Doug Casey and Tom Woods on government

Video link from Lewrockwell.com

Here’s an excerpt from The Law, by Frederic Bastiat, a French classical liberal (today we would say libertarian) economist:

A Fatal Tendency of Mankind

Self-preservation and self-development are common aspirations among all people. And if everyone enjoyed the unrestricted use of his faculties and the free disposition of the fruits of his labor, social progress would be ceaseless, uninterrupted, and unfailing.

But there is also another tendency that is common among people. When they can, they wish to live and prosper at the expense of others. This is no rash accusation. Nor does it come from a gloomy and uncharitable spirit. The annals of history bear witness to the truth of it: the incessant wars, mass migrations, religious persecutions, universal slavery, dishonesty in commerce, and monopolies. This fatal desire has its origin in the very nature of man — in that primitive, universal, and insuppressible instinct that impels him to satisfy his desires with the least possible pain.

Will the commercial paper facility work? Just google “pushing on a string.”

You can’t (shouldn’t) fight gravity.

The damage to the economy was done in the boom. The bust is simply the market’s way of taking account of what was wasted. This process cannot be stopped, but it can be twisted from something healthy into something perverse, and Bernanke and Paulson are wringing the guts out of what is left of the US economy. What is even more perverse is that everyone except the Austrian School, who saw this coming (Rogers, Prechter, Mish, Schiff, Tice, Faber, Grant, Bonner, and Ron Paul, take a bow), keep crying out “More! Harder!”

Nobody who is worthy of debt wants a loan in this environment. Where can you invest the money to generate a positive return? The commercial paper market will continue to shrink as corporations scale down with layoffs and asset sales. The Fed can’t print up a renewed appetite for debt and risk.

“To believe, to obey, to combat”

So how will we eventually reflate? Government will spend the money into circulation, not lend it, as it takes over enormous sections of the economy, more on the scale of Mussolini’s programs than FDR’s. What little wealth and savings are left will be taxed and inflated away to support the Great Common Effort, until the Effort and War have hollowed out the nation unto utter collapse.

Poor America. It is clamoring for change, and as Mencken put it: “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”

Want to fight the bailout? Check in with Mish.

Not all libertarians are as cynical* as I am. Like giving money to Ron Paul’s campaign (which I did, because it was always about the message, not winning), fighting the bailout may be futile in the end, but at least you can look back and say that you made the effort.

Mish is on top of a massive campaign to do the right thing, with resources and guidance for contacting congresscritters, many of whom are reporting that this is the biggest public response that they have ever seen. If you are of a mind to make some noise, head over there.

Mish has drawn up an open letter to Congress with suggestions for removing some of the road blocks that government has placed in way of the market, which would allow our financial system to right itself with no handouts. Passing such a bill would be the most sensible thing Congress has ever done.

Also consider pointing your Congressional ‘representatives’ to Fund manager John Hussman’s plan, which involves more government involvement (so it stands a better chance with Congress than Mish’s, since it gives them something to do, not undo), but is far more sensible than the Paulson plan.

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*My own belief is that educating yourself and others about fractional reserve banking and other scams, while protecting your own assets or even making money on the short side, is good for everyone. It leaves more capital in sane hands and preserves knowledge that can be redeployed at home or elsewhere, whether in the coming years or many decades from now. That’s not cynicism, but realistic hope. Civilization will flourish again, sometime, somewhere, hopefully on earth, hopefully among humans, and hopefully in my lifetime.

Jim Rogers: the future of the US involves exchange controls and politicians with Swiss accounts

Take a minute to chew on this interview of Jim Rogers by Keith Fitz-Gerald at Seeking Alpha:

(Rogers) “If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the [Dubai firm] buy the ports, et cetera.

But I’m really talking about full-fledged, all-out exchange controls. That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.

Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That’s a collapse. That was also a bottom.

These are not predictions for the U.S., but I’m just saying that things have to usually get pretty, pretty, pretty, pretty bad.

It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation.  And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.

[Q]: Treason? Wow, I didn’t know that.

Rogers: Yes…an act of treason. It used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies.  Anything. You could even use other people’s currencies.

Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ’39 they had full-exchange controls...”

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[Q]: Is there a specific signal that this is “over?”

Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts. Linked inside bank accounts. When that happens, we’ll know we’re getting close because they’ll do it even after it’s illegal – after America’s put in the exchange controls.

[Q]: They’ll move their own money.

Rogers: Yeah, because you look at people like the Israelis and the Argentinians and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.

[Q]: We saw that in South Africa and other countries, for example, as people tried to get their money out.

Rogers: Everybody figures it out, eventually, including the politicians. They say: “You know, others can’t do this, but it’s alright for us.” Those days will come. I guess when all the congressmen have foreign bank accounts, we’ll be at the bottom.

But we’ve got a long way to go, yet.

In respect to the future of the US and what to do about it in your personal life, Rogers and I are on the exact same page. I once had the chance to ask him if he thought we could go through a phase of deflation along the way, and he said no, that Bernanke would buy stocks, bonds or real estate and do whatever it took to avoid deflation, and of course end up destroying the currency.

Gold washout to continue: weak hands forced to sell

The gold price dropped the most in 25 years last week, 8.4%, and remains down about 21% from the all-time high of $1,033 in March. Investors’ surveys showed bullishness on the metal in the high ninety percent range in March, with a bounce back to near 90% during the second peak of $989 in June. Simply put, almost everyone thought gold would go higher. The commentaries on Kitco.com hummed with the surety that gold would soon retake its 1980 inflation-adjusted high of $2500 as the dollar slid to Peso-like status.

The atmosphere was cult-like, and a bit intoxicating for libertarian-minded gold bugs (are there any other kind? ok, anarchy-minded), yours truly included. We are all waiting for the return of non-liability, non-printable, non-degradable, timeless money, for if civilization marches on (some would say, for civilization to march on), gold and silver should at some point reassume their rightful places in society. They just do the job so much better than all the kinds of paper, shells, clay tablets, fiddle sticks and digits that have been tried over the years. The great hope is that specie is taken up spontaneously when the world’s corrupt (is there any other kind) governments implode from the debt that their fiat money has enabled.

Well, I would say that that possibility grows stronger with each misstep by our bankers-in-chief, but it is by no means a sure thing in the near future, more like a long-shot, since the anti-gold and pro-central banking propaganda runs deep after a century of indoctrination and dumbing down of the populace. Our governments have become masterful manipulators, and crisis-management is their specialty (if you think Katrina was a failure, you must not have gotten any of that $80 billion), so don’t count on 1776 all over again. More like 2001 in Argentina: meet the new boss, same as the old boss.

But yes, while governments get viscous in a crisis (and be sure, retaining control over the nation’s money is top priority, justifying all kinds of emergency measures), they do get weaker internationally, and the financial system is international. I do expect to see greater use of digital gold banks among the world’s citizens who are free to use them, and the precious metals may see a resurgence in hand-to-hand use in markets where governments turn a blind eye, such as the bazaars of Asia.

I have believed since first waking up to gold that we would see a 1:1 Dow:Gold ratio again, but when the breakaway run to $1000 started in 2007, I became convinced that deflation would snuff it out and I bought long-dated puts to hedge my holdings. Deflation is now destroying wealth at a blistering pace, and gold is being wrested from weaker hands, such as people who need cash more than their old bracelets, or momentum-chasing hedge funds facing margin calls and withdrawals.

We are just now entering the strongest phase of the credit crunch, when bank failures will be a near-daily occurrence and the equity markets will be knocked back to 2002 or 2003 levels in short order. Job losses are mounting, and consumers are getting very tight, bringing bankruptcies to all kinds of bubble-era self-indulgence industries: home furnishings, electronics, coffee shops, restaurants, organic foods, big autos, toys with small engines, pleasure travel, clothing and accessories.

As of last week, almost every major asset class had tipped its hand, and all will lose to the house: cash and treasury paper. Real estate went first, then commercial paper, then stocks, then municipal bonds, and this summer energy and all of the metals turned. All I am waiting for is a washout in corporate bonds, but they can’t be far behind.

How low could gold go? A 50% retracement of the run from $253 in 1999 to $1033 would be $643. I give it better than even odds that we go a bit lower than that. But keep in mind that I think stocks will fall 80% from their highs and real estate 60%. Commodities are much more volitile, so a 40% fall in this context could still be considered a bull market setback (the same goes for oil). I’ll certainly be buying if it happens, and I won’t ever give up hope of being able to pay for groceries with silver pocket change or a home with an electronic gold transfer.