Gold game-over, correct? Not exactly.

Recall that India bought 200 tonnes of gold late in 2009 along with Sri Lanka and Mauritius; each of which also bought small amounts at the same auction. The IMF sale is purportedly based on the IMF’s desire to raise funds to help poor countries. I’ll leave a discussion of that ill-conceived notion for discussion at another time. The fact remains that the gold is for sale and apparently no buyers are willing to step-up and be counted. At least, not publicly counted. Wonder why?

There are probably as many excuses as there are potential buyers. One Philip Klapwijk, executive chairman of GFMS, the London-based precious metals advisor, thinks the IMF’s decision underlines a general lack of buying interest now that gold exceeds $1100 per troy ounce. After noting the publicity that India, in particular, received as a result of their purchase last year, it’s quite possible that other potential buyers simply don’t want to risk any adverse publicity.

China has been reported to be buying gold for quite some time as well as encouraging its citizens to also accumulate gold. It appears that China’s purchases thus far are from local mines within the country. One would think, therefore, that China would be a prime potential buyer for the IMF sale. Could it be that China doesn’t want to rock the US dollar-weakness boat? If China stepped up to the plate, the interpretation could be made that China had lost confidence in their US Treasury holdings. Possibly. It has been widely reported that Russia has also been accumulating gold and, therefore, presents a highly potential IMF-sale buyer. Russia doesn’t have the same US dollar exposure as does China, so their reluctance to step-forward is not immediately obvious.

Still another potential deal-killer is the outright disclosures themselves. Prior IMF sales have included specifics including the name of the buyer, the quantity purchased and the price paid. Gold is extremely volatile. Should the price decrease after such a purchase, the buying entity could then be ridiculed for having over-paid. Recall the ridicule still being heaped, rightly so, on PM Gordon Brown who, while still Chancellor of the Exchequer of Great Britain, managed to sell Britain’s gold stash at the very bottom of the market? You have to admit it takes real talent to be that stupid.

For at least the last two (2) decades, approximately 400 tonnes per year have been sold by central banks. Presuming this year will be no exception, an additional 191.3 tonnes on top of a 400 tonne average is not a small percentage increase. While the IMF has repeatedly stated that they wish to avoid disruption in the gold market and that they plan “phased sales,” what amounts to an almost- 50% increase in volume is certainly a major consideration.

It is also important to acknowledge that European gold sales have recently diminished. If this trend continues, an additional 191.2 tonnes sold could be somewhat insignificant. The jury is still out.

Where does that put us? Do we keep what we’ve accumulated, sell or buy more? To answer that question, you need to go back to basics. Recall why you started accumulating gold in the first place. Has anything changed? Is the dollar now stronger? (Well yes it is, but that is probably a short-lived phenomenon). Have the underlying ground rules changed? Since the world is awash in fiat, has anything really changed to cause you to panic out of your gold? Do I even have to address this question?

Yesterday, February 18, 2010, the Federal Reserve announced that they were increasing the Fed Discount Rate. That was certainly a surprise – at least to most observers. Was it meaningful? I suggest it was not meaningful. Recall that the Discount Rate is completely different from the Fed Funds Rate. The Discount Rate applies to the interest cost of overnight borrowing. If one bank finds itself short on reserves, it borrows from another bank overnight to keep itself within the required percentage reserves. The next day, it covers its needs for reserves and repays the loan. The Fed Funds Rate, on the other hand, refers to the rate banks must pay to borrow from the Federal Reserve. The Fed Funds Rate is much more critical to the actual cost-to-borrow rates businesses and individuals pay. What just happened is unimportant unto itself, but perhaps is more important from a perception viewpoint.

You’ve heard that perception is more important than reality. The immediate reaction to the Fed move was strictly perception because it certainly had no bearing on basic interest rates. Investors want to “know” that the dollar is being protected; that it is being supported; that it is not being sacrificed for the sake of covering the madcap spending spree from Washington DC. On the one hand, we know that the Discount Rate doesn’t affect dollar strength. On the other hand, the fact that the Fed would raise the Discount was apparently interpreted as meaning the Fed would also, some day, any day now (NOT), increase the Fed Funds rate, too, and thus protect the declining dollar. I submit that is why the market reacted positively. It certainly was not a reaction based on fundamentals. Perception works, at least for short time periods.

The argument for owning gold is that it offers an inflation hedge. With world-wide fiat money in circulation that is being increased in volume at the whim of the respective issuing governments, anyone interested in preserving their accumulated wealth must take pro-active measures to protect their positions. One way has been to stash capital in assets that tend to maintain value regardless of debased currencies. Gold has met that need for thousands of years. It’s unlikely that anything will occur to change that protection in the near future. Is this not still the basic protection we seek?

I’m always pleased when what passes for main-stream beliefs pokes fun at my investment portfolio. That tells me I’m still on the correct path to prosperity. I accumulated gold all through the 1970s as protection from the falling dollar. Recall that Nixon killed the dollar on August 15, 1971 when he closed the gold window. Anyone paying attention could then predict the outcome. Gold rose.

As gold rose in price, more and more folks became aware. In early January, 1980, several of us were having lunch at a restaurant when our waitress asked about our line of work. When we mentioned investment advisory, she volunteered as how she’d just taken a 2nd mortgage on her home and bought gold. After she left our table, I said “Guys, it’s time to sell!” I actually sold that afternoon – at $750 per ounce. That was $750 on the way up to the top at $850 before it crashed. Sold too soon, right? Wrong. Never be greedy. It was obvious by that time that the general public had become aware of gold and were now buying. In fact, it was a buying frenzy. As Bernard Baruch was fond of saying, “When the shoe-shine boy starts touting stocks, it’s time to sell.” We’re nowhere near that gold sell-point yet.

Yes, you now see more and more commercials advertising gold investments. At the same time, you see more and more ads from folks who will buy your “junk” gold. There are even Tupper-ware-type parties where neighbors bring their “junk” gold to sell to a visiting buyer. Then the sellers brag how happy they are that they were able to get rid of their “junk” gold and get real cash they can now spend. No mention is ever made that the price they were paid was far below the prevailing spot price of the underlying gold. What a deal!

Is gold in a bubble? Possibly, but if so, it still has a long way to go before the top is reached. The top will make itself known if you simply watch the market actions. In the meantime, what else can you do, if not invest in gold, to help protect your accumulated wealth?

Cheers,
Tex Norton

February 24, 2010

Follow the (Gold) Money was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In that article, I pointed out that as the government-required minimum wage increases, fewer and fewer new jobs become available and existing jobs disappear. Feeling the ‘heat,’ the Feds are now contemplating still another “stimulus” to create the very jobs they destroyed last summer. I predict their current efforts will be another abject failure.

Step back for a moment and view the overall economic conditions now faced by Americans. Well-documented economic shenanigans by banks and brokerage firms caused a major melt-down in our economy. In their attempt to survive, many businesses cut back on expenses including labor. Simply put, jobs were lost. The official rate of unemployment nation-wide skyrocketed to over 10%. The true rate of unemployment is now at 20% when you include all the folks who have simply given-up looking for a job or are reduced to part-time work. And this is now the point at which the unintended consequences begin.

Still another government program (pogrom?) has been in effect for decades: Unemployment Insurance. The benevolent intention was to provide a “helping hand” to folks who’d lost their jobs during that period in which they looked-for and obtained other employment. In our current malaise, those benefits have been extended and extended. Benefits can now be collected for up to 40 weeks and an extension to that “limit” is also being considered by Congress. So let me ask you: If you can be paid for not-working, do you really have a sincere desire to look for new employment? Are you not more inclined to relax, bide your time and hope that you can ultimately find that high-paying replacement job? Moral hazard anyone?  (Editor’s note: a splendid young former marine–two tours–I’ve known all his life is using his $870 after withholding every two weeks to finance college this semester, which I suppose to be an unintended consequence, indeed!)

Want to know how to very quickly reduce unemployment to near-zero? Eliminate unemployment benefits all together. Heartless as that may sound, consider what is now going on behind the scene.

You’ve been laid-off. You had what passed for a good job at a good rate of pay. Now you can’t find another job that you 1) Like, and 2) Pays you what you want to be paid. So you remain unemployed. You’re unemployed NOT because you can’t find work, but because you can’t find a job that meets your unrealistic (in today’s economic circumstances) requirements. Since Uncle Sugar is willing to pay you unemployment benefits for up to 40 weeks, no big rush to take just-any-job, is there? This is yet another moral hazard created by our government.

Do you suppose the folks in Washington don’t know this? Since they do know, the question remains: Why do they pursue what they know won’t work? Ah, again, we simply follow-the-money.

Washington is comprised of politicians. Politicians spend their entire careers primping (pimping?) for their next election. Virtually everything they do and consider doing is predicated on getting themselves re-elected. Nothing that might be in second place even comes close. How they approach that objective varies from person to person, but one thing is common among all. They try to win points with potential voters who will support their re-election. Enter you as an out-of-work voter. What can I, the politician, do for you to convince you to help re-elect me in my next run for re-election? Why, I can pay you to do nothing. I can pretend to be on your side against the “greedy employers” who are only looking out for themselves. I can pretend to help you buy time while you look for that elusive job that pays you far more than the current market will bear. I can help make you feel special. I can pretend that I care about your welfare. Just remember my name when it becomes your turn to vote. That’s all I ask.

The game called politics simply pits the “ins” vs the “outs.” Those that are in do everything they can think of to stay in, and those that are out do everything they can think of to get in. That’s the entire game. Period. If something positive gets accomplished in the process, well that’s an unexpected side benefit. Unfortunately, under normal circumstances, far more goes wrong than goes right. This, then, is the result of the law of unintended consequences.

Sound cynical? You know it’s true. But since it’s not your ox that’s being gored, why should you care? After all, you’re the one getting the free unemployment ride.

Human nature demands that you look-out for number one. That’s natural. That’s rational. What is not rational is to ignore the fallout that occurs when you try for a free lunch at someone else’s expense. Not smart. That’s the action that comes back to bite you when you’re not looking and least expect it.

In a recent article, Chris Mayer of Agora Financial’s Capital and Crisis newsletter wrote about what he called the Yellowstone Booms and Busts. He noted that “In the late 1800s, Yellowstone National Park’s game population — its elk, bison, antelope and deer — began to disappear. So in 1886, the U.S. Cavalry took over management of the park. And its first order of business was to help bring back the game population.”

Well, you can already guess what happened. “The surging elk and deer populations ate a lot more. This caused the plant life to diminish. Aspen trees, for instance, started to disappear, eaten by the numerous elks. This hurt the beaver population, which depended on the aspen tree. The beavers built fewer dams. The beaver dams were important in helping prevent soil erosion by slowing the flow of water from the spring melt. Now the trout population took a hit, because it didn’t spawn in the increasingly silted water. And so on and so on…”

I referenced this brief account because it is usually easier to understand the concept when it is presented in a detached manner. Yet the identical domino effect occurs every time some artificial interference prevents a natural occurrence from taking place. When government steps in and tries to do something that would not otherwise take place, far-flung consequences also occur. We never know in advance what those might include. We can, however, make an educated guess.

In this case, no jobs will result from government efforts to create jobs. It is also reasonable to expect that the opposite will occur. Fewer jobs will be available because of government interference with the free market. Government efforts will utilize funds that might otherwise have been available for businesses to use as capital with which to create jobs. Governments simply do not create jobs. Private industry creates jobs. Governments create interference with job creation. But government job creation “sounds good!” Too bad it simply just doesn’t work.

What does work? You’ve heard the answer many, many times. Have government just get out of the way and let private industry do their thing in a free market environment. Period.

That statement doesn’t set well with the political class, however. Henry Blodget, of all people, posted a short article by Joseph Stiglitz on February 17, 2010 entitled We Need a Second Stimulus Now, Says Nobel Laureate Stiglitz, or Americans Will Be Unemployed for Years. No, Mr. Stiglitz and Mr. Blodget. That is exactly what we DON’T need. A second Stimulus will simply prolong the high unemployment for years. Government getting out of the way and allowing private industry to correct the government-created problems is the only way the unemployment problem can be solved quickly. Fortunately, the reader responses to this article were overwhelmingly critical of Stiglitz’s position, too. That tells me the American Public is no longer easily bamboozled by the political solution.

As I’ve been considering this no-jobs problem, a Broom Hilda cartoon from perhaps 30 years ago came to mind. To paraphrase from memory, Broom Hilda is sitting in her rocking chair while a friend is reading to her from that day’s newspaper. “The government announced today that a massive new government spending program will be established. It will employ hundreds of new government workers at a cost of millions of dollars. ‘We don’t really expect the program to accomplish anything, said a spokesman, but what the heck, it’s not our money.’ Broom Hilda then gulps and her friend responds “I made-up that last part just to see if you were listening.” In the final frame, Broom Hilda remarks “Now tell me you made-up the first part, too!” I’ve always been impressed that a clever political cartoonist can present in just one to perhaps four frames a concept that otherwise takes 1500 words of prose to develop. If we adjust that cartoon for the intervening inflation over the past 30 years, that cartoon today would read “thousands of new government workers costing billions of dollars.” Scary indeed.

Yet, isn’t that exactly what Washington is doing these days? The cartoon would be funny if it were not so true. Just throw more money at each and every problem. Don’t give any thought as to whether or not additional money is the solution. Just make it look to the public as though we’re doing something.

The year 2010 is what is called a mid-term election. You can already see the “I want to be re-elected” class starting to scramble. Several notable politicians have announced they will not run for re-election. I guess they no longer wish to expose themselves to the embarrassment of being defeated at the polls. Wouldn’t it be interesting if most of the so-called incumbents were simply defeated in their bid for re-election? That’s not a permanent solution, but it sure sounds like a good start.

Cheers,
Tex Norton

February 22, 2010

Next Up: The No-Jobs Bill was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In this specific case, Henry Waxman (D-CA), Chairman of the House Energy Committee, has acknowledged that the largest US insurance company, State Farm, alerted federal safety regulators on “numerous occasions” beginning three (3) years ago that there were reports of unexpected acceleration problems in Toyotas. Now that the “horse has been stolen,’ Mr. Waxman is attempting to lock-the-barn by requesting that the five (5) largest US insurance companies submit any reports the various insurers sent to the safety regulators as well as any e-mails they received from those regulators.

And so now the backpedaling begins. Oh we “pushed Toyota from the beginning” to address US safety concerns said the National Highway Traffic Safety Administration (NHTSA) division of the US Department of Transportation. Why they even sent some top NHTSA officials to Japan to brief 100 Toyota engineers and executives – last December. Let’s see, State Farm notified the NHTSA in 2007 that there was a “problem” so the NHTSA acted “quickly” to send top officials in December, 2009. Wow. Can’t get much quicker response than that, can you? Really holding Toyota’s feet-to-the-fire! I feel safer already, and I don’t even own a Toyota. (Editor’s note: Tex restores classic cars, and it was touch-and-go whether I should leave his dead body and take a black ’57 Thunderbird that would have had the Fonz doing the Snoopy Dinner Dance when visiting his secluded lake house. Suffice it to say the beautiful beast has been on the cover of at least one international magazine.)

Of course this is just an isolated incident, right? Not exactly. Recall the Firestone tire problems of a few years ago? Even though the NHTSA was required by law to begin publishing information on serious vehicle accidents, the agency managed to delay the publication for five (5) years! Excuse? “The NHTSA had to withhold that critical information due to pressure from manufacturers.” So the inmates are still in charge of the asylum?

There are numerous other examples of the failures at the NHTSA but why pick-on just them? There are plenty of other examples. Bernie Madoff comes to mind. It only took our fearless protectors 20 years to “catch” Bernie. The “regulators” in this case had been notified at least 10 years earlier that something was fishy with the Madoff operation. But good ole Bernie was a big dog on Wall Street so he couldn’t be doing something wrong, could he? The same SEC that was responsible for catching Bernie was also responsible for supervising the various investment banks. Yet somehow Bear Stearns and Lehman Brothers must just have fallen through the cracks. We note with appreciation that the insurance regulators were right on top of AIG, keeping them honest and above-board. Our banking regulators certainly didn’t let Countrywide get out of hand. Merrill Lynch found “cover” at Bank of America but now BofA is back in the suspect limelight. Lest you think it’s all financial-related, note the Food “Safety” Act now protects us at the expense of small farmers but offers wondrous support for big Agribusiness. Wonder how that happened? Goldman Sachs pulled the best stunt of all by getting “their man” into top politics in Washington so as to blunt any questions, let alone losses, that might be attributable to them. Hey, if you don’t have friends in high places, you don’t have squat.

I don’t see any pattern here, do you? These are all just “isolated” cases, right? No need for alarm. Pay no attention to the man behind the curtain. Just keep moving along, folks. Nothing to see here.

As Lee Iaccoca would ask “Am I the only guy here that is angry?” Where is the outrage? Have we become so used to government corruption and incompetence that we no-longer even react to these atrocities? Why do we seem to demand perfection from our corporations and not from our government agencies? Why are government-types not held to at least an equal standard to that of business? Why is there no demand for responsible execution of government duties? Why don’t government-types get fired for not doing their jobs?”

We keep coming back to the same answers regardless of the questions or atrocities that occur in our government. Public “ownership” means virtually no ownership. No one is responsible. No one takes or accepts responsibility. Only in the private sector is there a sense of responsibility. Only in private industry does performance count.

We’ve all visited national parks as well as private parks. By that I mean such places as Grand Canyon and, say Disneyland. When I visit a national park, I’m appalled at the trash and filth. When I visit Disneyland, I’m impressed with the cleanliness. That’s a perfect example of public ownership, meaning no one takes responsibility versus private ownership where the very survival of the business depends upon pleasing the customer.

Isn’t hiring a private security guard very similar to hiring someone at the SEC or at the NHTSA or at the FDA or at any government watchdog agency? If the private security guard fails to perform, that person is fired. If someone at the SEC, NHTSA or FDA fails to perform, the Department budget is doubled and many more bureaucrats are hired to “fix” the problem. In government, the problem not only never gets “fixed,” the problem gets worse and the costs skyrocket. So if Mr. Waxman is really serious about getting to the bottom of the latest scandal at the NHTSA, he knows where to look – right behind him.

But of course Waxman really isn’t interested in solving the problem. He’ll go through the motions of making the electorate think he’s on top of things, but the end result will be to simply white-wash the underlying problems. Then it’s on with government business as usual. Toyota will, because in the long run their goal is to survive by making profits, actually fix their current problems. Please note Toyota will do this regardless of what the government “regulators” do or say.

Which begs the question: Why do we need government regulations? If the regulators don’t do their jobs; if they are either unresponsive or slow-to-respond, who needs them? Then who would protect us, you ask? Who is protecting us now?, I ask. Haven’t we just observed that the very folks we rely upon to protect us – don’t?

The government has become the master Pied Piper. While we slept so peacefully, forces at work behind the curtain bamboozled us into believing that they had our backs; that we were being protected even as we slept. Yet once again, we’ve been awakened to facts that they aren’t doing their job. Have they ever really done their jobs? Isn’t what passes for regulation by governments just a myth?

I’ll go a step further. Not only is it a myth, it’s a con-game of the highest order. What do regulators do on a regular basis that is observable? Give up? They formulate rules and regulations, don’t they? And then they impose those rules and regs on the voters under the guise that these requirements will protect the public. But let’s once again look behind the curtain.

In a former life, I had almost every securities and insurance license known to man; at least a man living and working in the United States. Would you suppose I studied for and passed all those exams because I had nothing better to do? Or would you correctly surmise that I submitted to that indignity because that was what was required for me to be able to work in the securities and insurance industries? Who came up with these tests as being a requirement for employment in these industries? Government? You’re temped to respond “How else would your customers know that you were competent to do your job if government didn’t supervise you?” But haven’t we just been discussing that the government regulators really haven’t been doing their jobs? So once again, why did I have to take and pass all those exams?

Ah, now we’re starting to “follow-the-money!” Name a profession: Doctors, Lawyers, Engineers, Stock Brokers, Insurance Agents, Investment Advisors, hair dressers, butchers, the list is almost endless. Question: What do all these assorted professions have in common? Answer: required licenses to practice those professions. You couldn’t let just anybody practice medicine, could you? Doesn’t that person have to have a medical degree from an accredited school, not just any old school but an accredited school, before being allowed to practice medicine? Well, yes, but not for the reason you’d think. The ONLY reason the doctor is required to obtain a degree is because the medical profession (read medical CARTEL) has convinced the government that no one other than a degreed-person is competent to practice medicine. Why?

You’d be tempted to respond that attending an accredited medical school and graduating with an accredited degree is the only way to assure competence, correct? But if that is a true statement, why are there so many successful malpractice law suits against doctors? (Editor’s note: we must always remember that half of all doctors were graduated in the bottom halves of their classes, as well.) If the only qualified doctors are those that completed an approved medical school, how can the lawyers be successful in wining so many malpractice lawsuits? Gee, maybe just having the right degree and license to practice medicine isn’t the solution after all. But remember, we’re trying to follow the money here. So why would the doctors create such a barrier to entry into the medical profession?

Lesson from Economics 101: Law of supply and demand. If there is a large supply of a product or service, the price of that product or service is rather low. The fewer the available products or service providers, the higher the price of each. If you’re a doctor; or lawyer, engineer, stock broker, etc.; you really don’t want any more competition than absolutely necessary in order to maximize your income. You join with others to form a cartel to keep out the riff-raff. You make it difficult to join your fraternity of professionals. You create a high entry cost into your field of endeavor. You limit your competition.

You can safely apply this concept across the board. Think labor unions. You’re a carpenter. You want to earn as high a wage as possible. You join other similarly-minded carpenters and establish rules for membership. Any new kid that wants to join must jump through some rather tough hoops. You are able to effectively keep your membership low. You then petition government to require that all government projects be built only with union carpenters. Government grants your request because you represent a desirable voting bloc for them at the next election. Now equipped with your union and exclusive contract, you can dictate the labor cost for that project. No matter that non-union but highly skilled carpenters are willing to do the job for less. You’ve got a lock on the deal; no outsiders allowed. Now extrapolate this concept to all the other professions. Not so difficult now to follow the money, is it?

There is at least one more step in this progression. We started by questioning the need for government regulation considering the fact that the regulators never seem to act in a pro-active roll and are, at best, re-active. But they do make the “rules.” Enter our unions, whether they be doctors, lawyers or Indian chiefs. Someone has to formulate the rules promulgated by the regulators. Where do those rules come from? What is the source? Let’s continue to follow the money, shall we?

You’ve just formed your professional union to limit entry into your field of endeavor. Now you need to establish a coercive power to enforce your desires. What do you do? You lobby government to establish operating rules and regulations governing your business. But the government doesn’t have the foggiest clue as what you do, let alone what rules are appropriate. So in your most benevolent gesture of good will, you offer to write the rules and regs for the regulators. “How wonderful!” exclaim the regulators, since they haven’t got the slightest idea where to start. This way, they can continue to drink coffee, tell jokes and chase the secretaries around their offices while you prepare the rules and regulations that will give your group a monopoly in your specific industry. Then you continue by contributing heavily to the political party that permitted your establishment of this farce thereby assuring its permanence in our society.

See how the money flows? See why the regulators won’t do their jobs? See why this situation gets repeated a thousand times-over? See why this situation will never change until and unless we, the people, say “enough!”?

Cheers,
Tex Norton

February 16, 2010

Another Waxman Whitewash? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Why are you afraid to be responsible?
 
I suggest the answer is the gradual brain-washing that has taken place over the decades that promotes government as being the know-all, be-all for society. Somehow if an individual gains enough support to get elected to an office, that person is instantly transformed into a superior being; a much more knowledgeable person than just prior to that election. Doesn’t make much sense, does it? Yet that is exactly the status we seem to confer on elected officials. Somehow they are no-longer fallible humans once elected. Nonsense. I could even make the argument that they have become less knowledgeable because of their stupidity to allow themselves to become an elected official in the first place. Have you noticed that the really intelligent people you personally know wouldn’t even consider running for an elective office? Why do you suppose that is? Do they know something you should?
 
I have long-argued that I could take the most honest, respectable person available; put that person into politics; help that person work his way up the political ladder to the top, and all I would have created is a totally corrupt politician. You don’t get to the top otherwise. Call me cynical but you know what I’ve said it true. Yet this is now the very individual that you accept as being better able to make decisions on your behalf than you could or would make for yourself. Why are you afraid to be responsible for your own actions; your own decisions?
 
As I’ve noted many times in prior articles, I always seem to be defending Capitalism and free markets every time I publish. I’ve wondered why I feel the need to do that. While there is no single answer, the general answer is that so very few people understand Capitalism and free markets that it has become a full time job to acquaint people with their heritage. The very same politicians that would have you believe you need them to make your decisions are the very folks that don’t want you to know how Capitalism and free markets work. If the majority really understood, the politician would fall into “disuse.” Can’t let that happen.
 
Governments don’t create jobs. Governments don’t produce anything (except perhaps coercion). Governments don’t solve problems. Governments don’t make money. Governments don’t improve economies. Governments don’t eliminate poverty. Governments don’t improve health care. Governments don’t solve global warming (which is not even required). Governments don’t create productive jobs.  Lately, governments don’t even protect Contract Law (witness the complete loss suffered by bond holders in Chrysler and the other industries usurped by government). Governments don’t even seem to do what they were originally intended to do: protect their citizens and provide a stable currency. Feel safer thanks to airport security? Happy with the stable purchasing power of your dollar?
 
What governments do is create the problems and then offer themselves as the solution to the very problems they created. The New Deal we discussed above was offered as the “solution” to the government-created excesses of the 1920s, for example. After WWI, the government created the environment of easy-credit and artificially-low interest rates (sound familiar?). By 1929, this excess credit was sloshing around in a then-bubble called the stock market. It was easy to identify a bubble because the shoe-shine boy was touting stocks according to Bernard Baruch. In fact, all economic recessions can be traced to interference by governments. Then these same governments come-to-the-rescue to “solve” the very problems they created. And we permit this to occur over and over and over again.
 
When we then let government “solve” the problem(s) they created, their solutions only extend the recovery time that it would otherwise take if the government had simply gotten out of the way and let a free market solve the problem. That was true for the Great Depression and you will observe that it is now true today as government tries unsuccessful after unsuccessful stimulus and bailout fiascos. The latest fiasco about to be imposed on us is the new jobs bill. Please note no productive jobs will result because only Capitalism can create productive jobs. It is also safe to say that more bureaucratic jobs will result. Yet we continue to accept their premise that they can make better decisions for us than we can make for ourselves. Why are you afraid to be responsible?
 
If it were possible to distill the myriad of “reasons” used to justify government involvement into just one mythical statement, that statement would probably be: “If government doesn’t do it, how would it ever get done?” Again, this demonstrates the lack of understanding of Capitalism and how free markets work. If something is really worth doing, the public demand for that product or service will not go unnoticed by private industry. Trust that there will be a line of entrepreneurs willing to risk their money and talent to provide that good or service.
 
In a prior life, I designed, developed and manufactured nine (9) hardware items that went to the Moon and back. I worked in private industry but the overall funding came from the US Government. How could we have ever gone to the moon without government funding? My argument at the time and still is that we would have done it with private enterprise and made a profit in the process. Look at the private industry now developing in space travel. That is all privately funded. Government has absolutely no involvement. The companies expect to make a profit in the process. That’s because there is a public demand for the service. Even the original Moon Mission would not have been possible if it had been left up to NASA engineers to do all the work despite government funding. Only by utilizing private, for-profit companies such as the one for whom I worked was the original mission successful. We were not afraid to accept responsibility.
 
How about you? Are you competent in your work? Are you reliable? Do you feel you provide a talent or service that is desired by others? Are you a source of knowledge in your chosen field?
 
For the sake of brevity, you will have to accept that Capitalism is the answer to any problem you might choose to raise. In the same breath, government is not only not the solution, it is the problem. When you stop demanding that government DO SOMETHING and start relying on your own talent and initiative, you will be amazed at how quickly former problems simply disappear. You need not be afraid to accept responsibility.
 
Cheers,
Tex Norton 

February 10, 2010

Why Are You Afraid to Be Responsible? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

There are certainly many reasons from which to conclude that we’ve been cheated out of our future. I recently viewed a YouTube clip of what’s left of Detroit. The destruction is incredible. It looks like the war zones from WWII. Is Detroit an example of what will become the future of our entire country? W&G recently featured some articles that discussed the possibility of converting parts of Detroit back into small farms. Kind of takes your breath away to realize that the once-magnificent center of the automotive universe is degenerating into a vegetable garden.

When my father was born, the Wright Brothers had not yet made their December 17, 1903 heavier-than-air flights at Kill Devil Hill near Kitty Hawk, NC. During his life time, we successfully made it to the moon and back. As I marveled at the progress my father had witnessed during his lifetime, I wondered what developments I might witness during my lifetime. As a child, I recall dreaming that I might one day be able to enjoy the Dick Tracy wrist radio made so popular in that comic strip. Today, we have more computing power in a cell phone than we had in the entire Apollo command module that went to the moon. And we can also use the cell phone to talk to someone else at the same time. What a concept.

I made my debut during the Great Depression and then grew-up during the 1940s and 1950s. That I’m alive today is thanks to the discovery of penicillin. I contracted blood poisoning in 1941 and the then-standard treatment with sulfa drugs wasn’t helping. Only with the penicillin was I able to overcome and recover from the blood poisoning at the Presidio Hospital in San Francisco.

During the last half of the 1950s, I worked in the Advanced Engineering Staff of the Ford Motor Company in the Detroit area. I helped design and develop automotive concepts that are only now coming to market. They included such innovations as variable valve timing, air suspension systems, infinitely variable automatic transmissions and automotive air conditioning systems. You take these for granted today, but it took a great deal of engineering effort for those items to reach you. It was a cooperative effort among many engineering disciplines, not the least of which is today’s miniaturization of electronics and computers.

During the 1960s, I designed, developed and manufactured nine hardware items that ultimately went to the moon and back. Essentially, I provided the heating and air conditioning systems that kept the astronauts alive and comfortable. That may not sound like much until you realize that we had not yet invented the hand held calculator. We went to the moon with slide rules and vacuum tube technology. Only the Air Traffic Controllers use vacuum tubes today. The rest of us use much more advanced electronics.

Yet another technical breakthrough that took place during my lifetime was the advent of television. I recall the huge box that was delivered to our house in the late 1940s. It then took a week before a special technician could come to our house to connect this marvel. In the meantime, I sat on the floor staring at a blank screen that might have been as large as 10 inches wide while trying to imagine what I was going to be able to see once the set was operational. At that time, I’d never heard of James Clerk Maxwell nor was I familiar with Maxwell’s Equations. Yet because a few scientists and engineers were familiar with the laws of electromagnetic wave propagation, all I had to learn was where the on-off switch was located and how to change channels.

All the above was made possible by an event that took place earlier in history. A British scientist, Edmond Halley (1656-1742), used his knowledge of orbital mechanics to predict the return of a comet in the year 1758. While he did not live to actually see the comet return, the effect of his prediction was transformational. For the first time in recorded history, the man-in-the-street put aside his myths and misunderstandings and accepted science as being a correct discipline to be believed. From that time forward, “the folks” have accepted The Scientific Method of Analysis as being the reliable discipline. The witch doctors of that day were effectively put out of business.

Fast forward to present day. What happened? Where are the folks that revered science and the laws of nature? When did the politician supersede the scientist? The Scientific Method of Analysis seems to have been replaced by the political statement “Discussion Over.” Yet the very purpose of the Scientific Method is to never stop questioning the validity of any conclusion. In science, if any exception is found, it requires going back to square one and starting over. Yet in politics, “discussion over?” In the political arena, if one denies that the law-of-gravity applies to them, the moment they step-off Half Dome (Yosemite), guess what? My point is that laws of nature do rule regardless of what the politician would have you believe.

Yet we seem to have slipped into real-life double-speak. The “1984” version of life seems to prevail. Good is bad and bad is good. Some politically-connected banks are considered too big to fail even though they were/are zombie banks. The very institutions that caused the financial meltdown are thus saved. Ditto insurance companies, auto manufacturers and any other institution with high-level political connections. Real producers are permitted to fail without compassion whatsoever. The bad guys get rewarded and the good guys get the kings elevator (royal shaft).

Readers that find their way to websites such as WhiskeyandGunpower.com and TheTexasRing.com typically take responsibility for their actions as well as representing strong beliefs. It’s probably also safe to say that these readers enjoy a better life style than did their parents. It’s probably also accurate to opine that they wish to create an even better life for their children and grandchildren. Yet despite this objective, we find ourselves being restricted daily by more and more official government laws and policies. You must do this and you may not do that. The nanny state is now in-charge.

As I pen this paper, the President has just responded to the Christmas Day attempted bombing of an airliner over Detroit; albeit only two weeks late. The message: “It was a systemic failure and we must do better.” The information was all there but we didn’t get that information to all the right people in a timely manner. Yet this same government thinks they can make a better medical choice for you than you can make for yourself. This is the same government that “knows” that anthropogenic climate change is the problem leading to Global Warming. We are expressly forbidden to drill for oil in ANWAR or off our east and west coasts or off the Florida coast. We are mandated to waste food (corn) to manufacture a liquid to propel our cars. Only one slight problem: it takes more energy to create the ethanol than the energy we ultimately get from burning that ethanol.

What happened to our future? The government has currently usurped it for their own benefit. All for our own protection, of course.

In my opening paragraph, I mentioned several prominent writers. I’m always amused at the reader responses that typically follow one of JHK’s articles. While many seem to accuse him of being simply doom and gloom, I consider him a realist. He calls ‘em the way he sees ‘em. He’s just the messenger. Those that don’t agree think they solve the problem by shooting the messenger. But every one I named are just the messengers. Their purpose is to get you to critically think about the problems they raise. Don’t shoot the messengers. Instead, try to find solutions to the problems they identify.

One of the most exciting newsletters in the Agora Financial stable is titled Breakthrough Technology Alert. Agora hired Patrick Cox a couple of years ago to take over the letter and he has turned out to be exceptional. I find myself fascinated by his descriptions of the transformational sciences which include biotechnology, nanotechnology and stem cell research. If I correctly understand what he’s written, we are within 5 years of having the ability to rejuvenate the human body organs and systems as well as preventing/curing diseases. One company already has a cream that literally erases wrinkles and that product is expected to make it to the market any day now – my wife can’t wait.

I submit that these endeavors are what will continue to provide our improved future. I could certainly fall into the “woe is me” trap every time I see Nancy Pelosi or Harry Reid pontificate on some new law they want to shove down my throat. Certainly I’d prefer to just be left alone to make my own decisions and accept the responsibility and results for my actions. I certainly did not expect to be spending my “golden years” having to fend-off the parasites. But such is life. I can either succumb or I can try to find a solution that renders the overbearing, arrogant government ineffective if not outright impotent. I choose to find the alternative solution. I like my creature comforts; I value the extraordinary benefits I enjoy as a result of the division-of-labor concept; I don’t choose to return to a world made by hand.

History is an excellent teacher if only you’ll take the time to look and try to understand. Automobiles have always been my first love so I’m reminded of what Henry Ford did. At the time Henry was designing his car and developing the production assembly line, a major existing transportation system was the horse and carriage industry. Instead of going to Washington, DC to pressure his Senator to introduce a Bill to outlaw buggy whip makers, Henry simply built a better substitute – the automobile – and the buggy whip makers fell into disuse.

I suggest that we concentrate our efforts towards building a better mouse trap rather than trying to hide in the political morass that prevails today. I’ve outlived the villains of my day such as John L. Lewis (Coal union boss); Walter Reuther (Auto Workers Union boss); FDR; LBJ; Jimmy Hoffa (Teamster Union boss); etc. People who produce can always outlive the parasites.

Have “they” stolen our future? I don’t think so even though they’ve certainly tried. We’ve got a lot of dead wood to burn off, but the “can-do” American Spirit has always been up to the task. In the interim, it would certainly be a giant step if we could clean out the currently corrupt gang in DC and resurrect the Constitution.

Cheers,
Tex Norton

January 21, 2010

Have They Stolen Our Future? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Friday, October 30, nine (9!) banks failed and were taken-over by the FDIC. That brought the total bank failures to 115 so far in 2009. This number of failures hasn’t been exceeded since 1992 AND we still have two months to go in 2009 to probably set an all-time record. What a wonderful record at which to look forward.

Not to worry, though. U.S. Bancorp bought all nine of the failed banks. Specifically, they picked up $18.4 billion in assets and $15.4 billion in deposits. The bankrupt FDIC picked up the losses. Is this a great system, or what?

We haven’t even begun to recover from the imbecilic big-bank shenanigans of the recent past; yet here we are creating still more “Too-Big-To-Fail” banks.

Excuse me but if big banks created the problems were now facing, wouldn’t it be a tad more prudent to, say, limit the size any one bank could attain? Hello Barney, Chris – anyone home?

Oh, I forgot. On Friday, Barney Frank did address the problem. He decreed that the TBTF banks would henceforth be charged a “fee” during good times in order to cover potential losses during bad times as the TBTF bank problems are unwound.  I guess size does matter. Apparently all this will be done in secret:

A. There will be a secret club of financial institutions that will be considered “Too-Big-To-Fail.” So if you’re a member, what incentive do you have to act in a prudent manner? Do you not, in fact, now have a license to steal? Can you not do any foolish thing you wish? You know you’d be punished if you simply acted prudently but would benefit with a bailout if your wild schemes failed. Moral hazard? Naw!

B. The public will not be informed of who the members of this private club are. And you thought you had some semblance of privacy in financial matters? The FED still refuses to identify which banks were subjected to the so-called “Stress Test.” Why should we be surprised that they won’t tell us the names of the TBTF club members?

C. A fund will be established by taxing these financial institutions in good times to pay the costs to protect them in the bad times. Anyone really think these fees will cover the bad times? Who will determine when the “good times” are here? And when there are insufficient funds in the kitty, guess who will pay the difference? Moral hazard? Naw! License to steal? From guess whom?

D. The Federal Reserve will have the power to determine and therefore change what the definition of “solvency” is. Oh great, try playing the game when the ground rules keep changing. I’m going to take my bat and ball and go home now!

Did it occur to you that, by omission, the Too-Small-To-Matter banks will continue to be thrown to the wolves? Let’s see; we make big banks even bigger but we close small banks and merge them into already big banks making the big banks even bigger. Figures! First we experience a meltdown in our banking system due to too much debt. We then “solve” the problem by creating still more debt. Part of the fallout of the banking collapse was that we were told we had banks that were too-big-to-fail. Now we “solve” this problem by creating still more and even bigger too-big-to-fail banks? Wow! The logic underwhelms me. Next time my house catches on fire, I guess I’ll try pouring gasoline on it to extinguish the fire. Well, water is just “so-yesterday” a solution. Might as well be innovative.

Currently on the front burner is CIT Financial. Here is an institution that services Middle-American business. CIT apparently no longer qualifies as a TBTF bank, even though they did receive over $2 billion in bailout money a year ago. As a result, CIT finds itself in the middle of bankruptcy proceedings. The intent is reorganization under Chapter 11. Regardless of the outcome, small and medium-sized business will suffer. The Wall Street Journal estimates that perhaps only 20% of the prior level of financial services will be available, and that’s “IF” CIT is successful in reorganization. At best, it’s obvious that any attempt to replace these lost “services” will require much higher financial credit-worthiness and there will be fewer funds available for this process. Well…the TBTF banks have all the money so what’s left for small and medium-sized business? Now tell me this isn’t a License To Steal? Can you estimate how many small and medium sized businesses will be forced into bankruptcy? That really helps our recovery-NOT. Small business creates 90% of the new jobs Obama keeps looking for but, hey, why worry? Privatize the profits and socialize the losses. Just keep the big boys happy.

Every economic problem we face can be directly traced back to the Federal government and the interfering laws that they continuously pass. Remember the Resolution Trust Corp. back in the 1980s? It became “necessary” to bail out the Savings & Loan industry because so many of the S&Ls gambled wildly with their depositors’ money. Sound familiar? How could the S&Ls of the 1980s and the too-big-to-fail banks of the 00s make such horrible business decisions? Were/Are the management teams just stupid or are they also incompetent?

Consider this: We’ve had a 115 bank failures just this year. Are you worried? Why not? Oh, your account is insured. By whom? So when the management of the bank that controls your deposits makes stupid business decisions, you don’t care? The FDIC will bailout your account. Not only that, the “insured” amount was increased from a “mere” $100,000 per account to $250,000 this year (this extra coverage expires at the end of 2013 and reverts back to the $100,000 figure in 2014 as currently scheduled). Do you see a slight problem here? Isn’t the FDIC just another government agency that gives the banks a License To Steal?

Just for giggles, suppose there were no FDIC and your deposits at any bank or S&L were simply not insured. Would you then perhaps have a slightly different outlook as to the safety of your money? Would you perhaps behave somewhat differently when selecting a bank in which to deposit your funds? Why? Do you now see that the FDIC is a Federal Government sponsored insurance scheme to protect you from greedy and stupid bankers? Or do you perhaps see that the FDIC actually facilitates excessive risk-taking on the part of the bankers since they have nothing to loose? Do you suppose there might be a slight moral hazard hiding somewhere in this mix? If the bank did not have the FDIC insuring your deposit and that same bank had to compete in the open, free market for your deposit account, would you suppose that the bank management might behave in a slightly more conservative manner? Wouldn’t you behave in a slightly more conservative manner when selecting a bank?

What’s to restrain the management of those banks today? If they mess-up, the government will protect them. And as we’ve all observed, the very folks that made the stupid and reckless business decisions will still get their multi-million-dollar bonus.’ Would you be willing to make a wild guess that maybe there is a slight moral hazard hiding somewhere in this scheme? Isn’t that a License To Steal?

You don’t want to hear this, but you and I are responsible. Yes we are. We grumble about politicians and yet we continue to re-elect the same folks who continuously lie to us. They tell us what they think we want to hear, and then go do whatever they want. As Walt Kelly’s eminent philosopher of the 1960s, Pogo, opined, “We have met the enemy and they is us.” Don’t we rationalize that “our representative is okay but it’s the other guy’s rep that needs to be voted-out? Well guess what? Our rep needs to go, too. They all need to go. We don’t need term limits. We just need the gumption to vote “no” every time we see the term “incumbent” after a candidate’s name. It’s that simple. I’d guess that the message would be heard loud-and-clear very quickly. Isn’t it about time we put an end to what seems to be an unlimited License To Steal?

Regards,
Tex Norton

November 3, 2009

Bankster’s Cartel: Licensed to Steal was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

You railed against what you called scare tactics and misinformation. Yet you then proceeded to misinform your audience with your own false assertions. Let’s review a few:

First you decried the so-called Death Panels. While that term has certainly been used, the real concern is that you want to pay doctors to discuss end-of-life options. Currently, doctors decide when to counsel patients as part of their overall care. Now you want to pay them to specifically tell older folks how to die? That’s just downright scary. You even promote a booklet for veterans which tells them how to die. Since when is this ANY of the government’s business?

During all the time you campaigned for President as well as since you were elected, you and your minions have repeated the number ”47 million” as representing the uninsured in this country. Suddenly last night, you changed that number to 30 million. Did we suddenly use government funds to insure 17 million folks yesterday? Did 17 million Americans suddenly get religion and buy health insurance on their own accord? No, Mr. President, you were simply forced to acknowledge that at least 17 million uninsured people currently inside the United States are illegal aliens and you had already promised not to give them any benefits. Yet you continue to give them benefits. To wit:

The law mandates that any person seeking medical services at a hospital may not be turned-away because they have neither insurance nor money with which to pay for those services. Doesn’t that mean that EVERYONE is automatically medically insured? Don’t we taxpayers already pay for the so-called uninsured? So what’s the problem? From our point of view, the problem is that we do not choose to pay and pay and pay for people who are too lazy to care for themselves. We’re most charitable to occasionally help those folks who find themselves upside down. We’re not interested in providing perpetual welfare.

You insisted that not a single dime of extra money would be spent to provide this health care for all. You even said it with a “straight face.” Yet your own CBO (Congressional Budget Office) has clearly opined that this is NOT true. Your program would be out of money by the 8th year and that the subsequent decade would create still more severe cost overruns. Question: How do you cover additional millions with the same number (or less) of doctors and nurses without spending one dime or causing rationing?

In this matter of costs, you insisted that the entire program would be paid-for by savings you intend to achieve by making Medicare more efficient and by cutting the fraud and abuse in the system. If this savings is so obvious to you now, why wait? Why not IMMEDIATELY implement the improvements? Why, if this is so obvious to you, would you wait to correct such an obvious problem? Isn’t this what government is supposed to do automatically? Why does the elimination of fraud and abuse have to be conditional on passing government-run health care? As a petulant child, you refuse to do your job unless you get your quid pro quo?

You insist that a government option/co-op will be a small part of the overall health care system. Yet, one provision of the proposed bill states that a business will be fined 8% of payroll if they refuse to comply. Health insurance premiums typically exceed 8%, so if I’m a small business, my decision is simple. I quit paying more and simply pay the smaller government fine. Yet that decision ultimately results in putting government involvement in health care at close to 100%. You insist, however, that your goal is not to control health care. Who’s kidding whom?

Somehow, government is going to correct all the ills that private industry has created. Let’s take a peek at how the government has done in the past. Thanks to David Galland of Casey Research, I herewith submit his brief analysis:

“A Quick History Lesson

“The U.S. Post Service was established in 1775. So they’ve had 234 years to make it work. It is broke.

“Social Security was established in 1935. They’ve had 74 years to make it work. It is broke.

“Fannie Mae was established in 1938. They’ve had 71 years to make it work. It is broke.

“Freddie Mac was established in 1970. They’ve had 39 years to make it work. It is broke.

“The War on Poverty started in 1964. They’ve had 45 years to make it work. About $1 trillion of taxpayer money is confiscated each year and transferred to “the poor.” It hasn’t worked.

“Medicare and Medicaid were established in 1965. They’ve had 44 years to make it work. They are both broke.

“AMTRAK was established in 1970. They’ve had 39 years to make it work. Last year it had to be bailed out and today continues running at a loss.

“$700 billion bailout of 2008. It has yet to create a single new private-sector job.

“Cash for Clunkers in 2009 went broke after 80% of the cars purchased turned out to be produced by foreign companies.”

But… This time it’s different. This time the government will do a really good job. This time, government will make it work. This time, government will be efficient and make health care better and affordable. This time, government will stop the fraud and abuse that is typically inherent in all government programs. This time…

Still another objection you raised insisted that scare tactics have frightened folks. All the talk about rationing simply isn’t so, according to you. Yet all a person has to do is observe where people from around the world go when they need health care. Why do Canadians fly to the USA for medical treatment for which they must pay when they can get free health care in Canada? Could it be because of the long waiting periods that plague every medical procedure in Canada? Ditto England. Hmm. Why do Sheiks from the Arab countries come to the USA for their medical treatment? They have all the money they need to get medical treatment in their own country. Oh, the medical treatment just doesn’t exist in their country. Wonder why?

If you want to really talk about “scare tactics,” let’s consider the bailouts. Somehow it was absolutely necessary for your administration to pass all the Wall Street bailouts immediately or we’d have runaway unemployment. If passed, you promised unemployment would not exceed 8%. Gee, where did the latest 9.7% unemployment figure come from? Ditto health care. We just had to pass your government controlled health care by last July; then August; now September. Or? And why do you conveniently fail to acknowledge that the health care plan you’re trying to ram-through today will not become effective until 2013? If it’s so important, why must it be passed now but held in abeyance until 2013? But that’s not “scare tactics,” is it Mr. President?

One of the reasons current medical costs are so high in the USA is the threat of lawsuits for malpractice. Doctors feel obliged to request all sorts of expensive but otherwise unnecessary tests just so they can’t later be charged with malpractice by ambulance-chasing attorneys. I didn’t hear you say anything substantive about Tort Reform last night, Mr. President. Oh, I forgot. The legal lobby makes large contributions.

You also said last night that you had an open mind and would consider alternative plans. I’m here to call your bluff. Here is a far better solution than involving government in the very personal and private decisions (which I submit is the very reason you won’t consider this alternative). Put people in charge of their own health care and payment for their health care services.

Suppose every individual takes control of his/her medical costs and treatments. Instead of an HMO or the government deciding what costs they will pay, the folks would decide directly. This system already exists in the form of Medical Savings Plans, MSPs. You get immediate treatment and the doctor gets immediate payment. No forms to send to the HMO or Medicare nor a wait for months to then get reimbursed. The funds set aside for this purpose would be treated as tax-exempt thus encouraging everyone to participate. Cash and carry works.

That is not to say that insurance no-longer has a place in medical protection. In today’s market, those with insurance have what I call band-aide insurance. The programs pay for almost every minor problem. Financially, this is a very poor use of limited funds. The MSP savings would cover these types of expenses in the future and would be unique to each individual/family. Serious medical expenses would still be covered by what is called “Major Medical.” Once an illness exceeded some specified amount such as $25,000, the Major-Med would kick-in and cover the rest. This would provide the so-called bankruptcy protection feature. Major Med is- and has been available for decades, and it’s very affordable. The issuing insurance company knows that it will not have to pay anything until the costs exceed the stipulated amount. Therefore, the premium is amazingly small. That, I submit, is the correct use of insurance – any insurance.

But wait, you say. “I don’t know enough about medicine to be able to make my own decisions.” Then I suggest you learn. And the very, very sad fact is that very few in the medical profession “know” either, but that’s a topic for another article. Suffice it to say that when competence is demanded by the customer, the medicos that survive the scrutiny will become the best choices for medical services. No one is instant-smart and there will be a learning curve, but the effort will be well worth time allocated.

Recently, I read an in-depth article describing the treatments and costs-of-treatments between the cities of McAllen, TX and El Paso. The McAllen costs were virtually double those of El Paso yet the patient (read customer) results were almost identical. If the results were comparable, why spend twice the money for the same results? Again I submit that government mandated single-payer programs will double the costs even though they initially claim they will reduce costs. Can you say Post Office? Can you say Medicare? Can you say any government program in competition with a privately-run program?

Every article I write seems to be based on having to refute the claim that capitalism has failed. Private medicine has “failed” so now big government has to step-in and make it work is the basic message now being promoted. Nothing could be further from the truth. As I continue to maintain, we’ve never even had pure capitalism so how would we know whether or not it’s failed? Big government has had their sticky hands in every facet of our lives with rules upon restrictions upon laws upon mandates that contradict common sense. I would argue that no one has a higher interest in your health and wellbeing than you, no matter how sincerely others try. That being the case, why don’t you just trust your instincts and take charge of your health? Just say NO to Government Health Care.

Let me be perfectly clear: Health care is NOT a right and government has absolutely no business getting involved. You can pander to the voters, Mr. President, but you can’t justify that position to rational, thinking people.

Regards,
Tex Norton

September 11, 2009

The President’s Health Care Scare Tactics Exposed was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Aren’t we the folks who at a ratio of 90 to 10 told our so-called Representatives to vote against the Bail-Out Bill? Aren’t we the folks who have responded on an 85 to 14 basis telling our Representatives we want “In God We Trust” to remain on our currency? Aren’t we the folks who said we didn’t want the likes of Chrysler, GM, AIG, Fannie and Freddie rescued? Notice how well they listen?

National Health Care as proposed by the Government will be an absolute disaster. I can make that statement from personal experience. While traveling throughout Europe in 1974, I broke my ankle. I then had the “pleasure” of partaking in the English version of Socialized Health Care. You might find the following helpful in your understanding what is being proposed.

About three hours after arriving at the hospital in Newcastle, England. a doctor looked at my foot (from behind his desk mind you, and not up close and personal as you would expect) and said he didn’t think it was broken but that I should still get an X-ray. I would have to come back the next day for the X-ray, however, because the Radiologists were on strike that day. That is when I began to learn about socialized medicine first hand. In the meantime, a nurse gave me a temporary strap-on splint to support my ankle.

The next day, I sat in the waiting room at the hospital from 8 AM until five minutes after twelve Noon. The Radiologists were still on strike and at least 100 patients had now gathered along with me waiting for something to happen. Finally, the hospital brought in one technician on an “emergency” basis. She reviewed the files of the 100 or so people all of whom were waiting for an X-ray and then called five names. I was name number five. The rest were sent home and told to try again the next day. I actually felt guilty as an outsider having displaced someone local getting proper medical treatment.

My X-ray showed that I had indeed broken my ankle, and the doctor said I’d need a “plaster” on my foot. However, I would have to come back tomorrow because the plaster technicians were also out on strike. Swell. I then checked with a few private doctors but they all told me they could only refer me back to the hospital. That is when I began to think of the hospital as the end-result of my grand tour.

I did, indeed, get my plaster the next day, and so to make amends, they added the walking heel pivot at the same time. Highly unusual, I was told. However, I now had to stay off the plaster cast for a minimum of three days to let the plaster cure. I had hoped for a small plaster cast but wound-up with one that extended from my toes to just below my knee. Then the pressing matter was to learn to ride a pair of crutches.

I did learn to use the crutches and I did keep my weight off the plaster for the three days as stipulated before resuming my tour. Within the first day back on the road, the plaster started to crack and I was again experiencing severe pain.

I thought I’d better have my ankle re-checked. By that time plaster was badly cracked on the bottom, and I was experiencing sharp pains shooting up my right leg every 15 to 20 seconds. I went to a Hospital in London and told them what had happened and what was now happening to my ankle. They acknowledged that I should have my ankle re-examined but the Radiologists were still on strike. When I did finally get to see a Radiologist, the tech had to take at least 5 separate X-rays due to her incorrect settings during the first four tries. Surprise, my ankle was still broken.

The doctors at St. Thomas Hospital in London elected to remove the original plaster and replace it with a new design. However the plaster technicians were still on strike. When I finally did get to see a plaster tech, he cut-off the old plaster and replaced it with a new one. Instead of a heel walking pivot, he simply reinforced the bottom of the new plaster cast and then gave me an oversized boot to wear over the plaster. The boot had a curved bottom and I found I could walk almost normally. The boot also served to camouflage the more obvious plaster. Now, I simply looked like I had a deformed right foot. However, the new plaster meant that I’d have to spend a couple more days waiting for the plaster to cure. In the meantime, I had become a pro with the crutches.

I was supposed to keep the plaster cast on my leg for at least six weeks. By the fifth week, the plaster was again disintegrating and was now cutting into my Achilles tendon. Rather than chance blood poisoning or permanent injury, I got out my handy Swiss Army pocket knife and removed the plaster. Thus ended my personal socialized medicine experience.

I was a relatively young man and a broken ankle was not exactly a life-threatening situation. What if it had been life-threatening? Care to guess how many folks I’ve spoken with over the years that have had much more harrowing experiences with socialized medicine? Their stories are really frightening. Yet that is exactly what we have to look forward to if this nonsense is put into law in the United States. Can you say “rationing?” Can you accept “No” when you believe you need an operation and a government bureaucrat refuses to authorize your procedure? Can you accept the fact that you will be forbidden from seeking medical assistance elsewhere?

This is just another case of the “Government Do Something” mentality instead of truly correcting the problem. If the problem is correctly identified – that health care costs are too high – then why not simply correct the way health care providers are paid? How, you ask, might we do that? I’m glad you asked.

If you consider how health care professionals are currently paid, you’ll quickly realize that the sicker you become, the more they make. Doesn’t sound like a win-win to me. How about you? Wouldn’t we all be better-off if the medicos were paid more on the basis of keeping us healthy rather than keeping us sick? I for one would gladly pay more to remain healthy than to be treated for sickness. Of course the “designer” drug companies wouldn’t be very happy. Their full page ads for the latest drug they’re pushing would probably disappear making the newspapers and magazines unhappy, too. But when you walked into a doctor’s office, you wouldn’t have to wait that extra half-hour while the doctor schmoozed with the drug company representative in the back office. Some win, some loose. I prefer that the patient win. By the way, I consider my self to be a customer; not a patient. I’m not patient and I don’t like the thought of being a guinea pig. I want professional treatment based on proven methodologies.

One way to accomplish this turn-around would be for every individual to take control of his/her medical costs and treatments. Instead of an HMO deciding what costs they will pay, you would decide directly. This system already exists in the form of Medical Savings Plans, MSPs. You get immediate treatment and the doctor gets immediate payment. No forms to send to the HMO or Medicare nor a wait for months to then get reimbursed. Cash and carry works.

But wait, you say. “I don’t know enough about medicine to be able to make my own decisions.” Then I suggest you learn. And the very, very sad fact is that very few in the medical profession “know” either, but that’s a topic for another article. Suffice it to say that when competence is demanded by the customer, the medicos that survive the scrutiny will become the best choices for medical services. No one is instant-smart and there will be a learning curve, but the effort will be well worth time allocated.

Recently, I read an in-depth article describing the treatments and costs-of-treatments between the cities of McAllen, TX and El Paso. The McAllen costs were virtually double those of El Paso yet the patient (read customer) results were almost identical. If the results were comparable, why spend twice the money for the same results? Again I submit that government mandated single-payer programs will double the costs even though they initially claim they will reduce costs. Can you say Post Office? Can you say Medicare? Can you say any government program in competition with a privately-run program?

Every article I write seems to be based on having to refute the claim that capitalism has failed. Private medicine has “failed” so now big government has to step-in and make it work is the basic message now being promoted. Nothing could be further from the truth. As I continue to maintain, we’ve never even had pure capitalism so how would we know whether or not it’s failed? Big government has had their sticky hands in every facet of our lives with rules upon restrictions upon laws upon mandates that contradict common sense. I would argue that no one has a higher interest in your health and well-being than you, no matter how sincerely others try. That being the case, why don’t you just trust your instincts and take charge of your health?

Regards,
Tex Norton

September 8, 2009

National Medical Malpractice — The Government’s Plan to Socialize Medicine was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I don’t mean to preach to the choir, but there goes the remnant of what might otherwise have been the start of a jobs recovery.

Wage and Price Controls don’t work. You and I can see it in everyday real life. Richard Nixon tried it and failed. The Pols that run the country can’t seem to see beyond the end of their noses. Actually, they know exactly what will happen but they’re so hell-bent to reward unions, they don’t care.

Why unions? Simple. If the minimum wage is increased, naturally the union wage must also be increased. Increasing the union wage rate keeps the membership in line and fattens the pockets of the union officials. In turn, it helps get the Pols re-elected. Talk about being hypocritical. The very Pols that caused the dollar to lose purchasing power due to government deficit spending now pretend to be so munificent as to help the poor earn a “living wage.”

This is no different than rent controls or price controls. Anytime artificial numbers are substituted for what an otherwise free market would be willing to pay, somebody gets hurt. In the case of minimum wages, it’s the very low-level worker that gets hurt. If the objective is to provide employment for entry level workers, minimum wage isn’t the answer.

Would you like a job paying $6.55 per hour or would you prefer no-job paying $7.25 per hour?

It really is that simple. If you’re a marginal worker, you’re expendable. The business for which you work can perhaps justify paying you $6.55 per hour to sweep or wash dishes. When then forced to pay $7.25 per hour for the same services, the business just decides they can no longer afford to hire the sweeper or dishwasher. They make other arrangements to get the jobs done. Meanwhile, the former dishwasher is now out of a job thanks to the Federal Government raising the minimum wage.

During WWII, we had all sorts of wage, rent and price controls. Perhaps because we were involved in a major war, folks simply made-do without and devoted their efforts to helping the United States win the war. Once the war was over, most of the wage and price controls were removed. The economy then took-off like a scalded dog.

There were a few pockets of resistance however. One was Santa Monica, CA. They decided rent controls were necessary because “greedy” landlords were taking advantage of the “poor” tenants. Ditto NYC, by the way. The result was fewer units available because the very folks that risk their own money and expended their own energies to provide living accommodations weren’t willing to do so for a less-than-profitable return. Existing units were not well maintained because the owner was seldom allowed to increase rents to cover expenses. New units were exempt. Those new units were rentable at whatever the market would pay. As a result, all varieties of high-priced new units came on the market while the more-affordable units vanished. Once again, the very folks who were supposed to be helped by rent controls now found themselves with no choices, thanks to government interference.

As mentioned above, during WWII, we had price controls on almost everything. We also had coupon books that limited the quantity of almost every good we could purchase. My mom traded coupons with other moms so everyone had a chance to get what they really needed. Shortages, however, were the norm. It made almost no difference whether you had an “A,” “B,” or “C” gasoline sticker for your car because you couldn’t buy tires.

When prices and/or quantities are artificial.

Why Minimum Wage Means Maximum Slaverylly limited, scarcity is the result.

Have you heard the opposition to Obama’s National Health Care complain about rationing? This is exactly the “why” of that complaint. Some bureaucrat will decide who gets what medical treatment. The excuse is that medical costs are too high. It’s another form of wage and price controls. In this case, the result will be otherwise-avoidable deaths simply due to the rationing of medical services. And as you’ve read many times, if you think health care is expensive now, wait until you see what it costs when it’s free.

So what’s the solution? What about “all those poor people?” What’s a heartless capitalist to do?

Recall Mama Obama ranting during the campaign that “some folks are going to have to give-up some of their pie so that others can have some?” Neither she nor the multitudes like her understand the basics of Economics 101. Our economy is not a zero-sum game.

For most of my life, I raced cars and one of my favorite races was the 2000 mile La Carrera Panamericana from Guatemala to the USA through central Mexico. Let’s admit that Mexico is a poor country. That is, many of the folks are considered to be poor. Yet as I traveled throughout Mexico, I saw color TVs in cardboard shacks. I must have been really “poor” when I was a kid because we didn’t even have a black and white TV. No one did. We were one of the first families in the neighborhood to get a TV and that wasn’t until 1948. Today, even a poor Mexican can have a color TV. Why? Because contrary to Mama Obama, the world’s pie continues getting bigger. That means even the poorest among us can enjoy a living standard that wasn’t even available when I was young.

We have a bunch of politicians who continuously deficit-spend thus reducing the purchasing power of the dollar. Then they graciously increase the mandatory minimum wage in order to off-set the loss of purchasing power they, themselves, created. Do you suppose there is a moral hazard hiding somewhere in this fraud?

Regards,
Tex Norton

Why Minimum Wage Means Maximum Slavery was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In a recent editorial, Peter Schiff reminded me of what my late friend Harry Browne, the former Libertarian Party candidate for president, used to say: “The government is great at breaking your leg, handing you a crutch, and then saying, ‘You see, without me, you couldn’t walk.’” That maxim is clearly illustrated by the financial industry regulatory reforms proposed recently by the Obama administration. (“Would you like a broken arm, or would you prefer a broken leg?”)

Every economic problem we face can be directly traced back to the federal government and the interfering laws that it continually passes. Remember the Resolution Trust Corp. back in the 1980s? It became “necessary” to bail out the savings and loan industry because so many of the S&Ls gambled wildly with their depositors’ money. Sound familiar? How could the S&Ls of the 1980s and the too-big-to-fail banks of the ’00s make such horrible business decisions? Were/Are the management teams just stupid or are they also incompetent?

Consider this: We’ve had a record number of bank failures just this year. As of June 19, 2009, the FDIC has closed 40 banks at a net cost of over $11.5 billion. Are you worried? Why not? Oh, your account is insured. By whom? So when the management of the bank that controls your deposits makes stupid business decisions, you don’t care? The FDIC will bail out your account. Not only that, the “insured” amount was increased from a “mere” $100,000 per account to $250,000 this year (this extra coverage expires at the end of 2013 and reverts back to the $100,000 figure in 2014 as currently scheduled). Do you see a slight problem here?

Just for giggles, suppose there were no FDIC and your deposits at any bank or S&L were simply not insured. Would you then perhaps have a slightly different outlook as to the safety of your money? Would you perhaps behave somewhat differently when selecting a bank in which to deposit your funds? Why? Do you now see that the FDIC is a federal government-sponsored insurance scheme to protect you from greedy and stupid bankers? Or do you perhaps see that the FDIC actually facilitates excessive risk-taking on the part of the bankers, since they have nothing to loose? Do you suppose there might be a slight moral hazard hiding somewhere in this mix? If the bank did not have the FDIC insuring your deposit and that same bank had to compete in the open, free market for your deposit account, would you suppose that the bank management might behave in a slightly more conservative manner? Wouldn’t you behave in a slightly more conservative manner when selecting a bank?

Now consider the actions of the too-big-to-fail companies, be they banks, insurance companies, Freddie and Fannie, or even automobile manufacturing companies. What’s to restrain the management of those companies? If they mess up, the government will protect them. And as we’ve all observed, the very folks that made the stupid and reckless business decisions will still get their multimillion-dollar bonuses. Would you be willing to make a wild guess that maybe there is a slight moral hazard hiding somewhere in this scheme?

What about the business management that continues to make prudent decisions and continues to operate profitably? What is their incentive? How are they rewarded? The same federal government that bails out the too-big-to-fail companies totally ignores the hardworking, successful managements of the smaller businesses. Actually, it’s even worse than that. The companies and individuals that are successful now get penalized, because their tax dollars are used to bail out the unsuccessful. They get to subsidize the failures. Isn’t that a wonderful reward for doing a good job?

So I again ask what am I missing? Am I the only person (or only one of the very few) concerned? When I/we comment about these obvious inequities, does anyone pay attention? Does anyone question the wisdom of the federal government’s decisions? Based on the feedback I’ve received from the congressmen and -women who claim to “represent” me, they certainly don’t care. Aside from the folks who attended the various Tea Parties on April 15, the rest of the folks don’t seem to care. What am I missing?

One of the factors that caused me to write this white paper is the incredible discussion of so-called “green shoots” from our eminent Fed head “Helicopter” Ben Bernanke and the observation of the recovery light at the end of the tunnel that now seem to be so visible to the mainstream media. As Ronald Reagan used to say, the media know a great deal that just isn’t true.

There has been a tremendous recent effort to create “transparency” in and from government. Using that as a diversionary tactic, the public’s attention is now away from the facts. While perception is important and can mask facts for a period of time, it cannot avoid ultimate economic laws of nature. In this case, the public’s attention is being diverted from the undeniable facts that we are nowhere near the bottom of this economic downturn. Banks are still hiding toxic waste in their off-balance sheet accounts. These virtually worthless assets are not just going to disappear with no one noticing. Sooner or later, these near-worthless assets must be accounted for. The so-called bank stress tests were a joke. The intent was just to give the public the perception that the worst is over.

It isn’t. We have at least one more major leg-down in our economic future. And I believe that leg will take us to a Dow of 5,000 and perhaps as low as 3,000. Yes, the Dow may continue upward to 10,000 from its current level of 8,500, but then it will head down once again. All we have to do is look at Japan 1989-present and our own economy from 1929-1932. Oh, yes, it can happen again! Absolutely nothing has been done to prevent a repeat of this history. In fact, what has already been done by the federal government interference with our markets almost assuredly guarantees that it will happen once again.

What is it that will happen? A depression. Why? Because too many government interferences have occurred over the decades since the last depression. Perhaps it might be helpful to first define the difference between a recession and a depression — at least by my definitions of the terms.

Business cycles frequently become what are referred to as overheated economic cycles. (Note that every one of these so-called overheated situations is a direct result of government monetary interference with what otherwise would be free market behavior.) So a so-called cooling-off period of adjustment then takes place to correct the malinvestments that were made during these periods of irrational exuberance (thanks, Alan). These adjustments happen rather quickly, and then the recession is finished. You’ve heard it called the “V” recession because we tend to enter quickly but then we tend to also recover quickly. Today, the mainstream is talking of a “W” recovery, meaning a double in-and-out recession. But recessions usually take place rather quickly and are then finished. In a depression, structural changes to the economy actually occur and then it takes years to readjust. Can you say Japan? The new version of the resulting economy is a major change from the prior economy. Old bubbles are never reinflated, but new bubbles are ultimately formed. Note that our federal government is trying to reinflate the last bubble, meaning a return to a consumer-led economy. It simply won’t happen. We’ll waste a tremendous amount of taxpayer money and it will all be for naught.

Ultimately, a new bubble will be created. In the past decade, we’ve enjoyed the Greenspan dot-com bubble followed by the real estate bubble. Now we are starting to form what I see as a bond bubble. In the process, everything in the path of this “recovery” is being socialized: banks, insurance companies, mortgage lenders, even automobile companies. Yet to come will probably include national health care. If you think private health care is expensive, wait until you see how much “free” health care costs. But this is what I mean by “structural” changes. It’s new territory for most of the participants.

What do you think will be the end result: inflation or deflation? I think we’re in for both deflation and inflation — in that order. Short-term deflation, but longer-term inflation. So I’d invest to protect myself against inflation. That means precious metals, energy, and commodities such as foods and water. Period. For the foreseeable future. Speculations would be in the area of biotech, nanotech, and stem-cell-tech.

I also hope that my comments are just being realistic — not doom and gloom. I admit my emotional reactions may be affecting my opinions. I hope not. But I’d rather be overprepared than underprepared or unprepared.

Considering that the value of our dollar is being actively destroyed by our government, how will you protect yourself and your family from further destruction of the dollar? Are you aware that the dollar is now worth 4% of what it was worth when the Federal Reserve was created with the charter mandate to provide a stable dollar? What did I just say? Are you happy with 4 cents of purchasing power left for your hard-earned 100-cent dollar? Don’t take my word for it — it’s on the Bureau of Labor Statistics (BLS) Web site. My recommendation includes making investments in areas that are not dollar denominated. As such, you can expect to benefit from a currency hedge as well as from the performance of the investment itself. Today, all currencies are fiat, so this becomes a relatively moot consideration — see my next comment below.

Still another area to consider is foreign exchange. Consider Swiss francs and Chinese renminbi (yuan) for starters. Also consider the Brazilian real, due to the country’s incredible discovery of offshore oil. The real would be a speculation, while the franc and yuan are slam-dunks. Norway’s kroner is also a consideration, due to the country’s oil economy. I’d stay away from the Canadian loonie simply because Canada’s economy is so closely tied to the US’.

I believe we are in a depression, not just a recession. By that, I mean we’re in for major structural changes, not just a clearing of some malinvestments that got out of hand in recent years. The Dow could go as high as 10,000 before the next drop, but there will be another drop. As I said, I expect the Dow to go as low at 5,000 and possibly 3,000. I know how that sounds, but that is what the markets are telling me. While we will then recover, it will be a long, drawn-out recovery. Years, not months. This is not the muddle-through recession that so many expect. I’m guessing we’ll remain in this morass for at least five years, if we’re lucky. We could go the way of Japan, which hasn’t recovered yet after two decades! The more Washington interferes with the markets, the more severe the problems then become and the longer the recovery period. As Bill Bonner is fond of saying, we’ll see “a corrective force equal and opposite to the deception and delusion that preceded it.” And of course, we could just be headed into outright and total socialism, so all this attempted planning could just be for naught.

But back to my original question: What am I missing? What do you know that I seem to be overlooking? Why am I not in agreement with all the mainstream economists and government officials such as “Helicopter” Ben Bernanke and Timothy tax cheat-in-charge-of-the-IRS Geithner? Why is it OK for the U.S. government to “fire” all the profitable Chrysler dealerships because they donated to the Republicans while keeping the unprofitable Chrysler dealerships because they supported the Democrats? Why is it OK to medically insure the 47 million uninsured at the expense of the folks that actually pay the premiums? Why is it OK to bail out AIG because it insured Goldman Sachs? Why is it OK to “gift” a major ownership of General Motors to the UAW simply because the union supported the Obama election campaign? Why is it OK to stiff the Chrysler and GM bondholders who, by USA contract law, have first right to the assets of the corporations in case of a bankruptcy? Why is it OK to simply ignore and override centuries-old corporate law? Why is it OK to issue presidential edicts that circumvent corporate and civil law? Why? What am I missing? Why?

There is much, much more to be said on this topic. However, what I’ve already written is probably more than enough for the moment. By the way, were I a registered broker or financial adviser, the securities rules and regulations would prohibit me from telling you the above. So don’t be too hard on your current financial adviser. The government would suspend his/her license for telling you the truth.

Regards,
Tex Norton

July 10, 2009

FDIC Fosters Moral Hazard Among Banks was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.