Gold's Plunge Sept. 23, 24, & 25, 2011

Michael Pento on September 23, 24, & 25 sell-off in gold.  Here is Peter Schiff's take.  Gary North made the observation that manipulation in the futures market at the CME caused gold to plunge $300.  This plunge has remained down for a month, since September 23 to October 21.

Bull markets operate on fear.  Bull markets rise on the stairs but sink on the elevator.

Rastani on the world stock markets.

Monetizing Debt

OMO is Open Market Operation is the buying and selling of government bonds on the open market by a central bank.  What does this effect?  How do these add value, and on what do these financial instruments devalue?

NFP is Non-Farm Payrolls.  What are they and why are they important?

PCE is personal consumption expenditures.

CBO is the Congressional Budget Office.

Continue.

Gary North on where the QE2 money went and why

Great article for the price.

What the Next President Will Inherit

Gary North

June 14, 2011

One of the sharpest economic analysts out there is Peter Ferrara. He wrote an early warning on Social Security: Social Security: The Inherent Contradiction (1980). He has just written an article on the economy in 2013. He thinks the government is facing bankruptcy.
The recession has not gone away. Because recessions had always gone away fast, and because recoveries were strong, he thought Obama would be basking is glory today. He admits he was wrong.

In every other recession since the Great Depression, the overall trajectory of the economy has been dramatically better after two years. But not this time. Since the Great Depression, recessions have lasted an average of 10 months, with the longest previously being 16 months. Yet, in May, 41 months after the recession began, unemployment rose yet again, to 9.1%. America has now suffered the longest period with unemployment that high since the Great Depression.

Blacks (16.2%), Hispanics (12%), and teenagers (24%) are all suffering double-digit unemployment. Black teenagers: 40%. "The U6 unemployment rate, counting those marginally attached to the labor force who have given up looking in the Obama "recovery," and those stuck in part time unemployment for economic reasons, continued at nearly 16%."

While the Reagan recovery, a real recovery from a similarly deep recession, averaged 7.1% real economic growth over the first 7 quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. While the Reagan recovery produced nearly 20 million new jobs, and civilian employment rose by almost 20%, today America still suffers 6.8 million fewer jobs than when the recession started over 3 years ago. The labor force participation rate has fallen to its lowest level almost since the Reagan recovery started over 25 years ago.

Why? He blames Obama's Keynesian deficit policies. He says what every economist should have said to Keynes from 1936 to now, and which only Austrian School economists say: the deficits cannot work, ever.

I have previously discussed why this happened. Obamanomics doggedly followed the opposite of Reaganomics in every detail. The centerpiece of Obamanomics was the old-fashioned Keynesianism that was a proven failure and left for dead 30 years ago. That was reflected most of all in Obama's February 2009 trillion dollar stimulus package. That didn't work because borrowing a trillion dollars out of the economy to spend a trillion dollars back into the economy does not add anything to the economy on net.

And borrowing two trillion for the stimulus instead still wouldn't have done it, for the same reason. Those calling for still more of the same Keynesian snake oil are just self-identifying themselves as hopelessly deluded fools who must not be taken seriously ever again. Worse than not working, Obama's trillion dollar stimulus already drove us to the brink of bankruptcy. Going for still more now as advocated by the mentally blinded would be walking off the cliff with our eyes closed.

You can see this. Yet the entire profession has denied it from 1936 until today. The Keynesian miracle of deficit-driven recovery is a myth.

I would go further. The transfer of lending to government weakens the recovery, for the output is not what paying customers wanted. The borrower is corrupt and inefficient: government.
He continues.

Already scheduled now under current law in 2013 is the expiration of those Bush tax cuts, which President Obama has refused to renew for single workers making over $200,000 a year, and couples making over $250,000. Also scheduled to go into effect in 2013 under current law are all the tax increases of Obamacare. Together, these job killing tax policies would result in a sharp increase in the tax rates on the nation's small businesses, job creators, and investors for virtually every major federal tax.

These taxpayers would see their income tax rates jump by nearly 20%, the capital gains tax rate increase by nearly 60%, the total tax rate on corporate dividends increase by nearly three times, their Medicare payroll tax rate increase by 62%, and the death tax rise from the grave with a 55% rate. This would go way beyond the outdated Obama talking point about returning to the Clinton tax rates, adding up to a top federal tax rate of 44.8% on wage income alone, besides all the tax increases on capital income, on the way up to a 62% top federal tax rate.

Obama is proposing more taxes. He will not get them, so I skip over that armument.

Meanwhile, American businesses continue to suffer from virtually the highest corporate tax rates in the industrialized world, leaving American companies uncompetitive in the global economy.

But wait! There's more!

Besides this tax tsunami, President Obama is implementing another trillion dollar plus cost burden on the economy through the EPA's cap and trade tax policy. That is one central feature of President Obama's war on production of traditional, low cost, energy, shutting down drilling, extraction and pipelines from the northern tip of Alaska, down through Canada, to the energy rich Western states, through Texas, to the Gulf of Mexico. Obama keeps issuing statements that he is opening drilling or permitting or exploration here and there, only to have it shut down by his bureaucracy soon thereafter. All of this will only raise energy prices higher and higher through to 2013, squelching the economy still further.

President Obama doggedly pursues this because he and his advisers believe ideologically that higher energy prices and less energy production and use are good for the environment. But this extremist view of what is good for the environment is a catastrophe for the economy, jobs, and working people.

This is just the beginning, however, of President Obama's reregulation burden on the economy, which is estimated to be rapidly rising towards $2 trillion, or over $8,000 per employee, in annual costs even before EPA's calamitous cap and trade really begins. That is close to 10 times the corporate tax burden, and double the individual income tax burden.

With another 4,225 federal regulations already in the pipeline, and the new regulatory burdens from Obama and the Dodd-Frank financial regulation bill still to come, how high will that burden be by 2013?

Then there is loose money from the FED. That will end this month. If it looks as though there will be a recession in 2012, the FED will pump, he thinks. So do I. That will end after the election. Here, I think it depends. If we are facing a massive recession in 2013, the FED will pump.

But once the Fed ends this monetary crack, the artificial pump up for the economy ends as well, and the underlying weakness of the economy is revealed. That appears to be what is happening now, as QE2 ends.

If the Fed stands pat, the downturn will feed on itself, fueled further by all of the above contractionary policies. If the Fed is spooked into resorting to QE3 and the return to easy money, that will cause the inflation started by QE2 to surge. Indeed, once the Fed goes down that road, it surely will not try to cut back again until the 2012 election is past, to avoid a nasty downturn in the middle of President Obama's planned reelection victory tour. Inflation would consequently surge all through next year, cutting the real wages of working people and their families further.

Right after the election, the Fed will stop the merry go round to finally pull the plug on burgeoning inflation. But that extended monetary malpractice will only make the downturn withdrawal from the monetary crack high all the more nasty.

Fererra, who is normally low key, is near apocalyptic.

From the comprehensive tax rate increases, to the soaring energy costs, to the costly regulatory burdens, to the monetary policy mindlessness, all of this adds up to one whopping double-dip downturn in 2013. The extended unemployment exploding into double digits will be effectively another depression. Once it starts feeding on itself, there is no telling just how far it will go.

But with the deficit already at $1.6 trillion or so this year, America cannot handle another recession, let alone effectively another depression that will cause the deficit to soar well beyond any possibly manageable levels. World financial markets cannot bear that load, and will not even try. Indeed, it is the Fed's monetary policy working the printing presses overtime for QE2 that has financed the purchase of the debt for the current all-time record deficit.

How bad can it get? Greek-like.

Because of the willfully mindless irresponsibility and ideological self-indulgence of Obamanomics, America is mortally vulnerable to another recession at any time soon. The result would be precisely the national bankruptcy of Greece, where we cannot raise in the world credit markets the further debt to finance what will be well over half of our budgeted federal spending. We are already borrowing and adding to the debt to finance 43% of our federal spending today.

He offers only this optimism: "The only way to get off this bullet train to oblivion is to radically reverse Obamanomics in dogged detail. The American people get one more chance to do that in 2012."
I see no major change. If he is defeated in 2012, and the Senate goes Republican, all this will still hit.
Maybe Obamacare can be repealed. The Bush tax cuts can be extended. But the regulations are untouchable, or close to it. FED policy will still be tight. The deficit will still be massive.

Then the crash will hit . . . with Republicans in power, with no one to blame. It will be two years of "It's Obama's fault." Then comes 2014.

If Fererra is close to the truth, we are in a lobster trap of Federal debt and high unemployment. The FED is about to turn off the spigot. I don't think it will stick to its guns. If it does, Great Depression II will arrive early.

Economics Reading List

Mises: Human Action
Rothbard: Man, Economy, & State
Rothbard: History of Money & Banking in the U.S.
Rothbard: History of Economic Thought
Rothbard: Mystery of Banking
Hazlitt: Failure of the "New Economics"
Hayek: Constitution of Liberty
Kirzner: Market Theory & the Price System
Kirzner: Capitalism & Entrepreneurship
Kirzner: Perception, Opportunity, & Profit
Kirzner: The Meaning of Market Process
Bauer: Dissent on Development
McCloskey: The Bourgeois Era (first 2 volumes)
 Ropke: Economics of the Free Society
Common Sense Economics

Frederic Bastiat

Money is not wealth.  Money is a medium of exchange.  Can't make society wealthier by bringing in more money.  More money creates protectionsm and how that leads to war. 

Economic Terms

1.  A Default is someone reneging on their obligation to pay a debt.  It is a breach of covenant, a breach of a promise  The term default should be distinguished from the terms insolvency and bankruptcy.

• "Default" essentially means a debtor has not paid a debt which he or she is required to have paid.
• "Insolvency" is a legal term meaning that a debtor is unable to pay his or her debts.
• "Bankruptcy" is a legal finding that imposes court supervision over the financial affairs of those who are insolvent or in default.

2.  T-Bills
3.  Deficit
4.  What Are Treasuries and How Do They Work?
The demand for T-bills is why Congress can kick the can. When demand dries up, it will be fast. Demand reappears if recession looms. Frightened investors always flee to T-bills. This is habit.  It will take a monumental crisis to change the minds of institutional investors.  Marc Faber remarked on July 14 that "It is mind boggling that somebody will buy 10-year U.S. Treasuries at a yield of less than 3% denominated in U.S. dollars."

5.  
The public thinks the deficit is unsustainable, which it is, apart from hyperinflation. But investors are ready to buy T-bills. So is the FED, if demand ever falters. The FED will do its best to stay on the sidelines for as long as it can. But it will go to QE3 to save the economy from a major recession.

They will not default on T-bills until the FED stops buying them, and investors know that the FED means it. That will be the turning point. It is years away.

Dr. North,
I read your article on "When the Government Defaults Begin . . . ," and want to know more about T-bills, how they are used, who uses them, to what effect, and so forth.

Borrowing more money will raise interest rates and slow growth. 

Mark Levin Is Wrong In So Many Ways

Wow!  Guys like Mark Levin, conservative supporters of Obama, only prove my point that there is little DIFFERENCE BETWEEN REPUBLICANS AND DEMOCRATS.  Mark Levin, you know--the loud-mouthed, debasing voice on distinguished KABC radio of all places, defends Obama's fiat decision to war on Libya and Gaddafi.  Levin says that the US has always gone to war without congressional approval.  Why would a purported, self-proclaimed conservative back the most liberal, sovereign-destroying president we've ever encountered?  To attack Ron Paul, that's why.  If mainstream Levin uses air time to go after Ron Paul you know that Soros is a little worried about Ron Paul's influence in bringing light to their ponzi-scheme known as the Federal Reserve, to which Ron Paul is bringing the thieving machinations to light.  More Americans are aware of the corruption of the Fed, more are aware of their policies of destroying the value of our money and being responsible for jobs-destroying boom-and-bust cycles.  So, Levin, a paid hack for the regime, as is Hannity, tries to denounce and discount Ron Paul by characterizing him as crazy, as a nut-job, as an outlier.  But Ron Paul's consistent message of sound money, NON-INTERVENTION, NON-MEDDLESOME, PRO-PEACE, PRO-PROSPERITY principals are impervious to Levin.  Sorry, Mark.       

Gary North on the Day the US Constitution Was Confirmed Dead

Less Bang for the Buck: The Lesson from Libya

Gary North

March 24, 2010

 
The Constitution is dead. We knew that a long time ago, but on March 19, we had confirmation. On that day, eight years to the day after Bush launched the war in Iraq, Obama started a war on his own authority.
 
Then he left for a junket in Brazil.
 
Bush at least stayed in Washington.
 
Symbols matter. This one marks the gravestone on the Constitution. Ben Stein has it right. In the neoconservative American Spectator, he wrote:

Maybe I missed something, but wasn't that The Constitution of the United States of America that we just laid to rest this weekend?

It was buried in a private ceremony by Mr. Barack Obama of Chicago as he silently signed America on to the One World Government some of us have been worried about for decades.


Look at it this way: Where did Mr. Obama get the authority to commit United States forces to war in Libya? There was no declaration of war. There was no authorizing resolution by Congress allowing money to be spent on a war against Col. Gaddafi. As far as I know, there was no meeting of Mr. Obama and top leaders of Congress to discuss the subject in even rough form, let alone detail. There was no lengthy buildup in which the Congress was "allowed" to express the people's opinion on whether we want to be in a third concurrent war.


There was just a vote by the United Nations Security Council, a very far from unanimous vote, and suddenly, the President's Secretary of State, Mrs. Hillary Rodham Clinton, solemnly announced that we were at war.


But, when did we amend the Constitution to declare that the United Nations had control over our military? When did we abolish the part of the Constitution that said Congress had the right to declare war? Now, I well know that in recent postwar conflicts, we don't have declarations of war. But we have Congressional debates. We have funding votes. We have a sense of the Congress or some kind of resolution.


This time, zip. Nada. Nothing. Just France and the U.K. and Norway saying that it's time to go to war, and off America goes to war. And off Mr. and Mrs. Obama go to a South American "fact finding" trip for the POTUS and a fun sightseeing junket for the Obama girls.

(I wonder if there has ever before in history been a national leader who sent his country to war -- and the same day went off on vacation. Has that ever happened before? )

Something's missing here. Libya and Col. Gaddafi were and are no threat to the United States. It is sad and cruel that the Gaddafi regime was murdering its own civilians, but so do many governments all across the world, including North Korea, Iran, the Ivory Coast, Zimbabwe, and Cuba. Are we going to war with all of them, now?


Meanwhile, again, what the heck happened to the Constitution? Is this Mr. Obama's legacy to our children? The junking of the Constitution in the middle of the night and the turnover of our sovereignty to the United Nations? (By the way, this is the same UN where Libya until recently sat on the Commission on Human Rights.) Why aren't any questions being asked? Is the Constitution that meaningless to us? Are we that pitiful now? Are we willing to toss overboard the Constitution for the writ of the United Nations? I guess so. Sad days.
Congressman Dennis Kucinich, the Left's version of Ron Paul, has begun formal steps for impeachment. Good for him. Obama ought to be impeached and convicted. Kucinich will get nowhere. Congress has not cared about the war clause since 1950.
 
As Garet Garrett wrote in 1938, the revolution was. http://mises.org/daily/2726
 
The no-fly campaign so far has cost a billion dollars. No one notices. An article on CBS News revealed this: "In the last 24 hours, U.S. forces flew 53 missions in Libya and dropped 10 bombs. All other air forces flew 26 missions and dropped eight bombs. . . ." So, in a total of 79 missions, the allies dropped 18 bombs. That's .23 bombs per mission.
 
Obama bombed the Constitution. One bomb, one hit. The Navy and the Air Force are not doing anywhere near as well.
This impressed me:

As of Tuesday, the coalition had fired at least 162 sea-launched Tomahawk missiles priced at $1 million to $1.5 million apiece and dispatched B-2 stealth bombers -- round-trip from Missouri -- to drop 2,000-pound bombs on Libyan sites.

Total flying time: 25 hours. Operating cost for one hour: at least $10,000.
It did not say how many 2,000 bombs the B-2s dropped. Or what they hit. Or why.
Secretary of Defense Robert McNamara talked of getting more bang for the buck. A generation later, that metric looks antiquated.
So does the Constitution.