Monday, 3 October 2011

ECONOMICS FOR REAL PEOPLE: Property rights and more! [updated]

Here’s the update on tomorrow’s session with the UoA Economics Group:
Good evening all,
Ask yourself:
  • Why do people in shanty towns build their furniture before their roofs?
  • Why did the Industrial Revolution happen first in England?
  • Why do some places produce factories and enormous wealth, while in others all they have are pushcarts and penury?
  • How did problems with goats and chickens seven-hundred years ago lead to an enormous humanitarian advance we still enjoy?
  • And why might your neighbour want to invoice you for his new flower bed?
Join us tomorrow night to discuss the answers to these questions and much more--and find out what they all have to do with our subject: property rights.
        Time: 6:00pm
        Date: Tuesday, 4 October    
        Location: Case Room 1, Level 0, University of Auckland Business School
See you there!

Sunday, 2 October 2011

Quote of the Day: AFL edition

"[With] yesterday's stunning victory by Geelong over
Collingwood ... the club's ninth premiership and
its third in five years ... [the Geelong Cats] can now
rightfully claim to be the greatest of the modern era."
          - Caroline Wilson, writing in 'TheAge'

Saturday, 1 October 2011

Best of the week, and for the weekend

If you missed them this week, these are the posts that got folk excited:

  1. Three Logicians Walk Into a Bar
    The humour of logic.  And beer.
  2. Don, John and the right to take a toke
    Even if the country’s clueless, calcified commentariat is unable to see the connection between the right to pursue your own happiness and the right to defend your own life—two rights which are linked as one in freedom—if ACT ever had a reason to exist then it was to promote the policies of freedom and individual rights while all around them parties were peddling the opposite. That they’ve rarely if ever done so has led them to the place they are now. Which is to be unelectably shambolic.
  3. Don’t like drugs? Then legalise cannabis.
    The more you actively prohibit drugs, then it is the more virulent drugs you actively encourage. The more you outlaw drugs, the more you empower outlaws.
    If you want police cracking down on real criminals instead of spending time frisking people harming only themselves, then end the War on Drugs now. Because if you can’t even keep drugs out of prisons, then you sure as hell can’t keep them off the streets.
  4. “Nobody got rich on their own, so there!”
    Some folk are saying this tirade against wealth creators  by Obama adviser and now Harvard academic Elizabeth Frigging Warren is “the best thing ever!” Like hell.
  5. "This economic crisis is like a cancer…”
    The situation in Europe has now officially become a farce. Plan? What plan. The only plan on offer is to continue driving off the cliff.
  6. DOWN TO THE DOCTOR'S: The FrACTured Party
    Don Brash dips his toe into the water and before you know it, toys are being ejected from cots by the president of ACT and the two Johnny Bs.
  7. Doug Casey: How to Prepare For When Money Dies
    An eye-opening interview with renowned speculator Doug Casey:  why fiat currencies around the world are destined for collapse, whether the US dollar or Euro might lead it … and what investors can, and should, do to protect themselves.
  8. 100,000 green jobs from $2.5 billion of green pork? Who are they kidding.
    New green jobs “created,” if they are at all, by taking away existing jobs.

So that’s the best of the week. Now for the best of the weekend!


227368_186235261426891_186235124760238_514391_8279974_nJust in case you didn’t know, and despite all the other games on this weekend, the game of the year for me is this afternoon: Geelong Cats (Go the Cats!) vs Collingwood Magpies (Cold Pies) in the AFL Grand Final!

Ninety-odd thousand screaming fans strapped into their seats at the MCG to watch this year’s two dominating teams battle it out for either Collingwood’s second Flag in two years, or Geelong’s third in the last five. (Check out some of the highlights of their thrilling 2009 victory.)

Geelong are the Counties of Australian Football—at least, Counties when it was in its prime. Hard playing, skilful, astute, possessing all the virtues of the sport. They’ve been the pace-setters of the game over the last half-dozen years.

And Collingwood? These jokes might give you the flavour of the Collingwood supporter, and explain why for most Australians the two teams they support are their own and ABC – Anyone But Collingwood.

Geelong-markQ: What has four-hundred legs and three teeth?
A: The Collingwood Cheer Squad.

Did you hear that the Post Office has had to recall their latest stamps? They had pictures of Collingwood players on them. People couldn't figure out which side to spit on.

Q. If you see a Collingwood fan on a bicycle, why should you never swerve to hit him? A. It could be your  bicycle.

Did you hear about the politician who was found dead wearing a Collingwood jumper? They had to dress him in women’s underwear to save his family from embarrassment.gamenight

Q: What is the difference between a Collingwood supporter and a park bench?
A: The park bench can support a family.

Q: How do you make a Collingwood supporter run?
A: Build a job centre.

Long live the Colliwobbles!
And just so you know,  the last time the two teams met the Cats thumped the Pies by 96 points. And Cats Eat Birds.

Oh, and Clare Curran is a Collingwood fan.

So go the Cats!




Geelong2008Logo1 (1)

Friday, 30 September 2011

“Bail me out again, Sam.”

“Most sovereign states are bust and so are the banks, which are
today a protectorate of the state and have repaid the generosity
of their protectors by lending excessively to them.”

        - Detlev Schlicter, “Faster Pussycat! Print, Print!

German politicians have just voted to have German taxpayers wallets held guarantor for the bad debts of every  irresponsible European government. Which is to say, all of them.

You didn’t think German politicians were that stupid? Turns out they are.  You didn’t think they’d vote to have the whole continent keep spending money they haven’t got? Turns out they have.

If you’re wondering why the continents’ “best” economic minds think it’s a good idea to set up a “super bailout fund” to continue bailing out governments with holes all the way down their waterlines—and why German politicians would agree to have their taxpayers should fund it--then you need to think “printing presses,” and you need to read this piece by Detlev Schlicter.

If you want to know the way the “establishment” economists think, and why they think rewarding fiscal  irresponsibility will achieve anything but more of it, then this is your place to start. Especially if you want some idea of what happens when it all fails.

The #OccupyWallSt movement, and their single grain of truth [updated]

Phoebe Fletcher, Tumeke’s little-seen token feminist, Martin Bradbury, the grown-up child known to other children as “Bomber”, is upset that too few are too disinterested in “the #OccupyWallSt movement... The protests have had little coverage in their initial days by mainstream media,” she whines, “and are only know beginning to be discussed.”

Well, let’s then.  I doubt the overgrown children protesting outside Wall Street even know why they’re so angry at the bankers and financiers.  They’re angry that the bankers are getting rich while all around them are growing poor? Well, isn’t it their own big-government heroes who’ve been shovelling out the money in the bankers’ direction? They’re angry that bankers have been shovelled trillions while all around them there are people struggling to make ends meet. Well, isn’t it their own economic theories (if so they can be called) that call for those trillions to be shovelled that way?

Don’t you think they might pause to contemplate that for a moment?

But if they only knew it, or were prepared to sit still for a minute to learn something [something the grown-up children are congenitally unable to do, for which I for one blame their (mis)education] there is a very good reason to be very angry indeed at the bankers. It comes down to the way money is created in our fiat money fractional-reserve system, and who gets to start spending it first…

As George Reisman explains in his comprehensive book Capitalism [online here], their anger should not be directed at capitalism but instead at the system that caused the collapse, and those who benefit from it:

Their anger should be directed only at that which makes it more and more difficult to [buy the necessaries]. What they should be angry about is not the existence of a market economy and the way the market economy works [or would work, if it had been allowed to] but at the presence in the market of a vast gang of dishonest bidders and dishonest buyers, a gang that bids and spends dollars created out of thin air in competition with their earned dollars…  The source of those dollars created out of thin air is none other than the government. And the dishonest gang consists of it and everyone else who demands and received such fiat money.
    In other words, it is [ artificial credit expansion ] and the pressure-group demands for it that the victims should denounce, not the market economy …  It is the entry of newly created money into the economy that they should seek to stop…  Instead of, in effect, calling for the closing of the market, they should simply call for an end to the government’s inflation of the money supply, and thus for an establishment of a fully free market. [pg. 205, emphasis in the original]

That’s where their wrath should be directed. Instead, to the extent their protests were to be successful, they would succeed only in giving even more power to those who have presided over the present system.

Such is the result of a lack of real learning.

UPDATE:  “#OccupyWallStreet Is a Church of Dissent, Not a Protest,” says Matt Stoller at the Naked Capitalism blog. [Hat tip Vodka Pundit]

Thursday, 29 September 2011

“Nobody got rich on their own, so there!”

Some folk are saying this recent tirade against wealth creators  by Obama adviser and now Harvard academic Elizabeth Frigging Warren is “the best thing ever!” 

Like hell, says Voices For Reason’s Don Watkins, who reckons “if intellectual obscenities could be ranked,” then this rant, right here, would be right up there. You sitting down. Then here’s what she said:

_Quote5There is nobody in this country who got rich on his own. Nobody.

You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
    Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Got that? Here’s Watkins on Elizabeth Warren’s Social Shakedown:

_QuoteThere is a lot one could say about this quote–notice, for instance, that it totally ignores the benefits made possible by the factory–but I’ll confine myself to this: underlying Warren’s rant is a disastrous view of the proper relationship between the individual and society.

That’s right. Turns out, if you take Warren’s rant seriously (and people do) then "It's no longer, 'It takes a village' but, 'This village xxxxin' OWNS you!'" Got that, you worm!

Nasty, huh. Read on here for more.  And watch him here on PJTV:

And, you know, for all its obscenity you don’t just hear Warren’s argument from the left. You hear it from the hippies of the right every time they talk about inventions and patents…

PS: Oh, here’s Peter Schiff:

A word on drug legalisation from Milton Friedman et al

A word on drug legalisation from ACT hero Milton Friedman …

and Thomas Sowell…

and John Stossel …

… and some former policemen and correction officers…

Good people all, and not a dreadlock between them—although there’s a lot of experience, at least one Nobel Prize, and a great deal of good, hard common sense.

Oh, but you think the War on Drugs is “all about the kids”?  Really? Well, here’s another former policeman with five ways the Drug War hurts the kids.

So why not take some time to consider what they have to say?

Doug Casey: How to Prepare For When Money Dies

Guest post this morning courtesy of Casey Research: an eye-opening interview with renowned speculator Doug Casey, conducted by Karen Roche and JT Long of The Gold Report. Doug explains why fiat currencies around the world are destined for collapse, whether the US dollar or Euro might lead it … and what investors can, and should, do to protect themselves.  

Doug Casey

The Gold Report: You've been talking about two ticking time bombs. One is the trillions of dollars owned outside the U.S. that investors could dump if they lose confidence. And the other is the trillions of dollars within the U.S. that were created to paper over the crisis that started in 2007. Are these really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?
Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the U.S., it's going to have truly worldwide effects. The U.S. dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main U.S. export for many years has been paper dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee—and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride—but the party's over.
    Nobody knows the numbers for sure, but foreign central banks, and individuals outside the U.S., own U.S. dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more dollars to bail out the big financial institutions. At some point, foreign dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel—the boom in commodity prices.
    Some countries are already trying to get out of dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it's a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If a theatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It's a very serious situation.

TGR: If panic erupts on the U.S. dollar, would products manufactured in the U.S. become super-cheap or super-expensive?
DC: They would become super-cheap. Everybody says that devaluing the dollar will stimulate U.S. industry because the products will become cheaper and foreigners will buy them. This is a huge canard everybody repeats and nobody thinks about. Yes, it is true for a while, but if devaluation were the key to prosperity, Zimbabwe should be the most prosperous country in the world as it has already collapsed its currency.
    A strong currency is essential for a strong economy. Sure, a strong currency can hurt exporters for a while. But, a strong currency encourages manufacturers to invest in technology, and become more efficient. It rewards savings and results in the growth of capital that's critical for prosperity. A strong currency allows businessmen to buy foreign companies and technologies at bargain prices. It results in a high standard of living for the country, and yields social stability as a bonus. The idea that decreasing the value of currency to stimulate exports is a short-lived, stupid and counterproductive solution to the problem. People seem to forget that while the German currency was rising about sixfold from its level of 1971, and the Japanese yen about fourfold, those countries became the world's greatest export economies. It didn't happen despite a strong currency, but in large measure because of it.

TGR: Given that the U.S. is the world's biggest consuming nation, wouldn't fleeing the dollar create a big consumer vacuum in the international community? Doesn't the rest of the world want to keep up the high level of exports to these U.S. consumers?
DC: That's exactly why the U.S. is in such trouble; it's idiotically focused on consumption, while only production can create prosperity. The world doesn't need to stimulate consumption. This is another canard, because everybody has an infinite desire for goods and services. I know for myself, I'd like not just a car, but 10 Ferraris, a couple of Gulfstreams and 10 houses around the world. So, by myself, I have an infinite desire for goods and services. Multiply that by 7 billion other people. The only way to gratify those desires is by producing enough to trade with other people to give you what you want. When so-called "economists" think the problem is that we don't have enough consumption, that shows that the profession itself is bankrupt. It's actually quite embarrassing.

TGR: But other countries currently produce enough of what the U.S. wants. With U.S. dollars, that trade won't look good on their side eventually.
DC: The problem is the U.S. doesn't produce enough in return. The U.S. has been lucky to have a currency that has, so far, been accepted by everybody. But when everybody realizes that the dollar is an "IOU nothing" on the part of a bankrupt government and a society that doesn't really produce anything anymore, it's going to create a worldwide catastrophe. Those $7 trillion held by foreigners are going to become instant hot potatoes.

TGR: Considering what you said a moment ago, that the world doesn't need to stimulate consumption, you must find some irony in the Obama administration's plan to stimulate consumption again in the U.S. as a way to spur some economic growth.
DC: I'm afraid that after being counseled by the fools that surround him, Obama talking about economics is like the blind leading the doubly dismembered. They want to spend $450 billion trying to create new jobs—but these are government jobs, where you have people digging holes during the day and filling them up at night to create the appearance of employment. No government has any idea what the market really wants and needs. There should be zero government involvement in this. The government cannot and should not even try to create jobs. If Obama wants to stimulate the economy, he can decrease the size of the government. I would say a 90% reduction would be a good starting figure.

TGR: But that will create even more unemployment. That's one of the big concerns. States laying off employees could increase unemployment even more.
DC: It is wonderful that states are starting to lay off employees. Once they lose their state jobs, which suck wealth from taxpayers, maybe those people can find real, productive jobs providing goods and services that people actually want and will pay for voluntarily. So I'd argue that getting rid of state employees is essential to a sound recovery plan.

TGR: You warned early on in the 2008–2009 economic crisis that it would really be more of a hurricane. In the last year or so, we've been in the eye of the hurricane and there's more turmoil to come. Will the other side of the storm be worse than the first? And given the recent economic news, do you think we have moved out of that eye?
DC: Yes, I think we are moving out of the eye and going into the other side of the storm. This storm will be much more severe because we haven't solved any of the problems that caused the hurricane in the first place. The fact that governments all over the world have created trillions of currency units has only aggravated those problems. Now, I expect exploding prices to compound the problems that we saw back in 2007, 2008 and 2009. That will devastate the prudent people in society who saved money. They saved it in the form of currency, and wiping out their savings will be catastrophic.

TGR: Will this affect only North America and Europe?
DC: Mostly North America and Europe, but it's going to be very serious in Japan, too. It could be even more disastrous in China. The Chinese real estate market bubble is very inflated, driven by the lending of Chinese banks that won't be able to recover their loans. They will all go bankrupt, taking out the Chinese populace's savings with them. At the same time, those who own real estate will find it worth vastly less than what they paid for it. Those problems will create social disruptions in China, leading to riots, perhaps even revolution, and who-knows-what. The fallout is going to be terrible.

TGR: Many pundits and economists still project growth in China, albeit at a lower rate, and anticipate further expansion of the middle class.
DC: The 21st century will be the Chinese century, but the distortions and misallocations of capital that have occurred over the last 30 years—notwithstanding the truly phenomenal progress the country has made—are serious and have to be washed out. I am a huge bull on China for lots of reasons, but I am bullish for the long run. I think it is going to go through the meat grinder over the next 10 years. I don't know how it will come out; maybe China will break up into five or six different countries. Actually, that would be a good thing. Most of the world's nation-states are artificially constructed and too big to be manageable as political entities.

TGR: Your outlook on China fits right in with something you've been saying for years—about this being the "Greater Depression," which is also the topic of your upcoming presentation at the sold-out Casey Research/Sprott Inc. "When Money Dies" summit next month in Phoenix. Your opening general session talk is entitled, "The Greater Depression Is Now." We are now four years into it, based on your 2007 start date.
DC: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the U.S. anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn't risen in real terms for 40 years. But the definition of a depression that I use is "a period of time during which most people's standard of living drops significantly."
    Net savings shows that you're living within your means and putting aside capital for the future. In the U.S., people have been living above their means for many years—that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the U.S. has been doing.

TGR: So, how long will this Greater Depression last?
DC: It doesn't have to last long at all. It could be quite brief if the U.S. government, which is basically the root cause, retrenches vastly in size and defaults on the national debt, which is essentially an enormous mortgage, an albatross around the neck of the next several generations of Americans. The debt will be defaulted on one way or another, almost certainly through inflation. I simply advocate an honest, overt default; that would serve to punish those who, by lending to the government, have financed its depredations. Distortions and misallocations of capital that have been cranked into the economy for many years need to be liquidated. It could be unpleasant but brief. The government is likely to do just the opposite, however. It will try to prop it up further and make it worse—compounding the problem by expanding the wars. So, it could last a very long time. In that sense, I'm not optimistic at all. I think there is little cause for optimism.
    On the other hand, I'm generally optimistic for the future. There are only two causes for optimism. First, smart individuals all over the world continue, as individuals, to produce more than they consume and try to save the difference. That will build capital, which is of critical importance. They should just save by holding paper currency. Second, expanding and compounding technology will increase the standard of living. Remember that there are more scientists and engineers alive today than have lived in all previous history combined. Those two factors countervail the government stupidity around us. Whether they will be overwhelmed and washed away by a tsunami of statism and collectivism, I don't know.

TGR: You say that the U.S. government is the root cause of this problem. Isn't that putting too much blame for a worldwide problem on one nation?
DC: The institution of government itself is the problem, and the problem is metastasizing like a cancer all over the world. But, sad to say, the U.S. is the most serious offender because it is currently both the most powerful and the most aggressive nation-state. It has been greatly abetted by the fact that the U.S. currency has been accepted globally. The U.S. dollar is, in effect, the reserve that backs all the other currencies in the world. That is why the U.S. government has been the most destructive from an economic point of view. Furthermore, military spending—which in the U.S. equals that of all the other militaries in the world combined—is purely destructive. It serves no useful economic purpose at all. The military is no longer "defending" anything—least of all liberty. It's actively creating enemies and provoking conflict. So, yes, I think the U.S. government is actually the most dangerous force roaming the world today.

TGR: Do you see that changing after the next election?
DC: No. I think the chances of Obama being reelected are high, simply because more than half of Americans are big net recipients of state largesse. The U.S. has turned into a larger version of Argentina politically, where the electorate is effectively bribed to vote for the biggest thief. It is likely to turn out much worse than Argentina, however. Unlike the Argentines, the U.S. government is fairly efficient. And, unlike Argentina, the U.S. is rapidly turning into a police state.
    Electing a Republican might be even worse, though. With the exception of Ron Paul and Gary Johnson, the potential Republican candidates absolutely make my skin crawl. So, no, there is no help on the horizon. The U.S. government is spending about $1.5 trillion more this year than it takes in, and it is not going to cut that. In fact, foolish spending to bail things out will increase. And, worse than that, the Fed has artificially suppressed interest rates for three years. Interest accounts for roughly 2% of $15 trillion official national debt, or $300 billion per year. As interest rates inevitably rise, that interest amount will grow. At 12%—and I'm afraid they'll have to go even higher than that—it would add another $1.5 trillion just in interest payments.
    I absolutely see no way out without a collapse of the U.S. currency and a total reordering of the U.S. economy.

TGR: When Money Dies, the title of your summit, implies some return to a gold standard. How do you see that playing out?
DC: Nothing is certain, but when the dollar disappears—and it's going to reach its intrinsic value soon—what are people going to use as money? Will we gin up another fiat currency like the euro? The euro is likely to fail before the dollar. My suspicion is that people will want to go back to gold. It's not because gold is anything magical, but simply the one of the 92 naturally occurring elements that—for the same reasons that make aluminum good for planes and iron good for steel girders—is most useful as money. In fact, the reason that gold has risen as high as it has is that the central banks of third-world countries—places that don't have large gold reserves, such as China, India, Korea, Russia, even Mexico—have been buying the stuff in size.

TGR: The concept of going to a gold standard seems impossible in the sense that there is only so much gold above ground—6 billion ounces? Maybe $11 trillion worth? But it's only a fraction of the U.S. GDP. Even with gold at $2,000 an ounce, that leaves an immense gap. In that scenario, how do you convert to a gold standard?
DC: In terms of today's dollars, gold should probably be a lot higher than it is. I don't know what the number will be, because a lot of those dollars will disappear in bankruptcies; they will dry up and blow away. It's like a real estate development that was worth $1 billion on somebody's books; when it fails, that's $1 billion destroyed. It's a question of the battle of inflation (with the government creating dollars to prop things up) against deflation (where businesses fail and wipe out dollars). But put it this way: the U.S. Government reports it owns about 265 million ounces. Its liabilities to foreigners alone are at least $6 trillion. If they were to be redeemed for a fixed amount, that would require roughly $22,000/oz. gold. And that doesn't count dollars in the U.S. itself.
    I'm a bargain hunter and a bottom fisher, and bought most of my gold at vastly lower prices. But I think gold is going much higher because most people still barely even know that the stuff exists. As inflation picks up, they are going to want to get rid of these dollars—but what other monetary commodity can they turn to? So, gold is going higher. I'm still accumulating gold.

TGR: You said that the storm as we emerge from the eye of the hurricane will be worse than it was on the other side. If they don't own gold, how do investors protect themselves?
DC: It's very hard to be an investor in today's world because an investor is someone who allocates capital in a way to create new wealth. That is not easy in today's highly taxed and regulated economy. It's late in the day, but not too late, to buy gold, silver and other commodities. Productive assets are good to own. Of course, the easiest way to buy most productive assets is through the shares of publicly traded companies, but the stock market is quite overvalued in my opinion, so that's not the best option right now.
    In addition to trying to build personal holdings of gold and, to a lesser degree, silver, I think people should learn to be speculators. This is not to be confused with gamblers, who rely on random chances. Speculators position themselves to take advantage of politically caused distortions in the marketplace. In a true free market society, you would see very few speculators because there would be few such distortions. But regulations, taxes and currency inflations are likely to keep markets very volatile. Good speculators will position themselves to take advantage of bubbles, and identify bubbles that have been blown to their maximum and are about to deflate.
Government actions are going to force people to become speculators, whether they like it or not. Most won't like it, and very few will be good at it.

TGR: What bubbles might speculators look to exploit?
DC: I'd say the world's biggest bubble is real estate in China, but real estate bubbles are just starting to deflate elsewhere, too—in Australia and Canada, for example. It's relatively hard to short real estate, of course. Shorting bank stocks is an indirect way to play it. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital because:

  1. Interest rates are artificially low, and as interest rates rise—which they must—bonds will fall.
  2. Bonds are denominated in currencies, and most currencies, let's say dollars, are going to lose a lot of value.
  3. The credit risk of most bonds, certainly those issued by governments, is high.

On the long side, mining stocks are very cheap relative to the price of gold right now. I'd say there's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing.

TGR: Technology was one of the two areas of optimism you mentioned earlier. Do you see a bubble forming there?
DC: You have a point, but I'm not sure you can talk about technology stocks as a whole; technology is too variegated, too vast a field. Although, I've long been a huge believer in nanotech, which is likely to change the world as we know it. With gold stocks, however, you can jump into a discrete universe, that's likely to become a mania.

TGR: Thank you for the tips, Doug, and as always, for your thoughtful insights.

Doug Casey is an American-born free market economist, best-selling financial author, and international investor and entrepreneur. He is the founder and chairman of Casey Research, a provider of subscription financial analysis about specific market verticals that he has focused his investing career around, including natural resources/metals/mining, energy, commodities, and technology. Since 1979, he has written, and later co-written, the monthly metals and mining focused investment newsletter, The International Speculator. He also contributes to other newsletters, including The Casey Report.
    Casey graduated from Georgetown in 1968 where he was a classmate of Bill Clinton.
    His 1979 book
Crisis Investing became the largest selling financial book in history, listing at #1 on the
New York Times Best Seller list for a total of 12 non-consecutive weeks.

Wednesday, 28 September 2011

Brash gets support from The Bush

Don Brash may not have found anyone in his own party willing to back his call for hard sense on cannabis without the moral panic—and instead of backing the call the hipsters from Grey Lynn who should have supported it have instead lambasted him—but there is one political party leader at least prepared to do the right thing, and that’s Libertarianz leader and Wairarapa candidate Dr Richard McGrath. He told the Wairarapa Times-Age “it’s a freedom thing.”

_Quote4_McGrath001"There is no longer a place for the enforcement of puritanical laws that make people's bodies the property of the state," he said.
    Mr McGrath said he has worked as a doctor in the field of alcohol and drug dependence and believed that "drug use is a health issue, not a legal one."
    Legalisation of drug possession in Portugal over the last 10 years had resulted in less drug use overall, including in the under 18 age group, lower rates of HIV infection, and more people coming forward for assistance with problems associated with drug use, he said.
There was no reason to be frightened of giving people back sovereignty over their bodies, he said.
"Fundamentally, the issue of drug use is a moral one, with the fundamental question being: Who owns your body - you, or the politicians?"

Ref fakes injury better

You think rugby referees are bad? You should see some of the soccer busybodies: they do even better Hollywoods than the players!

[Hat tip Twenty Two Words]

“Cocaine-Related Deaths in New York Plummet; Bad Economy to Thank”

In Portugal they decriminalised personal possession of all drugs in 2001. It now has the lowest adult rate of lifetime marijuana use in the European Union, and more people seeking help for problems related to substance use and abuse.

In New York, however, they’re trying a different method to wean people off drugs:

Cocaine-Related Deaths in New York Plummet; Bad Economy to Thank

You didn’t know Ben Bernanke was also fighting the War on Drugs, did you?

"This economic crisis is like a cancer…” [update 3]

The cures for the economic crisis are being proffered by the folks that delivered it, using the theories that caused it. Does anyone truly buy any of the solutions? Not this trader, Alessio Rastani, speaking “in an interview on BBC News [yesterday] that left the hosts gob-smacked”:

[Hat tip Michael D.]

UPDATE 1:  “Apparently, many people thought Alessio Rastani was a fake that somehow managed to get on television. Forbes rang him up for an interview, and asked him a series of questions to test his authenticity. The results are here. Let’s just say that he seems to pass just fine.” – Jeffrey Tucker, Mises Economics Blog

UPDATE 2:  “BBC Releases Official Statement On Alessio "The Trader" Rastani: He Is Perfectly Legit And The Interview Was Not A Hoax


  • “The situation in Europe has now officially become a farce. While the Equity markets rocketed up between 4-5% last night because of a rumour that Greece, and therefore Europe, would be saved by a new plan to leverage up the EFSF, a large number of people who would actually have to approve the deal were denying such a deal even existed…” 
    – “Deal, What Deal,” Macrobusiness Superblog
  • But maybe there is a “plan”? “Europe plans to raise as much as 50 billion Euros annually with a financial transaction tax. If they are looking to increase volatility, remove liquidity, and increase the odds of a crash, then such a tax may ‘help’.” 
    – “Europe Plans to Tax Stock and Bond Transactions; Expect More Crashes Should it Pass,” Mish’s Economic Trend Analysis
  • “Today feels just like it did in 2008. We had almost as many manic up days back then as crazy down days. Remember how we were saved when Fannie and Freddie got put into conservatorship? Remember how all was good when AIG was taken over by the government? Then we sold off the day that TARP failed, but rallied when it passed? Though by the time it was signed into law, the market was already selling off again? Or that weekend when the TARP infusions were made? That suddenly TARP was available to shore up the capital of banks? And the FDIC put in the Temporary Loan Guaranty Program so that banks could issue bonds guaranteed by the FDIC and that the depositor insurance amount was increased? And reflecting on today's price action in Europe, maybe credit just started to realize that the backdoor tricks to increase the size of EFSF are unlikely to work, and that the guy with the credit card (Germany) seems reluctant to let everyone use it. Maybe they actually like being AAA!” 
    – “Won't Get Fooled Again...,” Zero Hedge
  • Meanwhile … “Wondering what just caused the market to slump? Take a wild guess. That's right - Greece. Minutes after Greece passed a vote in which it promised to promise to promise to consider collecting 1998-1999 taxes (even as all of its tax collectors are about to go on permanent strike), the FT was breaking news that while the Troika was "bailing out" Greece in the past years, the country was spending itself into an  even greater oblivion.” 
    –“FT Report That Greek Bailout Package On The Verge Of Collapse After Surge In Greek Funding Needs Sends Stocks, Euro Plunging From Highs,” Zero Hedge
  • And … “While the financial world becomes euphoric based on an unsubstantiated rumor of yet another European bailout package cited from an unnamed source and reported by one of the least insightful financial commentators on the planet, the reality is that Europe is imploding.”
    -- “If Europe is Saved Why Are Corporations Storing Cash With the ECB?,” Phoenix Capital Research
  • So … “Are we headed for recess/depress-ion? The answer in 9 simple charts.”

Tuesday, 27 September 2011

Portrait of Mother and Child, by Gustav Klimt

Gustav Klimt (1862-1918).  Mother and Child (2)

Wondering about that European bailout?

Then here's a graphical summary by the boys at Macrobusiness:


Don’t like drugs? Then legalise cannabis.

Cannabis is supposed to be a “gateway” drug? The drug that leads people on to harder drugs?


What makes harder drugs so prevalent is Prohibition. If you don’t believe me, then just ask  thousands of current and former members of law enforcement who support drug regulation rather than prohibition—including Scotland Yard’s former head of drug policing.

  • Prohibition doesn't get drugs off the street. The government can't even get rid of drugs in the controlled environment of a prison, so they certainly can't get rid of them from the relative freedom of our streets. Which means….
  • Outlawing drugs doesn't make them go away; it simply puts them in the hands of outlaws, and in the hands of the soft targets on whom the outlaws focus. Which means…
  • Prohibition limits demand a little, but it limits supply a lot -- as every economics student knows, this pushes up prices a lot, and gives remaining dealers a profit on a plate.
  • Prohibition means people don't stop consuming drugs they just change the drugs they're consuming.

Which means there is what Milton Friedman called an “Iron Law of Prohibition” (yes, ACT members, that Milton Friedman) which says that the more you actively prohibit drugs, then it is the more virulent drugs you actively encourage.  Which means instead of the relatively benign drugs like cannabis, alcohol and tobacco being easily available and sold by friendly pharmacists, it’s the nasty stuff instead—and peddled by fearless gang members.   Johann Hari summarises:

_Quote_thumb[2][5]‘You are not mistaken in believing that drugs are a scourge that is devastating our society [said Friedman]. Your mistake is failing to recognize that the very measures you favour are a major source of the evils you deplore.’
    Friedman proved, for example, that prohibition changes the way people use drugs, making many people use stronger, more dangerous variants than they would in a legal market. 
    During alcohol prohibition, moonshine eclipsed beer; during drug prohibition, crack is eclipsing coke. He called his rule explaining this curious historical fact “the Iron Law of Prohibition”: the harder the police crack down on a substance, the more concentrated the substance will become.
    Why? If you run a bootleg bar in Prohibition-era Chicago and you are going to make a gallon of alcoholic drink, you could make a gallon of beer, which one person can drink and constitutes one sale – or you can make a gallon of pucheen, which is so strong it takes thirty people to drink it and constitutes thirty sales. Prohibition encourages you produce and provide the stronger, more harmful drink.
    If you are a drug dealer in Hackney, you can use the kilo of cocaine you own to sell to casual coke users who will snort it and come back a month later – or you can microwave it into crack, which is far more addictive, and you will have your customer coming back for more in a few hours. Prohibition encourages you to produce and provide the more harmful drug.
    For Friedman, the solution was stark: take drugs back from criminals and hand them to doctors, pharmacists, and off-licenses. Legalize. Chronic drug use will be a problem whatever we do, but adding a vast layer of criminality, making the drugs more toxic, and squandering £20bn on enforcing prohibition that could be spent on prescription and rehab, only exacerbates the problem. ‘Drugs are a tragedy for addicts,’ he said. “But criminalizing their use converts that tragedy into a disaster for society, for users and non-users alike.’

It’s not complicated.  If you don’t want gangs deciding what drugs your children are going to dabble with, because they will, then end the War on Drugs now.

If you do want a legal, transparent, accountable market for drugs, rather than an illegal, secretive, unaccountable one, then end the War on Drugs now.

If you want police cracking down on real criminals instead of spending time frisking people harming only themselves, then end the War on Drugs now.

Because if you can’t even keep drugs out of prisons, then you sure as hell can’t keep them off the streets.

How could you end Prohibition easily? Well, here’s a simple proposal: just start by unbanning all the drugs less harmful than alcohol. (According to Britain’s widely respected Lancet journal of medicine, that means we could immediately legalise for recreational use (in decreasing order of harm): Buprenoprhine, Cannabis, Solvents, LSD, Methylphenidate, Anabolic steroids, GHB, Ecstacy, Alkyl Nitrites, Khat, and di-hydrogen monoxide.) On what rational basis could anybody object? Especially if they’re an alcohol “user” themselves?


NB, for those not familiar with Uncle Milt’s Iron Law of Prohibition, here’s a handy summary:


ECONOMICS FOR REAL PEOPLE: What is Money? [updated]


Here’s this week’s update from our friends at the UoA Economics Group:

Hi all,

What is money? What are these bits of paper we carry in our pockets, or these days is reflected digitally in our bank accounts? To understand this we need to look first at its historical context and how it has evolved over the centuries.
An understanding of the nature of money is important for any serious student of economics since money forms one half of every transaction. If the quality of an economy's money is undermined then that economy will experience difficulties.
This week we shall discuss some historical cases when the quality of money was undermined or even destroyed. What can we learn from these episodes, when today we see monetary inflation rising to levels not seen for many years?

    Time: 6:00pm
    Date: Tuesday 27 September
    Location: Case Room 1, Level 0, University of Auckland Business School

Look forward to seeing you tonight.

UPDATE:  So you think that money is the root of all evil … ?


_richardmcgrathYour weekly prescription of headline dissection from Libertarianz leader Dr Richard McGrath.
This week, The FrACTured Party.

THE DOCTOR SAYS: Oh dear. The ACT Party have discovered renewed energy in their frantic attempt to self-destruct.
    Don Brash dips his toe into the water with a suggestion that cannabis be decriminalised (for which I give him enormous credit, even though it is only an incremental move in the direction of freedom and full recognition of the right to self-medicate). But before you know it, toys are being ejected from cots by the president of ACT and the two Johnny Bs.
    Boscawen simply packs up his things and walks into the sunset, while Banks bares his authoritarian fangs. Meanwhile, Party president and gutless wonder Chris Simmons undermines Don Brash by saying even this first baby-step away from prohibition is "a step too far." Gee, Chris, if you don't like frightening the horses, why didn't you join the National Party? 
    Is there anyone in the allegedly "Liberal" Party that supports Don Brash on this one? Anyone at all? Anyone else in ACT anywhere in the world who believes in the concept of individual sovereignty?  Speak up, because both John Campbell and Don Brash want to hear from you!

What the hell is happening to ACT? 
    As of right now, ACT's website still has John Boscawen as number 2 on the party list (who does Number 2 work for now, I wonder?). So the photos next to numbers 2 and 3 on the ACT Party list will shortly both be blank silhouettes—which probably reflects what’s inside their heads. (For God's sake, Don, if Catherine Isaac doesn't want to stand for ACT, stop pissing around and just move everyone else two up the list.)
    The website also contained a link to something called "Principles." You know, the common link which is supposed to determine ACT policy on each issue. The sort of thing you might think its MPs and candidates might read from time to time. Shared values, that sort of thing. And what are the very first two principles that ACT is supposed to uphold? Why, this:

  • that individuals are the rightful owners of their own lives and therefore have inherent rights and responsibilities; and
  • that the proper purpose of government is to protect such rights and not to assume such responsibilities.

So if John Banks doesn't believe in the concept of individual rights, then what the hell is he doing in ACT?

And what of Sir Roger Douglas, Heather Roy, or for that matter Rodney Hide? Why aren't the other ACT MPs falling in behind Don Brash and taking a principled stand on this?  Anyone? Anyone at all? Why, where there should be a loud and principled “Huzzah!” behind their leader is there the sound only of Banks blowing hard and tumbleweed being blown around.
    Any chances ACT may have had of winning a seat at the coming election are now finished. They stand about as much chance of fielding an MP in the next parliament as the Libertarianz Party does. (And I do say that with great sadness.)
    However, long ago Libertarianz pulled this debate in the direction of personal liberty  by making drug legalisation something that could be discussed and argued about. Libertarianz activists, once again, have been Radicals For Freedom. What have ACT been? Nothing but a huge disappointment. Compulsion-touters, as one of their speech-writers once used to call them. Simmonds, the president of this so-called “liberal party”, even went as far to say that decriminalisation of cannabis, a class C drug, wouldn't be ACT policy for at least six years. How then, Chris, if one acts according to principle, should lawmakers deal with alcohol, which has been estimated in terms of harm to be a class B drug, more harmful than cannabis? 
    Simmonds should probably stop wearing his suit to bed and re-read that page of his party’s principles.

Incidentally, in the same news item reporting Brash’s “musings,” you will also read that Phil Goff is a wowser unequivocally opposed to decriminalising cannabis possession. All you members of NORML out there who vote Labour, your party leader has just come out against even decriminalising dope, let alone legalising it. How could you possibly vote Labour again?
    And you can’t vote Green, because they’ve given up altogether on the issue that they once tried to make their own.

There is only one political party in this country that can see the forest through the weed plants - that sees free choice and personal responsibility as two sides of the same coin. That party will shortly be announcing its list for this election, and will be fielding at least six electorate candidates. That party believes in maximal individual freedom and minimal government interference in the lives of New Zealanders. That party - Libertarianz - believes the state should respect the choices of adults. Including the choice to possess and use cannabis in one's home and elsewhere as permitted by private consent, and to sell industrial quantities of it on TradeMe.
    Something for which John Banks would have you lined up against a wall and shot. Especially if you were gay. 

See you next week!
Doc McGrath

Monday, 26 September 2011

Three logicians walk into a bar … [updated]


Think about it.

Hat tip Gene Callahan.

And to Julie Sedivy, who can put you out of your misery if your thinking machine is causing you trouble.

Debt Crisis? Presidential candidates? WWARD?

Everyone worldwide with more than $100 in their bank is talking about the  multi-trillion Euro plan to bail out debt-ridden European banks and governments; a plan that has already failed before it has begun – a plan that asks taxpayers to take the hit for stupid loans made by stupid banks.

And everyone with any interest at all in what goes on in the world wants to know are there any US presidential candidates worth a damn?

Since every candidate for the coming presidential election so far is so poor, and since every answer the mainstream alleged experts come up with to solve the debt crisis is always reliably worse than the last, some on The Street are asking What Would Ayn Rand Do?  How would Ayn Rand would approach deficits, the debt crisis, selecting presidential candidates?  Here to answer the question on  The Street is Yaron Brook, head of the Ayn Rand Institute:

Don, John and the right to take a toke [update 2]

Good news from yesterday’s speech by Don Brash, with two announcements from an ACT leader that are long overdue: that he thinks folk have the right to defend themselves and their loved ones, and the right to ingest cannabis if they so desire. [Full speech here.]

That it has taken this long for an ACT leader to state the bleeding obvious is tragic, especially since there’s little chance of any ACT MPs being returned next election—and if there are, then little chance of any ACT MPs or board members voting to make either policy their party’s policy.

Can you see John Banks (potentially their only MP) promoting your freedom to put into your body what (and whom) you see fit? Not a chance. [UPDATE: See.]

Can you see him attacking the police for victimising crime’s victims instead of the perpetrators of said crimes? Not a hope. No more than he can credibly promote the party’s position on fiscal responsibility after leaving his Auckland City Council over $800 million in debt under his stewardship.

So this is what it appears to be then; a trial balloon released just to attract attention, without any  commitment as to policy. What’s surprising about this tepid non-announcement however is how surprised the commentariat is that an ACT Party leader would (gasp) muse aloud about policy positions like this, because policies like this always should have been firmly in ACT’s territory.

Even if the country’s clueless, calcified commentariat is unable to see the connection between the right to pursue your own happiness and the right to defend your own life—two rights which are linked as one in freedom—if ACT ever had a reason to exist then it was to promote the policies of freedom and individual rights, i.e., policies like this, while all around them parties were peddling the opposite. That they’ve rarely if ever done so has led them to the place they are now: which is to have made themselves completely and deservedly unelectable, and incapable of promoting the very policies their party’s leader (and many of their members) would like them to promote.

Mind you, at least the party’s other John is leaving. That can only be good news for ACT’s few remaining freedom-lovers who do want to promote the right thing in a party committed to principles, not just politics. I do genuinely wish them good luck.  (One John down, one more to go?)

UPDATE 1: And here’s another John, and this one’s talking gibberish.

UPDATE 2: Eric Crampton makes some excellent points:

… ACT would do best to return to its classical liberal roots - that there's an unserviced space that's relatively liberal on economic and on social issues. As a right-wing rump to National, more liberal on economics but conservative on social issues, they'd be bound in the spot occupied by the Greens on the left - forever taken for granted by the dominant coalition partner because they couldn't plausibly bring down the government in favour of a coalition led by the main party on the other side. And, I've also thought that staking out a position on marijuana legalization could be a good way of signalling a move to that space. It would confound the usual narrative dominated by right-left thinking and, in so doing, bring a lot of positive press for ACT as it moves into a different space.
    So I was really pleased to hear Don Brash musing about marijuana decriminalization over the weekend. Sure, decriminalization hardly goes far enough: if the trade remains illegal but possession legal, production remains split between informal household production among those into gardening, friendly informal supply among friends (albeit with risk that comes with growing more plants than is needed for personal use), and the gangs. Cactus Kate is right: full legalization is better.

…Brash [has] tried to pull the Party to the liberal side - a move that makes sense, but is hard given ACT's starting point. It wasn't made easier by that a bunch of people who claim to support marijuana decriminalization started piling on making fun of Brash's policy move. Yeah, you know who you are. It's all hip to make fun of the 70-year-old who's obviously hardly come within smelling distance of pot and pretend that he's a dope-head for advocating policy change….  
    If the result of pushing for rational policy discussion is to be made a laughingstock even by those who purport to support rational policy, it ain't hard to figure out the likely effect on the supply of rational policy discussion… There's no way that the politicians will lead public opinion on this one, but there's good chance they'd follow. [However] if even the pundits who agree with legalization make fun of the politicians who support it, no chance of any kind of policy move until there's obvious public support…
The issue's now dead. And ACT probably is too.

Government favours, government failure

This is how phony-crony public-private bullshit-business works. The government announces a scheme costing you and I nearly half-a-billion dollars.  Moochers and looters graciously assemble to hoover up riches they couldn’t earn honestly. And when all begins to go pear-shaped, honest businessmen and women are left to pick up the pieces.

Latest example: the Key/Green home insulation subsidy, set up to buy votes by throwing pork at insulation installers. The collapse of Wellington-based Energy Smart shows the sort of vermin schemes like this attract—i.e., people unable to make an honest buck—and the consequences of their foray into the wider business world.

Energy Smart (sic) was set up to suck up taxpayers money by city councillors from Hutt City, Wellington and Greater Wellington, and a former chief executive of the Public Trust. Moochers all of them. But even when taking money straight from the trough, and “having carried out five per cent of the 115,000 retrofits across the country since it began in June 2009,” they couldn’t make their “business” work, leaving suppliers from Auckland to Christchurch out of pocket by a seven-figure sum.

Such is the way these schemes work. Such are the scum they attract. Sure, this is not as bad a result as Australia’s insulation subsidy scheme, that cost several people their houses and four installers their lives. But not having killed anyone is not a good enough standard by which to judge the dispensing of taxpayers’ money and government favours.

Best just to not dole them out at all, eh.

[Hat tip for the story to commenter Tribeless]

A great weekend for the pointy ball

It’s hard to talk about the unsavouriness of politics after such a ripping weekend of glorious finals footie, and some pretty good World Cup Rugger.  If you’re a fan of pointy-ball sports, this was a weekend to savour.

It started for me 9:30 Friday night, watching Hawthorn do their very best to knock of Collingwood’s inbreeds for the right to play my Geelong Cats in next week’s AFL final. It came down to one kick in a terrific Prelim Final to next week’s main event, with Collingwood just coming out ahead in a thrilling finish that could have gone either way—but with enough bruised and battered Pies’ bodies to make a Cats fan optimistic for next weekend. (Especially since the Cats beat these deadbeats by 96 points just a few weeks ago.)

Saturday’s couch-surfing epic started for me mid-afternoon, watching Geelong beat a tired West Coast by 60 points to confirm our own place in next weekend’s AFL final. (Top effort that. It’s looking good for three flags for Geelong in five years.) I left all the other members of the Auckland Geelong Supporters Club to party on his own, then motored over to watch the All Blacks thump France with a knowledgeable rugby crowd. And wasn’t it great to see the number one team finally out on the track and playing together for the first time. What a coaching master stroke. And how emotional seeing such an ill Jock Hobbs presenting Richie McCaw with his hundred-mission cap. A great moment.

Two games down, two resounding wins for my teams.  A great night. To celebrate, I dropped everything to race down the road to watch the second half of the league with a garden-shed-ful of Warriors fans. Who would have thought they could play finals footie with that intensity?  Or a garden shed could contain all that excitement when the final whistle went and the Warriors went through to the final!

(And how strange to see champion Collingwood coach Mick Malthouse taking the night off by watching this game over the road from the MCG, where the night before he had cried in the coaching box at his team’s narrow escape—and how strange to see former All Blacks coach John Hart in the Warrior’s coaching box at the same stadium, at the same time as the ABs were redeeming themselves against the team who once made Hart’s ABs, and the entire country, cry.)

Hearing Argentina knock off Scotland yesterday was almost an anti-climax after that. But Scotland have been pathetic at this tournament, and Argentina deserve to go through again. And knocking off a “Home Nations” team has always been good for footy.

So what a great weekend for pointy-ball sports. And for my teams, of course.  Smile