Liberty Maven

by Peter Schiff, CEO of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 6pm – 8pm Eastern time every weeknight, and streaming at www.schiffradio.com

The global economy has become so unbalanced that even government ministers who would normally have trouble explaining supply or demand clearly recognize that something has to give. To a very large extent the distortions are caused by China’s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China’s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing.

Twenty years ago, China’s leaders decided to ditch the disaster of economic communism in favor of privatized, export-focused, industry. The plan largely worked. Over that time, China has arguably moved more people out of poverty in the shortest amount of time in the history of the planet. But somewhere along the way, China’s leaders became addicted to a game plan that outlived its usefulness.

In order to maintain the peg, China must continually buy dollars on the open market. But the weaker the dollar gets, the more dollars China must buy. And with the U.S. Federal Reserve pulling out all the stops to create inflation and push down the dollar, Beijing’s task becomes nearly impossible. Last week, it was announced that China’s foreign exchange reserves, the amount of foreign currency held at its central bank (mostly in U.S. dollars), increased by a record $199 billion in 4th quarter 2010, to reach $2.85 trillion. These reserves currently account for a staggering 49% of China’s annual GDP (if the same proportional amount were held by the U.S., our measly $46 billion in reserves would have to increase 163 times to $7.5 trillion).

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Throughout the course of modern history, the cyclical nature of government has always been to expand itself, corrupt itself, and to subsequently be replaced by a new regime or government which makes the same predictable mistakes as the last. Corruption and immorality, while rampant in government today, are hardly new: the Emperor Nero of Rome and Cleopatra of Egypt were noted for assassinations of family members, for instance.

However, it is generally thought by most in society that corruption need not be a direct function of power, but rather an unfortunate coincidence of these systems of power over a period of time. As part of his best-selling Road to Serfdom (which has gained renewed interest in light of its recent feature on television pundit Glenn Beck’s show), Nobel Prize winner F.A. Hayek sought to discredit this notion of coincidence in a chapter he entitled “Why the Worst Get on Top.” In his own words, Hayek initiates the discussion in this way:

“It is the belief that the most repellant features of the totalitarian regimes are due to the historical accident that they were established by groups of blackguards and thugs … Why should it not be possible that the same sort of system, if it be necessary to achieve important ends, be run by decent people for the good of the community as a whole? … [Yet] There are strong reasons for believing that what to us appear the worst features of the existing totalitarian systems are not accidental by-products but phenomena which totalitarianism is certain sooner or later to produce.”

Those “strong reasons” were the substance of a chapter whose message can give pause to even the most well-intentioned of progressives in today’s political climate: perhaps the expansion and concentration of power attracts those who would plunder the population and take advantage of the weak in society, rather than those who would use such power for any perceived benefit. Specifically, Hayek noted three crucial points that lead socialist regimes into the hands of ruthless totalitarian dictators as a predictable consequence.

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by John Browne, Senior Market Strategist, Euro Pacific Capital

Over two thousand years ago, China began to build its Great Wall in order to keep nomadic tribes and marauding armies from crossing its borders. In the last few decades, China has built another protective barrier, a ‘Great Firewall,’ to keep socially disruptive web content from reaching its citizens. American companies have long acquiesced to this censorship charade in order to have access to China’s booming online market. Last week, Google changed its mind, shutting down its regulated site on the mainland and redirecting people to its uncensored Hong Kong portal. This laudable act of defiance indicates that China’s bustling marketplace is straining its authoritarian political regime. We expect the latter to yield.

With a population of over 1.3 billion,[i] GDP growth of some 8.9% in 2009,[ii] and some $2.4 trillion in official reserves,[iii] China already is a major global force to be reckoned with. Having recently surpassed Japan as the world’s second largest economy and Germany as the world’s largest exporter, China is fast approaching superpower status.

by John Browne – Senior Market Strategist, Euro Pacific Capital

President Obama’s State of the Union message only serves to reinforce my forecast that investors will continue to find better returns in markets outside America and in currencies other than the U.S. dollar. Indeed, the reward gap may well increase.

Nothing in the President’s speech indicated willingness to do the hard work of cutting spending. Rather, he reiterated his commitment to a costly new healthcare entitlement and more spending on make-work programs. Only days later, his budget acknowledged that, even before factoring in the cost of his proposals, the federal government is unlikely to be in surplus for the foreseeable future. In response, Moody’s has issued a warning that the United States’ triple-A credit rating is not unassailable. In short, the trend set some ten years ago will continue.

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Each of Walter E. Williams’ weekly syndicated columns are fantastic, but the most recent one (entitled Lying Propaganda) is particularly worth your time.  He refers to Michael Moore’s upcoming movie (“Capitalism: A Love Story”) and decides it’s a good idea to put out a bit of “defensive mental preparation“, as it puts it, in order nip in the bud the simple lie that we have a system of [pure] capitalism in this country and that such a system is the source of the world’s troubles.

There has never been a pure free market capitalistic system just as there has never been a pure communist or socialist system, where there is government ownership of the means of production and each individual has equal access to society’s resources. However, we can rank economies as to whether they are closer to capitalism or closer to communism or socialism. If one ranked countries according to whether they were closer to the capitalistic end of the spectrum or the socialistic or communistic end, then ranked countries according to per capita GDP and finally rank countries according to Freedom House’s “Map of Freedom in the World,” he would find a pattern that is by no means a coincidence. The people in those countries closer to the capitalist end of the economic spectrum have far greater income and enjoy greater human rights protections than those toward the socialist and communist end.

According to the London Telegraph article, Moore’s film features priests who say capitalism is anti-Christian by failing to protect the poor. This is pure nonsense and revealed as such by asking, “If you’re an unborn spirit, condemned by God to a life of poverty but allowed to choose the country in which to be poor, would you choose a country near the communist end of the economic spectrum or the capitalist end?” If you chose the United States, you’d find that according to the government surveys, the typical “poor” American has cable or satellite TV, two color TVs, and a DVD player or VCR. He has air conditioning, a car, a microwave, a refrigerator, a stove, and a clothes washer and dryer, and whether he has health insurance or not, he is able to obtain medical care when needed. Try to find that in Cuba, Russia, China or North Korea. If we buy into the nonsense of Moore’s priests, the world’s poor people are incredibly stupid. Whether fleeing legally or illegally, their destination country is likely to be closer to capitalism than their departure country.

Go read the whole article here.

Author’s Note: Hello all.  The editors of Liberty Maven have graciously agreed to include me as a contributor to this fine site.  As they are always on the ball with breaking news, it may be a challenge to keep up with valuable content.  So, for my first post, I’d like to start with a rhetorical, philosophical open letter that I wrote directed at all those who think that more government regulation will solve all of our nation’s ills.  I hope you enjoy it!

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I’ve gotten some feedback on the subject of deregulation, and the effect of greed.  Many are quick to demonize it, but I think we all need to slow down and take a look at what greed really is, before we admonish the “greedy”.

Interestingly, greed, is one of the 7 deadly sins, so we should strive to not be greedy, right?  Well, greed is defined in several different ways, but the most unbiased true definition (not relating to material wealth – I’ll explain why this is important in a moment) of greed is: An eager desire or longing; greediness; as, a greed of gain.  Is this not merely an extension of self interest?  What is self interest?  Self interest is defined as personal interest or advantage.  Everyone acts in ways of self interest, some more than others.  The reason is because life is a competition, like it or not.  You cannot beat the self interest out of anyone, and that is the paradoxical nature of self interest, i.e., greed.  To clarify my point, allow me to give several examples.

1. Early in life, we play games.  The object of a game is to win.  The desire to win is an act of self interest.  Yes it is fun to play, but winning and losing is part of the game, and the desire to win is part of human nature.  If the true object of the game is only to have fun, why do we keep score?  Why do we play at all?  Can we not find more fun and productive things to do if the object is “fun”?

2. When we go to school, we get graded on our performance.  We strive to get good grades based on our performance, and to gauge how we are faring against our peers.  Some learn faster, or in different ways, than others.  It is in our self interest to get the best grades possible, so that we not only know we are learning, but to ensure that our future will be bright, by being accepted into higher educational facilities which boast better educational practices than others.

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A new article by Liberty Hero Thomas DiLorenzo over at LRC entitled “Tales From an Academic Looney Bin” discusses the frightening reality that so-called ‘Cultural Marxists’ have infiltrated and taken over many higher-learning institutions. We’ve heard this type of thing for years, and DiLorenzo’s examples at Baltimore’s Loyola College are no exception.

…[Cultural Marxists] took over and began acting, well, like lunatics. I learned from the local media that the former academic vice president had rejected an applicant for a top job because the applicant “wasn’t black enough.” The job was academic vice president for diversity and the interviewee was an African-American man with very impressive credentials. According to news reports, this man was told that he was well qualified, but that the College preferred an African-American with somewhat darker skin.

So here was a man who had probably been discriminated against in employment during his lifetime who had reached the peak of his professional career, and was interviewing for what was probably his dream job. And he is told he wasn’t getting the job, once again, because of his skin color. And you probably thought “lunatic” was too strong a word.

This is a very entertaining article. Highly recommended.  Read it here.

It cannot be argued that the United States of America, once a free nation, is now clearly moving toward socialism.  Today’s article from the Ludwig von Mises Institute points out that we’re headed toward the same fate suffered by the Soviet Union: total economic collapse.

The recent financial crisis has renewed interest in old issues. The Bush administration has announced plans to buy $85 billion in preferred stock in what are (for the time being) private financial institutions, like Bank of America, J.P. Morgan, Wells Fargo, and Morgan Stanley. The total commitment by the Treasury is set at $250 billion. While this move by the Treasury Department into the financial industry is unique in American history, it has precedents elsewhere, and has been debated many times.

Karl Marx proposed “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.” Years later, so-called “market socialists” like Oscar Lange, Abba Lerner, and H.D. Dickinson proposed state control over credit and financial capital. While these market socialists accepted trade and the use of money with consumer goods, markets for capital goods would be simulated and markets for financial capital would be wholly replaced by central planning. Capital investment would therefore be determined by state officials, rather than by competition for funds in financial markets. Lange was particularly clear about how the state would determine the overall rate and pattern of capital investment. State officials would set the overall rate of capital accumulation, instead of interest rates. State officials would also determine the pattern of investment, instead of profit-seeking capitalists and entrepreneurs.

Finish reading the article here…

During his own campaign for President, Ron Paul said several times “when you subsidize something, you get more of it”. This is true even for the recent penchant for our federal government to bail out failing financial institutions. The entire U.S. financial system is based on debt. No matter how much the feds choose to remove from our pockets there will never be enough to change the inevitable. Our elected officials are acting as bad parents spoiling the misbehaving children of the financial markets.

The feds are sending all the wrong signals. Is there any reason not to max out every one of my credit cards and purchase as much gold as I can? If the government is getting in the business of forgiving debts then why not include everyone? Oh wait, that’s right, the government is only interested in bailing out those institutions that deserve to fail. A typical family of four with a bit of debt and an upside down mortgaged house is not worthy, at least not directly.

The truth is no institution, no family, and no individual should be worthy of a government bailout. The redistribution of wealth is not supposed to be in the fabric of America. It is getting to the point that one wonders if the next President will be sworn in on the Communist Manifesto rather than the Bible.

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“Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.”

“…this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.”

“The 1st BCT’s soldiers also will learn how to use ‘the first ever nonlethal package that the Army has fielded,’ 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.”

So, then, what is an unruly crowd?  Is it anything at all akin to the peaceful, park-loving protesters and bystanders who were spontaneously surrounded by SWAT Police in full riot gear and arrested on Labor Day in St. Paul, Minnesota?

Folks, this concerns me.  In fact, quite frankly, this makes me want to go run and find a cave.

Let’s look at the big picture:

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