An Interesting Theory

If you ever study evolution beyond that which you were required to do as a student (I was a student at a Christian school so had to study it myself), you will find some interesting facts. First, evolution does not optimize for a given thing; it merely finds the best option currently available. The old joke is that a gazelle doesn't actually have to be faster than a lion to get away; it just has to be faster than the slowest gazelle. An organism doesn't have to be the best at what it does, it just has to be better than the others.

Another interesting point is that evolution really does not like success. If it did, we'd still be cowering in our caves wondering if the tyrannosauri were hungry tonight. They all died off because they had become so specialized for a world that had been very static for a very long time. When an organism become extremely adapted to its locale, it can lose the ability to survive outside of the locale. The little furry mammals, however, had the ability to survive outside the comfort zone of the dinosaurs, so, despite that they were not strictly competitive with the dinosaurs, they won out simply because the dinosaurs did not survive.

One thing that has to be said at this point, no matter how one feels about it, is that society is essentially an evolutionary system. I know that this statement generally causes annoyance from those who hear it, as they launch into tirades about the evils of social darwinism, but the simple fact is that anyone can see the impact in history of this darwinism, and it explains the dominance of the English speakers to a large extent in that the English speakers were the ones willing to do the sorts of things that would achieve dominance. However, it was not always so, and it will not always be so.

These same English speakers have become extremely effective at their niche. They have become so good at it they appear to have violated some of the rules of proper exploitation, one of which is to not be too much of a burden, or the masses will throw your yoke off and likely separate your head from your body for good measure.

So we now have most of the world embroiled in a banking disaster created largely by the English speakers, bought into by almost everyone with a pair of dimes to rub together. The response of the banking community, which largely controls the levers of power in the west, and, indeed, much of the east, is to funnel funds from the public store to preserve their lives.

One is tempted to think of the dinosaurs, perhaps facing a desperately cold winter, huddling together trying to save their lives, in the face of their certain destruction. This is exactly what these bankers are doing. Having been so remarkably effective at their niche, they have pretty much gotten to a position where they cannot survive without the niche, so will defend that niche at all costs.

The problem, as any reader of this blog knows, is that they don't produce anything. Were they lending their money, a concept found ridiculous a long time ago by bankers, they would produce value by providing capital, and their actions would not be in any way inflationary. Were banks lending out funds on deposit for that very purpose, such as certificates of deposit or bonds, then we'd not have any problem, either. However, for a very long time, they've been lending out money created for that purpose by the fed. That's not even quite right, as they only have to have a certain percentage on hand in liquid reserves, that percentage actually below 1% right now due to 'quantitative easing'. Seriously, the whole thing stinks to high heaven like fraud, but, as one analyst keeps pointing out, it's not really fraud if it's legal.

In the old days, banks had money. They lent that money to good ideas and made a profit. Or they lent it to bad ideas and took a beating. Either way, it was their own future they messed with. There were no sub insurers, underwriters and so on, so when a bank failed, it normally only took out its own depositors. There were limited failures of banks where a region would lose a large percentage of its banks, mostly due to speculating of one kind or another, where bankers lost their heads, but nothing like this scale.

After the invention of the fed, banks began to more and more act as conduits for fed money rather than to make their own investment decisions. This led to the current situation where the banker is nearly purely parasitic, existing as a puppet of the fed and the treasury, spending his entire life complying with endless regulations to get his snout into the trough of newly-created paper. For being a good little pig, he gets his cut of every dollar he conduits.

The end result is that banks have completely forgotten that creating value was how they made money; they invested in new production and that new production brought improved lives and happiness to many, which meant that nobody resented the banks because they actually helped people. Now, banks are machines that tick the appropriate boxes and do their best outside those restrictions to maximize their profit stream at the expense of everyone. Hence, most major banks make most of their money in their consumer banking operations from fees, as, despite that it costs them essentially nothing to bounce a check, they now charge north of $30 for that 'service'.

The problem is that the niche they now inhabit is that of cheap government money, and, like the warm rain forests the dinosaurs lived in, that may not last long. And, like the dinosaurs, bankers have become so specialized that the modern banking system cannot even exist without the niche. It is doubtful if individual bankers and economists will be able to adapt.

However, there is still lots of inertia in the system. The peasants are angry, and the bankers are being forced to make concessions, such as the recent court order to the fed to divulge to whom loans were made and why and the increasing calls for a full fed audit, but people don't really know why things suck. Our entire lives, things have been getting steadily worse; we all know it. Sure, technology has made lots of things better, but the quality of construction of most things has been steadily deteriorating. The actual cost of living has been climbing. In the fifties, it was expected that a man could provide a nice life for an entire family, and families were large then. Now, both spouses have to work, often just to keep body and soul together.

As I've gone over before, when a significant percentage of the population is not producing anything anyone wants, they drive the price up for everyone else. Because of how we've allowed our banking system to grow, the banking system and all its workers essentially get our work for free. They are now nearly completely parasitical. They play their derivative games, engineer all investment vehicles so nobody else can make any money, and generally screw with all of us for their personal gain, and we let them. The problem is that when the public at large has finally had enough, nobody knows which direction the anger will spew.

I could remark about Frenchmen storming the Bastille. I could remark about Dutchmen throwing their wooden shoes (sabots) into the machinery. I could remark about the US Civil War, which was really about economic oppression more than anything else (which is why it started in a port, and not on land, where the slaves actually were). I could remark about the fall of the second reich (the Weimar Republic) leading to the rise of Adolf Hitler. All these things are a result of the same witches brew we have simmering in our caldron over here.

If the president does not take strong and active steps to break the power of the banks, eventually the public will tire of losing ground every day of their lives. Some charismatic leader may be all it takes.

And, for you conspiracy nuts, it is almost never the person currently in power that decides to take over and create the new utopia; it is some unknown blowhard right now building a power base somewhere nobody knows. Seriously; go look at the rise of Hitler. He was a persistent and utter failure as a politician until events lined up just so and he suddenly became everyone's darling. Once again, seriously, Germans thought him a savior and handed him the keys to the kingdom.

So, the bureau still stands by its recommendations: let the banks fail, lower taxes, cut services, recall military from the rest of the globe, and concentrate on reducing impediments to new businesses. Everything else is just perpetuating a system that failed so long ago it is nothing but a rotting hulk at this time, at its core people who are morally adrift, willing to ride on the backs of the rest of us.

It's Been a While; Whatever Did You Do?

Well, the world has pretty much been unravelling according to plan. Seriously folks, look back into the old posts. The bureau has been concerned about systemic, worldwide deflation, and, lookit, no matter how hard central bank blowhards blow, the economy stubbornly refuses to reflate. Of course, we at the bureau would love to point out that all that money they are stuffing into the garbage bag that is the economy must come out somehow, and the most likely way is through serious staggering inflation.

So, how would it happen? Well, deflation being the current cause celebre, central bankers are busy stuffing money anywhere they can except directly into the hands of the public at large, because, well, that would be too obvious to the dollar hawks. So, they are handing it off to banks with next to no oversight, and, if a recent equivocation by a functionary of the central bank is to believed, they aren't even writing down who they gave it to, which will provide for some interesting dinner conversations when it all comes out.

However, the money, believe it or not, isn't being lent. This is quite sensibly because the rest of us are scared spitless about the idea of taking on more debt. It is an interesting factor of a free economy, that when nobody wants a thing, you can't sell it at any price. So, despite that the 'price' of money, the effective interest rate, has been below zero for a very long time, due to the fed interbank rate being below the nominal rate of inflation, the market is not moving; few new loans are being made.

People like to blame the banks for clamming up, requiring your whole life history, with witnesses, in triplicate, before issuing a loan, but that is only part of it. There's a lot more to it. For starters, there's the loans that the government has 'adjusted', meaning the home owners have essentially declared chapter eleven, but only on their home, and received a court-ordered payment schedule. This makes the loan into a no-recourse loan, meaning the homeowner can't easily get out of it. Of course, the amount they have to pay is set right at the level that makes them squeal like a pig, so they have no more income to get new loans. As a matter of fact, they're so scared, they're re-using toilet paper and so on at this point.

And that's why the loans should have been left to go into default. I know it is harsh, but had that been allowed, the homeowner would have sought and acquired cheaper digs, due to the fact that investors are snapping up homes at serious discounts and renting them out, likely to someone just evicted from their house. This means the former homeowner would have negotiable income once again, instead of being chained to the grist mill, as it were. He would be able to take on more credit. He would be able to eat out. He would be able to buy a new flash-bang computer instead of the netbook he's struggling with, cursing the day Obama came to help him.

Anyway, what this means is that, largely, the system has been locked into a kind of stasis, with much of the mal-investments and general cruft locked in place, with Wall Street exactly as parasitic as ever, except now we're pitching gobs of cash at the 'last bullwark of capitalism' and that cash isn't being lent. It's going to bank coffers, to executive payouts, to jets, so on.

The money in the bank coffers is what concerns us. At the first spark of real recovery, banks will start lending that at silly multiples again. When that happens, the fact that the fire was never put out will be obviously to all, as the conflagration strikes up again.

And, an increasing market will not allow for the derivatives market to finally implode like it should meaning the sponge that has been sopping inflation as fast as it can be pumped will go away. The fed always takes a while to react, but the sudden stoppage of hemorrhaging losses in the financial markets coupled with any real recovery in the consumer sector will drive the biggest bout of inflation you have ever seen.

As usual, these posts are just opinion; the bureau and all its writers, friends, family and pets do not make any recommendations as to how to spend your own money and if you lose all your money, don't complain to us; you should have done your own research. This information is given for free, and you should consider the price in your decision making process.

Stupid People Wanting Price Fixing

Well, as expected, and, indeed, predicted in these annals, structural inflation is starting to show again. Prices of 'must have' goods such as food and gasoline are inching up again. Of course, as also predicted, prices of all investment vehicles are going down. This is an odd situation, that of inflation in many core consumer prices, deflation in others, and deflation in investment vehicles, including commodities. We shall endeavor to make sense of the situation.

First off, the commodities. The price of gold has fallen along with the stock market. What is emerging is a picture of technical traders and hedge funds that use gold as a swing value for storing money between plays. Many of them find themselves short on money when the market goes down so sell gold to cover their plays, which drives the price of gold down. If, for instance, a hot shot trader were playing the carry trade against a paper security such as a stock or bond, and suddenly had to cover because what he had borrowed against lost value, he'd have to sell what he hedged with, ie, gold.

Silver is a different story. Silver has a lot of transactions that are financed by paper silver, but they're short term. Parking a large sum of money is not an easy process; leaving it in a bank leaves you exposed to all sorts of risks, and means you aren't making any money. Raising finances is not so easy in the general market, so financiers can be seen to short sell silver as a quick loan, expecting to buy it back at a future date. For this reason, silver has, for some time now, not exactly followed any rational pricing system.

Of course, any time a pricing system is applied, someone will figure that out and develop a system to take advantage of the system. For instance, at one time, the analysts at the Bureau were fascinated by the ratio of gold and silver. For about a year and a half, a very solid picture emerged, with silver clearly leading gold. The analysts, confident of their system, were preparing to exploit it when it all fell apart. Fortunately, the analysts did not lose much money, but the point is that no system long endures in the face of the world economy, where some kid with a computer can be trading against you, exploiting your system for his gain.

What this means, partly, is that the system employed by thousands up until recently, that of buying and holding, is losing money. Other people, mostly short specialists, are making money at the expense of the buy and hold types. The way this works is that the talking heads talk up the economy, the politicians, desperate for good news, pile on, and the public slowly buys back in. Then the inevitable bad news comes, and the plugged-in professional trader dumps his long holdings and shorts the stock, which is essentially double-selling. The long holder is screwed.

Sun Tzu said, "In death's ground, stand." To apply it to today, when the stock market loses 30% in a short while, don't sell and lock in the losses. Ride the thing into the ground. Or were you dumb enough to sink your whole investment portfolio into the stock market?

Anyway, that's pretty much what is up with the market. With the next set of loan failures fixing to start and the situation in business real estate getting worse, we're looking at another spate of massive losses for banking institutions, leading, of course, to further losses in the economy. This means more losses in the stock market.

I suppose a little stock market theory is in order here. When you bought stock, you did not put money in the market; you put it in someone else's pocket. This is how stocks differ from bonds and bank accounts, where money has been sequestered in some way that is still considered at least semi-liquid. Stocks are securities that have worth rather than a face value and that worth changes. Many people view the stock market as containing cash, which it simply does not. So, a loss of billions of dollars in the stock market has not changed the cash situation one little bit. Major stock losses are not deflationary is what I'm trying to say.

When you sell stock now, someone else puts money into your pocket. The worth of the whole market is the amount that people are willing to pay for it. This means that a contraction in the stock market is actually an effect, not a cause. The cause is the tightening of belts everywhere. The problem is that people attempt to sell out of the market when there is little money for buying, establishing lower prices, making them 'marked to market', to use a banking term. The securities now so marked cause people to have to report their assets reflecting the lower price, which generally changes debt ratios and retirement plans, leading to greater savings, which reduces the amount of money in the general market. And thus the vicious cycle of deflation sets in, deflating everything from house prices to car prices to gold and silver prices.

But, not food and fuel prices. Why? Well, we're finally getting to the point of this post. Both fuel and food have been the subject of price fixing of one type or another and have not been truly free markets. Food, in particular, is heavily regulated, but is done so to drive prices up, not down, quixotically. However, this has still led to a reduction in the quantity of food available, as the mechanism of driving food prices up was to cause artificial scarcity by paying farmers not to grow crops.

We are now sitting on something like four weeks' grain reserves worldwide. That ought to be pretty scary, as three years' supply is not unheard-of. If we were to have one bad crop in one major area, we'd be looking at starvation for the poorer nations. This is all a result of price fixing. Were farmers allowed to grow and sell what they could, agribusiness would become ever more streamlined and productive, production quality and reliability would increase, and the general foodstock would be more abundant. I cite the tech industry as an example.

However, it is very difficult to get any sort of innovation into farming, as the governments of the world fall all over themselves to protect the small farmer, who inefficiently uses land. This has led to West Texas, of all places, being one of the fastest growing farming areas in the United States, due to very little regulation and no restriction of agribusiness. Oddly enough, the hardscrabble land and low rainfall have been overcome by technology to the point where West Texas is outproducing more fertile areas.

Of course, a contributing situation to the worldwide food shortage is the increasing usage of prime land as city and subdivision land rather than farmland. Most of the breadbasket of Southern California is so used already, and much of the Eastern farmlands are so used. This is another reason we're growing vegetables in the rock and limestone of West Texas. Ok, it's really not that bad, but, compared to Southern California or the Shenandoah Valley, it sucks.

That leaves fuel. Fuel is one of the most heavily regulated markets in the world. It is very politically sensitive. Most of this regulation is to effect some form of price fixing.

Most recently, the price fixing was in the form of an attempt to tax away 'windfall profits'. The funny thing is that there are no apologies right now from those who tried to do that, now that gas companies are seeing large losses, but that's the business cycle. Sometimes you win, sometimes you lose, and you need to keep the money from when you win to cover when you lose.

However, price fixing has been ongoing in this market for a long time. For certain tax breaks, the price essentially gets set at the producer, which is the refinery. Everyone after that merely takes a preset percentage. This seems perfectly fair until you discover that it means that a given gas station cannot take advantage of a local situation to make more money or to provide a price break to its consumers.

Of course, the whole point is to stop a local gas station making more money, but the truth is that if they make more money, they will drive more supply to the area. When the price is held artificially low, scarcity sets in and fewer gas stations exist. Further, when the price is held artificially high, it can be hard for a new gas station to get customers, as its prices are exactly the same as the other one down the street. Between these two effects, the failure rate of gas stations is startlingly high.

One other interesting fact is that OPEC learned its lesson in the seventies and will now trigger a massive price cut rather than risk training Americans not to use fuel again. Since the capacity to reduce consumption still exists in this country, any serious rise in prices results in a fairly rapid reduction in consumption, leading to a falloff in orders for crude, as inventories rise all over the place. By the time it works its way back to Saudi Arabia, the reduction will be magnified. Essentially, if we use domestic oil for, say, 30% of our fuel, and non-OPEC foreign for 30%, leaving OPEC for 40%, if we cut 20% of our fuel usage, that comes mostly out of the OPEC sources, it being the most expensive, so orders for OPEC fuel drop by 50% ( 20% is half of 40% ). Thus do the Saudis lose a pile of income.

However, despite all that, structural inflation is also at play. Thanks to the Obama stimulus package, tons of money have been injected into the economy. That money has to all go somewhere. For some time, it has been going into banks to keep them afloat, as their losses mount. However, lots of it got thrown into the economy as a whole, and that money is now starting to show up in bidding wars for resources, hence the increase in price of things that matter.

The Bureau remains unconvinced the bottom has been reached. The Bureau had been not buying precious metals on the opinion that they would go down even further, but the Bureau will now hedge bets and purchase some on this down cycle because inflation is a growing concern.

What is really going on

It is time for another missive in the massive canon of the Bureau.  You have been warned.

The United States has been waning as an influence for some time.  I submit as evidence the completely anecdotal fact that the most impressive piece of music I've heard in a very long time comes from Colombia, 'Tu No Eres Para Mi', by Fanny Lu, and the most impressive movie I've seen in a while is 'Chandni Chowk to China'.  To be perfectly fair and open, I grew up in India, and the experience was very nostalgic.

However, as always, your analysts continue to read between the lines (yes, there's more than one, and at least one other analyst has also seen 'Chandni Chowk to China').  Two things about that movie really grab the attention of the bureau.  First, the movie is produced by an American movie studio, Warner Brothers.  This fact is actually held as part of the reason the movie itself is considered a failure by those following Bollywood, that the Americans dumbed it down for international release, that Warner Brothers is having trouble making its own movies so is seeking to get a percentage of the foreign market but in the process is ruining the genre.

The bureau does not think so.  Warner Brothers, and Hollywood, in general, are really not in need of saving.  The American music industry is in trouble, a mess laregly of its own making, as its margins are too high to be sustainable in this day of easy copies, but the movie industry is still seen as providing a good value for the money, and is moving to make its margins far more palatable.

No, what is going on is that Warner Brothers is, indeed, trying to make Bollywood more mainstream.  What that means is that they  picked a snore of a movie specifically because it was a good vehicle to explore the market, as it would not cost a lot and it would produce guaranteed box office money.  This is just good business on the part of Warner Brothers.

However, the second, possibly more interesting thing shows up in that this movie is about interaction between India and China, where Indians are shown as 'cool, artistic and full of leadership' while China is shown as 'technically savvy'.  It's that last little bit that ought to scare Americans, because we made them that way.

Essentially, we have handed China the keys to the kingdom by teaching them how to make all our gizmos.  For the US market, they do not do the KIRF (Keeping It Real Fake) knockoffs, but for the rest of the world they do.  This means much of what we have them make for us, they knock off, reducing the cost of the unit and some of its western polish, and sell to the eastern rim.

The bureau is of the opinion that the end of the US hegemony will be a good thing for the world and may bring forth a new renaissance where the world politic and world culture is not dominated by the mass market western mold but rather is a bizarre bazaar model common to the east, a situation where ideas flourish largely unfettered by control.

In a situation like that, in the new global world that is emerging, your author can hear a song on the radio and locate the actual song within minutes, buying the song so that royalties get paid back to the original singer in Colombia (theoretically; we all know that most of the 'overhead' in the music industry is the RIAA and its ilk).  In an unfettered global economy, this sort of thing would be commonplace and such an artist could have the opportunity to become an international superstar.

For years the US market for culture has simply dwarfed all other markets simply because the US economy dwarfed all other economies.  As the US economy contracts and other economies grow into its place, this will be less so.  Hollywood still has a massive lead on most other centers of culture, and most of the money ends up in Hollywood somehow, but other centers are emerging, and, indeed, it is now possible to produce a movie completely without involving a studio, and distribute it online, as the wildly popular 'Dr. Evil' series has shown.

So, to wrap up, the US used to have all the money, no longer has it, and this is a good thing for the rest of the world.

What Money Really Is

Money is not, cannot be a separate entity.  Money has worth as a relationship to the things it can be exchanged for.  This is the monetary aspect of a money metal, and, indeed, the only aspect of fiat money.  This point is very important because the relationship between money and the things it can be exchanged for is very important.

There are a few pillars of economic analysis.  One is consumption.  Another is production.  Relating them is, of course, money.  Now, when consumption goes up and production remains the same, prices rise.  When production goes up and consumption remains the same, prices go down.  This is the price curve.

So, it is said that an economic stimulus package must simply spend to get people working and give them money to spend and thus stimulate the economy.  From a naive view, this works.  However, using the simple price model, we can show that it does not; it does, indeed, prolong a recession.

As these bulletins have repeatedly stated, production is the source of affluence.  Without production, we do not have things and cannot save for the future.  There is no wealth creation with no production, so no wealth to preserve.  That is the value of production.

Now, if a person is paid to do something nobody wants, production happens, but it is not consumed.  Thus, the worker fails to produce usable output.  This means that the worker is now merely a consumer, vying for the real production of the rest of the economy.

As said above, this causes an increase in consumption without a corresponding increase in production, which increases prices for everyone.  Since, as has been argued before, all activity is at the margin, increased prices tend to reduce spending, particularly if the workers feel their reserves are getting pinched.  So, a mere 5% increase in prices may eliminate an entire sector of the economy, such as expensive sit-down restaurants.

Now, all those people are unemployed and must be 'stimulated'.  Unfortunately, that is even more of the economy that is consuming but not producing.  This leads to higher prices all around, which leads to more economic malaise, which leads to more stimulus until the entire economy either hyperinflates or implodes.

Of course, many liberals will now argue that we can pay these people to do things some people want, but this raises the problem of artificially low pricing, which leads to overconsumption of a given item.  For instance, very few people would pay for the average output of the National Endowment for the Arts, yet here we are, with plenty dollars for that output.  Liberals make fairly stupid arguments that without arts we are nothing, yet, prior to the NEA, art flourished, indeed, the very arts they are endeavoring to save developed without any official government policy to support them.

However, consumption of these things clearly exceeds what consumption would be without the subsidy, which tends to require greater subsidy or rationing.  But, that is another argument.

Now, compare this with the proper way to end a recession by simply letting the system fail: house prices fall, reducing costs to the largest portion of the population.  Writeoffs, writedowns and chargeoffs reduce the payment load on these same people.  High unemployment leads to lower labor costs throughout the system.  Through the wonderful mechanism of deflation, prices fall in all sectors, as contributory factors of production drop in price.  This means everyone gets more free income, allowing them to spend into new sectors, such as sit-down restaurants, leading to greater employment.

So, lock the current system in and end up in misery for perhaps fifty years or take a year or two of sharp pain and then get back on track to greater growth.  It's our choice...

Outbreak of Sensibility

So, here I sit watching Kramer on The Daily Show with Jon Stewart.  Despite that I cannot politically agree with Kramer and that he is pretty late to the sudden discovery that the vast majority of our economy has been fraudulent for so long now,  I am impressed with him, as he has actually shown up on The Daily Show and taken his lumps.

I have been a fan of Jon Stewart for some time.  I watch the Colbert Report much more religiously, but The Daily Show sometimes has streaks of brilliance.  What amazes me is that this show digs for material to show people as the hypocrites they always are.  Were the world to care, this editor held opinions in the past that he would like forgotten, but well-meaning men change their minds when presented with  new truth.

So, here is Kramer taking a beating at the hands of Stewart, taking it like a man, offering as his mea culpa that he wishes to make it right within the bounds he is allowed to.  That his masters, CNBC, allowed him to show up on The Daily Show and take his lumps reflects well on CNBC.  In the past few months, I've seen quite a bit of actually truthful information leak out of CNBC, suggesting maybe someone is thinking again in network news.  It's almost the breath of fresh air Fox was before the Bush administration.

I do not understand why six different feeds haven't already picked up on this interview, as I think it is a stunning piece of work, nearly equal to Dr. Colbert's speech at the Whitehouse Correspondents' Dinner.  

One of the things that impresses me with these men is that they merely stand.  Occasionally Stewart will let his flaming liberal panties show, and Colbert plays at being a conservative, but in both cases they rarely let that stand in the way of poking fun at anyone who does something stupid in the news.  And, they constantly research, rather than merely reciting a canned news story, leading to even more hilarity.

This has been one of the things that bothers me about politicians, that of the complete lack of real access.  They are not allowed to face hard questions and are insulated from what people really feel.  I would dearly like for Obama to go on the Colbert Report or The Daily Show and explain why this stimulus package is going through despite that most of America hates the idea.

I will wander mildly off topic and mention that the President of Iran came to the United States in order to present his case to the American People.  To be sure, I remain utterly skeptic of any attempts to paint Iran as being actively hostile to American interests, let alone American people, and, indeed, reports on the ground seem to indicate that the United States and Iran have much in common and have the potential to join hands in a true, useful and effective 'war on terror'.  However, to end the digression, the President of the United States has never gone to Iran to talk to the people.

So, to wrench back on topic and tie in the above, we now here the Prime Minister of New Zealand quite sensibly pointing out that there is no way his country can effectively stop the global slide and doing so would needlessly place the country in debt, thus saddling future generations with the cost of fixing this problem.  Instead, he says he is going to focus on reduced taxes and infrastructure improvements in order to ready New Zealand for the recovery that is sure to come.  He is not talking about reducing taxes for the poorest in New Zealand, he is talking about compressing the tax structure, which means reducing all the brackets, but reducing the higher brackets more.

Of course, ask any Austrian or Anarcho-Capitalist what to do to get out of this mess, and they will all say what the Bureau has recommended over and over, which is to reduce taxes across the board, flatten the tax curve, eliminate capital gains (New Zealand essentially has no capital gains tax), spend money to improve infrastructure if you must spend money, and reduce needless regulation across the board.

So, the Bureau remains cautiously optimistic that what is happening is the people of this earth are beginning to lose patience with the fools who think they lead.  The one thing politicians must learn to fear again is the pitchforks.  The Bureau remains pretty certain that the attempted globalization will go forward, but, like all previous attempts to bring the whole world under one regulatory sphere, it will fail because nobody wants to pay for it.

This editor is also seriously considering starting the paperwork to move to New Zealand next week.  Such a decision is not taken lightly, but this country has not resembled the ideal that was laid down by the founding fathers in over a hundred years.  It is not the land of the free and clearly not the land of the brave.  It is a land where people talk about 'defending freedom' and 'invading Iraq' in the same sentence as if those two concepts were in any way related.

As time has progressed, the patriotic fervor that once burned in the breast has turned to cynical anger at the continued hijacking of the Republic by people who have power lust and liberal agendas.  Despite being an actual Democratic Socialist state, countries such as New Zealand and Switzerland more closely resemble the ideals that our great country was supposedly founded on, those ideas of personal dignity, financial freedom and the right to pursue happiness, long lost in this country.  After a while, one is tempted to simply reject the soul-sucking stupidity and find greener pastures.

And, once again, the Bureau's futurological model predicts brain drain in the United States.  It predicts a period of dominance in many technical sectors by the tiny country of New Zealand and predicts Zurich will be the major financial center once again, as New York and London collapse in ignominy.  Hopefully, any country that is the benefit of the leftover brains in the United States will not follow the same course that this country has, but all great countries must try their hand at empire, it seems, despite the likelihood of success being zero in the long term.

The Worm Turns

Great was Rome.  During her heyday, Rome controlled what was worth controlling of the world and then some.  Her armies marched unimpeded wherever they wanted, slashing and burning and enforcing the will of the emperor on everyone.  So great was Rome that it was felt by many that it could never fall, which, of course, is precisely when it started to fall.

Great was England.  During her heyday, there was not a part of the globe that a British ship or soldier did not have access to.  The sun continuously smiled on Her Majesty's subjects.  So great was England and so vast her power, that it was thought she could never fall.  Of course, she fell.

Great was the United States.  So great was Rome and so great was England, but they merely owned part of the globe.  The United States of America dominated every nook and cranny of the globe.  Her armies and her navies could strike anywhere in the world on literally a minute's notice.  No nation dared attack her and few dared defy her.  Yet she fell.

Here is the situation.  About, what, seven years back, debate was roaring about the Iraq war that was looming.  The analysts at the Bureau, not formally formed at that time, but still acquainted, felt that the Iraq war was going to be at best a misadventure and at worst a complete disaster.  The truth, as usual, ended up somewhere in between.  However, one thing the editor of this blog insisted upon time after time whilst debating the merits of the war online is the fact that a war inevitably drains resources at home.

When Rome was at her zenith, no nation or people dared mess with a legion because Rome retained sufficient resources to lay waste entire civilizations as necessary.  So great was the fear of Rome that her armies did not have to fight very much.  Only the barbarians lacked the fear.

When England was at her zenith, a single British man-of-war was enough to cause the 'natives' to get back in line.  On land, her armies had the reputation of never having broken and run in battle.  Nobody would tangle with the British because everyone was afraid of them.  Except the Germans, of course, related to the 'barbarians' that took down Rome.

These empires had periods of time early on where they were engaged in constant warfare, proving themselves to other nations.  The United States received its laurels in World Wars I and II.  We proved our mettle as a country and showed the Yankee ingenuity that is part of our particular charm.  We also showed we are not against charging into the thick of one of the most powerful defenses against a landing ever mounted.  Ever since that day, a country has to but think of Normandy to understand the risk of tangling with the US military.  Certainly, there is much to ponder in what happened at Hiroshima and Nagasaki, but, truly, the scary thing about the US army is the thought of thousands of men slogging ashore at Normandy beach, dying at an unbelievable rate, yet coming on to win the day.

So, all three empires, and, indeed, all empires that have ever existed have risen from the ashes of another, shown themselves to be in some way superior militarily and then collapsed.  It is the collapse that interests us now.

The feeling coming from south of the border (slang for Northern Mexico) is that they do not fear the United States, and, more specifically, Obama.  Texans, maybe, and Texans are fixin' to make a good show of it if they have to, as this war may be fought along the Texas and New Mexico borders.

These Mexicans are just like the Germans and Barbarians from the previous empires.  They are mere opportunists.  When this editor warned of losing the capacity to handle defense all those years ago, this editor had no way of knowing against what threat we would need those armed men.  However, one thing history has always shown us is that when, through hubris, a country weakens its defense, someone will take advantage of it.

So, here we are in Texas (the residence of most of the analysts of the Bureau), staring down gun and drug runners in Mexico, with the might of our state in Iraq and Afghanistan.  We will do it, because that is what a Texan does, and the Lone Star Republic will not fall.  Already her citizens are arming themselves and laying in supplies in preparation, because while the American Republic appears to have lost touch with reality, citizens of the Lone Star Republic have not and can see the very plain threat rising south of the Rio Grande.

However, how many men will we have to sacrifice to the altar of stupidity and pride?  How many women and children will be abducted for ransom, brutally treated and killed?  How many young people have to die as a result of taking low quality illicit drugs?

On the one hand, we don't have the military to police our border against an increasingly hostile and restless population.  On the other hand, that population is funded in a large part by our very own war on drugs.

So, the Bureau has been insisting for a long time now that the United States needs to do the following:

1) Bring all troops home from everywhere.

There is no favoritism this way.  The US has simply concluded it cannot afford to save the world any more.

2) Immediately end the war on drugs.

Prohibition has never been effective.  The amount of drugs coming into this country has not been meaningfully reduced.  Thousands of young people are needlessly incarcerated.  Many a third-world country is a wreck because of the drug lords they cannot rid themselves of.  Were drugs legal, industrial drug production would render those drug lords paupers in an afternoon and reduce crime worldwide, not to mention lower the cost of food as farmers switch back to regular crops.

3) Switch to a free money system but require hard money for government transactions.

This would protect capital and reduce the risk of constant, systemic failures such as fiat money has always provided.  Since the only people who seem to have any ability to predict what will happen are the hard money folks, maybe we ought to listen to them.  The fiat money leaders all profess to have been blindsided by this debacle despite that the hard money folks have been predicting it for nearly a hundred years, in precise detail.  In science, we consider the one who can predict what will happen to be the correct one.  Let's do that for governance as well.

4) Increase spending on the individual soldier but radically reduce the number of soldiers, thus making the American fighting man once again the best the world has to offer.

We need the best and the brightest in uniform, equipped with the best of whatever we can get and prepared to defend this nation, but not enough men to conduct significant foreign wars, to remove that temptation.  This is the military of a republic, composed mostly of citizen soldiers with a core of very competent, highly trained and well-equipped professional fighting men.  The authors of the US constitution knew that a standing army of any sort is an invitation to war, mostly by those who possess the army, so made it clear that no standing army was to be funded for more than two years.  This is one of the reasons we have been in a continuous state of emergency since Vietnam and, indeed, are still at war with North Korea.  Were we to quit at any point, we would have to disband our army within two years and then where would the world improvers be?

The result of these three things will eventually be smaller government, greater freedom, and a world that does not hate us nearly as much.  For, truly, they do not hate us because we have been rich or that we have freedom.  They have always hated us because we bother them.