How many times do banana republics (and others) have to “nationalize” foreign investments before it seeps into the less avaricious portions of investors’ minds that perhaps it isn’t a good idea to start businesses, construct factories, build up the infrastructure, and hire and train locals while trusting generals in comic opera uniforms to abide by contracts and their pledged word? Okay, so Brazil’s top contender for Presidente is Dilma Rousseff, and elections are a scant two months away, but her gender and wardrobe aren’t as important as her ability to employ the politics of envy in order to play to her “something for nothing” crowd and please friends in high places.

The more I think about the timing, the more nervous about Brazil I get. What are those people thinking? Do most of the people in Brazil own land now? No. Were most of them in line to benefit directly from jobs with foreigners? No, but there was big money on the line for the top 5%. Was there a slight chance that small amounts of reals from enormous taxes and expenditures might filter down to those cheering now? A slight one. Does anyone care about the peasants? Only as voters and if they had any sense generals and juntas wouldn’t let the peons vote. Mexico has done quite well for decades with a variation on that theme. The ones with the most to gain, are those who already have the most, which is the way the world usually goes…which is what baffled me. Unless they think they can raise their own financing, why not hold off for a bigger pay-off?

What seems to me a bigger threat is the likelihood that politicos in Argentina, Belize, and Nicaragua might be inspired to go and do likewise, and some of us here in this very Bar have money on the line scattered around Latin America.

Brazil is an enormous country, rich in mineral deposits, with the potential to develop immense agricultural acreage at the optimal point in history when greatly increased populations are beginning to stagger into the late nineteenth century in terms of sufficient income to purchase more and more highly prized foodstuffs…which isn’t going to make the least bit of difference so long as the political structure in Brazil remains a combination of feudalism and socialism. One expert estimates that between 2006 and 2008 alone foreign investors dropped $2.5 Bn on land. That is certainly a nice chunk of money to confiscate by, um, repatriating the land, but the thought that anyone other than politicians and whatever the Brazilian equivalent of the haciendado class will benefit is risible. The rich will get richer, the poor will get poorer, and Brazil can sit there until the system changes…if it ever does.

Those enormous deep water oil deposits off the coast? Any country willing to confiscate foreigners’ cane fields won’t have any difficulty with the concept of nationalizing the rigs or 90% of the output, although I wouldn’t bet on Brazil’s ability to hire qualified personnel to keep the oil flowing afterwards. Brazil just turned off the money spigot and will learn that a big slice of pie is vastly superior to raw ingredients on the counter, no cook, and no oven. They will find out that “Brazilian land for Brazilians” means the status quo for most of the population and makes as much economic sense as doing their own dental work at home with nothing more than a rock. I don’t know what the average per capita income is in Brazil, but I doubt that it is much. Chuckle. I doubt that anyone is worrying about the peasants. (The things I do for you people! Wanting to know the precise term, I started Googling, and ended up on a terrorist site! For the record, amongst those who write in English the preferred term is “landless peasants,” not “peons,” or something quaint in Portugese.) To nobody’s surprise, half of all the arable land in Brazil belongs to 1% of the inhabitants, many of whom speak Deutsch.

Those who are not in the business have no conception of what it takes to turn scrub land into even pasture land, far less fertile fields. We spend a lot of time eying Potash here in the Bar, although it has certainly lost a lot of luster with me after the Brazilian ploy. From long experience, my surmise is that land currently being prepared for cultivation in Brazil will revert to scrub land in short order; I am quite certain that Brazil has vegetation similar to our smut grass, cacti, cedar, mesquite, broomweed, and others which engulf untended land in a very few years and return it to the wild within a decade or so. It is a constant battle to keep such pests at bay, and all of them devour nutrients and water. The mess over the sacred Cedar Waxwing in Central Texas placed a moratorium on cedar abatement programs for about a decade, and hundreds of thousands of acres are now covered thickly with cedar (which led to immense increases in allergic reactions) and mesquite. It turned out that Waxwings can live very happily many places and most of them migrated, I suppose because there isn’t nearly as much insect life left. Insects like crops and livestock, and there isn’t enough grass left to feed many cows and Boer goats.

Sure, beef is up and the demand is up, but range land requires fertilization, control of brush and weeds, and planting better quality grasses chosen to thrive in a specific climate. Crop land requires fertilization, control of brush and weeds, irrigation in many cases, erosion control following plowing, planting, cultivating, harvesting, and off-season maintenance. The last I heard the topsoil in the jungles which are being cleared is so thin that perhaps two crops can be grown before it reverts to wasteland. Land that is nourished and cared for needs to be planted in rotation and allowed to lie fallow on schedule. Unless the farmer puts as much back into it as he takes out, yields diminish rapidly — and then there are the Greens howling against pesticides, insecticides, herbicides, and artificial fertilizers.

The sub-equatorial climate of Brazil permits two crops a year. That may double the output, but it also doubles all of the ancillary costs other than land purchase. A diligent man can raise enough crops on an acre of land to feed a family…but I wouldn’t hunt for tenant farmers in the cardboard shacks crowding the cities. Perhaps 20% of the cane currently under cultivation is on land owned by foreigners, but can the indigenous personnel left continue operations? Ex-pat labor isn’t dumb, and the loss of income may well lead to increased anger against foreigners and/or an increase in activity of The Shining Path sort. One traditional solution is enslavement of the resident Indians.

Brazil will find it cannot go it alone. It simply does not have the know-how, the personnel, or the investment capital, and it doesn’t have my sympathy, either. “Brazilian land for Brazilians” now costs a great deal more, but the source of revenue dried up, and their rulers did it all by themselves.

I have little sympathy for Agribiz and they will get off quite lightly losing their investment at this stage — unless they know that there are always “exceptions” in dictatorships that create Blagojevich-type expenses, and doubtless they can hire a native front man. I rather think it is probably quite easy to work with Hugo Chavez if sufficient money changes hands under the table and on paper a firm is owned by Garcia, Rodriguez, Chavez, and Hernandez. Oh, sorry…that’s one of the loopholes Brazil just closed. I’m wondering again how those who made a hostile bid for Potash are feeling about now, because the premise was that Brazil would become the new bread basket of the world and require lots of it…

I’m glad that I passed up a rather attractive-appearing silver mining operation elsewhere in Souse America because between drug wars, the occasional coup d’etat, manana, and the chances of nationalization that didn’t sound like a good place to send my precious money even if the proffered rewards at present are quite appealing. I wouldn’t invest in a casino in Cuba, either, if an opportunity arose; any bunch that can run an excellent agrarian system into the ground isn’t my idea of a good candidate to provide a thriving industrial economy, although I admit cheerfully that no one in Cuba has nationalized American hotels and casinos in over fifty years, but only because Fidel and Raul have been in charge and don’t hold with Americans and their evil activities. Brazil didn’t even manage to attain a good agrarian economy.

Maybe I just need to get with the program…”American land for Americans!” We could nationalize everything that belongs to foreigners, particularly the Chinese, Japanese, and others holding large amounts of our debt, and proceed to “USA buildings for USA-uns.” Grab the cash, the inventory, and subsidiary holdings, and then take back the land given to Indians. Gee, maybe we could even repatriate all the land suitable for agriculture and oil leases the Feds have grabbed…”40 acres and a mule,” anyone?

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

August 31, 2010

“Eet Eez Ze Costom of Ze Contry, Signore” was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

— President James Madison

As the United States travels down the long road from the first limited government republic model of our Patriot Founding Fathers to a Washington style form of fascist national socialism, both health insurance and our private retirement system will eventually be nationalized and much of our retirement wealth confiscated all in the name of protecting us. But in a democracy, unlike total fascist and communist systems, great pillage and wealth attacks by government does not happen over night like Kristallnacht in Nazi Germany against Jewish wealth and property. The same can be said for Stalin’s starvation of the Ukraine and forced collectivization and confiscation of all private property and farms. By necessity in a democracy, it is a slow, incremental step-by-step process and this provides the means for American investors to protect and defend their retirement assets.

There is little chance to stop the coming health and retirement plan nationalization because both systems certainly don’t work for the benefit of most Americans. The needs of the American people have been circumvented by the politicians of both parties, the legal system and the greed of Wall Street and the American insurance industry due to their special interest control of Congress. Only a fool would say either the health or retirement system works well or that they represent the best of free-market capitalism. Both industries are simply regulated monopoly interests and the GOP propaganda to the contrary is self-serving rather than a real attempt to fix the problems.

Because of public opinion and the risk of voter outrage like we see today with the Tea Party movement and Ron Paul’s Campaign For Liberty, the ultimate wealth confiscation goal is the same in our special interest controlled debt democracy as in a totalitarian system but the confiscation time frame is far longer. The population must first be prepared and a number of real or contrived crises must follow to give the excuse for incremental government actions over a number of years.

But Will Americans Never Learn?

Fool me once, shame on you. Fool me twice, shame on you.

For example, the income tax began in 1913 with taxes starting at around 1% of income on an equivalent income of around $65,000 in today’s dollars. The graduated tax rate went up to 6% on annual incomes over $10 million.

Social Security started in 1935 with a 1% tax on the employee and employer and only half the workers were covered at inception. Roosevelt promised the funds would go into an independent trust fund rather than the General Operating Funds of the government. Oh and yes, your Social Security benefits were originally not considered taxable income to recipients.

The Federal Reserve was created in 1913 and promised to promote economic stability and stable prices. The Great Depression followed in 1929 as did Franklin Roosevelt’s confiscation of the entire private supply of gold in the United States. The stated goal was stable prices and low inflation. But check out the graph below and see the actual results of the Federal Reserve System and don’t forget we are now in the middle of the greatest financial crisis since the Great Depression.

More Incremental Theft

The coming retirement trap I write about in “Get Ready For the Obama Retirement Trap” and the new mandatory retirement system proposed by the Obama Administration known as the “automatic IRA” is just more Washington theft. It is the same for the eventual nationalization and confiscation of the majority of retirement benefits from successful Americans as their funds are forced into breach of a flood tide of forced liquidations of treasury debt. Their retirement funds will benefit many lower middle class, unemployed and government employees at the expense of the productive Americans who saved for retirement in the first place.

The coming nationalization of private retirement plans and IRAs will be the greatest government theft and wealth transfer scheme in the history of the world but it will be opposed only by a small minority of productive Americans who have worked in the private sector and who have saved for their retirement years. These Americans who have saved a substantial amount for retirement will lose wealth and retirement security while the groups who have spent their entire lives feeding at the public trough will continue to come out ahead as usual in the largest theft in history.

Remember, everything out of Wall Street, Congress and Washington on retirement planning is all about generating money in the form of dramatic government tax revenues for Washington and not about building real retirement security for Americans.

For other groups listed below, the retirement trap will be a winning proposition for them as funds from successful Americans will be used to fund their retirement benefits.

The Usual Tax Feeders Will Continue to Pig Out at the Expense of Productive Working Americans

The Winners

• State government employees
• County and municipal employees
• Federal employees may be bailed out along with state and local government employees who have dramatically under-funded retirement programs.
• The unemployed
• The underemployed
• Those who simply don’t work
• Participants in most under-funded union plans

And The Losers in the Retirement Trap: All productive, working American in the private sector who have trusted the government and politicians to keep their world and saved a substantial amount of funds in qualified plans and IRA accounts.

The Timing

The timing of the steps to retirement plan nationalization and confiscation are a very difficult proposition first because of an uncertain political situation. While I fear both political parties will move in the direction I’ve outlined below to retain political power, historically the Democrats have moved faster in this direction than the Republicans. But now with the revenue needs of Washington totally out of control, which side of the two-party monopoly in control of Congress and the White House may not matter in the future. Second, most of the probable causes of the next financial or foreign policy crisis depend more on what China, Japan, Iran or Israel may do than on Washington. I believe the ultimate confiscation conclusion of the Retirement Trap will take place within ten years and I have a suggested time limit for each step to help you in your retirement planning.

Regards,
Ron Holland, LewRockwell.com
for Whiskey & Gunpowder

March 23, 2010

Nationalizing Healthcare and Retirements was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Gingrich and Ferrara are correct in their recent editorial on the Obama Administration proposals for new mandatory automatic IRA accounts and their goal to force existing retirement funds into government controlled annuities. But this is only the tip of the iceberg for Teresa Ghilarducci and her big government proposals to loot your IRA and retirement plan assets to fund the federal government.

Future Washington revenue needs and the growing treasury debt may require government mandates directing retirement plans to purchase government bonds. Stealth nationalization and ultimately confiscation of a majority of private retirement assets is coming to bail out failing state and municipal retirement plans which already have a deficit of at least one trillion dollars. Eventually underfunded union plans and even a bailout of the federal retirement system could take place as these groups line up to get another pound of flesh from productive Americans who worked hard and saved for their retirement years.

It Is Time for a Change!

How would you like to make a pleasant choice for a change each April 15th, the most hated day of the year? Your decision would be whether to give the first $5,000 each year you owe the IRS to the federal government or contribute it to your own “ironclad” private IRA account and receive a full tax credit for the contribution.” This is the Freedom IRA proposal in a nutshell.

Today the news is filled with stories about the Washington proposals for new mandatory IRA’s with the end game to nationalize, control and even force your retirement funds into government annuities. Washington needs the $15 trillion in private retirement plans to ultimately become the forced “buyer of last resort” for the treasury bond market as foreign investors and nations begin to avoid our debt like the plague it has become.

The retirement savings threat from a desperate federal government with falling revenues is real but just warning about the problem and defending the current private system is not enough. The American people must see this attempt to force full coverage with the proposed automatic IRA as the Trojan Horse to set the stage for stealth nationalization as they turn our retirement benefits into Washington’s ATM Machine.

Rather than creating a mandatory clone of the bankrupt Social Security System, let’s consider a simple, new retirement alternative I call the Ron Paul Freedom IRA. We hope he will introduce a bill along with other members of Congress to create this new Freedom IRA. This will generate publicity about the threat to your existing retirement funds from the Obama Administration and offer a free-market alternative to the forced, mandatory proposals from the left.

The Freedom IRA

Basically this would be an IRA with a $5,000 maximum contribution annually where instead of a tax deduction the individual contributor would received a tax credit for the entire contribution. So the ultimate question for the working taxpayer would be, “would you rather give the first $5,000 each year you owe the IRS to the government or contribute it to your own “ironclad” private IRA account?” For lower income workers who might contribute more than their annual tax bill, the tax credit could be carried forward to future years thus creating a future tax holiday for the participant.

It would operate under current IRA rules except distributions would be prohibited before the 59½ current retirement age except in the case of death or full disability. Note the plan funds would be totally protected from lawsuit, government or judicial asset seizures and other outside attacks on your retirement assets.

It would operate under and be automatically grandfathered under existing retirement regulations in the future and would be a voluntary addition to any existing plans covering the participant. Investment options would be up to the participant and investment providers but could range from conventional stocks, bonds and money market funds to CD’s annuities, mining shares, approved gold and foreign currency investments.

No one questions that the American private retirement system is broken due to excessive government regulations, bureaucracy and related costs but more of the same old big government solutions with mandatory coverage and forced participation is not the answer. I’ve worked in the financial and retirement planning industry since the early 1970’s and this is a simple, voluntarily solution to the existing system.

The Game Plan for Secure Retirement

First, contact Ron Paul’s office and urge him to introduce a bill for the Freedom IRA. Then we can contact all responsible Congressman and urge them to support a real cut in taxes and solve the existing retirement system problems in a few short years with the Ron Paul Freedom IRA.

The alternative from Obama and the Democrats means we will have a forced, mandatory government program in our future with growing nationalization and confiscation threats. You can learn more about how this could this happen in the 20-page special report, “Are You Ready for the Coming Obama Retirement Trap?”

Remember the adage, “the best defense is a good offense” and the Freedom IRA is a direct attack on the coming Obama Retirement Trap. Join us and work together to safeguard and secure our existing and future retirement benefits from the desperate Washington political elites.

Regards,
Ron Holland
for Whiskey & Gunpowder

March 4, 2010

P.S.: You can read the part of that 20-page report here.

The Ron Paul Freedom IRA was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

That’s why I get riled to hear people talking about a “single-payer system,” a.k.a. socialized medicine.  You hear these catchalls constantly; but what do they mean?  Take “no access to healthcare.”  That’s a fave of people who don’t know what they’re talking about.  According to one of them, “People get refused medical procedures because they cost too much so the insurance company denies them.”  Oh really?  The doctor says, “I’m just not willing to do this for you”, is that it?

Actually, NOBODY’S refusing to let you have whatever procedure you want, but they may refuse to PAY for it for you.  There IS a difference.  So if you absolutely must have that CT, go ahead and have it done.  You might get a bill later, but that doesn’t mean you’ve been REFUSED.

In a national system, however, actual, real refusal to do something for a patient occurs.  How’d you like to be diagnosed with cancer, and on a waiting list to get treatment, AFTER already waiting 3 years to see an oncologist?  How’d you like to be having a heart attack, to be told to go home from the ER… you go home, and promptly die?  How’d you like to be a patient in an ambulance, driving around for FIVE HOURS, to different towns, trying to find an ER that, literally, will allow you to be unloaded there?  None of these examples are hyperbole; they’re dead serious truth.  I know, I used to live in the UK, and these are personal examples.

Another sick phrase is “countless Americans don’t get basic care”.  First, if they’re uncounted, how does anybody know about them?  What do they mean, “not getting basic care”?  I guess if you’re too lazy (oops, “busy”) to keep your prenatal appointment, that counts as “not getting care”.  But if you decide later to come to ER, where we HAVE  to see you, due to EMTALA, then you are getting care, so that doesn’t count then.  And the taxpayers get to pay a bigger bill for you, than they’d have had to pay if you’d just kept that appointment.

There’s the money issue for some: they can’t afford to see a doctor in his office, but they have enough to splash around making an ER visit?  But, of course, they don’t INTEND to pay for that visit.  In fact, when we see “self pay” on a patient’s information, we can assume 90% of the time it’s “self” only and no pay; the hospital has to eat the cost.  There are, of course, responsible people who DO pay their bills, but they are sadly the minority.

Say you “don’t have the money” for your meds (because it all got used up on your flashy jewelry, your cell phone—I can’t afford one of those!–tattoos, beer, or cigarettes).   Just come to the ER so the working people can pay for you.  After all, why try to be responsible and actually PAY for your insulin, when you can let things go and end up in a diabetic crisis that we have to pay for?  Oops, again, that doesn’t count as “not getting care” because we just admitted you to ICU, even though you didn’t care for yourself.

Oh, I get it…you OD’d on narcotics (we won’t say how you got them), and your kids didn’t call 911 right away, as they’re so used to you passing out, not a biggie.  And if they called, the medics’d give you that nasty narcan and end the trip, and then you’d be mad at the kids for spoiling the fun.  So they leave you till the next day, THEN call 911.  There, that counts as “not getting access to care”!  (Real life examples from my ER)

Here’s another old hairy one: “The Swedes (or fill in country of choice) have better care than the US.”  Oh, really?  If Sweden was such an Eden, why is their suicide rate so high?  Why are there so many alcoholics that they have a special home insurance company for teetotallers only?  (With, of course, lower rates).

Who scores health-care systems? WHO! WHO scores nations on various aspects of health care, and brownie points are given for having socialized medicine, whereas penalties are awarded for daring to allow such things as medical savings accounts, or not having a high enough progressive income tax.  (See, all you have to do is take away any incentive to exert yourself and earn more money than your neighbors, and ta-dah! EVERYONE’S health improves!)  Of course, WHO couldn’t possibly have an agenda.

Then there’s the issue of life expectancy (different from lifespan).  According to OECD, the US is 18 out of 30 democracies.  But, they forgot to take out homicides and car accidents!  They probably have some reason for why homicides are an indicator of poor health care (as opposed to being an indicator of the criminal-to-unarmed citizen ratio).  If only we didn’t have those pesky old homicides, we’d have a MUCH better health system, number one in fact!

Oh, here’s another oldie (but not goodie):  “People can go bankrupt trying to pay their medical bills”.  Yes, there are people with integrity who DO end up in financial straits because of health bills, but Americans are the most generous people in the world, and we usually are pretty good at chipping in to help someone in a bind.  But in a social-medicine country, that doesn’t happen much…because you’d be DEAD instead of having bills to pay, having had to wait to see a specialist, then to get diagnostics, then to get treatment….

Every choice (whether to have private or socialized medicine) leads to other choices.  So if what the media tells us is true, that “most people favor socialized medicine,” then what they’re really saying is most people would rather be dead than bankrupt.  Huh?

One final item;” High health insurance costs is what killed the US auto industry.”  Right, the UAW didn’t have ANYthing to do with insisting on old outdated, costly factories that ensured more workers had jobs, (as well as non-competitiveness).  Or the fact that UAW expected bloated wages for doing as little as possible, couldn’t possibly have had anything to do with the problem.  Nope, what we have to do is just give-give-give to anybody that asks for anything, and tax the people that are too stupid to quit their jobs.

Taking the UK or Canada as an example, what will we have to look forward to when socialized medicine is imposed on us?

1.  A lot more foreign doctors.  US citizens may demur at having to invest in rigorous training for maybe $13 to $18/hr (what Medicare currently pays), whereas foreigners may still be drawn to the US as being better than where they came from.

2.  Long waits in ERs.  Canada has some ERs where people wait up to FIVE DAYS. Long waits for treatment, like a three-year waiting list (in Canada) to get an appointment at a pain clinic.  Long waits for diagnostics; two years or longer, as in both Britain and Canada.

3.  IF private insurance is altogether banned, expect to see black-market medicine or “health care brokers” as they have in Canada, who help you get an appointment to see a doctor for a fee.  Otherwise, as in Britain, where it is allowed, private health insurance will be a growth area, as people see through the “Beveridge fallacy.”  (Beveridge being the MP that pushed for Britain’s NHS.)  Expect also, numbers of American going to other countries for medical treatment, as 33% of Canadians now do.

4.  Fewer doctors overall; but the ones who are left will be more realistic about what they’ll get paid.
5.  Initial relief for some businesses in terms of not having to buy insurance for employees, followed by punishing tax burdens, which will crush  businesses.

6.  Stagnant economy (not taking anything else in the economy into account!) due to businesses having to pay such high taxes they cannot re-invest in themselves.  More businesses leaving the USA.

7.  Higher prices (again, not taking anything else into consideration), and lower wages for the jobs that are left, and nobody complaining about it as they’re just glad to be working.

8.  As things get tougher, there will be fewer rummage sales due to people not being able to afford things they don’t really need, or being able to replace/throw out things.  EBay would likely take a beating.

9.  Secondhand stores will still be around, but the pickings won’t be anything like what you see currently in US Goodwills.

10.  Expect more people to be permanently “on the dole”, as they say in Britain.  More who’d rather take what nanny gives them than stand on their own two feet.

Overall, the US will be a lot poorer, if we get socialized medicine, and that without even considering the rest of the economic mess we have.  And one day maybe NObody will be left working to pay for this mediocrity.   Try as they might, the tax-and-spend crowd will be faced with one certainty: no society ever yet TAXED its way to prosperity.

Sincerely,
Emily Matthews

June 15, 2009

National Health Care Is Making Me Sick was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

And now, it’s broke. And even politicians think they know how to run an auto company. Just read the papers. “Obama insists on changes,” says one headline.

Normally, the politicos should hold their tongues…and let an industry’s owners run their businesses. Alas, as of a few days ago, the politicians ARE the owners.

Here’s a question:

When the government takes a majority stake in the auto business you know you are:

A) In a bad dream
B) In a bad way
C) In a bad country
D) In France

Correct answer: well, we we’re not in France. But as for the rest, it could be any of them…or all of the above.

Here’s an easier question. Who will the U.S. government put on the board of directors of General Motors?

A) A political hack
B) An industry hack
C) A far-sighted maverick who will shake up the business and put it on the road to growth and prosperity

If you answered “C” – you are from another planet. There is a reason neither governments, nor workers should own businesses. In the following, roundabout way, we explain why…

Thirty-two banks have shut down so far this year in the United States. Little, mismanaged banks go broke. But big, mismanaged banks get federal money. With these subsidies and bailouts, the big banks get larger…and live to foul-up another day.

Poor Warren Buffett seemed a little discouraged at his annual shareholders’ fest in Omaha. He must be nearing the end of his career. And consumers just aren’t buying as much furniture, cola, and candy as they used to, he told the faithful. Berkshire Hathaway’s profits were 10% below those of last year.

Swine flu seems to be disappearing from the front pages. Has it gone the way of Y2K and terrorism? Has another great disaster been averted? Might be too early to tell…

Oh you doomers and gloomers, cheer up! There’s always some other disaster waiting for a headline. How about this? The Seattle Times looks at Las Vegas and sees what it calls “the next global crisis.” After 10 years of drought, Las Vegas is running out of water.

The city fathers are thinking of all sorts of solutions – except, of course, for the obvious and effective one. They’re planning on huge pipelines…hundreds of miles long…and sucking water out of aquifers millions of years old. But, according to the paper, Las Vegas charges only about a tenth as much for its water as Atlanta does. The simple solution is to let free enterprise provide water…so that it could be priced correctly.

Colleague Chris Mayer has been following the water crisis story since the introduction of his newsletter, Mayer’s Special Situations, in 2006.

“Water is not just a problem in Las Vegas. The lack of sources for fresh water is a problem facing much of the American West, though the problem is particularly acute there and in the state of Nevada generally. Nevada is the most arid state in the union,” says Chris.

“The tight water supply has implications all over the West. In Arizona, you can’t build a residential development unless you find a ‘designated assured water supply’ that can sustain that development for 100 years. I could go on and on about this kind of thing. Suffice it to say, the American West faces a water crisis.”

Maybe the increase in water prices would discourage people from planting Georgia-style grass lawns in the Nevada desert. Or maybe it would discourage people from moving to Las Vegas in the first place. But that’s the thing with capitalism; it doesn’t take people where they want to go…it takes them where they ought to be. That’s also why people hate free enterprise so much. Where they ought to be is, often, where they least want to go. In the present example, people think they have a right to water – practically for free. They think there’s a ‘water clause’ in the Constitution that says government is supposed to provide them as much water as they want at a price they can afford.

Most things work better when they are run by private enterprises. Too bad. Free enterprise is out of style. The days of privatizing are over. Now, everyone wants the government to take charge.

What a turnaround from a few years ago – when people thought they could solve practically every problem by privatizing it. And then, the voters would buy shares in the newly privatized companies…and we’d all get rich!

“For water, the really bad stuff hasn’t happened – yet,” says Chris. “As investors, it’s a good place to be for a long time.”

Chris’ ‘blue gold’ plays in the Mayer’s Special Situations portfolio have done well. And as he said, this is a play for the long-term investor. To learn about his water plays, and the rest of the MSS portfolio, see here. MSS Chaffee Royalty

The proletariat began buying stocks in the ’80s. The ‘shareholder nation’ was a dream of Maggie Thatcher and Ronald Reagan: Everyman a Capitalist.

Of course, these new capitalists were not real capitalists. Instead, the little guys were mostly pigeons for Wall Street. Instead of really understanding and CONTROLLING the companies they owed, they bought shares in mutual funds…or owned their shares through insurance or pension funds. These collective investments left the little guys dependent on Wall Street managers – who paid themselves enormous fees and bonuses.

Of course, as long as stocks went up, the new capitalists didn’t mind or notice that the financial industry took advantage of them. They completely misunderstood what they had gotten into. In their minds, capitalists made people rich…and Wall Street helped them get in on the deal.

When Francois Mitterand, socialist president of France during the ’80s, realized how it worked, he was outraged; ‘they make money in their sleep,’ he remarked of capitalists. But that was just what most people wanted to do. So, they began to imitate the capitalists. “Buy stocks,” thundered Wall Street.

And so…the little guys piled in….and stocks soared.

“Buy and Hold,” the pros told them. “Stocks for the Long Run,” wrote professors of finance.

Of course, some people wanted to make money faster. So ‘day trading’ became popular in the late ’90s. The newspapers were full of stories of people who quit their jobs in order to trade stocks.

In the ’80s and ’90s, too, people began to believe that you could motivate workers by giving them “a piece of the upside.” And the workers, too, believed they might get rich if they had a stake in their employer’s company. Especially in the financial sector, ‘results-based compensation’ caught on. Soon, almost everyone had a piece of the upside.

The trouble was, especially in the financial sector, the upside was remarkably short-sighted. In the near-term, business managers had a huge incentive to push the upside up farther than it ought to go. Take risks? Why not! If they could increase the quarterly results they would get a bigger bonus. If, over the long term, the business were weakened…well, that would be the owners problem, wouldn’t it? Managers sometimes had such a big piece of the upside there was scarcely anything left for the owners.

Everybody wanted a piece of the upside. Owners – including the new capitalists – wanted the business to prosper so their stocks would go up in price. Managers wanted high quarterly profits – so they could exercise their stock options and pay themselves big bonuses. They were all ‘capitalists’ – but ersatz capitalists. None had much of an interest in the long-term health of the capitalist institution itself.

A real capitalist is eager to cut his labor costs. If hourly wages rose too high…he’d want to move to a lower-cost production center. And if the managers asked for too much – he’d fire them and get new ones.

But neither the working stiffs nor the suits shared the owners’ interest in cutting labor costs and preparing for the future. While European automakers shifted much of their production to lower-cost countries…GM continued to make cars in the United States of America. Its unionized, stock-owning, voting employees wouldn’t allow it to move. And when it needed to invest in new tools and equipment in order to make autos for the 21st century – suppressing earnings in the short term in order to make the company stronger later on – its bonus- seeking, option-driven managers wouldn’t permit it.

Lesson: Let the managers manage. Let the workers work. Let the capitalists grub for money. And let the politicians lie and steal. Each to his own métier.

If you’re wondering what that means in today’s world, you’re not alone. We’re wondering too.

Regards,
Bill Bonner

May 7, 2009

How Unions and Governments Destroy Businesses was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Now, I’m no banking analyst, but that gap on my resumé is starting to look like a very good thing indeed.

For who’d want to be stuck with the title “Banking Stock Analyst” now the banks are all broke…? Unless you already wanted to work for government anyway.

“When the Treasury tells a bank to pay a penny a share versus its old dividend, you know who’s calling the shots,” says Jon Bruss, an old-hand banker and founder of Fortress Partners Capital Management in Wisconsin according to Bloomberg.

“It may not be de jure nationalization but I think it’s de facto nationalization.”

Ignore the italics; state-control by law is coming regardless – soon and everywhere.

Starting in the US, Larry Summers’ letter to law-makers last week guarantees nationalization by default, by making good on the myth that private investors control how publicly-quoted corporations behave. They therefore deserve an absolute loss of capital investment, if not a full public flogging, starting with zero return. And no return means zero risk capital.

Promising to be the very best head of Barack Obama’s National Economic Council he ever could be, Summers vowed to cap and cancel dividends to banking stock-holders if their bank requests two dollops or more of federal assistance. So as the last fortnight’s trade shows, those banks crying “Help!” will only see whatever risk-capital still remains flee…meaning the state will have to step in with more aid again…guaranteeing no return-on-investment to free-market cash…sparking a last panic out of the bank’s issued share capital…leaving the feds to step in and acquire the whole bank.

Private investment isn’t being crowded out, in short, so much as thrown out the window. But it’s not just this capital re-structuring which will surely end with outright state ownership. Standing surety for depositors’ cash makes it a dead-cert as well – or so we guess here at BullionVault – for all but the smallest, most boring (and therefore most innovative!) groups.

Deposit insurance is one thing, and a very fine thing the FDIC represents too – that post-Depression vow of well-meaning bureaucrats to abolish all day-to-day risk in money, creating untold risk instead in home loans, investment banking and consumer credit over the next 60 years. But stumping up hard cash in the event of a bank-run would now be quite another joy-ride entirely. Because one run would beget more runs elsewhere. And meeting the cash call all in one go would bankrupt the entire state at a stroke.

For example, household cash balances at UK banks now total almost £1 trillion ($1.35trn) – nearly twice the London government’s entire 2008 budget. Other financial firms are owed a further £880bn by the banks. Non-financial firms hold £375bn on deposit. So in the event of a banking collapse, full nationalization would seem the cheap option (short-term, at least) ahead of paying out on the FSCS (the UK equivalent of the FDIC). Meeting the statutory promise, with little or no cash cushion to help, the British state would need to find something like 1.8 times a full year’s GDP. A fire-sale of “assets” would only cause a further meltdown in stocks, housing and credit. Trying to raise the cash by selling new gilts would prove risible. (The UK’s going to have trouble raising £118bn for its operational deficit alone in 2009.) Whereas deferring the hit, by taking it onto the state’s balance-sheet for some indefinite settlement, at least keeps the sovereign solvent today.

And what does that world look like? Iceland is first to find out, that tiny island of 305,000 souls. Its banking sector – with risk “abolished” and thus merely transmuted, just like everywhere else – built up what looked like assets worth some €100 billion by 2007 (around $130bn, both at then and today’s exchange rates). Yet the central bank only had €2 billion in foreign currency reserves, as the Wall Street Journal noted last autumn, “meaning it was effectively unable to fill its role as lender of last resort” when foreign lenders – the true deus ex machina for any national economy – baulked at fresh loans.

Come the crunch, Iceland’s banks found themselves without a back-stop. The safety-net of government aid simply didn’t exist…the holes between the strings were too big…and in a nation of just 305,000 people, the problem all governments face became plain to see. Because the Treasury, state, government, sovereign – whatever you want to call that leviathan supposed to exist outside of the day-to-day flux, secure and securing against all possible outcomes – is only ever identical with the population. National resources can never be greater than the nation itself.

Or as Abe Lincoln almost said, “Government of the people, for the people and by the people just keeps coming back to…umm…the people!”

Defending bank savers against bank default means using bank savings as their own guarantee. Because where else will the money come from? Now the risk of default stands so plainly in front of the entire industrialized world, it sure won’t come from that rare beast known as banking-stock shareholders. Those few stock-holders still in are being chased away.

Fancy a loan, comrade?

Regards,
Adrian Ash
BullionVault

January 27, 2009

Broke: No Choice But Nationalization was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.