, fraudulent but profitable enterprise, would you call the curtain down on your own power and manipulation?

Of course not.

Wake up America, and today when you do, choose to tough it out without ”a quick snort” to start your day.  Tell those who wish to fill your little vial that you threw away the spoon, and while you know damn well you’ll be using toothpicks to keep your eyelids open for a while, you’ll live through today, and tomorrow you’re going to get off your ass and force yourself to run a half-mile after work, starting the process of rebuilding that which we’ve destroyed — and accepting the inevitable pain that must be endured to do so.

Either that or start walking now, hoping to achieve minimum safe distance, and whatever you do, don’t look at the flash.

It may be pretty but it’s not worth the price of your eyesight.