Liberty Maven

The government would love nothing more than for you to believe that they have all the answers. They want you to believe that through their laws you somehow magically become more free or more equal. This notion is a fallacy. Government by its very nature is force. Over time many people have attempted to seek methods to minimize government’s force over our lives, but as time moves forwards more and more laws are created limiting our options.

One of the key ingredients in attaining some semblance of freedom is to become financially independent. A new book, “5 Steps To Freedom“, by Jeff Nabers and Phoebe Chongchua supplies us with some extremely effective tools to escape financial slavery. Take elements of Tom Wood’s “Meltdown“, Ron Paul’s “Manifesto“, and Peter Schiff’s “Crash Proof” all rolled into one and you come very close to describing “5 Steps To Freedom”.

The five high level steps are:

1. Measure
2. Move
3. Maintain
4. Multiply
5. Mention

The first portion of the book is an education on topics such as:

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by John Browne – Senior Market Strategist, Euro Pacific Capital

In recent weeks, the financial world has been dazzled by strikingly high earnings reported by our leading investment banks… or at least what we used to call investment banks. The numbers are reminiscent of another era – the one that came to a crashing end last September. Today’s euphoria was keyed to the record $3.44 billion 2nd quarter profit announced by that branch office of the Treasury Department also known as Goldman Sachs. Wells Fargo, JP Morgan Chase, and State Street also chipped in with strong numbers.

The seeming health of these institutions, which are often referred to as the “backbone” of the U.S. economy, is currently being cited as strong proof that economic recovery is at hand. This conclusion is based on selective memory and dubious logic.

The more immediate question hinges on whether this rise in bank and corporate earnings can be sustained in the face of increased commercial real estate mortgage defaults, rising unemployment, and increased savings? Would it then be likely that the broad stock market can continue to rally while the financial sector sputters? If not, a serious correction in U.S. equity prices is a foregone conclusion.

In the early years of this century, major money-center banks and shadow banks incurred irrational risks and paid themselves unimaginably large bonuses. They were termed “gambling casinos” and deservedly drew fire when their bets went south. But instead of forcing these irresponsible firms to pay for their bad behavior, the federal government forced the general public to rescue them.

The Treasury and Fed instituted four key measures intended to boost the banks’ earnings, which in turn, would boost their share prices, improve their capital ratios and force their share prices upward.

First, Congress was pressured into giving instant approval to the $750,000,000,000 Troubled Asset Relief Program (TARP). This massive sum of public money was designed to buy toxic assets from the banks. However, the government soon realized that buying some toxic assets would create a real price and thereby threaten the inflated value of other toxic assets held by financial institutions worldwide. The initial TARP plan was dropped in favor of injecting billions of dollars into certain banks, leaving the toxic assets on their books. Meanwhile, the true values of these toxic assets were officially camouflaged by the initiation of “exceptional” accounting changes.

The injection of free TARP funds enabled the recipient banks to enter a charred landscape that was, nevertheless, bristling with easy profits. For example, $10 billion of TARP funds enabled Goldman Sachs to make leveraged trades during the bear market rally of the last four months. Though this is the same activity that caused its downfall, Goldman now assumes a government guarantee on its risk-taking. With no limits on their appetite for risk, record profits are theirs for the taking.

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By John Browne – Senior Market Strategist, Euro Pacific Capital

As 2009 moves past its midpoint, many market participants are briskly trying to forget the carnage of 2008 and the first quarter of 2009. But, before we get lost in the euphoria of the 36% Dow rally in the Spring/Summer of this year, a little hindsight is in order. In March, the Dow had plunged to 6,547, or some 53 percent down from its nominal 14,164 high in 2007. Despite the recent gains, we are still nearly 40% below the 2007 peak. This is a brutal truth that everyone seems to be ignoring.

Last week, Merrill Lynch, that storehouse of economic sagacity, announced that the recession was over. Even the bearish NYU economist Nouriel Roubini was reported as saying “the worst is behind us.” However, wishing earnestly for something does not make it so.

Admittedly, the financial meltdown that threatened in late 2008 appears to have been contained. In addition, the Fed’s actions in the credit markets have held interest rates down and turned the yield curve positive. The credit markets also have started to ease. In addition, the federal government’s injection of trillions of dollars into the economy has “boosted confidence” for those too short-sighted to know the consequences. This welcome news has provided impetus to equities.

In combination with reassuring remarks by senior administration officials and retail investors’ wish not to be left behind, money has started to move back into American equities. The resultant rally in stocks seems to have validated the preceding optimism.

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By John Browne, Senior Market Strategist, Euro Pacific Capital

In economics, as in many other “soft sciences,” facts are often overshadowed by theories. The dominant economic theory currently in vogue is that the massive government stimuli orchestrated by the Bush and Obama administrations would produce an economic recovery by the end of this year.

Thus, it is no surprise that media cheerleaders have seized on the recent steep, but thinly traded, rally to find the facts that appear to fit the theory. From where do these talking heads draw this conclusion?

In recent months, we have allowed for the probability that a bear market rally, driven by seemingly low price-earnings multiples, would take hold for the first half of 2009. Months ago, I had stated that the rally would reasonably last into the summer and that the Dow could reach 10,000 before the next major downturn begins.

In the depths of the stock market crash of 2008/9, buying opportunities certainly arose. By March 2009, stock markets appeared to have been oversold. Certainly price-earnings multiples on many stocks had been compressed to generational lows. Ignoring the fact that these low multiples were underpinned by pre-recession earnings data, investors declared a bottom.

However, as is the tendency with sudden declines, bargain hunters entered the market too aggressively. On relatively thin trading levels, this led to a steep rise in stock prices which, in turn, drew in investors who feared being left behind. A steep bear market rally was in place. This mirrored the pattern of the Great Depression, when the initial crash was followed by a 68 percent rally in 1930. But after that rally had fizzled, stocks then declined by an astounding 86 percent over the two subsequent years.

While we urged caution in this rally by highlighting, among other indicators, a 38 percent decline in corporate earnings, speculative traders made enormous profits as stock markets rose by over 40 percent. But as dismal economic statistics continue to rain on everyone’s parade, the cheers are beginning to subside. Last week, the unemployment figures were released and the Dow slid by some 223 points.

Now, even speculative traders are preparing for a drop. The new-found concern is due to three basic indicators:

First, the U.S. dollar, linchpin of all American (and most global) transactions, is appearing increasingly weak. 10-year Treasury yields, as low as 2.1 percent post-crash, and continuing to stay below 4 percent, indicate a persistent bubble in “safe” U.S. bonds and cash.      Read More »

President Obama stood before a captive audience at Georgetown University earlier this week and delivered yet another dishonest and misleading speech on the cause of our economic downturn.

He makes a feeble attempt at blaming all our ills on “predatory” lenders and “greedy” people at the GSEs Fannie/Freddie as well as AIG and others. He makes no mention of the actions taken that set the stage for conditions that make such things possible: government intervention. No mention of who caused the bubbles: government.  And of course, like any good puppet, he follows the script nicely by making sure there’s no mention of the Federal Reserve, the main culprit in all this mess.

See additional commentary on this topic by Sheldon Richman at The Future of Freedom Foundation.

Here is the full text of Obama’s prepared speech, if you would like to dissect it further:

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After completing Trace Mayer’s excellent ebook, “The Great Credit Contraction“, I stopped reading and said aloud, “Wow”. I started reading it with the intention of reading a few pages. Much to the detriment of sleep I ended up reading half the book in the first sitting.

The dollar truly is an illusion and gold is real money. Mayer’s book hammers this home in a profound way. One of the great things about the book is that it covers the fundamentals and history of money as we know it. If you ever wondered how the idea of fractional reserve banking came about then you should read this book. If you want an answer to the question, “What is money?”, then this book is for you.

Mayer utilizes several quotes from economists past and present to reinforce his points. He invokes the likes of Ron Paul, Lew Rockwell, Ludwig Von Mises, Alan Greenspan, and many others.

“The Great Credit Contraction” is a quick, educational, and enjoyable read and I highly recommend it.

Judge Napolitano’s liberty-full Freedom Watch show tomorrow will have the following guests and topics, as reported at FreedomWatchOnFox.com:

2:00-2:10 Glenn Beck and Shepard Smith start the show.

2:10 – 2:30 Peter Schiff (in studio) with Lew Rockwell (phone) including a special 10 minute segment from Schiff entitled “Protecting Your Assets, what you need to know about your money and investments.”

2:30 – 3:00 Ron Paul (from DC), Peter Schiff, and David Boaz (live from CATO)

Possibly other last minute guests as well.

The topics for the week will be: U.S. power to seize firms, possible 15 year depression, discussion of Austrian School of Economics, preview of Campaign for Liberty, St. Louis conference and much, much more.

The debauchery on Capitol Hill continues unabated, with an amazing ninety-three new bills introduced yesterday in Congress, many of which attempt to do the same thing.  How many of these bills do you think are Constitutional?  (Answer: very few).  Here are some of the worst:

• HR1652 – To require institutions receiving certain assistance from the Troubled Asset Relief Program or the Federal Reserve to have employee bonus payment plans approved in advance of the payments being made.  [Each member of Congress must operate in a bubble, and/or they're all hoping for the "credit" if their bill is passed.  This is at least the fifth bill on this subject in the past three days!]
• HR1656 – To require TARP payments to be conditioned on the top 10 highest wage earners at a company having repaid any bonuses received during the previous 5 fiscal years.  [Six!  Ok, let's review.  We have HR1542 by Rep. Carolyn Maloney [D-NY], HR1572 by Rep. Michael Thompson [D-CA],  HR1582 by Rep. Steven LaTourette [R-OH], HR1603 by Rep. Charles Wilson [D-OH], HR1652 by Rep. Christopher Murphy [D-CT], and now this one from Rep. Dana Rohrabacher [R-CA].  Are these people working in a vacuum?  Could the process be any more inefficient?]
• HR1650 – To enhance the oversight authority of the Comptroller General of the United States with respect to expenditures under the Troubled Asset Relief Program.  [Yet another TARP regulation bill.  The full text of the bill is not currently available, so I couldn't tell if it specifically mentions employee bonuses so I could add it to the list above.  Why don't these people just come out and admit that this TARP garbage is immoral an unconstitutional in the first place?]
• S-651 – A bill to amend the Internal Revenue Code of 1986 to impose an excise tax on excessive bonuses paid by, and received from, companies receiving Federal emergency economic assistance, to limit the amount of nonqualified deferred compensation that employees of such companies may defer from taxation, and for other purposes.  [Number 7, by Sen. Max Baucus [D-MT]…]
• HR1649 – To authorize the Secretary of Education to make grants to reduce the size of core curriculum classes in public elementary and secondary schools, and for other purposes.
• HR1645 (also S-638) – To provide grants to promote financial and economic literacy.  [While I think it's critical that people become more financially and economically literate, government should certainly not be the teacher, or else we'll end up with more Keynesian nitwits that have destroyed our economy to date.  Rather, people can take Chris Martenson's Crash Course for free, and read books like Hazlitt's Economics in One Lesson and Tom Woods' Meltdown.]
• HR1643 (also S-648) – To amend title XVIII of the Social Security Act to establish a prospective payment system instead of the reasonable cost-based reimbursement method for Medicare-covered services provided by Federally qualified health centers and to expand the scope of such covered services to account for expansions in the scope of services provided by Federally qualified health centers since the inclusion of such services for coverage under the Medicare Program.
• HR1642 – To provide loans and grants for fire sprinkler retrofitting in nursing facilities.
• HR1641 – To amend the National Trails System Act to provide for a study of the Cascadia Marine Trail.
• HR1640 – To amend the Truth in Lending Act to protect consumers from usury, and for other purposes.  [Caveat emptor.  The process of buying a home would be much quicker and hassle-free if not for the myriad of regulations and bureaucratic red-tape imposed by the federal, state, and local governments.]

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Your Senators and Representatives have continued to be busy little bees, always grinding the sausage.  Forty-four new bills introduced yesterday:

• HR230 – Recognizing the historical significance of the Mexican holiday of Cinco de Mayo.  [You've got to be kidding me.  If this weren't displayed on official government sites, I would swear this was a joke.]
• HR1388 – Generations Invigorating Volunteerism and Education Act: To reauthorize and reform the national service laws.
• HR1415 – To provide for a demonstration project regarding Medicaid reimbursements for stabilization of emergency medical conditions by non-publicly owned or operated institutions for mental diseases.
• HR1413 – To amend the Internal Revenue Code of 1986 to allow certain public employees a deduction for distributions from governmental plans for health and long-term care insurance, and for other purposes.
• HR1412 – To increase public confidence in the justice system and address any unwarranted racial and ethnic disparities in the criminal process.  [Looking at the full text of this bill, it's clear that the authors have the idea that justice is being served out "unfairly" with respect to race and ethnicity, and are under the mistaken impression that "unconscious bias" can be legislated away.]

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