www.youtube.com/watch?v=7cqVZhfqnMg

Word on the street is that the Fed is now “out of bullets.” Many economists fear that in its efforts to spur recovery, the Fed may have already exhausted its array of monetary ammunition and that it has nothing left of significance to fire at the steadily advancing recession. They believe that since interest rates are already near zero and Fed policies have failed to inspire banks to expand commercial and consumer lending (despite ample bank reserves), the tools traditionally employed by the Fed have been rendered impotent.

To their credit, these commentators are 100% correct in asserting that the Fed can’t help the economy by printing more money. But it’s not because the Fed policy is without consequence, but because the Fed has always been incapable of creating real growth. All it can do is manipulate the purchasing power of money. By keeping prices from falling more that they would have naturally, Fed intervention has created a burden. Lower prices would have cushioned the effects of the recession for many people.

However, because it failed to spark faster GDP growth, most people now agree that Fed’s traditional ordnance, namely purchases of short-duration Treasuries from primary dealers in order to depress the yield curve, has lost effectiveness. But the Fed is never… ever… ever… out of ammo. In fact, according to Mr. Bernanke himself, the central bank may be about to unleash the heavy artillery.

Our central bank controls the printing press, so it has the ability to create money at will and use it to purchase anything it desires. It can and does purchase longer-dated Treasuries and other bank assets like home loans. If these funds are falling into the black hole of the banking system, there are ways for the Fed to cut out the middle man.

For instance, the Fed could buy stocks and real estate directly from the public. The Fed could buy a trillion-plus dollars worth of S&P 500 stocks. Consumers that sold stock to the Fed would receive funds that didn’t previously exist. M1 money supply would boom as demand deposits surged. But if the Fed continued to hold interest rates to zero, banks would continue to pay near-zero interest on their deposits. So, American consumers would then be faced with a choice: earn pennies on their savings accounts or take the cash out and jump onboard the soaring stock market.

The Fed could also, if it thought necessary, create another bull market in real estate. It could guarantee ‘no down payment’ loans of any amount to any borrower, with a promise never to foreclose or seek compensation in the result of default. By making home purchases risk-free, such a policy would surely re-energize the housing sector.

By spurring price increases for stocks and real estate, the elusive “recovery” could be conjured in an instant. The only flaw would be that nothing would actually improve. By telegraphing unlimited monetary debasement, such policies would cause a run on the dollar. Although the “dreaded risk of deflation” would no longer be discussed, investors would be forced to once again abandon savings and chase runaway prices. In other words, we would find ourselves in the exact same predicament that led to the crash of 2008.

Speculation on non-traditional Fed activity is not a vain exercise. Bernanke’s speech last week gave warning of major initiatives to come. First, there’s this gem: “The FOMC will strongly resist deviations from price stability in the downward direction [i.e., deflation].” He also showed just how strongly he desires a return to rampant money supply growth and asset inflation when he said, “The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.” What Bernanke means by such rhetoric is that the Fed will not only monetize assets held by banks, but will purchase assets directly from consumers – thereby placing money directly into their hands.

We must immediately understand that the Fed can shower liquidity directly on the consumer in any amount it wants. The political pressure to do so will only increase as unemployment rises and economic growth falters. Therefore, rather than fearing phantom deflation, investors should prepare their portfolios for the real upcoming battle with intractable inflation.

www.youtube.com/watch?v=Vg-24-o_9fw

And of course, he’s spot on as usual. Note that the picture associated with this post was not released by Ron Paul as part of the press release.

“The President’s announcement that all U.S. combat troops have left Iraq is no more believable than the ‘Mission Accomplished’ declaration was in 2003.

“Once again, we are being told the mission has been accomplished and our brave men and women are coming back home. Though the people are hopeful they remain skeptical, and rightfully so.

“The biggest problem is that success in Iraq is undefinable since the mission was never defined. The reasons given for the invasion were based on misinformation. Now, the war has cost us hundreds of billions of dollars and this has contributed significantly to our economic woes.

“Forty-four hundred Americans are dead, thirty thousand severely wounded, and more than a hundred thousand are suffering from serious health problems related to Post Traumatic Stress Syndrome. This alone should tell us that it was not worth the investment and the needless sacrifice of our young people and the taxpayers.

“It is deceitful to imply we will avoid hostilities with this new policy. We still have to contend with:

• the 50,000 troops carrying weapons remain in Iraq
• the 100,000 contractors that remain with more expected to go to Iraq
• the 9,000 special ops personnel trained in assassinations that remain in Iraq
• a huge embassy, bigger than the Vatican, that will remain
• Dozens of military bases that will stay
• Al Qaeda organizations that did not exist before the war
• Muqtada al Sadr, a strong nationalist who has gained much political power
• The fact that Iran benefits tremendously with the Shiites now in power in Iraq and is a close ally of al Sadr

“Osama bin Laden wins by ‘proving’ that America has an agenda of occupation in the Middle East. And, we continue to walk into his trap and hand him up his best recruitment tool in his efforts to incite hatred and terrorism against the United States.

“What’s worse, President Obama made it clear last night that the troops and resources leaving Iraq will not come home to defend our country or ease our economic woes. They will instead be diverted to Afghanistan, perhaps also Pakistan and, I fear, even Iran.

“From my viewpoint we are the losers in this fool’s errand of endless war. Tragically, this new policy is not one of peace but merely a charade that will severely undermine our national security and continue us down the path to bankruptcy—a threat that we best not long ignore.”

America is NOT the politicians, their aides, or their cadre of ‘experts’. It’s the people who dutifully show up every election to put their two cents in at the ballot box. THAT is America.

America is NOT the laws that are passed day after day after day. It’s the people who live their lives the best way they can, who don’t kill, cheat, rob and who go through life cheerfully following the two words that keep this country together: honesty and fairness. THAT is America.

America is NOT the news media. It’s the people who go out of their way to inform themselves on issues of the day and simply won’t accept whatever is printed or televised before them. They refuse to let people they don’t know make up their minds for them and more and more inconveniently question what our politicians and courts are doing to this country. THAT is America.

America is an idea, a concept, a conclusion held together by the sheer will of its people. THAT is America.

Long may her flag fly.

To paraphrase what I heard in Barack Obama’s speech earlier tonight…

- We’re bringing our combat troops home from Iraq…  and sending them to risk death in other no-win wars.

- But we’re gonna keep about 50,000 troops in Iraq to… do what they’ve already been doing since around 2005… nation-building.

- Sometime in 2011 we will remove all U.S. military troops from Iraq (yeah right) but we will leave behind a private “force” to continue our nation-building there.

- Though George W. Bush was a patriot and we may have disagreed on a bit of foreign policy minutia we are in large agreement that we must continue breeding hatred for all things America by shifting our focus toward different faux-monsters to destroy in far away lands.

- Yes, like George W. Bush, I have trouble going to sleep at night because there are terrorist monsters under America’s bed. I don’t care if you can’t see them when you turn on the light and look. They are there! I swear!

- We spent far too much money on the Iraq War so we must bring it home and spend it on entitlement programs then borrow perhaps another trillion or so to copy our Iraq effort in Afghanistan and who knows maybe we’ll do the same in Iran or Pakistan a bit later. This will be sure to help our economy here at home.

- Our troops are great.

- The Military-industrial complex will remain intact as long as I’m around!

- God Bless America because we need all the help we can get with me as your president.

- You should have all voted for Ron Paul. Let’s hope you get another chance in 2012.

—————–

That about sums up what I heard from President Barack Obama tonight. The non-paraphrased version is available too. I assure you there is not much different than my condensed version except for maybe that last Ron Paul bit.

It gets worse.

It’s your property that’s actually charged with a crime, and your property is considered guilty until proven innocent. This makes it virtually impossible for you to regain your possessions once they’re seized.

But it gets even worse . . .

This scheme of legalized theft actually fosters additional corruption, as demonstrated in the sample letter below. Please use the new evidence we provide to send Congress another letter arguing that . . .

Civil asset forfeiture laws should be made illegal.

You can send your letter using our Educate the Powerful System:

You may borrow from or copy this sample letter . . .

Civil asset forfeiture corrupts our police. It turns cops into robbers.

Civil asset forfeiture is at the heart of government lawlessness.

* It disregards the Bill of Rights.
* It confiscates property from innocent people.

The federal government compounds the problem by cutting-in local law enforcement. They’ve turned the Drug War into a referral program! In a process known as “equitable sharing,” local law enforcement can work with the federal government in pursuit of criminals, and keep as much as 80% of the booty. http://www.ij.org/index.php?option=com_content&task=view&id=3117&Itemid=165

And where does this money go?

* In Texas, a district attorney has been indicted for using $200,000 of forfeiture funds to line his own pockets and pay for trips to casinos http://www.examiner.com/headlines-in-san-antonio/former-texas-county-district-attorney-indicted-for-misusing-200-000-for-extra-pay-and-casino-trips

* In Indiana, where the law requires forfeiture loot to be spent on public education, only one county is complying with the law. In the other counties, law enforcement departments are keeping almost all the money, and the Attorney General doesn’t seem to care! http://reason.com/blog/2010/08/18/indianas-attorney-general-on-a

Are you surprised by this corruption? You shouldn’t be.

If confiscating property is an institutional mission, one must worry about the people such a group will employ to carry out that mission. If a government tells its employees that they must steal to meet their budgets – that is, engage in asset forfeiture – then some will rationalize that stealing is okay.

And they’ll steal from their employer, too.

The Institute for Justice has a tantalizing list of how some local posses have spent the loot. http://www.ij.org/index.php?option=com_content&task=view&id=3117&Itemid=165

Because Congress encourages asset forfeiture, I must ask you: “What about the 5th and 14th Amendments? In other words, what about ‘due process of law?’”

Civil asset forfeiture is unconstitutional. Therefore, I DEMAND that you . . .

. . . end all civil asset forfeiture programs

When you abolish asset forfeiture, you will also reduce government corruption. Better yet, you will send a message to the people that the police really are there to serve and protect — not to steal.

END LETTER

You can send your message through DownsizeDC.org’s Educate the Powerful System.

If you know friends who would be as outraged at civil asset forfeiture as we are, please forward them this message and tell them on Facebook.

Thank you for helping grow the Downsize DC Army.

Sincerely,
Jim Babka
DownsizeDC.org, Inc.

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

Louisville WHAS 11′s political reporter Joe Arnold has the scoop:

Supporters of the policies of President Barack Obama knocked on doors in Louisville and Lexington over the weekend, as part of the “Moving America Forward” canvass to “support Democratic allies for President Obama.”

Presumably, that includes candidates for federal office, Jack Conway and John Yarmuth.

According to a release from Organizing for America-Kentucky (OFA-KY), volunteers are reaching out “to 2008 first time voters, sporadic voters, and newly registered voters to talk to them about the importance of electing Democratic allies for President Obama who will keep the country moving in the right direction.”

As President Obama has made clear in recent weeks, this election represents a choice between Democrats who have worked tirelessly to move the country forward or a return to the failed Republican policies that set the country in the wrong direction. Since taking office, President Obama and Congressional Democrats have passed historic reforms to the health insurance industry and Wall Street, and pulled the American economy back from the brink of depression.

Jack Conway was named by Senator Robert Menendez, leader of the Democratic Senatorial Campaign Committee, as “the next Obama.”

Voters should question why Jack Conway used his support for ObamaCare in the primary to defeat the conservative Democratic candidate Daniel Mongiardo – Jack also pandered to the left on the Bush tax cuts against Mongiardo, only to pander back after the primary (the media did not report it) – but, now, Conway does not campaign on his support for the extreme Obama lead takeover of the health care industry.

Last week, the National Republican Senatorial Committee launched this ad in Kentucky pointing out Jack Conway’s support for the Obama lead legislation.

But the similarities don’t stop with ObamaCare, several of Jack Conway’s limited issues listed on his campaign website resemble Barack Obama campaign pledges; especially, Jack Conway’s “jobs plan.”

Is Jack Conway the next Obama? Or was Barack Obama’s platform a one-hit wonder?

Jack Conway faces Dr. Rand Paul in Kentucky for the senate seat being vacated by retiring United States Senator Jim Bunning.

Watching economists and media analysts react to breaking economic news is a bit like looking at a flock of pigeons flying over the New York skyline. A true wonder of the urban landscape, the flocks can include hundreds of individuals who show an uncanny ability to stay in tight formation as the group quickly zig-zags between buildings. What may be even more remarkable than their ability to randomly fly while maintaining cohesion is the flock’s refusal to stick to any particular direction for very long, and their determination to fly feverishly without actually going anywhere. Sound familiar?

Today’s weak GDP numbers have finally caused the mass of economists to revise downward their formerly optimistic recovery forecasts, with many finally entertaining the possibility of a “double dip” recession. It should be obvious by now that these economists only have the capacity to describe where the economy is moving in the short-term…they have no ability to explain the reasons behind the macro trends or make predictions that go beyond the next data release. But economics is not dart throwing. It can be understood and properly forecast.

I’ve made a living out of exposing economic fallacies, but there’s one whale that I can’t seem to harpoon. Even top-flight Wall Street analysts seem to believe that the Fed’s doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like so: “The money the Fed created and dropped from helicopters has all been caught in the trees.” In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public. Therefore, the money supply hasn’t truly increased, there is no money multiplier effect, and aggregate price levels are behaving themselves.

But this is only a half-truth. Yes, most of the money created by the Fed has been kept by commercial banks as excess reserves. However, the Fed doesn’t conjure reserves by magic. It first creates an electronic credit by fiat, then purchases an asset held by a financial institution. Those primary dealers then deposit that Federal Reserve check into their reserves. The act of creating money from nothing and buying an asset — be it a Treasury bond or Mortgage Backed Security (MBS) — drives up the price of that asset in the open market. Those price distortions send erroneous signals to private buyers and sellers, eventually creating gross economic imbalances.

Therefore, the inflation created by the Fed first gets concentrated in whatever asset it has chosen to purchase – before spreading throughout the economy.

In the latest example of the Fed’s monetary manipulations, Bernanke & Co. purchased $1.25 trillion in MBS. The prices of MBS were therefore driven up (and yields down). Before that, the Fed forced the entire yield curve lower by purchasing not only Treasury bills but also $300 billion in notes and bonds. The Fed has also recently indicated that it will be swapping maturing MBS for longer-dated Treasury securities in an effort to keep its balance sheet from shrinking.

While it is true that — for now at least — we have been spared from the imminent curse of skyrocketing consumer prices, thanks to the falling money multiplier, it is blatantly untrue that the trillion-plus dollars the Fed created have been rendered inconsequential.

Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981.

US sovereign debt should only enjoy such historically low yields due to an overabundance of savings, low inflation, and low debt. None of those preferable conditions currently exist. Hence, US Treasuries are the most over-supplied, over-owned, and over-priced asset in the history of the planet! Once the debt dam breaks, it will send the dollar and bond prices cascading lower, and consumer prices and bond yields through the roof.

While Wall Street and Washington are petrified of the deflation boogieman, the real menace lurking in the shadows is the Fed’s bond bubble – and it’s going to eat small investors alive.

In this message . . .

* How I lost my doctor
* Terrifying statements from the new head of the Centers for Medicare and Medicaid Services
* Plus, a special offer from NullifyNow.com

The Democrats promised us lots of things about their healthcare bill (just like the Republicans promised us lots of things about Iraq). For instance . . .

* If you have insurance you like, it won’t change
* If you have a doctor you like, you’ll be able to continue seeing him or her

Well, how are those promises working out for you?

Personally, my insurance hasn’t changed, YET, but my doctor has.

My “liberal Democratic” doctor probably cheers most of the Social-Fascist policies proposed by his favored political party, except that the healthcare bill happened to gore his personal ox. The result is that he has stopped . . .

* seeing Medicaid and Medicare patients
* taking health insurance payments
* accepting fees for services

Instead, he is now a concierge doctor. His remaining patients pay him a lump sum each year, for which they receive a set list of tests, and “unlimited” consultation. The price was too rich for me, and so I’m now among the hundreds of his former patients who need a new primary care physician.

Thank you so much President Obama and Congress.

We predict that this is only the beginning of the chaos. Please pay attention to the statements made by the head of the Centers for Medicare and Medicaid Services that I quote in my sample letter below. They highlight why it’s important to keep fighting the new healthcare law. We must never let the politicians assume that we have submitted to their coercion.

Please send Congress another letter about this issue.

You can borrow from or copy my sample letter . . .

My determination to repeal the recently passed healthcare bill has increased after reading the following statements by Dr. Donald Berwick, the recently appointed head of the Centers for Medicare and Medicaid Services (CMS). http://tinyurl.com/2dbmrut

Dr. Berwick: “The unaided human mind, and the acts of the individual, cannot assure excellence. Health care is a system, and its performance is a systemic property.”

This concerns me because Dr. Berwick seems to believe that HIS unaided human mind is capable of determining THE SYSTEM that we should all submit to.

Dr. Berwick: “I would place a commitment to excellence—standardization to the best-known method—above clinician autonomy as a rule for care.”

In other words, one size fits all, and Mr. Berwick’s unaided mind is ready and willing to tell us the ONE METHOD by which we must all be treated.

“Young doctors and nurses should emerge from training understanding the values of standardization and the risks of too great an emphasis on individual autonomy.”

Nevermind that we all have individual genomes, and individual genetic expressions, and individual everything. Mr. Berwick wants us all to be same-sized square pegs that he will pound into his preferred round holes. It’s also very evident that he wants to silence individual thought and innovation in the minds of the next generation of healthcare providers.

Dr. Berwick clearly views himself NOT as a public servant, but as a RULER. If you want to distinguish yourself from Dr. Berwick, please demonstrate that you want to serve me rather than rule me. You can do this by sponsoring legislation to repeal the recently passed healthcare law.

END LETTER

You can send your letter to Congress using our Educate the Powerful System.

Finally, before closing, we want to call your attention again to NullifyNow.com. This fine organization is working on another approach that could help to overturn the new healthcare law, and perhaps many other things too — state nullification. Jim Babka will be speaking at two of their events in the coming months. You can . . .

* Learn more here
* Buy very cheap tickets for a day-long, NullifyNow event near you

Perry Willis
Vice President
DownsizeDC.org, Inc.

D o w n s i z e r – D i s p a t c h

Official email newsletter of DownsizeDC.org, Inc. & Downsize DC Foundation.

In a CNBC debate last week, former Labor Secretary Robert Reich presented a set of contradictory beliefs that unfortunately reflect the conventional wisdom of modern economists. In a discussion with Wall Street Journal columnist Stephen Moore, Reich correctly and comprehensively listed the reasons why American consumers could spend so lavishly before the crash of 2008 and why they can no longer keep up the pace. But instead of making the logical conclusion that former levels of spending were unsustainable and that spending should now reflect current conditions, he advocated that government take on additional debt so that tapped out consumers can spend like they used to.

To achieve this, Reich called for lowering taxes on working Americans and raising taxes on the rich. He argued that middle-income Americans are more likely to spend additional dollars while the rich are more likely to save and invest. As a “demand-side” economist, Reich made clear that spending is superior to savings and investing as a catalyst for growth.

To put it simply: Reich believes that the cart pushes the horse. In his worldview, businesses produce goods and services simply because consumers spend. Therefore, anything that increases spending fuels growth. Unfortunately, he fails to see what should be strikingly obvious: capital formation must precede production, which then allows for consumption.

In a complex society like ours, those relationships are hard to see. However, if we break it down to a simpler level, it becomes more obvious (as I try to accomplish in my new book: How an Economy Grows and Why it Crashes). For example, let’s take a look at a simple barter-based economy consisting of only three people: a butcher, a baker, and a candlestick maker.

If the candlestick maker wants cake, he can’t simply demand that the baker hand it over. The cake needs to be produced, and the baker has to expend labor and material to produce it. Unless the candlestick maker offers the baker something of value in exchange, the cakes won’t get baked. The ability of the candlestick maker to demand cake from the baker is a function of his ability to supply candles to trade. Without production, consumption can’t occur.

What if the candlestick maker gets sick and produces no candles? As the baker would be unwilling to give his cakes away, he would likely stop baking cakes for the candlestick maker. Economic activity would naturally contract until the candlestick maker recovers.

But according to Reich, if the candlestick maker doesn’t have anything to trade, the government should step in and give him candles. But where will the government get them? It could take them from the candlestick maker; but if he is not making candles, how will he pay the tax? Even if there were a few candles left to tax, any that the government took would simply transfer demand from the candlestick maker to the government. No new demand is created.

Alternatively, if the butcher is still healthy, the government could tax him, and give his steaks to the candlestick maker to buy cakes. However, this doesn’t create new demand either. It simply transfers demand from the butcher to the candlestick maker.

Some may feel that a barter-based metaphor doesn’t hold water because the ability to expand the money supply and create credit gives an economy far more flexibility. This is a deceptive argument. Although money is more efficient than barter, it doesn’t change the dynamic between production and consumption.

But Reich suggests that printed money can stimulate demand just as effectively as real candlesticks. But what good will the paper offer the baker if there are no candlesticks to buy? All the baker can do is bid up the prices of those goods, like steaks, that continue to be produced. Similarly, if the government simply prints money and gives it to people to spend, no new production occurs. Prices merely rise to reflect the increase in the supply of money relative to the supply of consumer goods.

In a more complex economy, the relationship between production (supply) and spending (demand) still holds. Every consumer either lives off his own productivity or the productivity of someone else. When individuals work, the wages earned result from the productivity of labor. The ability to consume is directly related to the production of goods or services that result from one’s efforts. However, if people waste their labor in unproductive jobs, little real demand is created.

In the Soviet Union, everyone had a job, yet workers had to stand in line for hours for basic necessities. Although everyone worked (for the government), production was too low. This lack of production meant wages delivered relativity little in the way of purchasing power.

Since production cannot be created by government stimulus, neither can demand. To the extent that there are savings, demand can be brought forward by stimulus – but only at the cost of future demand, plus interest. If stimulus could produce demand, then no nation would be poor. Taken to its logical end, Reich’s argument suggests that African poverty would be wiped out if African governments simply printed money more freely. In reality, Africans are not poor because they lack currency to spend; they are poor because their corrupt and inept governments inhibit production by soliciting bribes, denying property rights, abrogating contracts, preventing the accumulation of capital, and nationalizing profits.

Reich is correct about one thing: Americans are indeed broke. But rather than encouraging the country to spend itself deeper into debt, he should call for greater savings so that we have the means to invest in new businesses and new industries. That is the true road back to solvency, but it will only work if we have less government spending, fewer regulations, lower taxes (particularly on those with the highest propensity to save and invest), and higher interest rates.

Unfortunately, Reich and his allies are calling the shots in Washington. The country cannot recover until the only thing politicians stimulate is demand for new economic leadership.