The Daily Mail account put the blame for these disturbances on Germany’s finance minister, who warned the Greeks that “the German government does not intend to give a cent.” At least Bild, a popular German newspaper, was trying to be helpful. It suggested that Greece sell Corfu…and that Greeks get up earlier and work harder.

Meanwhile, from Iceland comes news that every voter with an IQ above air temperature has cast his ballot against a bailout plan. The Icelanders were slated to make good $5.3 billion in bank losses. But why shackle common voters to the banks’ losses? The plan was so outrageous and so unpopular that Iceland’s normally compliant Prime Minister called for a referendum. Given a chance to vote on it, 93% said no. The other 7% probably read it wrong.

Insurrection is in the air. In England, government employees are preparing the biggest strike since the ‘80s. In America, dissatisfaction with Congress is at record highs; four out of five of those polled say, “Nothing can be accomplished in Washington.”

Herewith, an attempt to deconstruct the rebel yell. By way of preview, it’s not the principle of the thing, we conclude; it’s the money.

There are more clowns in economics than in the circus. They invented an economic model that has been very popular for more than 50 years — particularly in the US and Britain. It began with a bogus insight; John Maynard Keynes thought consumer spending was the key to prosperity; he saw savings as a threat. He had it backwards. Consumer spending is made possible by savings, investment and hard work — not the other way around. Then, William Phillips thought he saw a cause and effect relationship between inflation and employment; increase prices and you increase employment too, he said.

Jacques Rueff had already explained that the Phillips Curve was just a flimflam. Inflation surreptitiously reduced wages. It was lower wages that made it easier to hire people, not enlightened central bank management. But the scam proved attractive. The economy has been biased towards inflation ever since.

Economists enjoyed the illusion of competence; they could hold their heads up at cocktail parties and pretend to know what they were talking about. Now they were movers and shakers, not just observers. The new theories seemed to give everyone what they most wanted. Politicians could spend even more money that didn’t belong to them. Consumers could enjoy a standard of living they couldn’t afford. And the financial industry could earn huge fees by selling debt to people who couldn’t pay it back.

Never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. But as the system aged, its promises increased. Beginning in the ‘30s, the government took it upon itself to guarantee the essentials in life – retirement, employment, and to some extent, health care. These were expanded over the years to include minimum salary levels, unemployment compensation, disability payments, free drugs, food stamps and so forth. Households no longer needed to save.

As time wore on, more and more people lived at someone else’s expense. Lobbying and lawyering became lucrative professions. Bucket shops and banks neared respectability. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was fully leveraged.

If there was anyone still solvent in America or Britain in the 21st century, it was not the fault of the banks. They invented subprime loans and securitizations to profit from segments of the market that had theretofore been spared. By 2005 even jobless people could get themselves into debt. Then, the bankers found ways to hide debt…and ways to allow the public sector to borrow more heavily. Goldman Sachs did for Greece essentially what it had done for the subprime borrowers in the private sector — it helped them to go broke.

As long as people thought they were getting something for nothing, this economic model enjoyed wide support. But now that they are getting nothing for something, the masses are unhappy. Half the US states are insolvent. Nearly all of them are preparing to increase taxes. In Europe too, taxes are going up. Services are going down. And taxpayers are being asked to pay for the banks’ losses…and pay interest on money spent years ago. Until now, they were borrowing money that would have to be repaid sometime in the future. But today is the tomorrow they didn’t worry about yesterday. So, the patsies are in revolt.

Several countries are already past the point of no return. Even if America taxed 100% of all household wealth, it would not be enough to put its balance sheet in the black. And Professors Rogoff and Reinhart show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both. IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.

The rioters can go home, in other words. The system will collapse on its own.

Regards,
Bill Bonner, The Daily Reckoning
for Whiskey & Gunpowder

March 15, 2010

Collapse Is Inevitable was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

1. At the current rate of taxation, even if nothing deteriorates, how much money does your wife need to live on after you are gone? The classic rule is “80% of your highest income plus a paid for house.” Right. If you make $100,000/year, you need to accumulate through savings or insurance $1.6M in capital at 5% interest. Problems: inheritance taxes are due to cut back in, and Uncle definitely wants a chunk of $1.6. Worse, the interest will be taxed as income and she isn’t going to find 5% interest. Let us suppose that she has $1000/mo in Social Security—a little over the average, but you’ve got a good job. A loving government will take roughly 10% of that away from her immediately too pay for Medicare and has already announced a 20% increase in fees over the next three years…with no increase in COLA, or the “Cost Of Living Allowance.” According to the Feds there is no inflation, hence her costs will not rise. We would love to know where those who make such pronouncements buy groceries, gasoline, socks, and tires. Supposing naively that she pays no income tax, if she puts the $250,000 in insurance you may have arranged for her in a CD at 1.5%, at the end of the first year she will have $3,750 in interest plus the theoretical $11,100 in Social Insecurity, for a total income of $14,850. Social Security probably won’t cover the house note you almost certainly have, and houses aren’t selling well. Her alternatives are to find a job or live on what she has for three years and hope she can find husband. That is certainly neither a safe nor a dignified plan, although it may make more sense than buying lottery tickets. The worst part is, that’s the best I can foresee for her.

2. The Greater Depression arrives, as it almost certainly will. It doesn’t matter whether you’re married or single, how safe is your job? 26,000,000 of the things have disappeared already in this century, and unless you are among the 40% of the populace which works for some governmental entity or a CEO you night want to do a little worrying. Japan is on the twenthieth year of their last depression, with a brand new government devoted to the project of becoming an economic block with India, and a few sprats such as Hong Kong, Taiwan, hunks of Indonesia, and so forth. Yup, our little island nation friend is going to grow up, leave the nest, and devote itself to destroying the dollar. What they plan to do with the two trillion or so they hold I have no idea, but if they knock the dollar out as the reserve currency they have some notions. The ironic part is that those dollars have little value at present and are under pressure from all sides, from Bernanke and Geithner’s government-sanctioned counterfeiting and money-laundering (swooshing the new cash around through Treasuries and the market, for example), to cheerful plots in the Middle East and BRIC. It’s coming, get ready for it.

3. The stock market takes a 40% thud at the year’s end, the bond market crashes, the ARM supply has 80% set to re-arm, commercial real estate looks like a yeast vat it bubbles so freely, and a lot more banks are set to fail. Some may even be “set up” to fail. These government-made disasters are pretty much set in stone and will coincide with your other choices.

4. Government revenues are down 17%, the jobless rate is at 17% by rational accounting methods, and a great many states have balanced budget requirements. They will have only two recourses: raise taxes again, or cut jobs and “services.” ARE we having fun yet? 25% of those working are paying all of the income taxes and virtually all property taxes—and schools and bureaucracies demand more money every year. Protests against government spending and taxes are becoming more visible.

5. OPEC members have been running on the American Plan in large part, tossing around bread and services to keep their citizens from expressing noisy opinions of fleets of silver Mercedes Benze automobiles, some of them diamond studded. At one point in the last year it took Saudia Arabia, as I recall, $70/barrel just to cover the “social services” portion of their budget. Basically, every dime the Sauds get for a barrel these days is already committed to welfare, which means it is rather expensive to give away their declining oil supply. Throw the peak oil mess and the miraculous never-depleting “reserves” OPEC nations claim into this bucket. Meanwhile, back on the home front, the Greens are fully in control; drilling rights that had been negotiated were blocked recently, coal is threatened under cap and tax, don’t even mention nuclear power, and hydroelectric dams stand idle because the water has been flushed uselessly to help dear little fishies. Oh, and the crops failed in California when the water was diverted from irrigation.

6. The citizenry of these “united” states turns ugly for a variety of reasons, ranging from food or energy scarcity, taxation, the avalanche of new socialistic legislation, union members who have priced themselves out of jobs, racial or religious riots, and/or a hearty disinclination to put up with this any more. For an eyeful, ask Google how many states and a group of islands have strong secessionist movements. Funny Hawaii ne! Seems like they want Queen Liliuokalani’s throne back, and who can blame them? The real situation is that Hawaii has belonged to Japanese Democrats since I was graduated from the University of Hawaii, all those decades ago.

7. Some combination of the above appears, and the government proves that a government no longer strong enough to give the masses what they want is still strong enough to implement everything from the War Powers Act to the “PATRIOT” act, and turns completely totalitarian on us. Obama declares a national emergency, dismisses Congress (don’t come back boy and girl millionaires; your cushy jobs have been abolished), and pursuant to Executive Order 11921, armed, uniformed thugs show up on your doorstep and loot your house of all foodstuffs, alcohol, tobacco, firearms, valuables, and anything else any member of the team fancies. De facto gun registration is becoming de jure as it is being sneaked quietly through Congress disguised as “a simple IRS measure.” It requires a tax of $50 a year on every gun you own—or admit owning—your fingerprints, and submitting to government psychological examinations on demand, as well as other unsavory regulations. Penalties for being in possession of “untaxed” guns will be quite severe. This section has two possible outcomes: the rednecked, gun owning, Bible-thumping, smoking, drinking, butter-and-red-meat-eating, bluejean-wearing, Limbaugh-listening, homophobic, racist domestic terrorists (description courtesy of Janet Napolitano and assorted government agencies) are in open revolt, and either win, or they don’t. My money is on the armies in Kevlar and Corcorans armed with up-to-the-minute genuine assault weapons, riding around in AP carriers and tanks, including the all-volunteer forces, the 100,000 or so Blackwater has, assorted UN “peacekeeping” forces, and the Canadians who are pledged to come to the aid of the president if asked. Oh…I forgot the two battalions of the Praetorian Guard assigned to the president’s personal use, the secret service, the FBI, Homeland “security,” and the BATF.

8. The depression and embargos on oil are so devastating that not even the government can muster the money to pay armies, and we drift quietly into The Greater Depression, with perhaps forty or more percent unemployment, irregular power services, little to buy in the stores, devalued dollars, cessation of Social Security and then drastic cuts in welfare, food, water, and fuel shortages, and a seething populace.

9. At some point, cauldrons roil over, the always-happy-to-riot sectors of “society” prevalent at Watts, Katrina, and Ike, and ghettos jump in happily, and the food supply is exhausted in the cities after three days, maximum. Millions die from heat, cold, thirst, tainted water, rampant disease, and assorted natural and man-made disasters.

10. In the fullness of time something on the order of 40,000,000 are dead from the aforementioned conditions, having argued with violent, hairy strangers, or been shot for fleeing like locusts from Detroit, Los Angeles, New York City, and Houston (for starters) to spread out over the land attacking farm houses and taking over small towns. The farms will lose their future crops in most instances, and little towns will be barren of food, as well. When the population has been reduced sufficiently, the remainder will eke out an unpleasant existence grubbing in the soil attempting to learn to grow plants with not many seeds available, learning to raise animals and slaughter them (that being illegal by that time), discovering that medical care is almost nonexistent and is paid for in chickens and barter is the established method of commerce since the value of the dollar is on the order of that in Zimbabwe, and the LE (Law Enforcement) officials will likely not have enough manpower to say wearily more than “You shot it, you bury it.”

There y’are, the ten things which exercise my mind the most. You decide which one you’re going to worry about, and I’ll come back later and address the problems one by one. In the meantime, divest yourselves of dollars. Turn them into anything durable which you will need later.

Drearily yours,
Linda Brady Traynham

November 16, 2009

The Top Ten Things to Worry About Surviving in a Bad Economic Climate was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

– Joshua Wyeth, 16-year-old participant on Dec. 16, 1773

Time to cock the ol’ tricorn hat and grab a flag!  Fling your tea bags and hoist your principles on the mast.

Right now, you’re on the hook for $42,000 — to pay off the monetary experiments of your federal government.

(If you voted Ron Paul for president and you’re not living in Texas, you may say you live in a state of taxation without representation.)

And maybe, just maybe, you were one of the thousands that gathered in various towns and cities around America to protest this hefty bill on Tax Day, April 15…in a little tradition we call “the Tea Party.”

Some say it’s not so much a tradition as it is a neo-con, Fox News-phenomena of faux-populism…Others cry from the blogosphere: Here’s the crowning demonstration of a new era of McCarthyism from a bunch of malcontents, “malcontent” being a fancy word for ne’er-do-wells leveling less dignified terms at those they see as other ne’er-do-wells: those embracing the welfare state.  When the mud starts flying, everyone comes out looking awful foolish.   But it is good to see a bonafide non-hippy-liberal-green contingent take to the streets for something.

Couldn’t make it? Here’s the Whiskey Room’s front-rail barstool view.

Southbound Go Your Sons and Daughters of Liberty

Gary Gibson and I got on the Baltimore Light Rail at 10:30 am, southbound to Glen Burnie, MD. That rendezvous point joined us with one of the four organizers of the state capital’s Tea Party, Pat.

Imagine, in the face of such nasty weather, signs streaming South to the Annapolis Harbor all the way from Route 50.  Crowds poured from church parking lots and garages.  (We noted bitterly not being able to park in Annapolis’ newest and fanciest garage: roped off ‘specially for employees of the state.)

Some 2,000 souls, we were told from the podium’s speakers, gathered on the waterfront and blocked the wooden docks of this colonially-quaint little capital.  Our count exceeded 700 for sure.

Commerce-wise, we succeeded only in blocking a few tourists from finding their way to the Starbucks — a breech clearly mended by the protestors who were cold in the pourin’ friggin’ rain and needed caffeinated reinforcement.

The protest was a little “every man for himself” – each sign was its own platform.  One man might protest the creation of the Federal Reserve.  His sign: a parade of historic personages — in yellow and red — ending with Obama’s face, writ underneath: Proudly Bailing Out Since 1913.  Another man, in camoflague poncho, simply holds up a piece of cardboard: “Global What?”

So each man and woman and child foisted up his or her own complaint, there was no overwhelming unity.  Only a couple hundred voiced the cries: “Throw the bums out!” “Cut our taxes!”

This is always encouraging…I like my demonstrations and parades a little disunited, otherwise I start to worry about Czech marches…beer hall putsches…and other sundry ugliness of humans meet ideals meet the streets.

Cut to a man in white gaiters and a kilt: “Bring back the Brits — They taxed us less!”

On the way to the harbor, the local oyster house hoisted a sign: “Somalia has nasty pirates, we have LEGISLATORS!”

Best of all were the protesting babes in arms of mothers.  Little girl of 16 months in Ma’s arms, the sign: “My Children Don’t Want to Pay for Your Toys.”

Most eloquent protestor prize: A man pulled his private historic schooner into the harbor with the help of friends.  Left on the ship, in full view of the assembled multitude, were wooden crates stenciled “TEA” — and a few more were scattered on the docks.

Another fine touch that only Annapolis could offer: a patriot in his Revolutionary garb shirking duty from state capital tours to take a stand.  His trusty mount: a Segway.  Poised high and proud, he held a flag aloft.  (We drank our morning espresso with him in the coffeeshop nearby before penetrating the dense brush of demonstration…he was delightful, and said, in parting: “See you on the other side of the breech!”)

No one voiced this aloud, but stickers wrapped round stems of umbrellas proclaimed: “Impeach Obama.”  We already wowed Europe with our stupidity in the impeachment process of Clinton…now shall we use the right as a prophylactic measure?

After braving two hours of wind and torrential rain, your hardy Whiskey & Gunpowder headed for the bar, warm Irish coffees and carried on a heated political discussion with our fine barkeep who gave Gary a free beer.

Sons of Liberty: Then and Now

For a dose of reality, let’s check back with our forefathers…the first Sons of Liberty.

Basic scenario: you had this giant trade monopoly called the British East India Company hit the American shores with cheap product that undersold all competitors: an addictive substance called tea, upon whose back the Age of Enlightenment had been borne.

The Brits assumed that no man would give up his tea, and therefore, that they’d pay the import duty…and therefore sanction the royal taxations sans representation.

Three ships, the Dartmouth, the Eleanor, and the Beaver hit Boston harbor on Dec. 8.  Eight days later, 60 Sons of Liberty split into three groups and mounted the boats waiting to unload their cargo.  These fellas were surrounded by British armed ships, but carried on splitting up crates with axes and tomahawks for three straight hours — broke up 342 crates — some 10,000 lbs. of tea.

Just think about it.  Your fledgling patriots ducked into the local blacksmith, smeared their faces in coal dust, pretended to be Mohawk Indians, and got away with it!

When they passed the house of the British Admiral, he yelled out: “Well boys, you have had a fine, pleasant evening for your Indian caper, haven’t you? But mind, you have got to pay the fiddler yet!”

Will we pay the fiddler…or just keep paying our taxes with much grumble and bah?  Frankly, this wasn’t a bona fide protest, so much as a bitchfest.  In fact, many protests incorporated the 1976 mantra: “I’m mad as hell, and I’m not going to take it anymore.”

Those words, of course, spew from apartments all over Manhattan in the film Network. A film as notable today for its zeitgeist (and the lovely actions of Ms. Faye Dunaway) as it was when my parents saw it before me.  In that movie, the “prophet” is assassinated — we hope our bourbon-gravel voice won’t be stifled the same way.

Regards,
Samantha Buker

April 20, 2009

Tax Day Tea Parties, Unite was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.