Let us review Bastiat's original lesson and apply it to modern-day disputes over the possible benefits of destructive events.
The Broken-Window Fallacy
by
Let us review Bastiat's original lesson and apply it to modern-day disputes over the possible benefits of destructive events.
Germany’s gold reserve inspection could spark other central bank gold audits
Growing demands from German officials and politicians to formally check German gold reserves now held in the United States have sparked media reports that the gold reserves of several Western nations are believed to be smaller than previously thought.
In an article published Tuesday in Coin Week, Louis Golino suggests, “If these reports are accurate, they have important implications for the future price of gold, and therefore for precious metals investors.”
“First, they suggest that much less mined gold exists than previously believed. Second, this is especially significant to the so-called manipulation thesis, which hold that governments act to surpress the price of gold,” Golino noted.
“If governments hold less gold than we thought they did, then their ability to affect the price will also be greatly diminished,” he advised.
Germany is believed to have 3,396 tons of gold reserves, the second-largest gold reserves in the world after the United States. German politicians, as well as Germany’s federal Court of Auditors, have requested that the Bundesbank, Germany’s equivalent of the Federal Reserve, check up on Germany’s gold reserves, the majority of which are in storage in offshore banks.
Read More at mineweb.com . By Dorothy Kosich.
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Is The Federal Reserve Using Money-Laundering Techniques To Cleanse Banks’ Balance Sheets?
Drug lords, terrorists and shadow-government operators (but I repeat myself) use third party intermediaries to cool off and sanitize hot, dirty, and therefore useless money into pristine-clean and productive money that can be used in legitimate commerce. It’s called money laundering.
Characters operating in the shadows also use a form of reverse money laundering to defile clean money or redirect dirty money while masquerading its source so it can be siphoned away, re-channeled and put to use financing illicit activities such as terrorism and off-the-books, shadow-government operations (but I repeat myself, again) that Congress won’t authorize or fund. Think of it as repatriating dirty money and expatriating clean money.
Private equity companies (“hedge” funds) are favorite vehicles for laundering dirty money. They are weakly regulated and thus are able to handle huge financial sums for parties who want to remain anonymous, moving money in and out of secret foreign-bank accounts and then on and off the books of legitimate companies in open commerce. If the origin of the newly cleansed money is ever questioned, the criminal has all the paperwork he needs to demonstrate that he has simply received large returns from a legitimate hedge-fund investment.
In both its public and private variants, money laundering depends on the participation of “legitimate” actors and, therefore, is usually a don’t-ask-don’t-tell operation. Not surprisingly, the government itself is frequently complicit in the willful ignorance that don’t-ask-don’t-tell money laundering requires, turning a blind eye to consistently huge investment returns, sometimes in excess of 150 percent annually—putting even Bernie Madoff’s Ponzi scheme to shame—a certain red flag that a money laundry is in operation.
A research paper on hedge funds and money laundering by Oracle Financial Services explains:
“The [dirty] money is channeled [into the hedge fund] through an intermediary and supposedly comes from [say] a wealthy Asian business executive who wants a higher rate of return than he believes he can get with traditional investments. The hedge fund is eager to recruit new investors and does not want to turn any money away. They take the ‘Asian business executive’ story at face value and do not dig too deep to verify that the business really exists. The layering step is complete; the money has been distanced from its criminal origins.”
The Federal Reserve also operates its own financial Laundromat for troubled, in some cases criminal banks. The Fed’s loan laundry and downscale resale consignment shop first takes in the wash by purchasing non-performing, and therefore largely worthless financial assets (loans and loan-backed securities) to remove them from the books of private banks. (Another variant is for the Fed to swap the banks’ bad paper at face value for federal debt instruments, which replaces the banks’ non-performing assets having little, if any, resale value, with safe, interest-paying and highly marketable assets.). The Fed then launders the loans by reselling them back to the same group of banks at a fraction (10 percent or less) of the face-value price it paid the banks for them. Once the banks repurchase the spiffed up dirty loan laundry, it not only has turned a nifty 90-percent-or-more profit on the turn around, it also has a new asset it can put back into the stream of financial commerce at a price reflective of its true value.
Read More at Forbes . By Lawrence Hunter.
Google+Financial Crisis Caused By Bad Policies, Not Tax Cuts
The financial crisis cost Americans trillions in investment losses, home equity declines, and unemployment and lost wages. The crisis and those losses were caused not by deregulation or tax-rate cuts, but by the benighted market interventions of the last three presidents.
The roots of the financial crisis began with the excessive overregulation of President Clinton’s National Home Ownership Strategy, unveiled June 5, 1995, though the same policies had been building for almost 20 years.
That involved more than 100 regulatory initiatives to force banks to abandon their traditional lending standards and create the subprime mortgage market. Included were a vastly beefed up Community Reinvestment Act, actual or threatened discrimination suits by Justice and HUD to enforce regulations, and regulatory mandates on Fannie Mae and Freddie Mac to finance trillions in mortgage securities backed by subprime mortgages.
The depreciated lending standards spread throughout the mortgage market, including higher-income borrowers speculating in second and third homes. All this extra mortgage money flowing into housing gave birth to the housing bubble.
The government sponsored enterprises Fannie Mae and Freddie Mac attracted trillions in financing because their securities were seen as government guaranteed. That pumped up the housing bubble further.
Read More at investors.com . By Peter Ferrara and Lew Uhler.
Google+France Can’t Compete With Rest of Europe: WTO Chief
France is uncompetitive, not only versus China, but against the rest of Europe, according to Pascal Lamy, director general of the World Trade Organization.
“The competitiveness of France on foreign markets has been damaged for the last 10 years. This is nowhere more obvious than in Europe, where France has lost market share for the last 10 years,” said Lamy in an exclusive interview with CNBC in Paris. “The place where the trade balance of France has deteriorated the most is within Europe, where conditions of competition are roughly level. So contrary to what I hear from time-to-time, they are probably not [struggling because of] China.”
Lamy said that in the short term France must become more cost competitive by cutting taxes on businesses “so they regain a bit of margin for maneuver.”
France’s socialist government under President Francois Hollande is due to outline measures to boost competitiveness on Nov. 6.
However, the government has already detailed plans to increase, rather than decrease, taxes on big companies as part of its 2013 austerity budget, which aims to tackle France’s crippling deficit.
Read More at cnbc.com . By Katy Barnato.
Google+Storm Economics in One Lesson
In a natural disaster like Hurricane Sandy, the only thing people should fear more than the storm is the government’s response.
Let us count the ways.
Mandatory evacuations presume that politicians know the risks better than property owners themselves. That can’t possibly be true. In an information age, we all have access to the same data. Especially these days. We should be able to make our own risk assessments, coming and going from our property as we choose.
Where is the evidence that property owners systematically underrate risk whereas political elites are clear headed and know precisely what to do? The incentives for the government is to clear everyone out because doing so exempts city workers from liability for failing to do the job they exist to do, namely to protect and serve people in times of crisis.
There is also something extremely perverse about arresting people for failing to take government-mandated steps to protect themselves. When it is all over, government is in then in a position to control access to one’s own home and property. In every natural disaster with evacuations, people find themselves struggling against their own government to get back to their own property and assess the damage .
Read More at dailyreckoning.com . By Jeffrey Tucker.
Google+Is Gold Overpriced?
Be sure and check out Bill Murphy’s comments (LeMetropole Café) today. He always has great things to say and his newsletter is one you should not miss. It is worth the price of admission many times over. Also, there is a wonderful essay by Sprott Global Resources that you should take the time to read here today. Both of these articles are outstanding.
Let’s see how gold is doing in four of the world’s major currencies. I have presented this chart before, but it’s time to review it again. Gold’s rise is a direct result of the central banks inflating (debasing) their currencies. Since gold is the only financial asset with no liabilities against it, gold has become very attractive to central banks and savvy investors, especially in India, China and Russia. The following chart prices gold in Dollars (Gold), euros (Blue), Japanese Yen (Red) and Swiss Francs (Purple):
If you worry that gold is already too “expensive,” since it is priced at twice its 1980 high ($850/oz.), think again. When adjusted for inflation, a 1970 dollar is worth $5.96 today and a 1980 dollar is worth $2.81. That’s using the BLS inflation numbers, which are very, very conservative. For gold to hit a new “inflation-adjusted” all-time high, it will have to reach $2,389. To equal its 1970 value, the beginning of the last bull market, it will have to reach $5,066. Jim Sinclair’s prediction is about mid-way between those numbers at $3,250.
Read More at milesfranklin.com .
Google+Some Millennials Becoming More Fiscally Conservative
This generation of young Americans has been called many things, from civic-minded to “entitled.” But fiscally conservative?
That’s a new one, and it just might have an impact on the presidential election.
Listen to Caroline Winsett, a senior at DePaul University, who considers herself fairly socially liberal but says being fiscally conservative matters most right now.
“Ultimately, I’m voting with my pocketbook,” says Winsett, a 22-year-old political science major who’s president of the DePaul student body. She recently cast an absentee ballot for Republican Mitt Romney in her home state of Tennessee.
To be clear, polls show that President Barack Obama remains the favorite among 18- to 29-year-old registered voters, as he was in 2008. No one thinks the majority of young voters will support Romney, a former Massachusetts governor, in the Nov. 6 election.
Read More at cnbc.com . By The Associated Press.
Google+The Coming 2013 Regulatory Tsunami
Knowledgeable officials are expecting a regulatory tsunami after the election. By law, the Office of Management and Budget (OMB) is required to publish a report each April and October about new regulations that government agencies are considering. OMB failed to publish the April report. The question is why — what is it hiding?
House Education and the Workforce Committee Chairman John Kline, Minnesota Republican, has called the OMB’s actions a “flagrant violation” of the law. Susan Dudley, director of the George Washington University Regulatory Studies Center, has studied the pattern of “economically significant” regulations (those with impacts of $100 million or more per year) from 1982 through the first half of 2012. Ms. Dudley has observed that President Obama has had a different pattern of regulations than his predecessors. She notes that his “administration published a record-setting average of 63 economically-significant final rules in his first two years,” but more recently, the number of regulations has slowed to a “trickle.”
What would explain the failure to publish the required report and the recent lack of new regulations? Ms. Dudley and others think we are seeing the equivalent of a “drawback” of new regulations — like the water on the beach just before a tsunami. She argues that a sign of the drawback is the backlog of regulations under review. She writes; “While historically OIRA [the Office of Information and Regulatory Affairs] reviews regulations in under 60 days, on average, currently over 70 percent of the regulations under review have been sitting at OIRA for longer than 90 days (the default review time established by executive order), and 10 percent have been there for over a year. All recent presidents, with the exception of Reagan, have issued many more regulations during the last quarter of their administration. But the Obama buildup is unprecedented.”
Given the highly political behavior of the Obama White House, it is not unreasonable to suspect that because of the failure to give notice of impending regulations and the backlog of regulations under review, there will be a tidal wave of new “midnight” regulations immediately after the election. It also is reasonable to suspect that many of the regulations may be politically unpopular and do great economic damage. If Mitt Romney wins, he may be able to pull back many of those regulations, but if Mr. Obama wins, given his rhetoric and previous behavior, a torrent of new regulations is likely.
Read More at washingtontimes.com . By Richard Rahn.
Google+The Fiscal Cliff and Peak Government
Six critical dynamics will trigger the devolution of Peak Government.
With the fiscal cliff looming, it’s time to check in on the Peak Government thesis.
Chris and Adam at peakprosperity.com asked me to revisit my Peak Government thesis, which describes how the expansive Central State has come to dominate both private society (i.e., the community) and the marketplace, to the detriment of the nation’s social and economic stability.
Let’s start by examining the six critical dynamics that lead to the inevitable devolution of Peak Government.
Massive Borrowing
In a misguided attempt to maintain an unsustainable Status Quo, the Federal government is borrowing unprecedented amounts of money that then must be serviced. And the Federal Reserve is expanding its balance sheet by trillions of dollars (“printing money”) and intervening in stock, bond, and other markets for the purposes of managing perception (“the recovery is here!”)
These government funds are not just paying the government’s bills – they are being used to guarantee loans and mortgages that subsequently enter default, transferring what was private debt to the public and subsidizing politically powerful special interests.
Guarantees and subsidies both incentivize what is known as moral hazard: the separation of risk from consequence. This can be summarized very simply. People who are not exposed to risk act completely differently than those who are exposed to risk. When risk has been transferred to the taxpayers by guarantees, give-aways, and subsidies, then speculation and mal-investment are incentivized. If the bet pays off, I get to keep the gain, but if it loses, then I personally lose nothing, as the loss is transferred to the taxpayers.
Read More By Charles Hugh Smith .
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