Doug: That means that all the work the average guy does until April 17 goes to pay for the government that failed to protect him on September 11, 2001, failed to protect him from the crash of 2008, and continues failing him every day. We pay for an organization bent on doing not just the wrong things, but the exact opposite of the right things in economics, foreign policy, and everything else we’ve talked about in all our conversations. It’s rather perverse that Emancipation Day — the day the first slaves in the US were freed in the District of Columbia in 1862 — is April 16. But what is a slave? He’s someone who is deprived by force of the fruits of his labor. Sound familiar? I disapprove of slavery, in any form — including its current form.

However, Tax Freedom Day is an incomplete way of looking at things. What’s the cost to business forced to install equipment to meet government regulations? That’s not paid as a tax, but it’s a serious burden. There’s something called Cost of Government Day that’s a somewhat more inclusive estimate of the burden the state imposes on the average guy…

L: I just looked for that too and don’t see that a date for 2012 has been announced yet; but Cost of Government Day for 2011 was August 12. According to that estimate, the average US taxpayer slaved away for about two-thirds of the year to pay for the state and got to keep only a third of the fruit of his labor for his own benefit and improvement.

Doug: That may be a more accurate way of looking at the burden of government the average guy has to bear, but it still doesn’t even begin to address what economists call “opportunity cost.” Basically, I don’t just look at what the state we have costs us in cash, but in terms of the innovation and growth we don’t have because of government policies, laws, and regulations. This covers everything from new medicines to all sorts of new technologies to different forms of social and business organizations to the cleaner intellectual atmosphere I think we’d have without government propaganda machines cluttering it up.

I don’t believe in utopia, but I do believe our world could be far freer, healthier, and happier than it is today — without any divine intervention, magic, or changes in the laws of physics. Just a different path, every bit as possible as the one we’ve taken to where we are today… Without any major differences in technological development and without assuming that people would spontaneously become angels, the average standard of living worldwide would be much higher if…America had stayed out of WWI, or had not ratified the 16th Amendment to the Constitution, or had not elected FDR.

L: Okay, but those things did happen, and we live in the world we have today — the one you call a prison planet. How should people try to do what’s right in such a world without ending up in jail?

Doug: First, it’s important to think about what’s actually possible, because people will not even try to reach for what they are sure is impossible. The world needs idealists to challenge us all to aim higher… including idealists willing to go to jail for what they believe in, like Henry David Thoreau. But even he said that while he encouraged all people to disobey unjust laws, he wouldn’t ask those who support families to get themselves locked up and leave their families destitute.

So my take is as we started out saying: It is both ethically and practically imperative to starve the beast. The less cooperation of any sort we give the state — but especially the less money we give it — the less mischief it can get into. We’re unlikely to get politicians to vote for getting the state off our backs, out of our pocketbooks, out of our bedrooms, and out of other people’s countries as a matter of principle, but we could see the state get out of places it doesn’t belong simply for lack of funds. And if everybody treated minions of the state with the contempt they deserve, most of them would quit and be forced to find productive work. As Gandhi showed us, civil disobedience cannot only be an ethical choice, but a very powerful force for change.

L: Any specific advice?

Doug: Get a good accountant, take every deduction you can, and look for ways to legally reduce your tax burden. For example, our readers should know that charitable contributions in the US get deducted after the alternative minimum tax wipes out your other deductions. That means that a substantial fraction of every dollar you give a registered 501(c)(3) nonprofit does not go to the federal government.

Now, as you know, I don’t believe in charity, at least not in the institutional sense, but wasting money on charities is far, far better than giving it to the government to use bombing innocents and creating enemies for generations to come. And if that charity happens to be something like the Institute for Justice, the Fully Informed Jury Association, or any of the other libertarian think tanks dedicated to reducing the size and scope of government, you get to help fight the beast and starve it at the same time.

L: I do my economics and entrepreneurship camps in Eastern Europe under the auspices of the International Society for Individual Liberty — of which I should disclose that I am a director. I have to admit that it pleases me greatly to see funds that would have gone into making bombs to drop on foreigners and hiring more goons in uniform to oppress people at home redirected to something I consider constructive.

But what about the international diversification question: can that help reduce your tax burden back home?

Doug: It’s different for different countries, and each individual should consult a tax specialist with the details of his or her own case, or proposed case. However, there is an exclusion for Americans who live abroad for a whole tax year — it was around $100,000 the last I looked. So there are very good tax reasons for Americans to live abroad. There are even better reasons for Canadians, Europeans, and almost everyone else to leave their native country — many can live 100% tax-free. I guess it’s just a sad testimony to the medieval-serf mentality that most people suffer from that few people take advantage of this. They’re born someplace, and they stay rooted there, like a plant. Oh well, everybody basically makes his own bed, reaps what he sows, and gets what he deserves…

However, as appealing as the “permanent tourist” idea is, I recommend international living first and foremost as a way to protect your assets. As we’ve discussed before, real estate in foreign countries cannot be repatriated or confiscated by the government that thinks of you as its milk cow. There is nothing illegal or nefarious about buying real estate abroad, and it could come in very handy if things get really chaotic back home, wherever that happens to be.

L: Okay… any investment implications to discuss?

Doug: Sure, but nothing new to our readers. Starving the state-beast is the right thing to do, ethically and practically, but I believe the state’s days are numbered anyway. The thing to be aware of is that the beast won’t go quietly, and in its death throes it can do a lot of harm. Still, like Nietzsche said, “That which is about to fall deserves to be pushed.”

In the meantime, much higher taxes are on the way. More and more currency controls are coming. You may have heard that the US is contemplating a law denying issue or canceling the passport of anyone accused of owing more than $50,000 in taxes. I expect the transformation of what was once America into a police state to continue, and I expect other “developed” nations — especially Europe, Canada, and Australia — to follow suit. And this will happen whether or not the global economy exits the eye of the storm as I expect it to.

So you want to rig for stormy weather and invest for continuing crisis. Own gold for prudence, speculate on related stocks and others that may benefit from government profligacy, and as we’ve just been saying, diversify your assets and personal living arrangements internationally.

The day is coming when your local government may stop seeing you as a milk cow and start seeing you as a beef cow, and you want to have options before that day.

Regards,

Doug Casey
for The Daily Reckoning

Doug Casey on Taxes and Freedom, Part II originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

The Dow rose 135 points. Not very impressive, after so many down days.

Everything has been sinking… Stocks, commodities, oil…

In Europe and emerging markets the damage has been even worse than in the US. Even China is slowing down.

It’s just like…well…a Great Correction!

And look at Facebook. We knew the Facebook IPO would cost a lot of saps a lot of money. But we didn’t expect it to happen so fast. We figured Wall Street would get a chance to squeeze the lumpen a little longer before they fled the market.

As it turned out, the mom and pop investors came into the market to buy Facebook and got whacked right away.

Here’s one completely un-savvy buyer quoted in The New York Post:

“I’m very psychic when it comes to stocks, I really am. I have no retirement, I have no pension, so I try to make money on the market.”

The press reported that cab drivers and plumbers were buying Facebook shares on the first day…for the wrong reasons, of course. One buyer had recently had his house foreclosed. He was buying the stock, he said, to help put his children through school. Good luck on that!

Colleague Justice Litle called it ‘Facebust!’ The hype sent shares up in early trading on Friday. The insiders who moved fast were able to cash out at over $40. But then, the selling overpowered the buying. Justice, writing over the weekend:

Countless idiots, er, optimists expected Facebook shares to pop 50% or more on their first day of trading, not taking into account the fact that, when EVERYONE IN THE WORLD has the same universally telegraphed notion as you — with ability to execute by mashing a mouse button — it is probably not the sharpest play.

At any rate, after a very anemic “pop” reminiscent of discount bin champagne purchased from a gas station, FB shares fell straight to the $38 level (where the IPO was officially priced).

At $38 the underwriter investment banks came in, vigorously “defending the shares” as a matter of business honor. Without the heavy buying of Morgan Stanley and others, for the express purpose of propping up the shares, FB could have seen a death spiral on its first day of trading. This would have forever marred said underwriters’ reputations, which is why it didn’t happen.

(Investment banks are paid a very pretty penny for bringing an IPO to market; one of the services they provide, in exchange for that fat payday, is propping up the shares, i.e. “creating a price floor,” with their own dough as need be, to keep the offering from looking like a dog. This is completely legal and sanctioned by the SEC.)

The Facebook IPO was a sort of psychological fulcrum point. It was perhaps the biggest public participation event of all time, in terms of getting “the man on the street” to take a flyer on a stock. When such tomfoolery works out badly, Joe Sixpack’s taste for risk — the mother’s milk of Wall Street — is that much further soured. (It should be noted that a whole raft of other “social media” stocks — Zynga etc. etc. — fell hard when Facebook came up short.)

In addition to the above, virtually every large mutual fund and long-only money manager on Wall Street felt compelled to purchase Facebook shares (for fear of missing out on “the next Apple” had they not).

If the Facebook hype fails, then — if the Maginot line of $38 price support gives way — it could have an incredibly demoralizing impact on the market as a whole, alongside the ominous “doom loop” that is Greece.

Such are the conditions in which “unease” turns to “maybe we should get out,” which then has a nasty habit of escalating to “GET ME OUT NOW,” acted upon by groupthink investors en masse.

And yesterday, the Maginot Line gave way…

“Market Up, But Investors Dump Facebook,” was the headline report from Reuters. The stock sold off…finishing the day down 11%. What happened to the underwriters, everyone wanted to know. The stock fell below the IPO price on its first full day of trading. Apparently, Wall Street was not willing to come to the rescue — not with its own money.

We had a hunch that Facebook might become the hinge event for this stock market. Shares had been selling off for two weeks prior to the FB launch. But the selling was orderly.

After so much selling for so many days, buyers are bound to come back. So the Dow went up yesterday.

But the FB hinge has creaked…and squeaked…and warned retail investors. They came in the door. They didn’t like what they saw. Many will take to the exits quickly. Others will stick around, until a growing sense of revulsion, mixed with losses, eventually pushes them out.

Ray Dalio calls it a “beautiful de-leveraging.” We don’t see the beauty in it. But we admire it for what it is — a natural and necessary response to the grotesque debt build-up of the last half century. It may not be beautiful, but it is doing its work as best it can under the circumstances.

Households are lowering their debt levels. Businesses are hoarding cash. The private sector, generally, is getting itself into better shape. All very natural…and all things in nature have a beauty, of sorts.

It doesn’t hurt that interest rates are so low. Even the price of gasoline is going down. In this sense, the Great Correction itself is helping…beautifully. The whole world economy is slowing down, lowering prices for energy and housing — two of the biggest items in the household budget.

The way to cut debt is to first cut expenses. Then, you have more money available to pay off your loans. And it’s fairly easy to cut expenses when interest rates are so low.

In 2005 and 2006 we advised Dear Readers to sell their overpriced real estate and rent. Now it’s time to reverse the procedure. At today’s rates…and today’s prices…it’s time to buy.

Here’s why:

In some areas, house prices are down 50%

In those very same areas rents have risen.

At 3% (which you can get on a 15-year fixed rate mortgage) your monthly mortgage payment might be only HALF your rent payment. So you can save money there.

Then, you deduct the interest from your taxes.

And then, the Fed gives you a bonanza when its monetary inflation finally turns into consumer price inflation…or even hyperinflation. Your mortgage balance could be reduced 10%…30%…80% in just a few months.

In other words, you get paid to wait for the feds to wipe out your mortgage!

Cut your expenses. Get into cash. Remember, our ‘Crash Alert’ flag is up. And a lovely correction is underway.

Tomorrow: how the vandals in Washington and at the Fed are defacing the “beautiful de-leveraging.”

Regards,

Bill Bonner
for The Daily Reckoning

Is Facebook the Rusty Hinge of the Stock Market? originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Maybe the currency traders can also find their way back on to the right course, but I doubt it. I told quite a few people last week that I truly believe that this dollar strength that we’re seeing could last for most of the summer. But you know what happens at the end of summer, don’t you?

Ahhh, grasshopper, with the way we’re spending money that we don’t have, the U.S. government will be bumping up against the debt ceiling by the end of summer. And with this being an election year, don’t you think that the raising the debt ceiling negotiations are going to get even uglier than last year? I do, and if you recall last year, the dollar was teetering on the cliff during those negotiations.

For now, the dollar still holds the mighty hammer. Of course, I also told quite a few people last year that while the Australian dollar (AUD) has fallen from the lofty levels above $1, it’s still strong. Yes, that’s right, the A$ is still strong compared with where it was 10 years ago! Fifty-five cents — do you recall that?

Anyway, last week, I sent Chris a note to include in the Pfennig that talked about the A$ falling through oversold levels on the RSI charts, and how it had done that four times since 2010, and each time previously, the A$ bounced higher. Now there’s some more data that lead us to that same conclusion.

The IMM positioning last week showed A$ longs at their lowest level since the crisis. The last two times that the A$ saw positioning like this (oversold) was in July 2010, and in September 2011, the A$ experienced pretty significant moves higher in a relatively short period of time.

Now, after I’ve said all that, the A$ is down about half a cent this morning!

When I came in this morning, the currencies were holding their own, but they have slipped while I was preparing to write the letter. And gold is off $16 this morning. So I’ve got to find out what happened while I was preparing to write — inquiring minds want to know!

Well, the ratings agencies don’t seem to mind being late to the party, and Fitch is the latest to be late to the party in Japan. Fitch downgraded Japan’s credit rating and placed the country on negative outlook. Really? So what you’re saying is that you believe Japan has a problem? HAHAHAHAHAHAHA! I can’t stop laughing!

Japan has had a problem for over two decades! But here’s my serious thought on this: The yen (JPY) might have weakened by 0.5% on the announcement, but I don’t think the selling of the yen has any legs, and it will stop soon enough. There’s just too much going on in the world right now, and as perverse as it might seem, Japanese yen is a safe haven.

Yesterday, I told you about how Chinese Premier Wen Jiabao, announced that China’s economy would receive stimulus. This news helped the emerging markets get their heads above water yesterday, along with the fact that oil gained back a buck on the day, which really helped the Russian ruble (RUB) gain back some lost ground.

The Chinese announcement also helped the Aussie and New Zealand dollars (NZD). I think, though, that today is going to be a tough row to hoe for the currencies, as the European Union summit begins tomorrow, and everyone believes that there is going to be a showdown between Germany and France, and this has got the markets scared right now, which is leading to the selling I’m seeing this morning.

France’s new Socialist leader wants to promote growth with spending. Germany had just about gotten every EU member to sign on to the “austerity is the best program” until France threw a spanner in the works by electing Francois Hollande. And now we’re going to have to be witness to all this drama.

But as I’ve said before, history tells us that, eventually, the German leaders can persuade the French leaders to see things the German way. But Hollande has to grandstand now, as he was just elected, although, in my opinion, it’s better to let your constituents down early in your term, so they have time to forget that you dumped on them! HA!

Yesterday, I told you about how I felt regarding Norway and Sweden getting tarred with the same brush as the euro (EUR), and that one day, traders would get it through their thick skulls that Norway and Sweden are not Greece! Norway tried to pound that thought in traders’ heads this morning by printing a stronger-than-expected GDP for the first quarter — 1.1% first-quarter growth is very good for Norway, given how the rest of the world has slowed. Oh, by the way, the consensus forecast was 0.9%.

I guess the Brazilian government and central bank win. They set out two years ago to weaken the real (BRL), and after multiple rate cuts, taxes and interventions, they have finally gotten what they wanted: a weak real. I told you about a month ago that it appeared to me that the traders had left town, and didn’t want to play this game with the Brazilian central bank any longer. That took away the support for the real, and the free fall has been quick. This is exactly why I always talked about buying the real only with the speculative money that you allocate in your investment portfolio. Crazy wild swings, and now this.

The unintended consequences… they are everywhere and in everything we do. Brazil’s leaders are going to soon find that the unintended consequences of their bashing the real into a weakling that gets sand kicked in its face is soaring inflation. And when the tourists begin to arrive for the World Cup and then the Olympics… oh, my!

Speaking of the Olympics, going back to the ’90s. We have always seen the host country get a bump in the currency as the Olympics draw near and during them. Spain was the first we tracked, and so on. So keeping that in mind, could there be a bump in store for the British pound sterling? That’s going to be a tough row to hoe, given all this dollar strength. But it will at least be interesting to watch, eh?

Yesterday, I made fun of the G-8 meeting and their silly attempts to make people think they actually accomplished something. I saw that Russian leader Putin said that the meeting wasn’t worth coming to. Did you know that there was only one truly trained economist among the G-8 leaders? Mario Monti of Italy. Now, that alone should tell you something about the meeting. The leaders were all throwing in uneducated ideas of what would work. Oh, boy, sign me up for the next meeting, eh?

I was asked by quite a few people last week about the Swiss franc (CHF). The franc is still hovering just above the 1.20 floor that the Swiss National Bank (SNB) put on the currency’s cross to the euro last September. It’s currently at 1.2011. The overtures from the SNB continue to ring out a song about how they want that cross’s level to go to 1.35 or 1.40. That would knock the stuffing out of the franc, folks. And with the euro getting weaker by the day, the SNB’s resolve will be tested soon enough.

I had a chance to talk briefly with James Rickards, author of Currency Wars, while in south Florida a couple of weeks ago. Mr. Rickards is convinced that all countries are in a war to reduce the value of their currency below their neighbor’s or trading partner’s currency.

I told him I hoped that wasn’t true, but at this point, how can you argue with him? But here’s what I took from the conversation and the book. That the U.S. dollar is going to lead the currencies down, which means the dollar will always be weaker than the other currencies. Maybe that’s taking a simplistic view of the whole situation.

Then I had a couple of readers send me this story, so it obviously is worthy! Did you know that the U.S. allows China to bid directly in U.S. debt auctions without going through Wall Street banks? Yes, it’s true! And China has the only central bank that’s allowed to do this. Reuters broke the story on this. I say good for both parties! And I would ask why are the other central banks of the world not allowed to do this? Why should Wall Street primary dealers get to make truckloads of markups on debt auctions to central banks? We should be rolling out the red carpet and meeting them with an adult beverage with an umbrella in the glass, when these central banks show up to buy our debt.

To recap: The currencies held their own yesterday and overnight, but the announcement by Fitch that they were downgrading Japan’s credit rating put the currencies on the selling block again early this morning. Gold is off by $16 this morning. The A$ has reached oversold levels on two different measures now. Chuck is looking for a bump here, along with one in pound sterling, should the “Olympic host country bump” for the currency hold true.

Chuck Butler
for The Daily Reckoning

Fitch Downgrades Japan originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Louis James: We get a lot of letters from readers who know about your international lifestyle and wonder about the tax advantages they assume it confers. Is this something you care to talk about?

Doug Casey: Yes; something wicked this way comes, indeed. But first, I have to say that as much as I can understand the guy who flew his airplane into an IRS building, as we once discussed, I do not encourage anyone to break the law. That’s not for ethical reasons — far from it — but strictly on practical grounds. The Taxman can and will come for you, no matter how great or small the amount of tax he expects to extract from you. The IRS can impound your assets, take your computers, freeze your accounts, and make life just about impossible for you, while you struggle to defend yourself against their claims and keep the rest of your life going. The number of IRS horror stories is beyond counting. As the state goes deeper into insolvency, its enforcement of tax laws will necessarily become more draconian. So you absolutely don’t want to become a target.

L: So… just bow down and lick the boots of our masters?

Doug: Of course not. People can and should do everything they can to pay as little in taxes as possible. This is an ethical imperative; we must starve the beast. It could even be seen as a patriotic duty — if one believes in such things — to deny revenue to the state any way possible, short of endangering yourself. Starving the beast may be the only way to force it back into its cage — we certainly can’t count on politicians to make the right choices — they’re minions of the state. They inevitably act to make it bigger and more powerful… The state, the media, teachers, pundits, corporations — the entire establishment, really — all emphasize the moral correctness of paying taxes. They call someone who doesn’t do so a “tax cheat.” As usual, they have things upside down.

Let’s start with a definition of “theft,” something I hold as immoral and destructive. Theft is to take someone’s property against his will, i.e., by force or fraud. There isn’t a clause in the definition that says, “unless the king or the state takes the property; then it’s no longer theft.” You have a right to defend yourself from theft, regardless of who the thief is or why he is stealing.

It’s much as if a mugger grabs you on the street. You have no moral obligation to give him your money. On the contrary, you have a moral obligation to deny him that money. Does it matter if the thief says he’s going to use it to feed himself? No. Does it matter if he says he’s going to feed a starving person he knows? No. Does it matter if he’s talked to other people in the neighborhood, and 51% of them think he should rob you to feed the starving guy? No. Does it matter if the thief sets himself up as the government? No. Now of course, this gets us into a discussion of the nature of government as an institution, which we’ve talked about before.

But my point here is that you can’t give the tax authorities the moral high ground. That’s important because decent people want to do the morally right thing. This is why sociopaths try to convince people that the wrong thing is the right thing.

If an armed mugger or a gang of muggers wanted my wallet on the street, would I give it to them? Yes, most likely, because I can’t stop them from taking it, and I don’t want them to kill me. But do they have a right to it? No. And every taxpayer should keep that analogy at the top of his mind.

L: I also believe that the initiation of the use of force (or fraud, which is a sort of indirect, disguised form of force) is unethical. It doesn’t matter what the reason for it might be nor how many people might approve of the action. But some people claim that taxation is really voluntary — the price one pays for living in society… and if I’m not mistaken, the US government says the federal income tax is voluntary.

Doug: [Snorts] That is a widely promoted lie. It’s propaganda to help statists claim the moral high ground, confuse the argument, and intimidate people who aren’t critical thinkers. Just try not volunteering to pay it and see what happens. Taxation is force alloyed with fraud — a nasty combination. It’s theft, pure and simple. Most people basically admit this when they call taxation a “necessary evil,” somehow mentally evading confrontation with the fact that they are giving sanction to evil. But I question whether there can be such a thing as a “necessary evil.” Can anything evil really be necessary? Can anything necessary really be evil?

Entirely apart from that, if people really wanted anything the state uses its taxes for, they would, should, and could pay for it in the marketplace. Services the state now provides would be offered by entrepreneurs making a profit. I understand, and am somewhat sympathetic, to the argument that a “night-watchman” state is acceptable; but since the state always has a monopoly of force, it inevitably grows like a cancer, to the extent that the parasite overwhelms and kills the host. That’s where we are today.

I think a spade should be called a spade, theft should be recognized for what it is, and evil should be opposed, regardless of the excuses and justifications given for it. Ends do not justify means — and evil means lead to evil ends, as we see in the bloated, corrupt, dangerous governments we have all over the world.

L: That runs counter to the conventional wisdom, Doug. Evil or not, most people think taxation is part of the natural order of things, like rain or day and night. Death and taxes are seen as the two inevitable things in life, and you are a silly idealist — if not a dangerous madman — if you believe otherwise.

Doug: That saying about death and taxes is both evil and stupid; it’s a soul-destroying and mind-destroying perversion of reality. It’s evil, because it makes people reflexively accept the worst things in the world as permanent and inevitable. As for death, technology is actively advancing to vanquish it. Who knows how far medicine, biotech, and nanotech can delay the onset of death? And taxes are, at best, an artifact of a primitive feudal world; they’re actually no longer necessary in an advanced, free-market civilization.

People also once thought the world was flat, that bathing was unhealthy, and that there was such a thing as the divine right of kings. Many things “everyone knows” just aren’t so, and this is one of those. A government — for those “practical” people who think they need one — that stuck to the basic core functions of police and courts to defend people against force and fraud and a military to defend against invasion, would cost a tiny, tiny fraction of what today’s government costs, and that could be funded in any number of ways that essentially boil down to charging for services.

As it is now, the average US taxpayer probably works half of the year just to pay direct and indirect taxes. That doesn’t even count the cost of businesses destroyed by regulation and lives lost to slow approval of new treatments by regulators, or a million other ways governments burden, obstruct, and harass people.

Stay tuned for Part II of the interview, tomorrow…

Regards,

Doug Casey,
for The Daily Reckoning

Doug Casey on Taxes and Freedom originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

During the last couple of years, anxious Greeks have yanked a net €72 billion from the banking system — or nearly a third of total short-term bank deposits. And according to the scuttlebutt, withdrawals have been accelerating in recent days, as the “unthinkable” possibility that Greece might withdraw from the euro bloc has become increasingly thinkable.

So who could blame the Greeks for grabbing their euros before they turn into zeros…or, at best, drachma? In fact, given the chaotic conditions now unfolding in Europe, who could blame anyone for grabbing their euros before they turn into zeros?

Anxious Spaniards are also queuing up to withdraw their euros from the banking system. And many bond investors are behaving similarly: they are dumping Spanish government bonds and/or buying insurance against a default by the Spanish government.

You all remember Spain, don’t you, Dear Readers? That’s the country that, if it were an American high school senior, would be voted, “Most likely to follow Greece out of the euro zone.” Spain’s fiscal problems are not new news, but thanks to the renewed turmoil in Greece, distress has returned to the Spanish bond market.

As the chart above illustrates, the yield on Spanish government 10-year bonds recently touched a six-month high, while the price of insuring Spanish bonds against a default just hit a new all-time high.

That’s what we would call, no bueno.

Eric Fry
for The Daily Reckoning

Greeks Run on Banks as Euro-Confidence Wanes originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Day after day for the last 2 weeks…almost everything has been grinding down.

Stocks, oil, copper, bond yields… It looks as though the whole world economy is slowing down. China, India, America, Europe. All are slowing.

How much longer can this slow down continue?

A lot longer!

We should have some bounce in the markets this week. But beware. Our “Crash Alert” flag is up.

Meanwhile…

We spent the weekend in Charlottesville, VA…at the UVA graduation for our son, Henry.

The University of Virginia is probably the most handsome campus in America. Especially in May. It has a green central esplanade bordered by columned buildings in the Greco-Roman style. At one end is the famous Rotunda. Flowers and trees bloom everywhere.

We know of no other president who achieved anything equivalent. Some waged dubious wars. Some launched weasely social welfare programs. The best of them idled away their careers, shaking hands, making deals, and otherwise shuffling offstage leaving it no better or worse than it was when the curtain first went up. But Mr. Jefferson left an architectural monument that is breathtaking. He would be proud of it today.

It is too bad that the soliloquies of its 2012 commencement exercises came nowhere close to the grandeur of the setting itself. Instead, there was nothing more than the usual hollow, air-head do-goodism you associate with graduation speakers. One urges students to go out in the world and ‘make a difference.’ Another tells them to use their educations for some great public purpose. Another insists that they become the leaders of tomorrow. All declare that their years spent (there was no mention of the money) at UVA were a good investment…both formative and decisive…making them the determined, capable people that they have allegedly become.

Jefferson would roll his eyes.

Herewith, we offer an alternative graduation speech. An honest address to the class of 2012. One we will never be invited to give:

I see you before me. Arranged in alphabetical order. From Mr. Aaron from Alexandria to Mr. Zyman of Richmond. You are all suited up…wearing the ancient vêtements that have marked men of learning for hundreds of years. And in a few minutes you will move the tassels on your funny little hats from the right side to the left, indicating that you have been awarded a bachelor’s degree. This signifies that you have joined the few…the elite…the learned.

But how many of you really are learned? How many are imposters? How many are capable of writing a simple essay? How many can decline a Latin verb? How many have mastered calculus and quantum physics?

You’ve heard about the group of men at the old English club. The waiter comes up and asks if they would like some hock. One of them cleverly says ‘hic, haec, hoc.’ So the waiter comes back with drinks for all of them except him. When he asks why, the waiter replies: ‘But sir, you declined the hock.’

How many of you got that joke?

I only ask the question because I am suspicious. Many college grads of today could hardly be called intellectuals. Many have hardly used their brains at all. Some have merely spent the last four years learning a few tricks and the latest jargon of a trade. Marketing, for example. Or journalism. Marketing evolves so fast that whatever you learn here will be mostly obsolete by the time you get a job. If you ever get a job. Besides, the important points could be picked up in a few weeks on the job anyway.

As to journalism, there are a few skills you need to know, which you could pick up in an afternoon; the rest is undifferentiated. You look. You ask questions. You think. And you tell the world what you come up with. No college necessary. In fact, college may hinder you. Instead of using your own eyes and your own brain, and developing your own way of looking at things, you spent your best years in class absorbing the claptrap du jour of the mainstream media.

Others among you have read popular novels or a few history books. You think you know something. Maybe you call yourself a historian. Or perhaps a literary critic. My advice is to keep that to yourself. You have paid a lot of money for something that millions of other people — just as smart as you are — do for a hobby or past-time. There’s not much real knowledge in either of those things…just opinions and ideas which are more vanity and entertainment than genuine learning.

Same thing for those who have spent years studying ‘politics’ or ‘economics.’ Drop the pretense that you know something. You don’t. All you have is a full plate of opinions…most of them preposterous…and most of them indigestible by a thoughtful person.

I don’t doubt that many of the courses offered here — to say nothing of the beer parties — are interesting and fun. But are they worth $160,000 and 4 years of your life? How about some of these titles that I got out of the Course Catalog for 2012: “Fantasy and Values” or “Black Women Authors” or the “Cinema of India” or “Feminist Theory in Anthropology,” or “Creole Narratives” or “Zen” or “Business Ethics”…?

As to that last one, when you get out in the real world, which unless you go to graduate school is happening as of tomorrow…you will find that it is very unlike the make-believe world at this university.

They say that by going to a university you open yourself up to a whole world of knowledge. Yes, perhaps you do gain easy access to a whole world of simplified knowledge and politically correct opinions. But you also cut yourself off from a larger world of real knowledge…the kind you get by doing and observing.

In your course on Business Ethics, for example, you are no-doubt exposed to a number of ideas and theories on the subject. You’d be better off learning it on the job. First, instead of paying someone to teach you, you would get paid for learning. Besides, you can get the ideas and information in the course materials by reading a few $29 books…or read them online for even less. That is true for almost all the coursework in the arts and social sciences. It is all available to you at much less expense. So, in a sense, you have been a sap to pay so much for it.

But you would do even better to combine your reading with real life experience. And in real life you would quickly discover that things are much more complex, much more nuanced, and much less clear than you thought. That’s true in business ethics as it is in everything else. As the Jewish philosopher Hillel explained, the core idea of the Torah, the Bible, the Sermon on the Mount, and business ethics is as simple as this: if you wouldn’t want someone to do it to you, don’t do it to someone else. The rest is detail. And the details depend on the situation, which you only encounter in its full complexity, when you are face to face with it. You don’t encounter it in a book…or in your lecture halls…or in your seminars on campus. So, the time you spend on campus actually prevents and delays you from coming to grips with the real problems you will face in real life…and thus retards your education.

So, you’ve spent — or your parents…or the taxpayers have spent — $150,000 on your education. And you’re retarded.

And now you enter the job market. And don’t think you’ll have an easy time of it. Because previous graduates of this university and others have applied the lessons they learned in school and made a god-awful mess of the economy. There are 14 million people without jobs. About one in 20 young people is jobless. You’re just another one. Frankly, I’m surprised the unemployment rate for young people isn’t higher…given how worthless most young people are.

Why so many unemployed? Because economics professors have taught 3 generations of economists that a command and control economy — to a point — will work. It won’t. But a command and control economy is good for economists and do-gooders, who get jobs commanding.

Economists convinced policymakers…who have their own corrupt reasons for wanting to twist up the economy — to control the price of labor…and prevent it from falling, using a variety of tools and subterfuges. By the way, a ‘subterfuge’ is defined in the dictionary as “an artifice or expedient used to evade a rule, escape a consequence, hide something, etc.”

I mention that because I know that half of you are functionally illiterate. MSNBC recently reported that:

More than 50 percent of students at four-year schools and more than 75 percent at two-year colleges lacked the skills to perform complex literacy tasks.

The results cut across three types of literacy: analyzing news stories and other prose, understanding documents and having math skills needed for checkbooks or restaurant tips.

But one of the subterfuges used by the feds that makes it so hard for you to get a job is student loans. They’ve lent out more than $1 trillion — some of it to you. Rather than work for lower wages, students borrow money at low teaser rates…and go to school. On average, you have about $20,000 worth of debt when you leave this university. And I’ll bet that a lot of you won’t pay up.

But I’ll give you some advice. String your lenders out as long as possible. Eventually, the same college-educated dimbulbs who perverted the employment market will destroy the dollar. Avoid paying your loan long enough and it will probably go away…

Of course, the outlook is not all bad. Some of you will find good jobs — those who have used your time wisely, by studying science and engineering. It’s only the rest of you who are screwed.

The feds keep the price of labor too high. Employers would have to pay you more than you are worth. So, they are reluctant to hire you.

Employers know damned well too that you’ve been retarded by your education. So, they’re leery of hiring you. Especially if they see you’ve taken a class in business ethics. They think you’ll stab them in the back the first chance you get.

And they’re probably right. Because you’ve been told to go forth and create a better world. I’ve seen the surveys. Two out of three of you want to work for non-profit organizations. Why is that? Because your whole weltanschauung…well, I mean, your worldview…has been corroded by your education. You think business is greedy…selfish…and stupid. But where they hell do you think non-profits get their money? Where does the government get its money? How can our society afford to let you waste so many years in college?

All of this money has to come from the productive sector of the economy.

You think you can do good by working for the government or a non-profit organization? Well, I’ve got news. You’ll be a parasite, just like the rest of them. A leech, sucking the life out of the real, productive economy. That’s another reason it’s so hard for you to find a job. The more people who fantasize about getting paid for doing good…for trying to make a better world…the worse the real world gets. Because that leaves fewer people actually doing the kind of real world work that makes the world richer and more prosperous…and better organized…safer and healthier.

So, forget about making the world a better place. Forget about leading anybody anywhere. Forget about thinking you know something. You don’t know enough to lead yourself, let alone anyone else. And most of what you think you know is worthless claptrap. Pseudo-knowledge, in other words.

Finally, don’t try to be a leader. The world doesn’t need any more leaders. It’s got too many already.

Instead, try to find a real job in the real world. Do it well. And mind your own business.

Thank you. And good luck.

Regards,

Bill Bonner
for The Daily Reckoning

To the Class of 2012 originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Thanks to Chris and Mike for picking up the conn on the Pfennig while I was gone. The crowds that came to listen to me in Las Vegas were HUGE! And the group of EverBankers at the booth was great! Mike H., Dina, Luis, Mike B, Diane, Lauren and Jason! If you came to our booth, you we had you covered!

The old saying that they had on the desk about when I was gone, that the currencies would rally, came to a screeching halt. And that “perfect storm” for the dollar that I talked about at the end of last year is really flexing its muscles now.

I read this weekend that while the euro (EUR) has been quite resilient through all the bailouts of Greece, Portugal and Ireland, hedge funds don’t believe the euro can withstand the exit of Greece, so these hedge funds are blowing out of the euro at warp speed.

And when the euro is getting sold like funnel cakes at a state fair, the rest of the currencies’ chances of rallying are slim and none. Even the Japanese yen (JPY) can’t seem to find terra firma, although it remains strong.

Old faithful, the Chinese renminbi (CNY), is really wishy-washy these days. But remember what I told you a couple of weeks ago about the renminbi: In 2008-09, during the financial meltdown, when investors flocked to the dollar and Treasuries, the Chinese kept the renminbi steady Eddie versus the dollar, I wouldn’t be surprised to see them take that approach now, again.

A reader sent a note and asked me to explain why the Swedish krona (SEK) was performing worse than the euro. It’s unwinding the gains it made when the Riksbank (Sweden’s central bank) was in a rate-hike mood. As I’ve explained in the past, the euro is the Big Dog on the porch. All the other currencies are the little dogs. The little dogs can out run the Big Dog, (outperform) but not unless the Big Dog gets off the porch to chase the dollar down the street — the same holds true for when the dollar chases the Big Dog back to the porch!

I’ve talked about Norway and Sweden being tarred with the same brush as the euro, and that hopefully, one day — and hopefully soon and not far away — traders will realize that Norway and Sweden are not Greece! But until that day, we have this scenario to deal with.

G-8 world leaders met this past weekend, and they have all decided that the best course of action is to promote growth. Hmmm, sounds great! Global growth all around, eh? Ahem, how did they say they would promote this growth? Oh, they didn’t?

Hmmm. Now, that sounds about right for G-8. But to come out and make all these statements about promoting growth without a plan, unless you count more stimulus — that has been about as helpful long term as a broken crutch.

In China, Premier Wen Jiabao, said that more stimulus for his economy was coming, and when Wen speaks, investors listen. You see, China can dictate where the stimulus goes, and this gives them an advantage. We saw this in 2009, how the Chinese economy quickly reacted to the stimulus measures applied by the government and was the first to gain ground, while the rest of the world’s economies were still stuck in the mud and yuck of the financial meltdown.

Wen said that his government will give “more priority to maintaining growth” while continuing “to implement a proactive fiscal policy and a prudent monetary policy.” Sounds like central bank parlance for get ready for a truckload of stimulus.

At least China has the treasure chest from which they can dig into to get this stimulus. What’s the rest of the world going to do? Go deeper into debt? Spend to get out of debt? That’s been the mantra of the U.S., and they’ve finally gotten their message across to the rest of the world!

How many times have we heard U.S. Treasury Secretary Geithner tell the Chinese that they need to be more like the U.S.? Too many is the answer.

How about those U.S. Treasury yields? I bet you didn’t think, like I didn’t think, that they could go lower, but they did! Let’s see how well those low yields hold up this week when the U.S. Treasury has to auction about $99 billion of new bonds/debt this week, starting tomorrow.

And I had quite a few people last week ask me about gold (and silver, of course!). I told them that it was my opinion that gold’s rise from $250 to $1,200 was all about people realizing that gold was a store of wealth, etc. The rise from $1,200 to $1,900 was all about the “anti-dollar trade,” since the dollar has become the darling of investors again. As we saw in 2005, 2008 and 2010, the need for the anti-dollar gets reduced, and thus the price of gold gets reduced.

Sure, a lot of it has been “paper trades.” The price manipulators must be smiling like Cheshire cats. But that’s not all of it, folks. People are hopping off the gold and silver bandwagon as if they just found snakes on it! But I personally will not sell! It’s my personal opinion that these people jumping off the bandwagon are going to be sorry for doing so.

Today we have Fed head Lockhart speaking, and he’s been a proponent of more stimulus for the U.S. economy. Any kind of talk like that should be dollar negative today. But only slightly, as he’s just one voice.

It’s a pretty light week datawise here in the U.S. so the markets will really get to focus on the $99 billion of new Treasuries that will hit the street!

Then last week, Chris was talking about economic reports and how they had all looked a bit better than recent data reports here in the U.S. And I got to thinking: I wonder what John Williams over at Shadowstats.com would say about the economic reports. For years now, I’ve talked about John Williams and Shadowstats.com, but thought that new readers might get a kick out of going to the website and seeing what John Williams says about how the U.S. accounts and reports its data. It’s all lies and videotape!

To recap: The G-8 meeting called for growth… calling all growth, calling all growth! The dollar is in the driver’s seat these days, and that means the currencies and metals are getting sold like funnel cakes at a state fair.

Chuck Butler
for The Daily Reckoning

Hedge Funds Bail On Euro Now originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

If we move to Palm Beach, will we ever be able to visit our beloved Maryland homeland again?

The Financial Times reports that thousands of wealthy French people are now moving to London. Their motive? They want to escape the taxes proposed by France’s new president, Francois Hollande.

Should the French impose an exit tax on these “ex-patriots”? Should it then bar them from visiting France?

Of course not.

In England in 1215, the right to travel was enshrined in Article 42 of the Magna Carta:

It shall be lawful to any person, for the future, to go out of our kingdom, and to return, safely and securely, by land or by water, saving his allegiance to us, unless it be in time of war, for some short space, for the common good of the kingdom: excepting prisoners and outlaws, according to the laws of the land, and of the people of the nation at war against us, and Merchants who shall be treated as it is said above.

Here’s the United Nations Universal Declaration of Human Rights. Article 13:

(1) Everyone has the right to freedom of movement and residence within the borders of each State.
(2) Everyone has the right to leave any country, including his own, and to return to his country.

Article 12 of the International Covenant on Civil and Political Rights incorporates this right into treaty law:

(1) Everyone lawfully within the territory of a State shall, within that territory, have the right to liberty of movement and freedom to choose his residence.
(2) Everyone shall be free to leave any country, including his own.
(3) The above-mentioned rights shall not be subject to any restrictions except those provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognized in the present Covenant.

People should be able to move where they want, no? They should be able to look for lower tax places to live, shouldn’t they? After all, we’re Americans, aren’t we? Aren’t we all descendants of people who tried to improve their lives by moving to a new place?

Apparently, a lot of Americans don’t think so. Facebook is going public. And one of Facebook’s founders has moved to Singapore. He will save, by one estimate, $67 million in taxes by giving up his US citizenship. He says that’s not the reason he gave it up. But you can believe what you want.

And now the politicos are up in arms. Mr. Saverin has helped to give them an asset worth about $100 billion. Are they grateful? Do they bend down and kiss his derriere?

No! They want to tax him even more heavily…and prevent him from ever setting foot in the US again.

Yes, dear reader, there is no thought so dumb…so short-sighted…so low…that it won’t become the law of the land. Bloomberg reports:

Chuck Schumer, D-N.Y., has a status update for Facebook co-founder Eduardo Saverin: Stop attempting to dodge your taxes by renouncing your US citizenship or never come to back to the US again.

In September 2011, Saverin relinquished his US citizenship before the company announced its planned initial public offering of stock, which will debut this week. The move was likely a financial one, as he owns an estimated 4 percent of Facebook and stands to make $4 billion when the company goes public. Saverin would reap the benefit of tax savings by becoming a permanent resident of Singapore, which levies no capital gains taxes.

At a news conference this morning, Sens. Schumer and Bob Casey, D-Pa., will unveil the “Ex-PATRIOT” — “Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” — Act to respond directly to Saverin’s move, which they dub a “scheme” that would “help him duck up to $67 million in taxes.”

The senators will call Saverin’s move an “outrage” and will outline their plan to re-impose taxes on expatriates like Saverin even after they flee the United States and take up residence in a foreign country. Their proposal would also impose a mandatory 30 percent tax on the capital gains of anybody who renounces their US citizenship.

The plan would bar individuals like Saverin from ever reentering the United States again.

If Chuck Schumer has his way, entrepreneurs like Eduardo Saverin will think twice before setting up shop in America!

[Editor’s Note: After yesterday’s column, Run, Saverin! Run!r, we were delighted to discover that a brave Fellow Reckoner had actually linked to The Daily Reckoning...on Chuck Schumer’s Facebook page. Ha! Feel free to “like” our bitty missive here and to “share” it on Facebook. Call it non-violent protest. And of course, you can always “be our friend” here.]

Down, down, down…day after day… Stocks down. Yields down.

But what’s this? Gold rose nearly $40 yesterday.

Our “Alert Flag” went up yesterday morning. The Dow fell 156 points during the day. Not that there’s any connection. Most likely, after so many down days, stocks will bounce today. But watch out…

We have a hunch.

Facebook is the biggest deal in the stock market…perhaps ever. It’s a company that didn’t even exist 10 years ago. We know all about the company’s founding; we saw the movie. Twice. Because our daughter has a role in the movie. She’s the waitress in the scene where Zuckerberg means Sean Parker.

Not a bad flick. But from an investment standpoint, Facebook is probably one of the worst moves you can make. Most likely, it will be gone 10 years from now. $100 billion of market capitalization will disappear. Poof! It’s just a website, after all. We looked at a Facebook page, once… We couldn’t figure out why anyone would waste his time.

The trouble with new technology is that in a few years it’s old technology.

Here’s our hunch: The Facebook IPO may mark a major peak…and the beginning of a major bear market on Wall Street.

It happens every time. There’s a big, big deal. And then, it’s over. We’d give you some examples, if we could think of them. But we can’t. You’ll just have to trust us on this.

We don’t really have any evidence or logic to back this up. It’s just a hunch.

But our intuition tells us that when investors finally get the full Facebook treatment, they are going to be turned off by the stock market and Wall Street. Not only will the company turn out to be not worth a fraction of the IPO price…investors will also get a clearer picture of how Wall Street really works.

About that IPO… The idea is to generate a lot of excitement…a frenzy…so that people are eager to get the shares. And with all these Facebook users, who like…like…Facebook…and think they can tell a good investment when they see one…it ought to be easy to create a buying frenzy. Besides, everyone knows shares are intentionally priced below what their backers believe they can get for them. This causes the share-price to “pop” right after the IPO.

Of course, the distribution is tightly controlled. You have to be an insider to get IPO shares. Say…you’ll get them at about $40…and then, you expect them to go to $50 on the “pop.” If it works out as planned, you make $10 per share. This is a lot of money. Easy money. So, the insiders all want a piece of the action.

How do you get to be an “insider”? You have to be a friend of Morgan Stanley. Which is to say, you help Morgan Stanley make money. How? For example, if you are a pension fund or hedge fund you put through a lot of trades. Morgan Stanley makes money on the churn. You make money on the churn, too. Customers don’t make any money on the churn. They pay for every transaction. But who cares about them?

Everyone is convinced that buying…selling…and trading investments makes money. As long as the illusion lasts, Wall Street is happy. The customers are happy too…more or less. They’re participating in the Great Illusion — all trying to make money without actually doing anything.

So everyone churns. And the more you churn with Morgan Stanley the more likely you are to get an allocation of IPO stock. There could be about 50 million shares handed to insiders in this manner. Let’s say they go up $10 in the “pop.” That’s half a billion in gains …in only a few hours.

Dan Ariely explains:

Morgan Stanley and the rest of the investment banks involved will … make sure that their favorite fund manager client “friends” are given lots of free money. Assuming that these “friends” are given 75% of the total number of IPO shares, or a total of 291 million shares, and assuming that the stock does rise from $40 to $50, then these fund managers will collectively, in one day, make $2.9 billion dollars in realized or unrealized profits. That’s right, 2.9 BILLION DOLLARS.

…where and out of whose pocket does this money come from?

Well, just think of it this way… Let’s assume you own a very expensive piece of waterfront real estate, and you hire a broker to sell it for you. After exploring the market and after getting indications of interest, your broker advises you that $10 million would be a great price for your home. You meet with the potential buyers and decide to sell it for $10 million. After the $1 million commission you have to pay your broker, your net proceeds are $9 million. An hour later, you drive by the house and see your broker in the driveway shaking hands with some different people. You pull over to see what’s going on, and you find that the people you just sold the house to for $10 million are very close friends of your broker. To your dismay, you also find out that those friends just sold your (former) house to somebody else for $15 million.

The same exact game is going on here… By the time you drive around the block, these folks will have sold their shares at $50 per share.

I am not sure about you, but I find all of this very depressing.

Regards,

Bill Bonner,
for The Daily Reckoning

Expatriation in the Wake of the Facebook IPO originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Were it not for the fact that you’d still have to suffer the eternal torment of actually living with your wicked, miserable little self, life as a willing and active member of The State might be pretty tempting. After all, Team State — operating in direct competition with Team Freedom — enjoys some rather significant advantages, both on and off the field.

For one thing, Team State writes the rules of the game…rules it claims the right to change at any time and for any reason. It can choose to make Team Freedom’s goal the size of a pea, for example, and its own goal the size of…well…whatever it wants. It can recruit a million, steroid-jacked players to wear its own colors, and limit Team Freedom’s membership to a couple of wimpy, though doggedly irreverent, newsletter writers. Who listens to those guys, anyway? Pshhh…

Off the field, Team State may choose to sequester part or all of Team Freedom’s funding. And if Team Freedom doesn’t like it, Team State — reading again from its own rulebook — can choose to simply begin kidnapping members of Team Freedom at gunpoint and locking them up in cages.

More troubling still, Team Freedom suffers the added disadvantage of large scale defection and even of outright collusion with the enemy. In other words, many of Team Freedom’s players are really (whether knowingly or not) playing for the other team…using morally malleable catchphrases like “fair share,” “civic duty” and “social contract” as a way to distract and bamboozle some of Team Freedom’s star players. They read aloud and with unashamed authority from Team State’s own rulebook, exclaiming with sweaty excitement, “But it’s the law! Look, Team State wrote it down, right here!”

And what can Team Freedom do about all this, other than vote for another member of Team State to act as game referee every four years or so? Nothing. Or so it would seem…

Fellow Reckoners will by now be aware of the latest scheme by Team State to encroach on the lives of those they clearly consider to be “their property.” Sens. Chuck Schumer and Bob Casey, two of the more…er…“active” members of Team State, held a press conference Thursday morning on Capitol Hill where they outlined legislation that would prevent Eduardo Saverin, the Brazilian-born, Singapore residing co-founder of FaceBook, from ever returning to the United States.

Now, why would these senators do such a thing, you ask? What do a couple of freeloading, career barnacles have against the entrepreneurial spirits of a go-getting, 30-year-old success story?

Turns out that, back in September of last year, Saverin decided he didn’t want to be considered a US tax slave anymore…a move 1,700 other now-freer people also made during the same year. Abiding by the law, as decreed by members of Schumer and Casey’s Team State, Saverin relinquished his citizenship and moved to Singapore back in 2010, a place where he (and his property) are treated in less of a “gun-in-your-face, gimme-all-your-money” manner.

According to industry estimates, the move should “allow” Saverin to keep about $67 million more of his own money than he would have otherwise been “entitled to” were he still officially a US resident when Facebook makes its IPO, tomorrow.

Of course, the fact that he followed the law, to the letter, wasn’t enough for the senators. Why? Put simply, they didn’t get (what they saw as) their cut. Curiously, Schumer claims Saverin somehow owes “the country” something…beyond the hundreds of millions of dollars he must — and does — already pay.

“Saverin has turned his back on the country that welcomed him and kept him safe, educated him, and helped him become a billionaire,” Schumer said at the conference. “This is a great American success story gone horribly wrong.”

Apparently, helping to found a free product that serves 901 million voluntary users is not enough for Schumer and Casey. Of course, the Senators are not in the business of voluntary transactions, so we can see how this achievement might be lost on them. After all, their own transactions are made not with a handshake, but looking down the barrel of a gun.

So what’s their beef, specifically, this time?

Facebook today serves approximately 180 million people in the US alone…including both Sens. Schumer and Casey. One might think that, if the Senators were so upset with Saverin, as they piously claim, they would take down their own Facebook pages. Since they have not, we encourage Fellow Reckoners to swing by and leave them a warm and fuzzy message. (See links above.)

Clearly not embarrassed to showcase their own conspicuous lack of real world marketing skills, Schumer and Casey are calling their little bill the “Ex-PATRIOT — Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy — Act.” Seriously. Who, besides Team State, would even let these guys play for their side?

The proposal targets wealthy Americans who seek to renounce their citizenship — and, along with it, their tax slave status — unless the unfortunate, would be escapee can convince the IRS they are not leaving the country “for tax purposes.”

In other words, individuals looking to protect their property must first convince the thieves that they are seeking to do so for reasons other than protecting their property. Yes, you read that correctly. If the person is unable to prove the “innocence of their intent” to the IRS — just imagine! — they will be subject to a 30% capital gains tax on all future US investments…regardless of where they live…and assuming they still want to invest in their former jailer’s country at all.

Stranger still, the newly emancipated individuals will not be allowed back into their cell. Said Schumer: “They could not set foot in this country again.”

The battle line has been redrawn again, Fellow Reckoner. But as always, where the state exists, freedom does not. And where freedom exists, the state does not.

Choose your team wisely.

Joel Bowman
for The Daily Reckoning

P.S. As always, we encourage our readers to “pirate” any and all of our material. Feel free to share and “like” this article…especially, today, on Facebook.

Run, Saverin! Run! originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Brazil is a marvelous and massive country where private wealth thrives without embarrassment, where well-protected and healthy familial dynasties form the infrastructure of social and economic life, where technology is popular and beloved by everyone, where the police leave you alone and where Americans can feel right at home.

The world is changing fast. Freedom in America is slipping away so quickly that we are already seeing a wave of young people leaving in search of new opportunities, just as people from around the world once came to America to live the dream. Brazil is one of many countries benefiting from the generational emigration from the US.

Discovering this rattled me more than I might have expected. But the young people themselves are not unhappy, and I can see why. They are valued. They are earning good money doing interesting things. They have access to one of the most beautiful and exotic and friendly places on Earth. They eat well, live well and have rich social lives.

More than anything else, they have the sense of freedom.

Now, you might wonder how it is that people have to leave the “home of the free” to find freedom. Over the last 10 years, something horrible has happened to the United States. The police state has cracked down hard, not so much on “terrorists” or real criminals, but on regular citizens. The news items spill out of my feed on an hourly basis, things that just shock and alarm those who are paying attention.

Maybe it is not so surprising. The US military is larger than most of the world’s militaries combined. We have the largest prison population on the planet, and most are locked up for nonviolent crimes. The political culture focuses more on the need for security than for freedom. Add it all up and you have the perfect recipe for the emergence of a police state.

But most Americans are not entirely conscious of the change. It has been fast, but slow enough not to cause alarm. It hits you only once you leave. This happened to me two years ago when I went to Spain. I could move about and do what I wanted without bumping into authority at every turn. I felt it again in Austria last year. It is not something you can quite put your finger on, just a sense that you are not under constant surveillance in suspicion. You can breathe easily.

It was the same in Sao Paulo, Brazil, a happy and prosperous land of exotic fruits, thriving markets, consumer products that actually work and are not depreciated by regulatory mandates, and polite and warm people.

I received a very generous invitation to be a main speaker at the third conference on Austrian economics sponsored by Mises Brasil, a young organization with a very bright future. It was founded only four years ago. Yet today, it has a gigantic presence in Brazilian intellectual life. The hunger for the intellectual basis of freedom is palpable.

Three hundred or more people were here to listen to lectures and engage in debates on ideas. The audience was a sea of young people, most everyone under 30. They were students, professionals, traders and workers of all sorts, all passionate about freedom and the economic answers provided by the Austrian tradition of Ludwig von Mises, F.A. Hayek and Murray Rothbard.

What most excited them was the classic idea of laissez faire — that is, the idea that society can thrive on its own in the absence of central management and that the government operates as a drain on society. The culture of the group was certainly more intellectual and educational than political. They were invigorated by ideas and given hope by the idea of freedom. Apparently, nothing like this organization existed in Brazil until recently. Now the group’s website is one of the most heavily trafficked in the country.

My hosts were enormously generous with their time, and they knew exactly what I really wanted to do on the first day: see the delights of the open-air markets. I was told they are in the center of town. If you had seen a map of Sao Paulo, you would know just how odd it is even to imagine such a thing. The city seems to be everywhere in sight, everywhere you turn, going on forever. It is like 100 New Yorks.

Driving here is not for the faint of heart. The street layout makes no rational sense at all. I could have been driven the short distance between the hotel and the conference center a hundred times and still not have had the slightest clue about the layout. I was told that it would take at least two years of living here to gain a sense that you really know the place.

Go to a high spot in the center of town and look around on all sides. Everywhere you see a beautiful thing, a world built by millions of human hands. No central plan could have made this. No single mind could have conceived of it. To anyone who is intellectually curious, the obvious questions are how does this place work? How is order achieved? The answer is one that few people in the United States seem to care about today. The miracle is obtained through the coordinating forces of the market itself, of millions of free people interacting in small ways toward their mutual self-betterment. This is the answer that inspires a lifetime of intellectual curiosity.

On the first lunch on my first day, my hosts took me to a place like I had never seen, and they are as unconscious of its significance as Americans would be startled by its very existence. Again, it seemed to be in the center of town. To obtain entry requires extensive security checks. But once you are in, a new world emerges: restaurants, soccer fields, gigantic swimming pools of many varieties and delights as far as the eye can see.

This is a city within a city. But it is entirely private, what Americans would call a “country club,” but of a particularly elaborate type. It is not hidden away in some alcove on the outskirts of town. It is right there in the city for everyone to see — something nonmembers can also take pride in. It is marvelous in every way, a living monument to the possibility of orderly, privately owned anarchist communities.

One thing kept gnawing at me during my entire visit. I kept coming across people who were members of large and extended families with roots very far back in Brazilian history. They were impressive entrepreneurs, but the wealth was more robust than you would find in a place like Silicon Valley. It reminded more of Gilded Age families in the United States, people who carried themselves with grace and confidence born of excellent breeding and material security.

As I thought about it more, the ingredients were unusual by American standards: large and extended families, protected wealth, well-bred youths, a predominantly young population. What was the reason for this? I developed a quick, back-of-the-napkin theory. It had something to do with the inheritance tax. So I asked my hosts, “What are estate taxes like in this country?” The answer came fast: There are none. Some areas charge 3%, maybe 6%, but it is rather easy to escape even those minimal charges.

This contrasts with the United States, where estate taxes can be as high as 35%. We’ve been looting our best families for 100 years. We’ve gouged and smashed the richest generations of American capitalists upon death ever since the Progressive Era. We’ve been living one generation at a time. Time horizons have fallen. Large-scale, privately held capital accumulation has been discouraged, even made illegal. Families have shrunk in size. The population has become ever more aged.

This tax policy has eaten the heart out of the desire of a free people to create dynasties. So our wealthy have to hide. They are encouraged to give their money away to causes, rather than to children. We live one generation to the next. Children are perceived of as an economic burden, rather than a path to immortalizing a legacy.

In Brazil, the time horizon extends beyond the single lifetime. And this is what has given rise to the dramatic cultural, social and economic differences between our countries. These dynasties serve as robust intermediating institutions between the individual and the state. We have ever fewer such things in the United States. Maybe this is what accounts for the incoherent sense that this is a freer country than the US.

There are other factors, too. The military consumes only a tiny percentage of wealth, and Brazilians dread wars because they know that they will be roped into supporting whatever wacky war the US starts. What’s more, the police are well-known to be as likely to commit as prevent or punish crime, so they are not trusted. Security is extremely important in Brazil, but everyone knows that it is a private function and not anything anyone would entrust to the state.

The beautiful thing about Mises Brazil as an organization is that it is working to further encourage these instincts and to spread an intellectual culture that openly embraces liberty as a model of life itself. They publish books and monographs, hold conferences and spread the liberal tradition far and wide among an idea-hungry generation. This is all about the future, and Mises Brazil is right to have confidence in it.

As I waited in the customs line to enter the US again, we were all shown a film designed to introduce America to new visitors. The film featured kids in ballet class, people riding horses, barn raisings, people water surfing, dances from coast to coast, smiling people of all ages, all against the backdrop of an exciting Coplandesque musical score. It ended with the Statue of Liberty. It was wholly inspiring, but there was something missing: The government was nowhere to be seen.

How I wish this film were the whole truth about our country. It once was. But the American dream is not about geography; the American dream is an idea that moves like a spirit around the world, landing wherever people are willing to embrace it and confess it as creed. That spirit has landed in Brazil, and it was a great honor to be witness to it.

Regards,

Jeffrey Tucker,
for The Daily Reckoning

Brazil and the Spirit of Liberty originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".