Liberty Maven

Quote of the Day: “We have too many high sounding words, and too few actions that correspond with them.” — Abigail Adams (1744-1818) Source: letter to John Adams, 1774

Many states can’t pay their bills. Their unfunded obligations total trillions of dollars. Some of these states will want a bailout from Congress. Do you want to pay for this, or should the politicians and the unions who created these messes feel the pain instead of you?

I wrote Congress telling them to oppose any bailout of our corrupt and incompetent state governments.

I encourage you to do the same, using our “No Bailouts” campaign. The hardwired letter to Congress reads . . .

“No government money, whether borrowed or taxed, should ever be used to bail out private financial interests, or wasteful state governments.”

If you want to add to this letter you may borrow from or copy what I wrote . . . Read More »

by John Browne, Senior Market Strategist at Euro Pacific Capital

While the markets have known for almost three months that the 2010 election delivered the House of Representatives to the tea-infused Republican Party, I did expect a greater reaction on Wall Street to the formalities of the opening sessions of Congress yesterday.

If the Republicans make good on their campaign promises, we will see cuts in government spending and an end to fiscal stimulus. Given that short-term stock market performance is very much dependent on such government assistance, the current rally is hard to fathom. Meanwhile, gold and silver have experienced a counterintuitive correction (although to be honest, pundits are making much more of this 4% pullback than the size of the move merits). Could it be that the markets now believe that fiscal restraint in Washington is the best pathway to growth? Can a leopard really change his spots?

Not likely, I say. Rather, I believe that we are simply seeing some short-term momentum. Speculators tend to buy and sell on momentum, while investors tend to accumulate on dips and sell on fundamental changes.  Anyone with a pragmatic view of Washington must realize that real change is unlikely.

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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 United States Postal Service announced this week that all future first class postage stamps sold will be the so-called “forever stamps” that have no face value but are guaranteed to cover the cost of mailing a first class letter, regardless of how high that cost may rise in the future. Currently these stamps are sold for 44 cents, but will increase in price if and when the Post Office hikes rates.

Apart from sounding the death knell of the one cent stamp, the news is interesting on two fronts: it provides insight into remarkably irresponsible government accounting, and it provides investors with the most attractive Federally-guaranteed inflation protected asset available on the market today.

Over the past fifty years, the USPS has raised the rates on first class postage 20 times. During that time the stamp prices have gone up more than 1,100%. Given the increasing frequency of rate hikes (three in the last four years) the Post Office claims it made the move to forever stamps to save money on printing costs and to increase customer convenience. The public seems to appreciate the product and has snapped up a staggering 28 billion forever stamps since they became available in 2007.

But the real reason behind the permanent switch is that it allows the Post Office to hide its insolvency behind phony accounting numbers, setting itself up for a massive taxpayer financed bailout in the not too distant future.

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CSPAN’s show, Newsmakers, aired this weekend. Their guest was Congressman Ron Paul. Most of the questions revolved around economics and the Federal Reserve. It’s refreshing when Dr. Paul is given the proper amount of time to explain his positions without the interruptions that always occur on the mainstream media outlets.

You can watch the entire show here at CSPAN.org.

by Peter Schiff, president 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

There is an old adage on Wall Street: no one rings a bell to signal a market top or bottom. Yet, I have found that bells do ring; it’s just that few people know exactly what sound to listen for.

Perhaps the biggest and most liquid of all markets is for US government bonds. That market has been rallying for almost thirty years. The bull can be traced back to 1981, when Treasury bond yields peaked at about 15%. At that time, high inflation and a weakening dollar had justifiably squelched demand for Treasuries. Even the ultra-high interest rates were not enough to attract buyers.

But this was also when the proverbial bell was rung. Fed Chairman Paul Volcker had signaled, by jacking up interest rates so high, that he would stop at nothing to break the back of inflation. Volcker’s iron will, and Reagan’s unflinching support, restored demand for Treasuries for the next three decades.

We have arrived today at a similar inflection point. After falling steadily for 30 years, bond yields are now heading north with a full head of steam.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

Despite America’s economic problems, the US dollar has maintained its respected status the world over – and has even managed to maintain value in comparison to other currencies. It appears that the dollar will likely finish 2010 at the same levels that it started. Even today’s announcement of more tax cuts and stimulus, which will guarantee widening federal deficits for years to come, could not put a dent in the dollar. The dollar’s charmed life stands in strong contrast to the euro, which is currently suffering from its internal flaws and the Europeans’ unfortunate recognition of reality.

Given Washington’s monetary irresponsibility over the past decade and a half, many market observers have wondered if the euro could one day become the world’s top currency. In the early to mid-2000s, when the euro surged more than 60% against the dollar, this was in fact a popular view. But unlike all other currencies on the planet, the euro is not a sovereign currency managed by a single country. It is dependent on the collective political will of the leaders of the European Union (EU).

In the bust that followed the Greenspan/Bernanke dollar-based boom, the US economy started to deleverage significantly. Unwilling to accept the political cost of a possible failure of its banking system, the Federal Reserve decided to re-inflate out of deflation and devalue the US dollar. Meanwhile, the European Central Bank (ECB), heavily influenced by Germany, decided that deflation was necessary and inevitable. As painful as it was likely to prove, the Europeans had appeared until recently ready to face the music and delever their economies.

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by John Downs, Assistant Branch Manager of Euro Pacific Capital, Los Angeles

As a mortgage broker during the manic years of the housing boom, I witnessed reckless financial practices on a wide scale. As a result, I was not surprised by the “robo-signing” mess that now threatens the mortgage sector. Unfortunately, the scandal is only a small tip of the iceberg that threatens to take down the entire US banking system.

The “too big to fail” (TBTF) banks that acted as middle men in the mortgage machine knew that the mortgage-backed securities (MBS) they packaged and sold to investors didn’t meet the standards they claimed. In essence, MBS buyers were sold Ferraris but took delivery of PT Cruisers. Because of these material misrepresentations, TBTF banks could be forced to repurchase hundreds of billions of MBS that they sold to investors. Since they don’t have that kind of cash lying around, it’s likely they will turn to their federal benefactors for another bailout.

If the Treasury is solvent enough to offer such a bailout, there might never be a proper investigation of how the mortgage market blew up. As a former industry insider, I hope I can shed some light.

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Michael Pento, Senior Economist of Euro Pacific Capital

It seems the current Chairman of the Federal Reserve is of the belief that diluting the dollar is the cure for everything from a recession to male pattern baldness. And like other snake-oil salesmen before him, Mr. Bernanke is heavy on promises and light on results. Here are five prescriptions that money printing can’t fulfill:

1. Lower the corporate tax rate. The US corporate tax rate is the second highest in the developed world, after Japan. Lowering this tax would help American businesses compete with foreign corporations and unleash the entrepreneurial spirit of our workforce. In addition, lowering taxes on capital goods purchases and retained earnings would also encourage expansion projects, new hiring, and therefore general business development.
2. Reduce crippling regulations. There isn’t a much better example of the current environment of excessive red tape than the number of “Czars” running around the White House: 28, at last count. Ronald Reagan had just one. These sub-cabinet level offices simply advise the President on how to further fetter American businesses and launch umpteen “independent probes” every time an issue comes up. But even officials not given the Imperial Russian title are busy making life hell for small- and medium-sized businesses because there is too much power in Washington.  Read More »

by Peter Schiff, president 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

There has been so much discussion recently about “QE 2″ that you would think the entire financial sector were about to embark on a transatlantic cruise. Unfortunately, they, and we, are not so lucky. In the year 2010, “QE 2″ doesn’t refer to a sumptuous ocean liner, but a second, more extravagant round of “quantitative easing” – stimulus. In the past, this technique was simply called “printing money.” As if the nation has not already suffered enough from the first round, Captain Ben Bernanke and the Fed are determined to compound the damage by hitting us with another monetary juggernaut. Their stated goal is to boost the economy and create jobs. However, since economic growth cannot be achieved by printing money, their QE 2 will sink just as surely as the Titanic.

The intent of QE 2 is to lower interest rates to promote job growth and avoid the apparently growing threat of deflation. But the very idea that the economy is weak because interest rates are too high is laughable. Deflation is the market’s cure for the asset bubbles that have recently burst, so any attempt to avert it will only weaken the economy further.

In fact, one of the reasons the US economy is in such bad shape is that interest rates are already too low. Low rates have encouraged excess borrowing, by both individuals and governments, and discouraged saving, fueling new asset bubbles at the expense of legitimate investment. As a result, the dead weight of debt has simply overloaded our economy, and our creditors are getting nervous. What we need now is to make hard choices, not engage in more easing – to deleverage, not borrow more.

Worse still, by keeping rates too low, the Fed has enabled the US government to grow significantly larger than it otherwise could had its borrowing been restrained by higher rates. Absent these low rates, Washington likely wouldn’t have passed expensive new healthcare and financial regulation reforms; they would be too busy trying to keep the lights on in the Capitol.

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