David Stockman Rails at GOP Incompetence

Last month I gave a talk at the Kingston-Rhinebeck Tea Party.  I pointed out that the GOP's commitment to the Fed has permitted the flourishing of a wide range of special interest groups. In turn, the Fed engenders income inequality, American economic decline, especially in manufacturing, and Wall Street's expansion.  Howard S. Katz has been making these points since the 1970s and earlier, and they key off the Austrians  Ludwig von Mises and Murray N. Rothbard.  Ron Paul and his son Rand make similar points as well, and they should be viewed as the leaders of the political movement that aims to undo the massive damage that the the parties of the elephant and the donkey have caused (the Democrats are worse than the GOP).

Marketwatch's Paul B. Farrell reports that the cornerstone of the legacy media, the New York Times,  has published David Stockman's article making these points with the clarity and specificity of an insider with important historical knowledge.  Stockman was President Reagan's budget director who lost a battle against Reagan' supply siders.  Stockman argues that the GOP destroyed the American economy in four steps:

1. Richard Nixon's dropping of the gold standard at the behest of Milton Friedman and his defaulting on the American obligation to redeem dollars for gold internationally

2. President Reagan's neo-Keynesian doctrine of supply-side economics

3. The expansion of Wall Street and the recent expansion of the money supply

4. The financing of American credit through foreign debt, resulting in increasing income inequality and the exit of factory jobs.

I have made all these points since 2004.  Stockman is specific as to much of the historical detail.  The Marketwatch article is well worth reading.  Stockman notes:

"the top 1% of Americans -- paid mainly from the Wall Street casino -- received two-thirds of the gain in national income, while the bottom 90% -- mainly dependent on Main Street's shrinking economy -- got only 12%. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy."

That the GOP continues to support the stupid policies of the Rockefeller-Bush Republicans contributes as much to American decline as do Obama's policies.  While the Democratic Party is lost, the GOP should serve as the rational alternative. Instead, it has followed the ideology of the Democrats into big government extremism and economic decline.  When questioned about the Patriot Act, many Republicans simply spin and lay the blame on President Clinton.  The large circulation legacy media contribute to the absence of mass level debate.  Stockman's recent article conveniently appears in the Times a year after the massive bailouts and money printing escapades (chiefly under the Democrats, incidentally) that may have put the nation's collapse into third gear.

Those Democrats who wish to make partisan hay out of Stockman's Op Ed might consider that the only people making these arguments for the past 40 years have been Republicans.  Which does not mitigate the ill effects of Milton Friedman and his colleagues in academia along with the Rockefeller-Bush Republicans.

Jeff Khuhner: Everybody Knows Obama Doesn't Care for Christians and Jews

Mairi just sent me Steve Malzberg's radio interview with Jeff Kuhner.  Apparently, legacy media marionettes like Chris Matthews are now calling for Obama to show the birth certificate.  Kuhner and Malzberg say that the governor of Hawaii now is looking for a way to make the certificate public.   Kuhner predicts a constitutional crisis if Obama was not born in the US.  Malzberg asks the question I asked two years ago: Why is Obama spending so much money to prevent the vault copy's disclosure?   In '08 I submitted 5,000 signatures to the FEC requesting that it vet presidential candidates.

My concern then was that the whole thing might be Obama's gambit.  What if there is nothing wrong with the certificate and Obama is using this as a ruse to trick his opponent?   If it's ok and he then reveals it a few months before the 2012 election it could work in his favor by discrediting his opponents.  On the other hand, if it is settled now, it could be interesting.  I don't think he should be removed from office if he is not a citizen, but he should be prevented from running again.  He has already done maximum damage with the bailouts, the stimulus and the health care act.  Kuhner claims that there could be a civil war over this, but I hope that if there is to be a civil war it will be for more important reasons.

How anyone can take a media seriously that does not question why Obama would spend $2 million to keep his vault copy birth certificate private continues to puzzle me.

James Rainey and LA Times Were Wrong about Gold and Glenn Beck

In early December 2009, LA Times reporter James Rainey penned a diatribe against Glenn Beck, a pro-gold TV announcer (perhaps the only major television personality to favor gold).  At the time, I wrote a letter to the bankruptcy court overseeing the bankruptcy of the firm that owns the LA Times suggesting that Glenn Beck be appointed the LA Times's  editor ad litem (i.e., for purposes of litigation)  since their investment advice has been consistently wrong and Beck has been right. 

Over the past year gold has gone up 29.7% while the S&P 500 has gone up 13%.  Both are fueled by pro-Wall Street monetary policies.

I am sending Rainey the following e-mail:

Dear Mr. Rainey:

On December 9, 2009 you wrote an article claiming that Mr. Glenn Beck's advocacy of gold as an investment was due to his alleged breach of fiduciary duty, although you failed to outline any fiduciary relationship between Mr. Beck and the metal.  Over the past year, from January 1 2010 to January 1 2011 gold has gone up 29.7% while the S&P 500 has gone up 13%.  You seem to have been wrong.

The matter isn't just that you are a sorry excuse for an investment analyst.  Nor is it just that you are a sorry excuse for a journalist.  Virtually all of the legacy media has that in common with you.  Rather, it is the peculiar stupidity that you demonstrated.  You failed to consider that there might be reasons for a gold bubble that can carry it to $3,000 or more. The dumber students who believed fairy tale Keynesian economics advocated in America's universities seem to have become journalists.  You are a case in point.

Why don't you educate yourself and read some Ludwig von Mises and Murray Rothbard?

Sincerely,


Mitchell Langbert

Morgan Stanley Smith Barney's On The Markets: A Forecast from The Belly of the Beast

Back during the late 1990s' tech-and-Internet stock bubble my wife noticed that whenever television broadcasters or their Wall Street puppet masters predicted that a stock would go up, it would go down, and vice versa.  Therefore, if an announcer said that a stock was going to go up, it might be a useful strategy to sell short.   If she had followed that idea over the ensuring few years she would have made a bundle. But in investing timing is everything.  (Incidentally, if you followed the advice of people who told you to invest for the long term rather than try to time the market, how have you been doing since 2001, a ten year period?)

That said, to quote a cliche, even a stopped watch is right twice a day.  My stock broker recently forwarded Morgan Stanley Smith Barney's (MSSB) "On the Markets", its monthly market commentary.  The pamphlet makes a few points.  The headline on its cover is "Getting Ready for Higher Inflation" and, seven years after I first became interested in gold they are advocating a 5 percent position in commodities.  That suggests that gold is into the supposed third leg of its bull market, the first being the period of limited awareness and the second being the period of smart money awareness.  Now, the retail investor is being told to invest in commodities. The last leg is the bubble leg.

Smith Barney recommends emerging markets stocks and consumer staples stocks.  They also recommend REITs and TIPS, inflation backed bonds.  All of these recommendations key off the Federal Reserve monetary policy.  The early November quantitative easing will inject $600 billion into the monetary base, which likely will over time have a bigger effect on the money supply.  I have been receiving numerous credit offers in recent weeks, much like the early part of the last decade.  That means to me that credit offerings are expanding.  The stock market in general also looks good as the quantity of money drives interest rates hence the stock market. Because of the insane credit easing consumer stocks seem like a reasonable idea.  I recently purchased the US Philip Morris (MO) and am thinking of the international Philip Morris (PM).  Also, a few liquor stocks might be a good idea.  As the Democrats and Republicans squeeze the public to subsidize the stock market, there will be plenty of drinking and smoking.  MO pays a six percent dividend right now, and my stock broker recommended it as an alternative to cash or bonds.

I don't necessarily like the idea of REITs because of the real estate problems but emerging market stock markets like the BRICs (Brazil, Russia, India and China) seem like a good idea.  I disagree with MSSB's recommendation for long term bonds.  That is, unless you are planning to trade.  Incidentally, the same caveat holds true for stocks and commodities.  When inflation starts to counteract the economic value of the freshly printed money (the Fed has more than tripled the money supply since 2008 and the ultimate effects might be greater) the stock market will fall because real interest rates will start to rise.  So markets are increasingly treacherous and you need to invest for the short or intermediate term, not for the long term.  I don't believe in day trading or anything like that.  Rather, invest when something is low or likely to increase and pull out when it is in bubble mode.  I don't think we're seeing any bubbles now, although commodities are heating up and I think the stock market will too this year.

Happy New Year.

Legacy Media's Standards Sink Lower: Case of Ezra Klein

 Contrairimairi sent me this video.  Ezra Klein, a guy who works as a reporter for the Washington Post, apparently thought that the Constitution was written over a hundred years ago when it was written over 200 years ago.  The thing that gets me isn't that Ezra Klein is ignorant or that the Washington Post hires ignorant reporters, but rather that anyone bothers to watch a television program on which ignoramuses like Klein appear.

Klein not only lacks basic historical knowledge.  His claim that the Constitution is not binding might come as a surprise to his friends at the American Civil Liberties Union, and, for that matter, Barack Obama, who derives the authority for his criminal administration from that tattered document.  If Mr. Klein and his Progressive comrades think that the central state is going to continue to be taken seriously, perhaps they might consider looking to the Constitution for the few shreds of remaining legitimacy that the sorry-ass government thugs in Washington can claim.

Why Participate in the Political Process?

Two economists have discussed why people participate in political processes.  Both books were published in 1970, around when college students were demonstrating at Columbia, Kent State and elsewhere.  The first, Albert O. Hirschman in his book Exit, Voice and Loyalty suggests that there are two alternative methods of expressing dissatisfaction.  Exit is market behavior. If you don't like a pizzeria's pizza, stop going. You exit without voicing disapproval.  In contrast, people often voice complaints.  For instance, my sister was unhappy with her phone service. She complained. When that didn't work she went to the Public Service Commission.  Would she have gone to the Public Service Commission about a pizza?  I doubt it because there is a free market in pizza but a monopoly in her phone service.

Hirschman outlines the times when voice supersedes exit, one of which is monopoly.  Labor theorists have applied this to labor unions.  By establishing elements of monopoly in the workplace, unions have two faces, a monopoly face and a voice face (see What Do Unions Do? by R. Freeman and J. Medoff).  In Hirschman's view, creation of loyalty makes people more likely to use voice rather than exit.  Loyalty is equivalent to what business strategists call differentiation.  If you're loyal you protest because protest costs resources and loyalty increases protest's benefits.

Kenneth E. Boulding's idea with respect to protest hasn't received as much publicity as Hirschman's.  In Economics as a Science  (pp. 82-5) Boulding claims that there are two kinds of discontent, personal and political.   "Personal discontent with a location drives a man to migrate rather than to press for urban renewal.  Personal discontent with existing income drives a man to try new occupations."   Political discontent, in contrast, involves effort to change the political system.

Boulding argues the person with personal discontent is not likely to be politically active and is likely to see political activity as detrimental to his ambition.  In contrast, the politically active person "the revolutionary, the alienated, the dissident, whether of left or right, is apt to be either a middle aged person who has failed in the satisfaction of his personal discontent and become stuck in a location, an occupation or even a marriage from which he cannot escape and which he finds undesirable, or a young person who has found the competitive 'rat race' of the educational and economic establishment too much for him and has decided hat he wil get more satisfaction out of trying to change the system.  It is at least a plausible hypothesis that in social situations where personal discontent is frequently frustrated, economic development is slow and there are rigid class structures and caste structures that prohibit upward mobility, discontent is more likely to take a political form.   On the other hand, it is also true that in rigid and oppressive societies in which political discontent is brutally suppressed and the chances of political change seem poor people get discouraged from political action and tend to express their discontent in private mobility."  

Hirschman's model predicts that those most loyal to the US will protest its decline.  Boulding's model suggests that as opportunity declines protests will be more frequent as more and more Americans face, as I did in New York City in the 1970s and 1980s, declining economic opportunity as the more vibrant firms exit a United States increasingly dominated by privileged special interests and financial institutions.

Understanding Ownership of the Fed

A reader has been communicating with me about the ownership of the Fed. He or she points out that the President and the Congress have the right to appoint the chairman and board of governors of the Fed.  Therefore,  the member banks' subscription to Fed stock does not mean that they own the Fed.  Power, in this view, is the President's, Congress's and the public's.

This argument overlooks the implications of stock ownership.  By definition, ownership of stock in a corporation constitutes ownership of the corporation.  It is true that the President's appointment of the board of governors and the chairman modifies some implications. However, there is another point that is more important. The stock ownership creates a fiduciary relationship.  Any corporation must be operated in its owners' interests.  Therefore, calling the member banks' holdings in the Fed "stock" rather than "loans" or "subscription fees" suggests that the framers meant to vest the crucial aspect of ownership in the banks, namely, that the Fed should be operated in their interest and not the public interest.

Bankers work with trusts all the time.  The basic relationship of banks to their depositors is fiduciary. Hence, they instinctively understand what the reader has trouble accepting, that appointment of a trustee on behalf of a beneficiary does not change the beneficiary's underlying ownership. The appoint of a guardian for a minor orphan's assets does not change the orphan's owning the assets.  Likewise, the president's appointment of a Fed chairman does not change the fiduciary relationship the Fed bears to its stockholders, the commercial banks.

Recently, Congress voted down Ron Paul's bill that would have required public audits of the Fed. This is significant evidence that Congress and the public have never believed (to believe that two groups of knuckleheads have any beliefs at all on the subject) that the Fed serves the public interests.  What owner would refuse information about his assets?  One of the fundamental rules about trusts is that the trustee must disclose all relevant information. That Congress does not want the information means that Congress does not think it or the public would benefit from the information.  Hence, Congress and the public do not think that they are the Fed's beneficiaries.

New York and the Legacy Media

In a recent e-mail, Jim Crum uses an excellent moniker for the Democratic Party media: the legacy media.  The phrase is embedded in Jim's important discussion about demographic trends that may undermine the legacy media's influence.  Jim links to a LifeSiteNews.com article which notes that the Republican states are growing in population relative to the Democratic states:

"...states that went for Obama saw population declines that will result in fewer electoral votes and states that did not support Obama in 2008 saw their population increase and, as a result, the number of electoral votes they will allocate to a presidential candidate next time.

"The census found the United States population bumped up from approximately 281 million in 2000 to 308,745,538 as of April 1. Regionally, the northeast grew 3.2 percent while the Midwest grew 3.9 percent, the South grew 14.3 percent and the West grew 13.8 percent — making it so states that typically go Republican experienced more growth than predominantly Democratic areas.

"On the Republican side, Texas picked up four seats, Arizona, Georgia, South Carolina, and Utah will gain one seat each while Louisiana loses one thanks to population declines following Hurricane Katrina and Missouri loses one as well. On the Democratic side, New York and Ohio lose two electoral votes each while the Obama-supporting states of Illinois, Iowa, Massachusetts, Michigan, New Jersey, and Pennsylvania lose one and the pro-Obama states Nevada, and Washington gain one and Florida gains two.

"Ultimately, states voting against Obama in 2012 gained six electoral votes while states supporting him in 2008 lost six — a total shift of 12 electoral votes."

Jim contends that one-sided, pro-Obama media coverage will counteract the population trend in the presidential election.  While this may be, I'm not convinced that the Republicans in '12 will do better than they did with John McCain in '08.  McCain would not have been much better than Obama.  As we stand now, the nation is putting band aids on the dike which, Jim notes quoting Edmund Burke, is being eaten away by rats.  Many Republicans are as much rats as Democrats and, besides, the Republican band aids are too small.

For instance, New Yorkers for Growth forwarded to me John Faso's Op Ed in the New York Post, a Republican newspaper. I met Faso at a fundraiser last spring.  Faso makes some good points but fails to address the underlying cause.  Faso observes that New York is going to lose two congressional seats (I hope my Congressman, Maurice Hinchey, is one of them) because of the census.  As well, he notes that more than one million New Yorkers have exited during the past ten years.  He says that Governor Cuomo (once more that horrible sound) ought to declare a fiscal emergency. He notes that the Tax Foundation ranked New York 50th in hospitality to business.  

I wonder what that does to my students' job prospects...the same students who support regulation 10 to 1.  And there's the rub. New York's problems are so psychologically entrenched that the economic wizardry that Faso proposes will not help.  My students, like the majority of New Yorkers, are brainwashed to believe in socialism.  The population believes that economic goods like health care and housing are rights.  Therefore, anyone who works must be taxed to subsidize anyone who doesn't. New Yorkers will favor that to the maximum extent possible until they learn that there is no such thing as a "positive right."  A right can only exist in nature.  You do not have a right to housing in nature. You have to build housing.  If you dig your spot in a cave, I don't have the right to force you to dig my spot in my cave.  But New Yorkers believe that I do. Therefore, there is no hope for New York until it collapses or until the education system is revamped.

Even many brainwashed ideologues among New Yorkers find that the positive rights theory in which they have been indoctrinated does not work.  Some of those who work leave the ones who don't.  But I suspect they take their socialist ideologies with them and then aim to destroy the states to which they move.  Thus, New York has become a state made up of people who don't work: welfare cheats; Wall Street stock jobbers; lawyers and college professors.  Those who leave aim to destroy the futures of states around the country. New York is a venomous disease.

As far as the legacy media, the value of not consuming it cannot be overstated.  The reason is framing.  A frame is how you conceptualize a situation.  If you listen to the Wall Street-owned legacy media  you are induced to frame issues as they wish.  They do not wish you to frame issues in realistic terms of monetary policy and special interest brokerage. The issues in the United States revolve around these two concerns.  If you believe the news media there is no such thing as a special interest lobby and no such thing as the Federal Reserve Bank. Putting Americans to sleep intellectually is necessary  to manipulate them.

Framing determines how you think and therefore the decisions you make.  The legacy media frames issues in a certain way.  It claims that there is a national consensus, when in fact few Americans have the first idea of what the issues are.  Consuming the legacy media is a sure way to lose track of the real issues.  Why waste your time?

Christina Houston: Obama, You Remind Me of Bela Lugosi

H/t Joe Tuscano