The IRS scandal: it's even worse than we feared

Last week the Heritage Foundation held a lunchtime conference to discuss the latest developments in what it calls 'Taxing the First Amendment: Using the IRS to Censor Speech?'.  I'm going to post the entire hour-plus video of the conference below, but I wanted to first highlight five very short excerpts from a post-conference interview provided to the Powerline blog by one of the speakers, Cleta Mitchell.  She's an attorney who's represented several clients facing IRS abuse over the past few years.  In these short excerpts, she highlights an agency that appears to be completely out of control, and blames both the Democratic and Republican parties for their blind refusal to apply the law to the bureaucrats concerned.  The five clips together total less than twelve minutes in length, and are well worth your viewing time.

Here's the full 1 hour 10 minute video of the lunchtime conference presentation.  I recommend that if you take constitutional government seriously, you make the time to watch it - because if these practices aren't stopped now, we won't have even the semblance of constitutional government that we have now.

This is perhaps the clearest possible evidence that 'going Galt' is no longer an adequate option.  When the organs of government can be suborned to prevent you doing as you please according to your constitutional rights, and to exert illegal and unconstitutional pressure on you to conform, it's too late to found a Galt's Gulch.  It'd just get a tax lien placed on it.

My solution is simple - and some would doubtless describe it as simplistic.  It's in three parts, all of which would be necessary.  It goes like this:

1. Institute a flat tax rate of 10% on all income - corporate, private, whatever - with no deductions or exemptions whatsoever.  Earn a dollar?  Pay 10c to Uncle Sam.  Simple, direct, efficient.
2. Institute a flat consumption tax of 5% on all purchases - corporate, private, whatever - with no deductions or exemptions whatsoever.  For every dollar you spend, you pay 5c tax to the Feds.  (You may pay more for local sales taxes, of course.)
3. You now no longer need massive, complex calculations about what any person or company owes the government.  It's a simple calculation that anyone with a few functioning brain cells can do in their heads (or use a calculator or spreadsheet if they must).  Therefore, abolish the entire IRS and the entire tax preparation industry.  You'd save the country billions in unnecessary and useless overhead at the stroke of a pen - and taxes would be lower, besides.

Not that complicated when you think about it, is it?  Unfortunately, the politicians and the bureaucrats will never agree.  They'd argue that you have to provide for 'income redistribution' or 'welfare assistance' or all the rest of that sort of crap that's never mentioned in the constitution at all.  To that, my answer is simple.  If someone is in need of welfare or other assistance, that's not an IRS issue - so why keep the agency around to address it?  Why make it a federal issue at all?  It can be dealt with by state welfare agencies.

To statists, the issue isn't about taxation efficiency at all.  It's about control.  When that control gets out of control . . . you have the present IRS catastrophe.





Peter

Politicians again fail to learn from history

It seems our political leaders intend to reduce the size of the US Army to below its strength in 1940.

Let me say that again.

Our political leaders intend to reduce the size of the US Army to below its strength in 1940.

Have they forgotten history altogether?

Examine any nation you please.  Study the size and ability of its armed forces.  Observe what happened to that nation when it allowed its armed forces to decay in terms of either strength (numbers) or capability (efficiency, quality of armament, tactics, etc.).

History warns us grimly that whenever a nation failed to prepare for war, it didn't enjoy peace for very long.

What makes our politicians think this time will be any different?

I confidently predict that if this misguided reduction in strength goes ahead, within a decade from its taking effect we'll wish we had back the forces we cut - and more.  History's entirely on my side in making that prediction.  I have no objection to cutting away deadwood, and reorienting our forces to make them 'smarter', better equipped and trained to face contemporary challenges, and the like;  but to reduce them to so low a level is to cripple them before a major conflict even starts.  It's not like the old days when the draft could provide semi-trained warm bodies within a matter of a few months.  In today's high-technology world, it takes a couple of years to train a soldier to the point where he's basically proficient with all the equipment he's expected to take into a fight.  We won't have time for that when the proverbial brown substance hits the rotary air impeller.

There may be one silver lining in the cloud, however, if our politicians are sensible enough to grasp it (although that's debatable).  I note the Air Force plans to mothball its A-10 Thunderbolt II ground attack squadrons.  The US Marine Corps can't afford the F-35B strike fighter it so desperately wants, no matter how much it may protest that it needs it.  On the other hand, the A-10 would fit right in with the Marines' self-imposed priority to have their own organic air support arm.  Why not scrap the F-35B and transfer all the (newly upgraded) A-10's to the Marine Corps?  It'd save tens of billions of dollars in procurement costs, and operational costs of the A-10's would be a tiny fraction of the stealth F-35's.  I'd say that'd be a win for everybody except Lockheed Martin (which deserves the loss, quite frankly, after screwing up the F-35 project so badly).

Peter

Flawed climate policy causes a flood disaster

I'm cynically unsurprised at the revelation that the recent devastating floods in England were deliberately caused by the policies of the previous government, driven by concerns over climate change.  The Telegraph reports:

Devastating evidence has now come to light not just that the floods ... could have been prevented, but that they were deliberately engineered by Labour ministers in 2009, regardless of the property and human rights of the thousands of people whose homes and livelihoods would be affected. Furthermore, that wildly misleading Met Office forecast in November led the Environment Agency to take a step that has made the flooding infinitely more disastrous than it need have been.

The “smoking guns” begin with a policy decision announced in 2005 by Labour’s “floods minister” Elliot Morley ... Under the heading “Saving wetland habitats: more money for key sites”, Morley directed that, to comply with the EU’s habitats directive and a part-EU-funded study involving the Royal Society for the Protection of Birds, the WWF and the Environment Agency, flooding in Somerset should be artificially promoted, because “wildlife will benefit from increased water levels”. The 13 local drainage boards, responsible for keeping the Levels properly managed, were all to be co-opted into implementing this policy.

The Environment Agency had already stopped proper dredging of the River Parrett, which provides the main channel draining floodwater on the Levels to the sea, because of the exorbitant cost of disposing of silt under EU waste regulations. And Morley had vetoed a proposal to build a new pumping station at Dunball, at the end of the massive Kings Sedgemoor Drain, which would have allowed much more effective, 24-hour pumping of flood water into the mouth of the Parrett estuary,

In 2008, an Environment Agency policy document on the “Parrett Catchment Area” admitted that it was “still not completely clear” how much the deliberate increase in flooding would breach “the property rights and Human Rights” of those whose homes and businesses would be damaged. Yet in 2009, the government gave £8 million to “restore” – ie, increase flooding on – 10 Somerset “floodplains”, including the purchase of a large area of farmland at Southlake Moor next to Burrowbridge on the Parrett, which had been drained since the 13th century. It was to be handed over to Natural England to “store” water as habitat for birds when, as the Met Office was already predicting, climate change would bring drier winters.

This was where November’s forecast came in, because it led the Environment Agency deliberately to flood Southlake Moor in the expectation of a dry winter. When those December and January rains poured down, this large expanse of water-sodden ground blocked the draining to the already horribly silted-up Parrett of a very much larger area of farmland to the east. This was made even worse by the lack of that Dunball pumping station, vetoed by Morley, at the sea end of the Kings Sedgemoor Drain.

Thus came about the disaster that has filled our television screens for weeks. The hydrology of this vast area had been sabotaged by the Labour government’s deliberate, EU-compliant policy, directed by the Environment Agency.

There's more at the link.

The fact that this happened in England should be cold comfort to those of us in the USA.  We're seeing exactly the same sort of ideologically driven decisions affecting our own environment just as negatively - witness the current water crisis in California as just one example.

I'm more and more of the opinion that there can be no compromise with the environmentalist idiots who raise such a hue and cry about 'climate change' and 'environmental preservation' and the like.  Their mantras have proven scientifically flawed and practically disastrous so often that no right-thinking person can take them seriously any more.  That's a great pity, because there's a lot to be said for the right sort of conservation and environmental consciousness . . . but when one sees so little of it among the activists, I'm afraid the environment baby tends to get thrown out along with the propagandist bath-water.  The truth is so seldom in them.





Peter

Headline of the day

From the Telegraph, London, comes this report:

Men banned from becoming Queen as 700 years of law redrafted ahead of gay marriage

Men are to be banned from becoming Queen or Princess of Wales as part of an unprecedented effort to rewrite more than 700 years of law to prevent unintended consequences of gay marriage.

There's more at the link.

A man as Queen?  Heh.  There was a comedy program on the BBC in the 1970's and early 1980's called 'Not The Nine O'Clock News'.  At some point I recall listening to its spoof version of Shakespeare's Macbeth (which was quite hysterical).  The dialogue between Macbeth, Banquo and the Three Witches on the blasted heath included this gem:

Chief Witch to Banquo:  Thou shalt not be King, but thou shalt be royal.

Banquo (falsetto):  Ooh - I'm going to be Queen!

Peter

Ukraine: murky moral terrain indeed

I'm sure many readers have been following developments in the Ukraine with interest.  The latest seems to be that the pro-European demonstrators have driven the pro-Russian President out of the capital.  He's taken refuge in his political stronghold, from where he's probably going to threaten all sorts of nastiness.  The possibility of civil war is very real (that is, if you don't think what's been happening all last week already qualifies as civil war).

Trouble is, both sides in this dispute have issues that make the situation less than clear-cut.  Both are trying to impose their will on the other.  There's no clear national consensus in the Ukraine about the future;  just an equally divided nation that can't make up its collective mind.  That goes all the way back to early Communist times.  Most ethnic Ukrainians have never forgotten (nor forgiven) the Holodomor, the deliberate starving to death of millions of their countrymen under Stalin.  Partly as a result of that massacre, millions of Ukrainians welcomed the Nazi invaders as liberators during World War II, and rejoiced as they drove out the Communists.  There were even enough Ukrainian volunteers to form an ethnic Waffen SS division.  However, Nazi racial policy led to atrocities in Ukraine, compounded by horrendous reprisals as Soviet forces regained control of the territory in 1944.  The territory's infrastructure was almost completely destroyed.

Following World War II, the Soviet Union followed a deliberate policy of settling ethnic Russians in western Ukraine as a way to dilute nationalist sentiment there.  Heavy industry was developed in that region as well, particularly military production facilities.  In the eastern part of the territory, ethnic Ukrainians continued to dominate, along with others from eastern European cultures such as Poland, Galicia, etc.  This divide is what's visible today in the fighting in Ukraine;  the western parts of the state are pro-European, while the eastern parts are heavily pro-Russian.

Unfortunately, under Communism a small technocratic elite developed who basically ran the nation under orders from Moscow, and received privileges and benefits in return for their co-operation and acquiescence.  That elite fractured with the coming of independence, some trying to run things in a pro-Western way, others trying to do the same in a pro-Russian way.  They're still at it.  The current President is a pro-Moscow technocrat.  The woman who looks set to replace him (at least temporarily) is a pro-European technocrat.  I'm not sure either is particularly competent, or particularly worthwhile as a ruler.  The ordinary man and woman in the street is probably regarded as 'cannon fodder' by both sets of technocrats - tools to be used, then discarded and ignored.  That's why electoral violence has been endemic in Ukraine for the last decade or more.  The people don't want to be discarded or ignored, but they can't find leaders who'll take that to heart.

Of course, there's more to it than simply ethnic loyalties and alliances.  Although I disagree with her dismissal of ethnic factors in the conflict, the Telegraph's Anne Applebaum makes a strong case for her analysis.

Appearances to the contrary, the conflict we are witnessing is not an atavistic, ethno-linguistic struggle between Russians and Ukrainians, or some kind of tussle between street thugs and police. There are no ancient ethnic rivalries at stake.

It is not even clear that the Ukrainian political struggle is really just a geographic dispute, as it is so often characterised, between the more “European” western half of the country and the more “Russian” East.

On the contrary, this is a political conflict, and one which is not that hard to understand. On the one side are Ukrainians (both Russian and Ukrainian-speaking) who want to live in a “European” democracy with human rights and rule of law, one which is genuinely integrated with the European Union and the rest of the world. The supporters of this “European” option include students, pacifists, gay and environmental activists, as well as Right-wing nationalists and people motivated by memories of the terrible crimes that Stalin carried out in Ukraine 80 years ago.

On the other side are Ukrainians (also both Russian and Ukrainian-speaking) who support an undemocratic, oligarchic regime which is politically and economically dependent on Russia, more cut off from the European Union, and affiliated instead with the customs union controlled from Moscow.

Some of this regime’s supporters are the tiny elite who have made such massive profits from Ukrainian corruption, and who have famously purchased some of London’s most expensive homes (and, if rumours are correct, may have rapidly taken up residence in them this week).

Others without such wealth may fear the violent extremists they have seen on the television news, and the forces of general disorder. Still others may fear that even a trade agreement with Europe would entail deep reforms and economic changes, threatening their jobs.

Either way, this is not a fight over which language to speak or even over who controls Kiev’s main square. Historical allegiances are not an issue, either. Though both get bandied about, neither the word “fascist” nor the word “communist” is correctly applied to either side.

On the contrary, the fighting on the street this week was the latest manifestation of a deep national disagreement over the nature of the Ukrainian state, the shape of Ukraine’s economy, the status of the legal system, the country’s membership of international organisations. This is a legitimate political argument, and ultimately it can only have a political solution.

There's more at the link.  Worthwhile reading.

By all means, let's keep the people of Ukraine in our thoughts and prayers.  They're going through hell over there, and there's no guarantee this won't slip into full-scale civil war (or, worse, military intervention by Russia, which would destroy all hope of Ukrainian unity for generations to come).  That, in turn, might drag Europe and Russia to the brink of a conflict that can have no winners in the long term.

Peter

Guess where all the QE money is going?

If you haven't yet read Matthew Taibbi's latest exposé for Rolling Stone magazine, 'The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet', you really need to make time to do so.  It shows more clearly than anything else I've read just where all the excess liquidity that the Fed keeps pumping into the markets under the label 'Quantitative Easing' is ending up.  Here's an excerpt.

Most observers on the Hill thought the Financial Services Modernization Act of 1999 – also known as the Gramm-Leach-Bliley Act – was just the latest and boldest in a long line of deregulatory handouts to Wall Street that had begun in the Reagan years.

. . .

A tiny provision in the bill also permitted commercial banks to delve into any activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally."

Complementary to a financial activity. What the hell did that mean?

"From the perspective of the banks," says Saule Omarova, a law professor at the University of North Carolina, "pretty much everything is considered complementary to a financial activity."

. . .

Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum.

. . .

... banks aren't just buying stuff, they're buying whole industrial processes. They're buying oil that's still in the ground, the tankers that move it across the sea, the refineries that turn it into fuel, and the pipelines that bring it to your home. Then, just for kicks, they're also betting on the timing and efficiency of these same industrial processes in the financial markets – buying and selling oil stocks on the stock exchange, oil futures on the futures market, swaps on the swaps market, etc.

Allowing one company to control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets, is an open invitation to commit mass manipulation. It's something akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays.

The situation has opened a Pandora's box of horrifying new corruption possibilities, but it's been hard for the public to notice, since regulators have struggled to put even the slightest dent in Wall Street's older, more familiar scams. In just the past few years we've seen an explosion of scandals – from the multitrillion-dollar Libor saga (major international banks gaming world interest rates), to the more recent foreign-currency-exchange fiasco (many of the same banks suspected of rigging prices in the $5.3-trillion-a-day currency markets), to lesser scandals involving manipulation of interest-rate swaps, and gold and silver prices.

But those are purely financial schemes. In these new, even scarier kinds of manipulations, banks that own whole chains of physical business interests have been caught rigging prices in those industries. For instance, in just the past two years, fines in excess of $400 million have been levied against both JPMorgan Chase and Barclays for allegedly manipulating the delivery of electricity in several states, including California. In the case of Barclays, which is contesting the fine, regulators claim prices were manipulated to help the bank win financial bets it had made on those same energy markets.

And last summer, The New York Times described how Goldman Sachs was caught systematically delaying the delivery of metals out of a network of warehouses it owned in order to jack up rents and artificially boost prices.

There's much more at the link.  Go read it.  It'll make it clear why the Fed and the banks will do anything they can - anything they have to - to keep kicking the fiscal and budgetary can down the road, rather than address the enormous systemic problems currently affecting our economy.  If they did address them, their opportunity for such windfall profits and control over so much of the world's economy would slip away.  They'll fight that tooth and nail.

When the economy finally crumbles, this sort of greedy manipulation will be a big part of the reason.  We'll just have to make sure that those responsible for it are held accountable in any way possible.  It's almost a foregone conclusion that they'll never be charged with any wrongdoing - after all, they control the national purse strings - so we'll have to find other ways to do so.  Tar and feathers are the least of the remedies that come to mind . . .

Peter

The next interventionist crisis?

Ever since the heady days of 'manifest destiny', the USA has faced internal conflict between - for want of better terms - isolationists and interventionists.  The former want to concentrate on domestic issues, leaving the rest of the world to get on with its own affairs - but unfortunately they all too often fail to see that gathering storm clouds over the horizon will sooner or later cross that horizon and rain all over this country too.  The latter want to go out and deal with those storm clouds before they can develop into a threat - but unfortunately they often do so without a real, clear and compelling national interest that will justify the expenditure of American lives, political and diplomatic capital, and the national treasure.

Interventionism has tended to triumph over isolationism in US foreign policy, although not without bitter internal conflict at times.  The positive outcomes of interventionism have included both World Wars (including the establishment of the United Nations and other international structures during and after the latter), Korea and Gulf War I.  Its failures include Vietnam, Lebanon, Afghanistan and Iraq.  The upshot has been that US troops are currently deployed in almost 150 foreign nations.  The costs of these deployments (including personnel, equipment and operations) are usually borne by the US taxpayer.

We're facing a budgetary nightmare at home, in which all categories of government spending are going to have to be cut, whether our politicians like it or not.  Sooner or later the fiscal shenanigans played by Congress, the Senate, the President and the Fed will collapse.  The financial chickens will come home to roost.  As Stein's Law reminds us, "If something cannot go on forever, it will stop".  It's already done that in Detroit and in several California cities.  It will shortly do that to several more of our cities and counties and to the most profligate and spendthrift of the 50 states, and eventually to this nation as a whole.

Yet, in the midst of this historical legacy and critical financial crisis, the cries of the interventionists are rising yet again.  They're pointing to one crisis area after another - North Korea, or Syria, or Venezuela - and demanding that the US "do more" in the name of humanity, or democracy, or whatever.  Trouble is, they never address the compelling questions that I believe must be asked if our intervention is to have any legitimacy - and, for that matter, if we're to ask a single US serviceman or -woman to risk his or her life for that 'cause'.

I feel very deeply for those suffering in these situations.  I know more about what they're going through than most - I've traveled extensively through Third World hellholes where life is cheap and death even cheaper.  They're the sort of places I hope and pray my readers never have to experience for themselves.  (Take a look at the top - or should that be bottom? - 10 states on the Failed States Index for some examples.)  I can't help but notice that many of the nations on that Index - Lebanon, Somalia, Iraq, Afghanistan - are countries where the US has intervened militarily.  So much for 'truth, justice and the American way'.  The Biblical standard to assess the worth of anyone (or, by extension, any policy or action) is 'by their fruits you will know them'.  Bitter fruit, indeed . . .

I've also seen how foreign intervention in such hellholes has merely resulted in the ousting of one set of thugs in power, to be replaced by other thugs who seized the opportunity to 'help' the intervening forces, then made sure they grabbed the reins of power when the latter left.  In the same way, I've seen how foreign aid has been siphoned off by corruption, leaving the needy to starve, or die of disease or famine.  As the largest donor of aid in the world, the US - and its taxpayers - have been hardest hit by this corruption.  (We've lost a fortune to corruption in Afghanistan since we occupied that nation.)  If you want me to support intervention in another country, you'd better have some compelling and convincing arguments to persuade me that we won't end up in yet another corruption quagmire as a result.

Finally, the members of our Armed Forces swear an oath upon enlistment.  It reads:

"I, _____, do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; and that I will obey the orders of the President of the United States and the orders of the officers appointed over me, according to regulations and the Uniform Code of Military Justice. So help me God."

I accept that 'obeying orders' might be sufficient justification, in the eyes of some, to send our forces in harm's way:  but for myself, unless there's a direct and immediate connection between deployment and 'defend(ing) the Constitution' (which can include aiding our allies with whom we have Constitutionally valid treaties), I have a problem.  Why should a single American be forced to go in harm's way in defense of a fundamentally corrupt system or state that almost certainly will not profit from his or her death?  How can we possibly tell any more parents, siblings, spouse and children that their loved one 'will not die in vain' when historically, the odds are pretty high that they probably will?

Are we intervening to make a difference, or simply to feel good about ourselves?  And is that enough to justify the death of US troops?  I fear not.  Unless there's a compelling national interest at stake, I see no reason to commit US troops to any more foreign adventures.  In fact, I'd pull a lot of them out of the countries where they now serve.  Just why are we stationing them in almost 150 foreign countries anyway - at our expense, in a time of budgetary crisis, when the Armed Forces' budgets are being slashed?  Tell me again how this makes sense?

Peter

Inflation is hitting harder - but not officially

I've written a lot about inflation in these pages over the years.  In particular, I refer readers to an analysis of the elements of inflation that I published in 2012.  It's still valid.  Furthermore, those relying on government benefits to pay their monthly bills have seen their overall purchasing power either flat-line or gradually reduce over the past decade, even as food and fuel have increased significantly in cost.

A report at CBS drives home this reality.

Writer Jen Singer, the mother of two teenage boys, wrestles with her grocery list every week to keep the household budget from getting away from her.

"I'd like the government to stop by my house, come food shopping with me and see where the real costs are," she said.

. . .

It's not her imagination. While the government says prices are up 6.4 percent since 2011, chicken is up 18.4 percent, ground beef is up 16.8 percent and bacon has skyrocketed up 22.8 percent, making it a holiday when it's on sale.

. . .

Many are concerned that while economists paint a benign picture, middle-class families are quietly struggling.

"The disconnect is severe, because it's the economists that make policy but it's the people who have to live with the outcome of that policy and that disconnect is growing to the point where I think it has to break soon," Colas said.

There's more at the link.

In case you missed it in my earlier articles, let me point out again that the official rate of inflation, as calculated by the US government, excludes food and fuel costs.  Would you please tell me how that can in any way be an accurate reflection of the prices we're actually paying?

Sooner or later - probably sooner - the economic chickens are going to come home to roost.  When they do, it's not going to be pretty.

Peter

Politicians and central bankers are lying in their teeth

Grant Williams has an outstanding newsletter this week (link is to an Adobe Acrobat document in .PDF format) dealing with the current crisis in emerging markets, the effects of the Fed's 'tapering', and the implications of current policies (both political and fiscal) for the world (and the US) economy.  His conclusions are very like those I posited recently.  Here's an excerpt.

Everywhere you look, concern is rising amongst those charged with applying the copious amounts of sticking plaster that are vital to ensuring the world financial system doesn't fall apart...

. . .

... a big problem is that, over the course of the ongoing financial crisis (yes, it is), the power wielded by central bankers has reached unprecedented levels as one extraordinary measure after another has been implemented simply in order to maintain the status quo.

. . .

... central bankers lie. The job demands it. That means that they join politicians in the category marked "cannot be trusted," and yet investors the world over are not only relying on the promises made by these individuals but also trusting them to be both transparent and honest when the job demands they be neither.

Given that they lie to us, and given that they are making two key representations to us, should we not perhaps take a moment to think about the two inputs to this particular equation?

Politicians across the globe are assuring us that (amongst other lies things):

1) The "recovery" is either here or right around the corner.
In fact, it is neither.

2) Remaining in the EU is the best option for Greece, Spain, Italy (and France).
It is not.

3) Soaking the rich is the answer to a multitude of problems.
It isn't.

4) Raising taxes will generate the necessary revenue without having a negative effect on the economy.
It won't.

5) Future promises of entitlement payments are solid.
They aren't. Defaults are inevitable.

Meanwhile, the central bankers of the world are promising us that:

1) Interest rates will remain low for a very long time.
In the end, it's not central bankers' choice to make.

2) Quantitative easing has no ill effects and can be withdrawn at will without causing any problems.
It can't be.

3) Printing money will not translate into higher inflation.
It will. It just hasn't yet.

4) They will do "whatever it takes," and that will be enough.
There is a limit to what they can do, and it will ultimately not be enough.

5) They are all in this together.
They're not. It is every man for himself now, and the Fed will screw them all.

So here we are.

Having established that, like politicians, central bankers are required to lie to us in order to be able to do their jobs, we are left facing a couple of crucial questions. First, IS tapering tightening, or not? Secondly, what does all this chaos in emerging markets in the wake of The Tighten Taper mean, and where does it take us from here?

. . .

Not only is tapering most definitely tightening (don't listen to what they say, watch the results), but we have likely seen just the beginning of the fallout from the Fed's new course.

Will they stick to it? No. They won't be able to. They MAY taper another $10 bn in March when Janet Yellen's first rate decision is announced, but I suspect that by then markets will be in such a state of disrepair that excuses will be made as to why the taper has been suspended. You can bet your bottom dollar that there will be some frantic calls put in to Ms. Yellen's office by her peers around the world between now and March 20, all of which will be begging calling for an end to The Taper.

Ultimately, QE will continue to be expanded until it implodes in a fireball the like of which has never been seen before. There's no choice, I am afraid, because the alternative would involve the telling of some very harsh truths by politicians and central bankers and the bestowing of some serious pain on an electorate that already holds them in contempt.

Think those truths are going to be volunteered?

Me neither.

The splintering of central bank policy is just the beginning.

There's much more at the link.

Folks, I said a couple of weeks ago:  "I begin to think that the economic chickens may finally be coming home to roost".  Mr. Williams' analysis dovetails very neatly with what I see in the markets today.  He who has ears to hear, let him hear . . . and let him batten down the hatches, economically speaking, while he's about it.

As Paul Singer said in his January newsletter:

As we and others have said, the Fed is overly reliant upon models that do not account for real-world elements of instruments, markets and traders in the derivatives age. Models cannot possibly take into account unpredictable interactions among huge positions and traders in new and very complicated instruments. Thus, the Fed should be careful, humble and conservative. Instead, it is just blithely plowing ahead as if it knows exactly what is going on. Intelligent captains sail uncharted waters with extra caution and high alert; only fools think that each mile they sail without sinking the vessel further demonstrates that they are wise and the naysayers were fools. This is a formula for destruction. The crash of 2008 should have been smoking-gun evidence of the folly of this approach, but every mistake leading up to the crash, especially excessive and “invisible” leverage and interest rates that were too low, has been doubled down upon in the years since.

We're about to reap the bitter fruit of that doubling down.

Peter

A fascinating look at liquor smuggling during Prohibition

A Web site called Drinking Cup has a very interesting article about a liquor smuggler nicknamed 'The Real McCoy' (from his surname) who was active during Prohibition.  It gives a lot more background about where the liquor came from and how it was carried to the USA.  Here's an excerpt.

Recognising the potential for legal trade just outside Americas three mile marine border, Bill's risk free technique was to park his fully laden vessels just inside international waters and arrange for mainlanders to make their way through Rum Row to purchase liquor from his floating stores.  Always a prudent man, only two potential buyers were allowed aboard at any one time and all trading vessels would be under the scrutiny of a swivel machine gun on the yachts prow to deter any idea of hijacking or argument.  Despite the security measures, Bill's reputation and success continued to grow and soon loyal customers were even invited to remain aboard for evening cocktails.

Not just credited with inventing the technique known as Rum Row, Bill is also said to have developed the smugglers ham or burlock (aka sacks by the US Coast Guard), a more convenient form of moving and transporting liquor between vessels.  A ham consisted of a pyramid stack of 6 bottles (stacked 3,2,1) wrapped tightly in straw and burlap (hessian sacking).  These bundles could be easily stacked top to tail and were quicker and safer to move between vessels than the standard wooden cases of 12.  Some hams were even stuffed with salt which, if about to be boarded by authorities, could be thrown overboard where they would sink with the weight of the salt hiding any incriminating evidence.  Later the salt would dissolve with the sack floating back to the surface for collection once again.

. . .

Potentially the biggest influence of all was the impact Bill made on a sleepy French fishing community on the island of St Pierre just south of Newfoundland, Canada.  Recognising potential in its location to the US mainland, Bill officially moved his operation from Nassau to the island in 1922.  Located just 970 miles from the Rum Row of New York city, St Pierre also had the solid advantage of being a French colony (and therefore outside of US law ), offering a port that didn’t freeze over in winter, no competing factions, total cooperation from the poor locals and low export tax on all products shipped.  What would follow would single handily transform the islands community and economy into one of the most successful smuggling ports in history.

A year after Bill first arrived with a hold full of Canadian Club whiskey, over 1000 vessels would be recorded having come and gone from the small island.  Initially a  fishing port with a population of 4000, St Pierre was transformed commercial merchant town.  Fishing docks were converted into negociants, fisherman rehired as longshoreman or crew aboard runners and almost every spare barn, garage or cellar converted into a liquor warehouse.  By the end of 1923, 6 million bottles would be recorded passing through the town, an equal of 1500 bottles per every man women and child on the island.  This period St Pierre’s history has become known as Le Temps de la Fraude – “The time of the scam”.  A visiting Canadian journalist wrote of the town, “The odour grew so strong that at times the fog that rolled up St Pierre’s steeply inclined streets with the nightly tide would carry a distinct Scotch flavor”.

There's lots more at the link, and at other articles linked in the original.  I found it a fun and informative perspective on history.  Recommended reading.

Peter

Obamacare - the musical!

I think this is priceless.

Peter

Low information voters

The People's Cube has two hilarious articles on so-called 'low information voters' or LIV's - those who cast an uninformed, generally ignorant vote for people, policies and political parties about which they know and/or understand little or nothing.

The first article, 'A Low Information Voter's Guide to Politics', defines numerous common terms in LIV parlance.  A few examples:

BIASED: If you have a weird friend who goes to church and her parents are still married, that's what they are.

ECONOMIC STIMULUS: It's like Whitney Houston upping her dosage to get the same high, always needing to use more and more to "chase the dragon."

FOREIGN POLICY: Think Lady Gaga's world tour: it's totally awesome but can also get weird - like, she's hot in places like Europe and Japan, but gets booed and canceled in places like Indonesia.

PUBLIC EDUCATION: Think Memento. Remember how the guy in the movie learned to go through life and fight enemies by relying on snapshots, notes, and tattoos? Public education does that on a national level as a free service.

QUAN-TI-TA-TIVE EASING: Remember Leonardo DiCaprio in Catch Me If You Can, and how he printed his own checks? Well, that's what the Treasury secretary, Tim Geithner, does. It's really cool.

TRILLION DOLLARS: This is a silly number. If someone says: "The U.S. national debt has topped 16 trillion," take it easy. Remember how Jeffrey Dahmer was sentenced to fifteen life terms while having only one life? Once you owe more than you can pay, numbers stop making sense. Anything above that is free money; spend it fast so you can get more.

There's more at the link.

The second article, 'Low Information Voters:  Adding Faces to the Voices', takes things (allegedly) said by LIV's and puts them in pictorial form.  Here are a couple of examples.

Again, more at the link.

(If you don't already know it, The People's Cube is a great satirical Web site.  It's worth revisiting frequently for a good laugh!)

Peter

Obamacare - the hidden details

Warren Meyer has done an excellent job of breaking down the raw data on Obamacare enrollments, to reveal that it's costing us - the taxpayers of America - a whole lot more than its proponents want us to know.

As you can see, of the nearly 3.7 million people who have selected a private plan or been put in Medicaid or CHIP, fully 88% are on the government dole (subsidized or full Medicare).

The interesting new data is on the plan selection breakdown between subsidized and un-subsidized.   This leads to an interesting finding that is a bit non-obvious from the report itself because the data is spread all over the report.  But lets look at conversion of applicants to plan selection based on whether folks are subsidized or subsidized.

For the 2,383,131 applicants who find they are no going to be subsidized, only 436,603 have selected a plan, for a 18% conversion rate

For the 2,756,667 applicants who find they will get supported by the taxpayer, 1,646,237 selected a plan, far a 60% conversion rate.

In essence, applicants are more than 3 times more likely to sign up if they are getting taxpayer money.  The exchanges are not selling health care, they are selling subsidies.  People sign up, check to see if they have money coming, and go away if they don't and stay if they do.

There's more at the link, including a diagram showing the progress of visitors to the Obamacare Web site as they move through the application process.  Bold underlined text above is my emphasis.

I understand it was intended for many more young and financially self-sufficient people to enroll in Obamacare, thereby subsidizing those who couldn't afford the premiums.  Gee, that's working well, isn't it?

Peter

Political Ideology versus objectivity

A classic example of political ideology versus objective analysis is playing out over a book about California.  'Taxifornia' is described as follows on its Amazon.com page:

In Taxifornia, James V. Lacy identifies and examines the true causes of California’s decline.

Californians are victims of the heaviest taxation in all of America, and those high taxes are now steadily destroying the state’s economy.  Tax-and-spend liberals who are in control have created a state that taxes and regulates more than any other state in the country, and have engineered a rotting economy with among the highest unemployment of any state in the nation.  Its high taxes hurt all Californians by making the state too expensive for business to turn profitable.  Business flight has become endemic.  California’s over-regulation of businesses depresses employment in the state.  A widely accepted tenet among liberal politicians, political science academics, and the media in California is that no development at all is a good thing.

It is a state that educates the worst but pays the best to its teachers, a place that is widely considered by most CEOs to be one of the worst locations in the nation to run a business, where local governments are going bankrupt, and where an out-of-control public employee pay and pension system threatens to gobble up and divert almost all available taxpayer resources to a point where cities and counties simply cannot afford to pay for police, fire, or road maintenance anymore.

California has an outdated environmental policy and an energy policy that makes the state almost totally dependent on one source of power:  imported natural gas.  It is a place where the public employee union worker who controls traffic in the Bay Area Rapid Transit District maintenance yard in poverty-stricken and near bankrupt Oakland is paid more annually than the Chief Justice of the United States Supreme Court in Washington, D.C.

There's more at the link.

The first thing I noticed is that the author blames California's woes on 'tax-and-spend liberals'.  This is true prima facie, but it's not the entire truth.  Both major political parties in California have advanced a tax-and-spend agenda.  Sure, the present party in power there (Democratic) must carry the can for present policies;  but don't forget that the previous governor (a Republican) was equally guilty of spendthrift behavior, and Republican elected representatives have voted for similar policies on numerous occasions.  Even if in recent years they appear to have repented of such behavior, I've no doubt that if they ever find themselves in power again, the temptation to spend other people's money to shore up their political fortunes will prove as irresistible to them as it has to the Democrats.

The second thing I noticed is the comments from readers (either real or purported) of the book.  Of the ten reviews posted at the time of writing, six are five-star;  four are one-star.  There are no two-, three- or four-star reviews at all.  A clearer indication of partisan perspective couldn't be desired.  Those damning the book with one-star reviews clearly approve of the current California government and administration.  They're not assessing the book on its merits at all - only on the basis of their preconceived value judgments.  Those praising it don't appear (on the basis of their comments) to be as dogmatically prejudiced, but there's doubtless an element of that at work too.

I've no doubt that the author's thesis about California being a 'failed state' in many ways is accurate.  We've discussed the subject in these pages on more than one occasion.  However, I wish he weren't so quick to blame liberalism alone.  Let's not forget that the real boom in US government deficit spending began during the presidency of (Republican) Ronald Reagan, and subsequent administrations, both federal and state, have taken their cue from him:

California's merely the best illustration (for now) of what happens when the philosophies and politics of 'big government', the 'welfare state' and statism become dominant.  It's a warning sign, and a prediction of how this entire country will look unless we change course now.  Liberalism is merely one symptom of those larger problems, which are not exclusive to left-wing or progressive views.  Just witness the actions of the Republican-controlled Congress in passing the latest omnibus spending bill, with its still-outrageous spending levels, to see what I mean.

Neither Republicans nor Democrats have the answer to our present situation.  Both parties are in it for what they can get out of it - not for us, and not to look after our interests.  The sooner more Americans wake up and realize that fact, and do something about it, the better.

Peter

The mystery of central banks' gold reserves

For several years there have been allegations that central banks (including those of all First World nations) have been hiding the fact that they've sold off their gold reserves, or treated them as the foundation for gold futures sales that may have resulted in each physical ounce of gold being pledged 'on paper' more than once - perhaps many times more than once.

Grant Williams has put together the rumors from the 1990's onwards, and linked them to known facts about related companies, banks and commercial dealings (link is to an Adobe Acrobat document in .PDF format).  He also examines the German Bundesbank's attempts to repatriate its gold from New York - attempts that have to date been singularly slow and relatively unsuccessful, almost as if the Federal Reserve didn't have the gold available to return to them.

To add to the fun and games, Zero Hedge has a long article examining the Bundesbank's dilemma in the wider context of gold reserves.  It suggests that there may be a lot going on behind a veil of secrecy, and offers suggestions as to what that might be.  It's speculation, certainly, but there are solid grounds for a great deal of that speculation.

When one puts these articles into the context of central banks' rampant money-printing, a.k.a. 'Quantitative Easing', over the past few years, one has to ask:

• What if there's little or nothing in the way of hard assets backing up the 'full faith and credit' of those central banks, or the nations they represent?
• What if the 'fiat currency' they issue with such gay abandon is all they have in the way of assets?
• Is this why China is importing as much physical gold as it possibly can, even as it holds the world's largest reserves of foreign currency?  (It's been suggested that China may hold as many as 7,000 tons of gold by now - many times more than any other nation.)
• Has China realized that those piles of 'fiat currency' - and, therefore, its huge foreign currency reserves - may be worth only as much as the paper on which they're printed?

That's all speculation, of course . . . but with that much smoke around, I get the distinct impression there's a bloody great fire behind it.  Fellow blogger Silicon Graybeard appears to share my impression, judging by two articles (very good ones) he's posted over the past couple of days.  The present situation makes me wish I had enough in the way of reserves to buy some physical gold of my own, because if all this speculation is true, there's a 'fiat currency' meltdown brewing of seismic proportions.  Go read all four of the linked articles for yourself, and make up your own mind.

Peter

Has the FBI terminally discredited itself?

Investor's Business Daily thinks it has.

The FBI says it won't prosecute anyone at the IRS for its admitted targeting of the president's political foes. This just as the agency claims the law is no longer its main mission. So it's a political goon squad now.

. . .

The reality is, the acts reeked of political targeting, the most illegal of acts, a corrupt use of government power, and a worthy target of checks and balances provided by the FBI in the name of law and order.

But for some reason, the FBI has neither interviewed the Tea Party activists targeted for intrusive scrutiny, nor has it noticed anything amiss in light of the White House's rabid attacks on Tea Party activists ... And it hasn't picked up the clue from the Center for Responsive Politics showing that IRS employees donated to Obama's campaign by more than 2 to 1 over Tea Party-tied Republicans — let alone that the prosecutor chosen by the president to look into this case is a fat-cat donor to Obama.

If New Jersey Gov. Chris Christie can be criticized for a traffic jam, then the White House's attacks on political opponents are in a league with what goes on in Venezuela. That the FBI won't get involved in this and is willing to wreck its reputation for apolitical probity suggests this investigation is leading to a place the bureau would rather not go — namely, the White House.

There's more at the link.

I think that perhaps the most damaging achievement of the Obama administration has been to discredit so many agencies of the federal government by suborning them for partisan political ends.  Apart from the FBI's unconscionable conduct, consider:

• The ATF and its manifestly criminal smuggling of guns to drug cartels in Mexico, leading to the murders of at least two officers from other federal agencies;
• The use of the IRS to target political opponents of the Administration;
• The NSA scandal, which admittedly began under earlier Administrations but has been defended and continued by the present one;
• The cover-up of the Benghazi affair and other foreign 'adventures', to the very public discredit of the State Department;
• And a host of other issues.

Personally, I think that all these scandals add up to what the constitution refers to as 'high crimes and misdemeanors' . . . but I doubt whether anyone will do anything about that.  Our politicians just don't care - or, if they do, they care that it was the other party that got away with it.  They won't make too many waves, because they can hardly wait for the opportunity to get away with the same things themselves in due course.





Peter

Bureaucrats! GRRRR!

Utah Senator Mike Lee posted this picture on Facebook today, with the following caption:

Behold my display of the 2013 Federal Register. It contains over 80,000 pages of new rules, regulations, and notices all written and passed by unelected bureaucrats. The small stack of papers on top of the display are the laws passed by elected members of Congress and signed into law by the president.

Uh-huh.  Regulations enacted by often faceless and nameless bureaucrats, accountable in practice to nobody, binding on all of us.  Is it any wonder this country sinks deeper into the mire under such burdens with every passing day?





Peter

Got to give credit where it's due

Regular readers will know that I'm centrist-libertarian by political inclination;  not veering too far to Left or Right, but generally conservative on moral issues, with a strong libertarian streak that says I mustn't impose my views on others, and vice versa.  I'm not likely to vote for most Democratic Party candidates, on the grounds that many of their party's policies are statist and anti-freedom.

However, Ron Leach, a military veteran and Democratic congressional candidate in Kentucky, has just demonstrated real personal sincerity and commitment.  I've no idea what he's like as an individual, or whether he's worth voting for - but he's earned at least a measure of my respect.

It is one thing to safely give stump speeches based on data, and anecdotal evidence. I have listened to thestories of an economy that fails most Kentuckians and Americans consistently throughout my travels over the past 6 months.  I hear the sincere pain and frustration expressed by my fellow Kentuckians, and I am deeply moved.  But it is another thing to immerse yourself in that economy and see if you could survive (without relying on my military pension and my wife’s active duty military salary).  The short answer is NO; I could not have survived the past couple months at the “entry level” of America’s economy in which an increasing majority find themselves trapped.

For the past couple months I worked for United Parcel Service, Louisville Kentucky, as an “air handler” loading and unloading cargo aircraft  – MD 11s, Airbus A300, Boeing 757, 767, and 747s. For the majority of this employment my co-workers knew nothing of my candidacy for US Congress. ... I did it to ensure I do not lose a clear understanding of the realities and many adversities faced by the most vulnerable in our society – whether it is our Soldiers in a combat environment, or an average Kentuckian and American simply trying to build a life and future for him/herself and their family.  Here is what I found and experienced...

There's more at the link.

I may not like his party's policies, but any candidate who's prepared to 'walk the walk' and go experience for himself, the hard way, economic reality in his district definitely has some good points.  Thanks, Mr. Leach.  I wish there were more political candidates who'd do the same - on both sides of the aisle.

I think my blogging buddy Daddybear is based in or near Mr. Leach's district.  How about it, Daddybear?  Any feedback on him?

Peter

The failure of the 'War On Poverty'

In an article in the Wall Street Journal, Robert Rector illustrates how the government can screw up almost any program, no matter how well-intentioned.  In this case, it's the half-century-old 'War On Poverty'.  Here's an excerpt.

On Jan. 8, 1964, President Lyndon B. Johnson used his State of the Union address to announce an ambitious government undertaking. "This administration today, here and now," he thundered, "declares unconditional war on poverty in America."

. . .

The federal government currently runs more than 80 means-tested welfare programs that provide cash, food, housing, medical care and targeted social services to poor and low-income Americans. Government spent $916 billion on these programs in 2012 alone, and roughly 100 million Americans received aid from at least one of them, at an average cost of $9,000 per recipient. (That figure doesn't include Social Security or Medicare benefits.) Federal and state welfare spending, adjusted for inflation, is 16 times greater than it was in 1964. If converted to cash, current means-tested spending is five times the amount needed to eliminate all official poverty in the U.S.

LBJ promised that the war on poverty would be an "investment" that would "return its cost manifold to the entire economy." But the country has invested $20.7 trillion in 2011 dollars over the past 50 years. What does America have to show for its investment? Apparently, almost nothing: The official poverty rate persists with little improvement.

. . .

To judge the effort, consider LBJ's original aim. He sought to give poor Americans "opportunity not doles," planning to shrink welfare dependence not expand it. In his vision, the war on poverty would strengthen poor Americans' capacity to support themselves, transforming "taxeaters" into "taxpayers." It would attack not just the symptoms of poverty but, more important, remove the causes.

By that standard, the war on poverty has been a catastrophe. The root "causes" of poverty have not shrunk but expanded as family structure disintegrated and labor-force participation among men dropped. A large segment of the population is now less capable of self-sufficiency than when the war on poverty began.

There's more at the link (the article may be behind a paywall, in which case, see here).  You can also read more at the Heritage Foundation.

This is a repellent yet fascinating illustration of how bureaucratic inertia and organizational rigidity have condemned generations of Americans to misery and hopelessness.  If we want to win the 'War On Poverty', my immediate suggestion is to remove it from government control.  That'll be a good start!

Peter

"The Year of the Washington Power Grab"

That's how the Wall Street Journal describes 2013.  Here's an excerpt.

This past year will be remembered for many things, but let 2013 be hailed mainly for this: It was the year that the genius of George Orwell's "Animal Farm" became clear in America. Efforts to centralize control in the name of "fairness" have led to a society that is ever more at the mercy of a federal power—one that decides who does and does not succeed. The winners are favored special interests, political cronies and wealthy lobbyists. The losers are everyone else.

Consider: Maryland authorities last week launched an investigation into the shootings of two bald eagles in Montgomery County. It isn't clear if the federally protected birds were shot on purpose, or if some poor soul mistook them for vultures. No matter. The Maryland Natural Resources Police (there is such a thing) has gone full vice squad—publicizing a hotline number, dangling a reward, and reminding folks that the federal penalty is a fine of $5,000 per eagle and up to a year in prison.

This behavior contrasts with a very different headline, from a month ago. "U.S. to Allow Eagle Deaths—to Aid Wind Power," read a Dec. 6 Associated Press story about a new federal rule that allows wind companies favored by the Obama administration to avoid the law. These select companies can kill bald and golden eagles, free of prosecution, for 30 years.

There's more at the link (it may be behind a subscription paywall, in which case, try here).

Last month saw the courts slapping down another attempt at executive branch cronyism.

The ... NLRB in 2012 attempted to unilaterally rewrite a provision in the 1935 National Labor Relations Act known as "protected concerted activity."

. . .

... the Fifth Circuit panel ruled 2-1 that the NLRB had no legal authority for its decision. ... Translation from legalese: The labor board broke the law to justify a political power grab in the service of the plaintiffs bar.

Again, more at the link (or, if behind a paywall, try here).

I suspect that the Obama administration will continue to use all the organs of executive government to favor its allies and penalize those who oppose it, or those it regards as threats to its agenda.  As Thomas Jefferson famously warned, "The price of freedom is eternal vigilance".  That's more than usually the case in these troubled times, when those against whom we must be vigilant are our elected leaders and their appointed bureaucrats and administrators!

Peter