Monthly Archives: September 2012

Selling Your Vote on EBay

I couple weeks ago someone said to me, “I’d rather sell my vote on EBay then vote for Romney or Obama”.  After serious consideration I think this may be a good idea.  Let’s leave aside the fact that a single vote is statistically irrelevant to the outcome of a presidential election and focus on the idea of selling your vote for money.

About half the country votes and the other half does not.  Of the half that doesn’t vote some are registered voters and some are not.  So, for half the country selling your vote may mean an extra $10, $20, or $50 in your pocket.  Perhaps it is enough money to feed your family for a day or for several days.  An uncast vote is like unused inventory in certain businesses.  Once the data has passed the inventory can never be sold (i.e. a hotel room sits unsold one night the company loses the opportunity to sell it).  Well, votes are no different.  The vote has potential monetary value up to the time polls close.  After the polls close the vote is worthless.

Some pundits may say that is irresponsible, immoral, or even un-American to sell your vote.  This is blatantly untrue.  It already happens every election cycle.  Many people cast votes based on the benefits they may receive.  For instance, view this recent video of a Romney protester explaining that she’s voting for Obama because she got a free cell phone (and she encourages others to vote for Obama for the same reason).

Of course there are many millions of voters that want to receive some so-called government benefit.  Whether that is social security, Medicare, food stamps, public housing, tax credits, subsidies, grants, funding for projects, etc.  During the 2008 election, a colleague said to me, “I’m voting for the person that gives me the most things.”  In other words, when government provides “free things” to people, the voters respond in the voting booth.   It’s human nature to want to get things for free.

Voters sell votes based on the real or perceived benefits they believe they’ll receive under a particular President.   Conceptually, this is absolutely no different than selling your vote on EBay.  Most likely, the primary difference is the amount of benefit received.

There’s another reason the idea appeals to me.  Candidates espouse opposing views during the election cycle, yet when it comes time to govern the only outcome that is assured is maintaining the status quo.  The words, slogans, and promises of a campaign trail become fodder for the ash-heap of lies, deceptions, and half-truths the American people have suffered under for generations.  What’s promised and what’s delivered are as opposite as night and day.

The reality is governing isn’t campaigning, and the actions taken in office are the only unequivocal, empirical measurement that matters.  History has proven demonstrably that both parties are culpable in the current state of the leviathan known as the national government.   Representatives from both parties act arbitrarily and capriciously when it comes to the Constitution.

In economic terms government debt has risen from near zero in the late 1920s to $16 trillion today.  Numerous social programs exist that violate the unalienable rights of others.  The purchasing power of the dollar has declined in the past 100 years where a dollar in 1913 is now only worth 3 to 4 cents. The number of rules and regulations has risen tremendously over the past forty years.  The number of government agencies, departments, bureaus, commissions, etc. has grown.  The number of government employees continues to grow.

Inversely proportional to government growth is the reduction in our freedom and liberties.  The number of criminal laws on the federal books exceeds 30,000.  Violations of our unalienable rights under The Patriot Act and the National Defense Authorization Act occur under the guise of “keeping us safe”.  The liberty to participate in a free market economy by choosing whom you associate and contract with continues to be abridged or denied.  The government now forces people under threat of fines or imprisonment if they don’t purchase a product.  The government forces people to use paper-based currency that is not authorized under the Constitution and has been forced upon the people through legal tender laws.  Property rights under Eminent Domain, Agenda 21, and numerous environmental schemes continue to erode and diminish the right to own property without government authorization, oversight, and compliance to rules and regulations developed by ideological bureaucrats.

For those naysayers that cast doubt on the idea of selling your vote on EBay, it’s time for some introspection.  Most of you have been selling your votes for some so-called government benefit for decades.   In doing so you give consent to those in office to plunder property, violate unalienable rights, and evade the Rule of Law.  By selling my vote on EBay at least I can use the proceeds to engage in an economic transaction for a real product that I desire.   Certainly beats selling, I mean casting, a vote for a set of promises that are never delivered upon.


Filed under Philosophical

The Big Lie

A week ago the Federal Reserve announced an open-ended plan to purchase mortgage-backed securities (MBS) to the tune of $40 billion per month until the Fed is satisfied with the unemployment situation.  In some circles this is being called QE Infinity.  This should raise eyebrows everywhere as this is a backdoor bailout for those institutions carrying MBS on their books.  If the Fed is buying MBS from whom are they buying them? What does the purchase actually accomplish?

Primarily, large financial and lending institutions would be selling MBS to the Fed.  This includes Fannie and Freddie MAC, financial institutions such as Bank of America, Goldman Sachs, Citi Group, and JP Morgan.  The Fed’s purchases are another bailout as risky assets are transferred from the balance sheets of financial institutions to the Fed’s balance sheet.  The purchase socializes the risk of these assets because the people are now liable for them as they are now on the Fed’s balance sheet.  If this playbook seems familiar that’s because it was done in 2008 and 2009 through TARP.  The rewards are privatized and the risks are socialized.  Once again financial institutions continue to gamble money and when things go wrong the losses are transferred to the public.  There is no longer any concept of moral hazard as the Fed is back stopping everything.

Secondly, how does the Fed actually buy MBS?  They print money.  Actually, it is really the creation of electronic deposits as the financial institutions receive credits in their account as a result of the sale.  The purchases expand the base money supply as money is created out of thin air to purchase MBS.  More base money chasing the same supply of goods and services results in inflation.  Since Nov 2008 the base money supply has quadrupled from roughly $800 billion to nearly $3 trillion.  Now that Ben Bernanke has become the 4 trillion dollar man, expect inflation to accelerate.

Furthermore, the Fed has been engaged in a program called Operation Twist.  This program has been in place for nearly two years.  The program is designed to swap long-term bonds (10 and 30 year bonds) with shorter duration bonds (2, 3, 5, and 7 year bonds).  The good news is this doesn’t introduce new money into the money supply.  But it does require the Fed to purchase longer term bonds and then turn around and sell shorter term bonds with the goal of netting this out to zero.

But this is not a zero sum game.  First, the Fed has been buying all the long-term bonds for the past couple of years.  There aren’t other buyers.  Moreover, there isn’t much long-term debt remaining to be purchased as most of it has already been swapped with shorter duration bonds.  This means a substantial amount of short-term debt is coming due in the next two to seven years.  Though interest rates on short-term bonds are near zero the payments, including interest, will come due requiring more bond sales.  What happens if nobody shows up to the auction?

Today, the Fed is taking down nearly 60% of all the bond auctions.  The primary dealers (i.e. Goldman Sachs, JP Morgan, etc.) taking down a significant portion of the remaining 40%.  The primary dealers then engage in a “repo” transaction with the Fed where the bond is given to the Fed and cash flows to the primary dealers.  In turn, the primary dealers use this money for their own proprietary trading desks which make investments in financial products such as derivatives, mortgage-backed securities, credit default swaps, hedge funds, collateralized debt obligations,  etc.  Often these positions conflict with those of the financial institutions clients.  This happened during the housing bubble when financial institutions were shorting positions they were otherwise selling on the open markets to other investors.  And, when things go wrong, there is no moral hazard.  Again, the financial institutions privatize the rewards and the risks (i.e. losses) are socialized through program like TARP, and the open-ended Fed MBS purchase program.

The primary reason the Fed is monetizing assets such as mortgage-backed securities is because it has already bought up most, if not all, of the longer term bonds.  The illiquidity in the long-term bond market reduces the Feds ability to buy longer term bonds and replace them with short-term bond sales.

Consequently, it is the people who pay the price as there is more debt, higher inflation, and less purchasing power in the currency.  This all leads to the big lie.

The government is hiding the fact that the government is insolvent.  Bankrupt.  Government officials and the central planners at the Federal Reserve all know the system is insolvent.  To keep the system going the Fed needs U.S. credit market debt to double roughly every eight years (average time to double over the past 40 years).  GDP growth is driven primarily by consumerism.   The economy is 70% consumer spending rather than the production of real goods desired by others.  The consumer takes on debt as they go on vacation, buy homes they can’t afford, new cars, etc.  Government encourages this behavior because they understand that GDP growth is tied to consumer spending which in turn is driven by the credit market.  This chart, courtesy of Chris Martenson, illustrates credit market debt growth over the past 40 years.  What the chart shows is that the credit market is no longer expanding but moving sideways.

The central planners are hoping that people feel richer because of the Feds actions.  That people will begin to buy things on credit to expand the total outstanding credit market debt.  But this hasn’t happened over the past four years and the Fed’s latest move is one of desperation.  The Fed needs to create another bubble to drive up consumer credit demand.

Ultimately, buyers of short-term debt will begin to dry up as well.  The Fed, acting as buyer of last resort, will monetize all debt until the currency is destroyed all in the name of “saving the economy” or “trying to keep down unemployment”.   Every country in the history of mankind that has destroyed their currency has imploded, collapsed.  If the definition of insanity is doing the same thing over and over expecting different results, then the DC’vers and the central planners are insane.

The Zerohedge website provided the following tidbit from the Romney 47% speech.  Notice how this hasn’t been reported on:

“Romney:  [The] former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve.  And I met with him, and he said as soon as the Fed stops buying all the debt that we’re issuing – which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues.  He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up.  We’re living in this borrowed fantasy world, where the government keeps on borrowing money.  You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion?  The Chinese aren’t loaning us anymore.  The Russians aren’t loaning it to us anymore.  So who’s giving us the trillion?  And the answer is we’re just making it up.  The Federal Reserve is just taking it and saying, “Here, we’re giving it.”  It’s just made up money, and this does not augur well for our economic future.  You know, some of these things are complex enough it’s not easy for people to understand, but your point of saying, bankruptcy usually concentrates the mind.”

In this speech Romney acknowledges the problem and explains what the Fed is doing.

But, the big lie is that government – including the current administration, the Federal Reserve, and even a Romney administration — refuse to address the problem.  They are all tied up in a self-created Gordian Knot.  There is not a single politician that would bring down the system on their watch.  Instead, it will be drawn out over a period of time until the entire system collapses.

So, the DC’vers use mystical words like sterilization, quantitative easing, and Operation Twist to hide the fact that they are simply printing money out of thin air.  They are destroying wealth and purchasing power in the process.   That means they are destroying the economy and our lives while protecting the system from collapse.

This is the big lie.  It is the granddaddy of lies.  The lie is so big and the consequences so immense our elected officials can’t even bring themselves to discuss it openly with the people.  Likewise, the people are presented with the facts cannot break free of their normalcy bias and recognize what is transpiring in front of them.

The greatest threat to most people is not some terrorist in the Middle East.  It is not a fellow traveller getting on an airplane.  The greatest threat resides in a ten square mile area called Washington D.C.  The DC’vers and the central planners at the Federal Reserve are our greatest threat.   Ironically, the Federal Reserve building happens to be located on Constitution Avenue.

There is nothing noble, honorable, truthful, or moral in what they are doing.  They are dishonest, ignoble, immoral, and unethical because they perpetrate the lie.  Undoubtedly, it is the people that will bear the burden of their depravity.   It is a heavy price to pay just to “get my guy” into office.

You can argue over the importance of tax rates, energy policy, and environmental overreach.  You can argue whether an Obama or Romney presidency will be better or worse in those regards.  It is irrelevant.  It is all a moot point until the issues with the monetary system and the currency are resolved.  People are focused on the crumbs on the floor while the entire house is crumbling around them.

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The Four Trillion Dollar Man

While U.S. embassies were under attack did you notice the key financial events of the week?  Across the pond, the German court ruled on the constitutionality of the European zone bailout funds.  Germany has been a barrier to open-ended bailout funds which are used to bailout bankrupt countries like Greece, Spain, and Italy.  The ruling was worded in a way that appears to provide some cover domestically for making Germany (which really means all Germans) joint and severally liable for the debts of other countries.

Would you go in joint and severally liable with your Uncle Joe knowing he is unable to manage his finances, balance his budget, and borrows money routinely?  This is precisely the position the German people are now in.  The Germans are on the hook for another country’s fiscal decisions.  While there is more to be seen regarding the consequences of this decision the camel’s nose is in the tent.  Germany wants more control over the fiscal policies of those countries it would bail out or a more powerful European Union with more authority.  If either of those fail to come to fruition it will be interesting to see whether the EU stays together or not.

Meanwhile, Ben Bernanke, the four trillion dollar man, announced an open-ended Fed program to purchase mortgage backed securities, continue Operation Twist, and ultimately expanded the Fed’s balance sheet to four trillion dollars by the end of next year.

The plan is to purchase $40 billion of mortgage backed securities every month.  This was an open-ended position announced by the Fed.  This may last one year, five years, or longer.  Operation Twist is the buying of longer dated bonds (i.e. 10yr, 30yr) and selling shorter dated bonds.  In other words buy $100 billion of 10 year bonds and sell $100 billion of 10 year bonds.  The Fed is already acting as the buyer of last resort as many auctions result in the Fed actually buying the securities being sold because no one else will buy them.

Alternatively, the primary dealers buy the securities and and repo them back to the Fed for cash.  The primary dealers then use the new found cash for hedge funds, their proprietary trading desks (which are often hedged positions against their client’s positions), derivative trading and other higher risk investments.   There is no longer any moral hazard as poor decisions don’t result in failure or bankruptcy.  Instead the government provides bail outs.  This is akin to a person gambling in a casino and choosing between one game with 2 to 1 odds vs. a game with 10 to 1 odds.  It is a risk/reward proposition.  If the person knows they’ll be bailed out if they lose their money why not take a shot at the game with the higher reward.

What does all this mean for the average citizen?

  • The continued debasement of the currency.  Which means the purchasing power of a federal reserve note will decrease.  Real goods and services will cost more.
  • Expect a rise in the price of precious metals.
  • Expect the price of crude oil to rise.  If you pay attention to oil and gold prices you’ll see they’ve been pegged to one another for many years.  If gold rises, oil rises and vice versa.
  • Commodity prices are at record high levels.  Especially corn.  As I covered in another article corn is not only used as feed for animals and food for people it is used in ethanol production.  Expect to see a renewed call for more ethanol as crude prices rise.
  • Expect an increase in worldwide starvation and deaths in third-world countries due to the increase use of corn in ethanol which means less food supplies worldwide.
  •  Expect more rhetoric from politicians claiming they are acting in your best interests.  To save the economy.  To stimulate the economy.
  • Expect more people to be on food stamps.
  • The Fed’s short dated bonds coming due over the next 1 to 4 years has increased substantially over the past couple years.  This will continue under the extended Operation Twist.  Which increases risk as the shorter dated bonds come due they must be paid with interest.  Mostly likely this will force the Fed to sell more short dated bonds.  But who will be doing the buying?

Today the Fed and the primary dealers are taking down significant portions of bond auctions.  There has been a significant decrease in debt purchases by countries like China and Japan.  Which begs the question that Treasury Secretary Tim Geithner once posed; What happens if nobody shows up to the auctions.

Sadly, we may all find out the answer in the coming years.

The current financial and monetary problem was created by the central planners and elected officials in Washington.  Fiscal policy drives up debt.  Borrowing drives up interest payments.  The Fed controls both the money supply and the cost of money (i.e. interest rates).  The arrogance and hubris of a few elitist academics is leading the country to ruin.  We the people do not need central planners controlling the money supply and the cost of money.  Moreover, we the people are forced to use their currency through unconstitutional legal tender laws.

Alternatively, we the people should determine the currency we want to use.  The people along with those willing to lend money should determine interest rates.  Ultimately, we the people should determine whether we control the money supply or the central planners control it.  While I’m not an advocate of a pegged gold standard at least under a gold standard the people control the money not the central planners.

As Ayn Rand famously quipped, “you can ignore reality, but you can’t ignore the consequences of ignoring reality.”  Well we can’t ignore the reality of the consequences of the current monetary system, fiscal policies, and a centralized authority that acts arbitrarily and capriciously.  It is our lives , liberty, and property that are at stake.  Our unalienable rights to freely chart our course in life, to freely choose how we employ our physical and intellectual abilities, and the right to keep what we produce – our property.

The stock markets may like easy money.  Politicians and central planners certainly like easy money.  But we continue to creep closer and closer to the fiscal cliff as we teeter back and forth like a see saw on a fulcrum before the tipping point arrives and the arrogant, self-righteous, sociopaths in Washington leads us all over the fiscal cliff.  The Great Depression will be a walk in the park compared to this.  This is the path we are on.  Slowing it down isn’t the answer.

A complete derailment is needed to restore fiscal and monetary sanity and constitutionally limited government.  To restore freedom and liberty to the people, the people cannot continue to act as lemmings and follow the herd wherever it leads.  Societies collapse.  Nations collapse.  Currencies collapse.  The road of history is littered with failures.

We are not too big to fail.  We are too big to succeed.  Too many see the country as invincible.  The country is not invincible, it is fragile.  It is being held together with chicken wire and string.  There are too few people willing to explain the truth to the American people.  There are too many people that are polarized by politics and ideology or simply cannot overcome their own normalcy bias to believe the truth.

The four trillion dollar man is working his magic, sprinkling his fairy dust everywhere hoping that things will magically improve.  He is ignoring reality.  We are going to have to live with those consequences.

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Free is an Ideal Price but Freedom isn’t Free

The use of the word free in a free market economy is not about price but about the voluntary nature of two people freely choosing to transact for their mutual benefit.  Those that conflate free choice with free cost gloss over and detour around the fact that nothing is free unless another person, by their own volition, acts compassionately towards another.  A gift, charity, and other goods and services are free to the recipient only because another person voluntarily choses to give those things freely.  Those that understand this distinction understand that compassion is virtuous only when it’s voluntary. 

A person steals something from a store and gets away with it.  The stolen good is free only because the person escaped undetected.  Therefore, is free not the desired ideal price in society?  Everyone enjoys getting something for nothing.  The distinction between taking something from another at no cost versus a person voluntarily giving something at no cost makes all the difference in the world.  The distinction is that of a criminal and a philanthropist — an immoral versus a moral person.

Do not overlook another key distinction.  In both cases two parties are involved.  The recipient, by theft or by compassion, possessed a good that originally belonged to another.

Every person possesses certain unalienable rights including the right to life, liberty, and property. As an autonomous and self-directed person I use my physical and intellectual abilities to preserve life.  I act independently and exercise good judgment to ensure my own preservation.  I freely choose to employ my abilities to produce, and what I produce is my property.  Property rights are the recognition and implementation of a system to ensure the enjoyment and practice of our unalienable rights.

Under no circumstances does any person have an unalienable right to my property, which by extension is a claim on my labor. If this were true then any one person can claim another person as a servant or slave.  Does any person have an unalienable right to compel their neighbor to repair their house, mow their lawn, or tend to their crops?  Likewise, does any person have an unalienable right to take their neighbor’s food, clothing, transportation, money, or other property?

Those that believe this act as modern day slave holders expecting others to labor –to produce — at no cost to them. 

Our Union was formed based upon certain self-evident fundamental, transcendent, and immutable truths.  Specifically that every person is endowed with certain unalienable rights which provides free markets, free choices, and free society.  In a word, this is freedom.  This is what it means to be a free person. 

Free choices are about people acting autonomously and directing their own lives.  People are free to choose their occupations, where they live, who they associate with, etc.

Free markets are the natural extension of our unalienable right to liberty.  People freely choose to engage in trade.  Nobody is forced to exchange their property with another.  Nobody is forced to give their property to another without receiving something mutually beneficial in return. 

Free society reflects and acknowledges the will of the people to live in ordered liberty, to live harmoniously as free people exercising their unalienable rights without violating the unalienable rights of others.  As a result government is formed for the sole purpose to better protect every person’s unalienable rights.  That is the beginning and end of good government.  

These elements of freedom, personal and economic liberty, and unalienable rights created the most prosperous conditions in the history of mankind. 

However, when government acts capriciously or arbitrarily it violates the very purpose for which it was instituted.  In theory government is supposed to apply all laws equally to all people and act as a disinterested independent body abiding by the rules and constraints placed up it by the Constitution. 

Just as nobody has an unalienable right to my property or my labor, neither does the government.  If government takes property from one person and gives it to another person, it is equally as repugnant and immoral as if your neighbor took your property.  If government social programs provide goods or services to one part of society by taking property from another part of society it is nothing less than plunder.  Remember, compassion is only virtuous when voluntary.  When government forcibly takes property from one person to give to another that isn’t compassion or benevolence.  It is theft.  It is plunder.  It is tyranny.

This is where the last of the “free” concepts enters into the equation.  When government provides something to somebody at no cost it is considered free.  A person receiving government supplied medical care, food stamps, etc. often views these things as free.  In these cases free is really about price to the recipient.  The thought that free is the ideal price is absurd and dangerous.  That’s because nothing is free unless a person voluntarily chooses to provide something for free. 

Demonstrably, anything the government provides isn’t free.  However, another dynamic factors into the equation.  Those receiving “free” things from the government do provide something in return.  That is a vote.  The insatiable appetite for more free things in exchange for a vote is a pernicious cycle. 

Eventually society becomes more and more dependent upon a paternalistic government until people are reduced to subjects merely subsisting on government’s trickle down compassion. 

History is replete with examples where elements of subservience, dependency, and subjection enslave entire populations to some form of centralized authoritarian source.  Nobody prospers or flourishes.  Living standards decline dramatically.  There is no chance of success or failure as everyone is equal and banished to a life of mediocrity.  This is what it means to be a slave, a dependent, a subject. 

Freedom has a cost.  Freedom isn’t free.  You can’t buy freedom with votes.  Government certainly isn’t going to give back your freedoms freely.  Freedom requires duty and responsibility to yourself and your posterity.

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