Rome is burning while fiddlers are playing

Ludwig von Mises on Economic Growth, Denial, and Truth in Europe

By John Chapman

Recent data from Europe suggest the economy there is already in recession with, regrettably, the political class seemingly in denial over its potential severity.  Depending on the fate of bank recapitalizations there, a Eurozone recession may or may not pull the U.S. down with it in 2012, but it will bear close watch.  In any case, brief highlights of causes and consequences of this are discussed below, but we start our analysis of the present global economy by recalling the similar-seeming gloom and denial of the early 1970s here.

When the great Austrian economist Ludwig von Mises died in New York on October 10, 1973, he was a broken man.  Mises had devoted his life to the cause of unrestricted laissez faire — or as he called it, the unhampered market economy.  He understood better than any man who lived in the 20th century what redistributive interventionism would generate: for the individual, lower living standards that bred frustration and broken dreams. And, at a macro level, slower growth, a breakdown in social cooperation due to declining investment, and in the extreme, the unraveling of civilization itself are the inevitable results of socialist policies. 

As a captain in the field artillery of the Austro-Hungarian army in the Carpathian Mountains during World War I, he had witnessed the destruction of a century of peace and progress in Europe in a war that could only have happened in collectivist madness.  Then came the interwar disintegration in Germany.  Later, with the rise of Hitler, he felt compelled to leave Vienna for the relative safety of Geneva in 1934, and eventually hurried across France in a bus bound for Lisbon — his gateway to America — just ahead of advancing German armies in 1940, having left behind and lost everything.

For Mises the repeated denial of reality by the major powers both throughout World War I and then about Germany during the interwar period, were a depressing commentary on the inability of the political class to act in ways that benefited the populace.  But this was not to be the worst of it: following the post-war rise of collectivism, in 1971 he was horrified to see the final and total decoupling of the world’s currencies from gold, the first time in at least 2,700 years that the yellow metal was not money anywhere in the world. 

Mises knew — and predicted — that a regime of fiat currencies everywhere in the world would not end well.  He asserted at the time that this would lead to an era of unprecedented monetary instability, fiscal profligacy that guaranteed retrograde government policies, depressions, and inevitably, social conflict.  Without a sound monetary system to facilitate trade and harmonious cooperation between countries, peaceful and progressive economic order disintegrates.  And ultimately, Mises knew, this leads to the kind of catastrophe we lived through in 2008, and whose reverberations will now long be felt, even as we may yet live through it all again.

Mises’ heroic life and vision — and the depth of despair he felt at the end over the Orwellian denial all round him alongside retrograde policies — were recalled to us this week for two reasons: first, the fairly unprecedented intervention by the Federal Reserve and other central banks’ easing to support initiatives undertaken by the European Central Bank (ECB) to prop up asset values and maintain interbank credit flows in the Eurozone.

And secondly, the calendar has turned inside one month until the first votes are cast in the 2012 election for the U.S. Presidency.  This election, like those of 1896, 1932, and 1980 before it, is dominated by the lingering effects of a recessionary downturn borne of monetary instability.  And like those others, it is an inflection point that will either ratify existing policies put into place in the wake of the recession, or bring someone new in to change the direction of policy (as an aside, in all three of those prior inflection point elections, the candidate from the challenging party beat the incumbent or his party; in 1896 the Republican challenger McKinley defended the incumbent Democrat Cleveland’s monetary policy against radical change sought by William Jennings Bryan, but in 1932 and 1980 the White House switched party hands and policy regimes). 

The United States thus has two very different futures in store based on competing visions that will be discussed next year — one in which government-run health care and 25% federal spending-to-GDP levels are permanently cemented into America’s welfare state apparatus, or the other in which much policy in recent years is dismantled and the U.S. economy retreats back toward <20% spending-to-GDP.

Mises had long recognized the inescapability of such a clash to the death of the competing ideologies – between socialism and the market economy – that is now in store for us in 2012.  And as such, he would understand the primal importance of vigorous engagement with the other side in the months prior to the vote.  As he wrote in 1922,

Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping toward destruction. Therefore everyone, in his own interest, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interest of everyone hangs on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.

This sentiment resonates as one reviews the situation in the Eurozone this week in the run-up to the meeting that may yield greater fiscal coordination there in exchange for German acquiescence to a quasi-bailout of periphery debtors.  And indeed this is a great historical struggle, though too many on both sides of the Atlantic seem not to realize it.  The wrangling over first Belgian, then more acutely Greek, and now Italian, debt has consumed the better part of two years, with little resolution alongside growing investor risk and pervasive gloom about the Eurozone’s prospects.  And here in the United States, concerns about the Eurozone have taken on an outsized proportion, with wild stock market swings on every bought rumor and sold fact.  As gloomy as Mises was at his end, he nonetheless also never failed to think clearly.

And so the first thing to note is that indeed, Europe is likely headed into recession in 2012.  Data on Eurozone manufacturing out this week were stark in their universal trend in the last four months (>50 = expansion; <50 signals contraction):

These data are alarming for their trend uniformity; while the manufacturing sector is now down to roughly 20% of the total Eurozone economy, like everywhere else in the world, it correlates very closely with changes in GDP growth.  Capital goods equipment production is tailing off at an alarming 2% rate on a quarterly basis, partly due to rising rates in Europe, but mainly due to perceived drop in primary demand.  The Eurozone PMI Index was in fact down to a 28-month low, and there were job layoffs in every country except Austria and Germany. New orders have fallen for the fifth month in a row, and at the steepest rate in 30 months, due to both the lack of demand in Europe and for exports.

An empty chair resolves nothing

Britain opts for the empty chair

FT Editorial

For the past 30 years, going back well before the Maastricht treaty, successive British governments have sought to maintain influence in Brussels while steering clear of some of the European Union’s signature projects, notably the single currency.

The crisis in the eurozone has laid bare the contradictions in this policy. As the single currency’s woes have deepened, British ministers have found themselves pulled in two directions. Terrified by the consequences of the euro’s failure, they have urged fiscal union on the eurozone as a means of shoring up the currency. George Osborne, the chancellor of the exchequer, has even talked about the “remorseless logic” of tighter integration. But those same ministers have deprecated the idea that this would have consequences for Britain. The message has been: “do what you must but leave us out”.

Public disenchantment with the EU has spurred the British government to ratchet up its demands. Not only has opposition on the Tory benches hardened against any further transfer of powers, but calls have intensified to claw some back. In recent weeks, David Cameron has been egged on to demand a price – in repatriated powers – for nodding through any change in the EU treaties that a eurozone rescue might require.

Events at the European summit this week have spectacularly unseated Mr Cameron’s attempt to ride these two diverging horses. In pursuit of safeguards designed principally to protect the City of London, the prime minister has vetoed a treaty whose ostensible purpose is to secure a rescue of the eurozone. His determination not to see such a treaty enacted at the level of the 27 existing members has forced its authors – France and Germany – to pursue an inter-governmental agreement.

The consequences are still reverberating around Europe. It is too soon to know whether the breach is permanent. A purely inter-governmental arrangement could be legally tiresome for the eurozone, denying it access to EU institutions and forcing it to design a whole parallel structure for its deal. Conceivably, after a further round of horse-trading, a compromise might be reached.

But this cannot soften the impact of the British veto. Mr Cameron may describe himself as “relaxed” about a decision which allows him to sidestep a referendum he was desperate to avoid, and which would almost certainly have smashed his coalition government. But the price has been to ditch past UK policy, which stressed opposition to anything leading to the entrenchment of a “two-tier Europe”. That such a Europe now exists may be a logical conclusion, and one can argue that the prime minister had no choice but to accept such an outcome. But while Mr Cameron is enjoying his newfound bulldog role at Westminster, his stand in Europe makes for disastrous politics. No other member state has backed Britain. The impression is that Mr Cameron has hindered a euro rescue. While the Financial Times does not believe any price is worth paying to be in the room, Britain in this instance has wielded a veto and gained nothing in return.

The prime minister chose to take a stand on protecting the City. The government has long worried about the incoming tide of EU regulation, some of which could damage the financial services industry, a vital national interest. In a more integrated eurozone, the government fears there could be moves to tighten and centralise financial supervision in ways that harm the UK. It is not unreasonable for a British government to seek to nip such a risk in the bud.

However, forcing the eurozone to set up its own parallel union will not protect the City. The new club’s 17 members could still force through big changes to the single market if they acted as a bloc. While this may not be an immediate risk – they remain divided on many issues – things may change as they move closer and cut deals among themselves. France and Germany have already indicated a wish for the eurozone to encroach on areas hitherto reserved for all 27. These include labour market regulation and a common corporate tax base.

By precipitately wielding his veto, Mr Cameron may well have hastened the formation of such a bloc, to the detriment of British interests. Moreover, forcing the eurozone to pursue its own treaty has put his own goal of repatriating powers beyond reach.

Mr Cameron must now find a way to restore the UK’s influence over the single market. This will require resourcefulness and political courage. One thing is clear: an empty chair resolves nothing.

A vicious Spring

Libya betrayed

The Hindu Times Editorial

Libya's interim government, the National Transitional Council (NTC), is getting no international help over the enormous problems it faces. To start with, the NTC has failed to restrain the militias that hold several areas and have killed thousands of people in attacks on alleged or real former supporters of Muammar al-Qadhafi. Reliable Libyan observers have likened the arbitrary killings, arrests, and torture to the former regime's brutalities. There have also been racist lynchings of African migrant labourers mistaken for mercenaries. A recent United Nations report characterises the militias as a major challenge to the NTC; it points out that women whom they detain are at particular risk. The NTC also faces political problems with Libya's severely divided society; five Amazigh or Berber leaders boycotted the November 24 swearing-in of the cabinet, saying that their ethnic group had not got enough posts. Nato, which deployed U.N. Security Council Resolution 1973 ostensibly to protect civilians but in reality to cause violent regime change, is making no attempt to intervene. The U.N. mandate ended on October 27, and the Atlantic alliance has rejected Tripoli's request that it protect Libyan frontiers against possible re-entry by Qadhafi loyalists who fled the country as the regime disintegrated.

Furthermore, the U.N. states that both rebel and government forces committed atrocities during the uprising. Serious issues, however, have arisen over the trials of office-holders in the old regime, with some western officials calling for them to be tried in Libyan courts rather than the International Criminal Court (ICC). That would be consistent with the ICC's statute, but would also conceal key problems. First, Libya's judicial system is not currently fit for such trials. Secondly, ICC trials would enable defendants to reveal evidence of western collusion with the Qadhafi regime over many years. As it is, the British security service MI6 faces a possible criminal investigation following the discovery of documents in a Libyan government office that show U.K. cooperation with Mr. Qadhafi over the forced deportation of a Libyan dissident, Sami al-Saadi, and his family, from Hong Kong in 2004. The whole family was imprisoned; Mr. al-Saadi was held for six years, and tortured. During that period, British Prime Minister Tony Blair visited Tripoli and announced counter-terrorism cooperation, and the Shell company signed a £550-million deal with Libya. Interim Prime Minister Abdurrahim El Keib could well conclude that all Libyans have been betrayed by their so-called friends and helpers in Nato.

On doing the right thing

Great Britain Saves Itself by Rejecting the EU

The French and Germans may howl with outrage, but David Cameron did the right thing in pulling up the drawbridge to a continent on the verge of collapse, says Niall Ferguson.

by Niall Ferguson

To listen to some conservative commentary in London on Friday, you would think the British Prime Minister David Cameron just morphed into Winston Churchill, valiantly upholding England’s ancient liberties against German aggression. In fact, what happened in Europe this week was nothing so grandiose. 

David Cameron’s refusal to back a Franco-German plan to revise the European Union treaty was the culmination of a consistent Conservative policy, dating back to Margaret Thatcher and continued under John Major. That policy has been to resist any steps taken in the name of European integration that would in practice lead to Britain’s becoming a member of a federal Europe.

Cameron is not—despite the opprobrium that has been heaped on his head by everyone from the French President Nicolas Sarkozy to the shadow foreign secretary Douglas Alexander—a pathologically insular Little Englander. Like Margaret Thatcher, he believes in the single European market. Like John Major, he opposes British membership of the European monetary union. As over the Schengen Agreements on passport-free travel, as over the euro, Britain has once again reserved its right to retain sovereignty over key areas of policy.

Nor is this an exclusively Conservative policy tradition. Gordon Brown, too, resisted the siren calls of the Europhiles in his own party to take Britain into the EMU. I don’t think he did this out of high principle, mind you. I suspect it was partly to spite Tony Blair, partly to maximize the economic power he retained as chancellor of the Exchequer and partly to please his friends in the City, many of whom were rather put off of monetary union by the trauma of Britain’s brief membership of the Exchange Rate Mechanism. Nevertheless, Brown’s preservation of the pound was his single greatest achievement. Had he yielded, the British economy would now be suffering a far more agonizing economic contraction, because we would have lacked the monetary flexibility that was so successfully used by Sir Mervyn King to mitigate the impact of the 2008-9 financial crisis.

So it is not that British policy has dramatically changed. The real historical turn is the one now being taken by the 17 euro zone members and the six non-euro states that have chosen to follow them. For there should be no doubt in anyone’s mind that what they have just agreed to do is to create a federal fiscal union. Moreover, it is a fundamentally flawed one. The only surprising thing is that so few other non-euro countries—Sweden, maybe the Czechs and Hungarians—have joined Britain in expressing reservations. I quite see why countries with the euro are prepared to give up their fiscal independence to avert a currency collapse. But what on earth is in this for the others?

Nicolas Sarkozy, as usual, bad-mouthed the British prime minister in the hope of maximizing his own personal glory at the expense of la perfide Albion. “Very simply,” declared the French president, “in order to accept the reform of the treaty at 27, David Cameron asked for what we thought was unacceptable: a protocol to exonerate the U.K. from financial-services regulation. We could not accept this as at least part of the problems [Europe is facing] came from this sector.” This is claptrap of the lowest order.

To see why, you need to read the “international agreement” announced in the early hours of Friday. The stated aim of the agreement—which would have been the aim of EU treaty revision had Cameron rolled over—is to establish and enforce “a new fiscal compact and strengthened economic policy coordination” in the euro area. The phrase “fiscal stability union” is explicitly used. It is to be based on “common, ambitious rules” and “a new legal framework.”

How will this work? The answer is that there will be a “new fiscal rule”: “General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5 percent of nominal GDP.” This balanced budget rule is to be adopted in the national constitutions of euro zone members. But there will also be an “automatic correction mechanism,” enforceable by the core EU institutions—the commission, the council, and the court—if member states violate their own constitutions.

Moreover, the document states that there will henceforth be “a procedure … to ensure that all major economic policy reforms planned by euro area Member States will be discussed and coordinated at the level of the euro area” with regular euro zone summits to be held at least twice a year. The French and Germans leaders have made it clear that they envisage harmonizing labor law, taxation, and financial regulation on this basis.

This, in sum, is the founding charter of the United States of Europe. Notice two problems however. First, it is not clear how the European Commission, Council, and Court can act in this way, policing a 23-member fiscal union that is not covered by any treaty. Second, the balanced-budget rule is nuts. As it stands, it’s a recipe for excessive rigidity in fiscal policy—unless you think the rest of the Brussels Agreement implies a significant centralization of fiscal policy. Because you cannot have a balanced budget rule for member states if you don’t also have a federal government with flexible fiscal rules (as in the U.S.).

So where is the clause describing the new USE Treasury, with the right to issue bonds as well as to transfer resources from the more productive to the less productive member states? The answer is there isn’t one because the German voter refuses to countenance such a thing. That means one of two things. Either it’s going to be created by stealth—or this is a federal union that will be dead on arrival. I think it’s supposed to be the former, but I am not sure.

Remember, none of this would be happening if it wasn’t for a disastrous crisis of the Eurocrats’ own making. Twelve years ago, I was one of a small band of commentators who warned correctly that a monetary union without some fiscal component would fall apart after about 10 years. Four years ago, I was also one of a handful of people who pointed out that the German banks were in worse shape than the American banks and needed urgent attention. Europe’s leaders ignored these arguments. The result has been an entirely predictable combination of fiscal crisis and banking collapse.

There is now a depression on the other side of the English Channel, and it is the continent that is cutting itself off—from sane economic policies.

In the past few months, incompetent leadership has brought the euro-zone economy, and with it the world economy, to the edge of a precipice strongly reminiscent of 1931. Then, as now, it proved impossible to arrive at sane debt restructurings for overburdened sovereigns. Then, as now, bank failures threatened to bring about a complete economic collapse. Then, as now, an excessively rigid monetary system (then the gold standard, now the euro) served to worsen the situation.

For some time it has been quite obvious that the only way to save the monetary union is to avoid the mistakes of the 1930s. That means, first, massive quantitative easing (bond purchases) by the European Central Bank to bring down the interest rates (yields) currently being paid by the Mediterranean governments; second, restructuring to reduce the absolute debt burdens of these governments; third, the creation of a new fiscal mechanism that transfers resources on a regular basis from the core to the periphery; and finally the recapitalization of the ailing banks of the euro zone.

The problem is that the Brussels Agreement only does these things in the most half-hearted way. Aside from new borrowing, euro-area governments have to repay more than €1.1 trillion euros of long- and short-term debt in 2012, with about €519 billion of Italian, French, and German debt maturing in the first half alone. Meanwhile, the European banks need, we are now told, €115 billion of new capital—of which €13 billion is required by German banks.

Yet the European Financial Stability Fund has been capped at €500 billion, of which more than half has already been committed. The International Monetary Fund is to be given (by whom?) just €200 billion to recycle back (to whom?). And the ECB has committed itself to spend no more than €20 billion a week on bond purchases in the secondary market.

It is all, quite simply, too little. And the result is that the euro zone is about to repeat history. In the absence of sufficient resources for the new federal model, the new rules about budgets (and bank capital) are going to lead to pro-cyclical fiscal and monetary policies, deepening rather than alleviating the economic contraction we are witnessing.

“Eurozone Deal Leaves Britain Isolated” trumpets the Financial Times, for many years an ardent proponent of monetary union. But if David Cameron can succeed in isolating Britain from the disaster that is unfolding on the continent, he deserves only our praise. For once the old joke—“Fog in the Channel: Continent Cut Off”—seems applicable. There is now a Depression on the other side of the channel, and it is indeed the continent that is cutting itself off—from sane economic policies.

Last month I warned that the disintegration of the European Union was more likely than the death of the euro. You now see what I meant. The course on which the continent has now embarked means not just the creation of a federal Europe, but a chronically depressed federal Europe. The Eurocrats have exchanged a Stability and Growth Pact—which was honored only in the breach—for an Austerity and Contraction Pact they intend to stick to. The United Kingdom has no option but to dissociate itself from this collective suicide pact, even if it strongly increases the probability that we shall end up outside the EU altogether.

Many more brickbats will rain down on David Cameron in the days to come. But he has done the right thing. And he will swiftly be vindicated by events on the cut-off continent.

Good luck with that

Statist Delusions 

The bill for cradle-to-grave welfare has come due.

By Mark Steyn

The president of the United States came to Osawatomie, Kan., last week to deliver a speech of such fascinating awfulness archeologists of the future sifting through the rubble of our civilization will surely doubt whether it could really have been delivered by the chief executive of the global superpower in the year 2011.

“This isn’t about class warfare,” declared President Obama. Really? As his fellow Democrat Dale Bumpers testified at the Clinton impeachment trial, “When you hear somebody say, ‘This is not about sex,’ it’s about sex.” The president understands that “Wall Street,” “banks,” “fat cats,” etc. remain the most inviting target and he figures that he can ride the twin steeds of Resentment and Envy to reelection and four more years of even bigger Big Government. His opponents, he told us, “want to return to the same practices that got us into this mess . . . . And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules . . . . It doesn’t work. It has never worked.” He blamed our present fix on “this brand of ‘you’re on your own’ economics.”

This is a deliciously perverse analysis of the situation confronting America and a fin de civilisation West. In what area of life are Americans now “on their own”? By 2008, Fannie and Freddie had a piece of over half the mortgages in this country; the “subprime” mortgage was an invention of government. America’s collective trillion dollars of college debt has been ramped up by government distortion of the student-loan market. Likewise, health care, where Americans labor under the misapprehension that they have a “private” system rather than one whose inflationary pressures and byzantine bureaucracy are both driven largely by remorseless incremental government annexation. Americans are ever less “on their own” in housing, education, health, and most other areas of life — and the present moribund slough is the direct consequence.

It would be truer to say that the present situation reflects the total failure of “you’re not on your own” economics — the delusion of statists that government can insulate millions of people from the vicissitudes of life. Europeans have assured their citizens of cradle-to-grave welfare since the end of the Second World War. This may or may not be an admirable notion, but, both economically and demographically, the bill has come due. Greece is being bailed out by Germany in order to save the eurozone but to do so requires the help of the IMF, which is principally funded by the United States. The entire Western world resembles the English parlor game “Pass the Parcel,” in which a gift wrapped in multiple layers of gaudy paper is passed around until the music stops and a lucky child removes the final wrapping from the shrunken gift to discover his small gift. Except that, in this case, underneath all the bulky layers, there is no gift there: Broke nations are being bailed out by a broke transnational organization bankrolled by a broke superpower in order to save a broke currency. Good luck with that.

The political class looted the future to bribe the present, confident that tomorrow could be endlessly postponed. Hey, why not? “Tomorrow, and tomorrow, and tomorrow, creeps in this petty pace from day to day,” says Macbeth. “To borrow, and to borrow, and to borrow,” said the political class, like Macbeth with a heavy cold (to reprise a rare joke from Mrs. Thatcher). And they failed to anticipate that the petty pace would accelerate and overwhelm them. On Thursday, Jon Corzine, former United States senator, former governor of New Jersey, former Goldman Sachs golden boy, and the man who embodies the malign nexus between Big Government and a financial-services sector tap-dancing on derivatives of derivatives, came to Congress to try to explain how the now-bankrupt entity he ran, MF Global, had managed to misplace $1.2 billion. The man once tipped to be Obama’s Treasury secretary and whom Vice President Biden described as the fellow who’s always “the smartest guy in the room” explained his affairs thus: “I simply do not know where the money is.” Does that apply only to his private business or to his years in the Senate, too?

When Corzine took over the two-and-a-quarter-century-old firm, he moved it big-time into sovereign debt — because you can’t lose with sovereign debt, right? Because a nation, even one that is in any objective sense bankrupt as Mediterranean Europe basically is, is not bankrupt in the sense that a homeowner or small business is: Corzine figured, reasonably enough, that no matter the balance sheets of Portugal, Spain, Italy, and the rest, they’d somehow be propped up unto the end of time. As their credit ratings hit the express elevator to Sub-Basement Level Four, Corzine was taken down with them. The smart guy made a bet on government and lost. That’s where the rest of us are headed: The “you’re not on your own” societal model of Western Europe has run out of people to stick it to.

In Kansas, in his latest reincarnation, the president channeled Theodore Roosevelt in trust-busting mode. “He busted up monopolies,” cooed Obama approvingly, “forcing those companies to compete for consumers with better services and better prices.” But who wields monopoly power today? Washington dominates ever more areas of life, from government-backed mortgages to the government takeover of education loans to Obamacare’s governmentalization of one-sixth of the U.S. economy. In my most recent book, which makes an attractive and thoughtful Christmas gift for the apocalyptically minded loved one in your family, I quote an old joke about the British equivalent of the U.S. antitrust division: “Why is there only one Monopolies Commission?” This is a profound insight into the nature of statism: By definition, there can only be one government — which is why, when it’s “monopolizing,” it should do so only in very limited areas.

Yet, after hymning the virtues of “better services and better prices,” the president went on to issue the latest brain-dead call for increased “investment” in education. America “invests” more per student than any other nation except Switzerland, and it has nothing to show for it other than a vast swamp of mediocrity presided over by a hideous educrat monopoly. Might this fetid maw not benefit from exposure to “better services and better prices”? Perish the thought! Instead, Obama is demanding increased “investment” in “education” in order to “give people the chance to get new skills and training at community colleges so they can learn how to make wind turbines and semiconductors.”

I am not a trained economist, but it is not obvious to me that the United States of America is crying out for more wind turbines, and, if it is, I’m sure many of those colleges’ tenured Race and Social Justice Studies professors could be redeployed to serve as such. In Europe, the political class is beginning to understand that the social-democratic state created to guarantee permanent stability risks plunging the Continent into the worst instability since those happy-go-lucky days of the 1930s. By contrast, in Kansas, the president of the United States is still riding the tie-dyed wind turbine and promising to waft you to Oz. These are dangerous times — and, as many will discover, whatever assurances the statists give, in the end you’ll be on your own.

Monetary and social chaos accelerates globally

Liars Led By Junkies

By Tim Price

In my several decades as a financial and economics commentator – covering banking crises dating back to the early 1970s and the Latin American debt catastrophes of the early 1980s – I have never heard a sitting [Bank of England] governor talk in such apocalyptic terms about the parlous state of the global financial system.— Alex Brummer, The Daily Mail.

So what precisely did our inflation-fighter-in-chief actually say? Well, that euro zone instability had created

an exceptionally threatening environment

as falling government debt prices, softening confidence, and distressed asset sales threaten to

spiral

into a systemic financial crisis. Also, the UK financial system was encouraged to continue building up capital to bolster against an

extraordinarily serious

situation not of its own making and which it could not resolve. Also,

The crisis in the euro area is one of solvency not liquidity. And the interconnectedness of major banks means the banking systems and economies around the world are all affected. Only the governments directly involved can find a way out of this crisis.

And,

If debt is not to [continue] exploding to ever more unsustainable levels, transfers will be required together with the plan to restore the competitiveness within the euro area. There comes a point where the creditors need to realise that the scale of the debt owed to them is so large that they may have to be part of the solution.

Strong stuff from a fellow who looks like the hamster in “Danger Mouse”. It is all a waste of time, of course, more than a day late and more than a trillion short in whichever currency you care to proffer.

Perhaps things are not quite as bad as they seem. Last week in London we had the pleasure of hearing Gordon Corrigan speaking at Owen James’ always stimulating “Meeting of Minds” investment seminar. The intention of his speech was to put to rest a few myths about Britain”s role in the Great War. There was undeniable tragedy during those dreadful four years, but could there be a chance, asked the ex-Gurkha Major, that the Brits have tended to mythologise the whole World War One experience, magnify the national role, and accentuate the negative – a process that hardens with every passing year? 

The late Alan Clark once quoted a conversation between a German general and one of his men that has not just entered the national psyche but become firmly embedded there. These British fight like lions, observed the soldier. Yes they do, replied the general: lions led by donkeys. But apparently Alan Clark made it up. No such conversation ever took place.

And there are evidently plenty of other established “facts” about the Great War that turn out to be somewhat detached from the actualité:

The popular British view of the Great War is of a useless slaughter of hundreds of thousands of patriotic volunteers, flung against barbed wire and machine guns by stupid generals who never went anywhere near the front line. When these young men could do no more, they were hauled before kangaroo courts, given no opportunity to defend themselves, and then taken out and shot at dawn. The facts are that over 200 British generals were killed, wounded or captured in the war, and that of the five million men who passed through the British Army 2,300 were sentenced to death by military courts, of whom ninety per cent were pardoned.

The popular conception is that nearly every family in Britain had somebody killed in it. But according to the official census reports, there were approximately 9,800,000 households in Britain in 1914. The British lost 704,208 dead in the Great War. So statistically, only one family in 14 lost a member. Although there were undoubtedly certain parts of the country where fatalities were concentrated due to the way in which British infantry were recruited back then, there were large swathes of the country from where no one was killed. Corrigan has spoken of his own family, and his own black-clad Great Aunt, who never married – perhaps because all of her boyfriends and potential boyfriends met their end at the front? “Nonsense,” suggests an uncle – his Great Aunt never married because she was “simply too damned ugly”.

By Gordon Corrigan’s account, British soldiers actually spent more time playing football than facing the enemy. By regularly rotating the soldiery and never keeping men in maximum danger for more than relatively short periods of time, the British army was alone among the major forces on the Western Front in never suffering a collapse of morale leading to mutiny.  

One in 65 of the British population was killed in the war; for the French, the figure was one in 28. One in every 12 men mobilised in Britain was killed; for the French, one in six. For the Germans, one in 31 of the population was killed, one in every seven mobilised, as shown in the table below:

France, with a population six and a half million less than that of the UK, mobilised more men and suffered nearly twice as many deaths. Unlike in the UK, the demographic effect on France was enormous. 

The perception of soldiering in the Great War has the young patriot enlisting in 1914 to do his bit and then being shipped off to France.

Arriving at one of the Channel Ports he marches all the way up the front, singing “Tipperary” and smoking his pipe, forage cap on the back of his head. Reaching the firing line, he is put into a filthy hole in the ground and stays there until 1918. If he survives, he is fed a tasteless and meagre diet of bully beef and biscuits. Most days, if he is not being shelled or bombed, he goes “over the top” and attacks a German in a similar position a few yards away across no man’s land. He never sees a general and rarely changes his lice-infested clothes, while rats gnaw the dead bodies of his comrades.

Just on the topic of transportation, many soldiers were moved by train until a few miles from the front, and as the war went on, motor lorries and even London buses were used as troop carriers.  And as Corrigan has already pointed out, the rotation of troops alone ensured that conditions were altogether more bearable than the popular conception would have it. 

But back to the present. The war then may have been ultimately much less bleak for the British, for example, than the media and propaganda have portrayed. That does not mean that the peace now is any less bad for any of us than Mervyn King suggests. As investors we remain trapped in a surreal nightmare in which clueless politicians and desperate central bankers can see nothing other than money printing as a way out of the gloom. In the euro zone the problem is worse to the extent that the currency crisis is not merely severe but existential. Tragically, former voices of sanity such as The Telegraph’s Ambrose Evans-Pritchard seem to have now taken leave of their senses and joined with the inflationists, as this recent mad piece indicates.   

This crisis can be stopped very easily by monetary policy … to expand the quantity of money.

Oh, really?  I am indebted to Tony Deden for the following quotation, from Alasdair Macleod in excerpts from a speech given to the Committee for Monetary Research and Education, given in New York on 20 October 2011: 

I support sound money for two very good reasons. Firstly, it is a basic human right to choose to save, without our savings being debased by the tax of monetary inflation. Those who are worst affected by this inflation tax are not the rich, they benefit; but the poor and the barely well-off, which is why monetary inflation undermines society and why the right to sound money should be respected. If government gives itself a monopoly over money, it has a duty to protect the property rights vested in it.  

Secondly, it is a basic right for us to own our own money rather than have it owned by the banks. For them to take our money and expand credit on the back of it debases it. It is an abuse of an individual’s property rights and a banking licence is a government licence to do so. If anyone else was to do this, they would be guilty of fraud. Banks should be custodians of our money, and it should not appear in their balance sheets as their property.

Sound money guarantees a stable yet progressive economy where people are truly equal. It allows people to save properly for their retirement so that they will not become a burden on the state. It leads to democracy voting for small governments. It encourages peaceful trade and discourages war. It is the only path, after this mess, that leads us to long-lasting and peaceful prosperity. We really need everyone to understand this for the sake of our future.

Are you listening in the chancellories of Europe? Here in Britain we may not have had lions led by donkeys, but we now have liars throughout finance being led by junkies addicted to the printing of money. As democracies throughout the continent now topple to be replaced by technocrat stooges, and as the monetary and social chaos accelerates, we must hope that we at least manage to avoid the devastating political mistakes our forebears throughout Europe committed almost a century ago.

Quote of the Day

Talking about the Middle Class

"The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."

                                                        By Vladimir Ilyich Lenin

The Road to Serfdom

Government of The Elites, By The Elites and For The Elites

By Monty Pelerin

In the short span of a century and a half, the US went from a government famously described by Abraham Lincoln as "of the people, by the people, for the people" to one "of the Elites, by the Elites, for the Elites."

Albert J. Nock referenced Lincoln's phrase as "probably the most effective single stroke of propaganda ever made in behalf of republican State prestige." Perhaps, but when Lincoln said it our country had at least some resemblance to Lincoln's description.

This country, founded on personal liberty, freedom and limited government, has morphed into a massive Social Welfare State rivaling the paragons of Socialism in Europe.  The concept of government serving the people no longer applies. The people now serve their government and its cronies.

The Founding Fathers would not recognize what has transpired in this country. Their creation and ideals have been savagely distorted if not destroyed forever. In its place stands the detested evil that results from increasingly unbridled power. The image of Leviathan ruthlessly ruling over its citizens is faintly visible.  Each violation of The Constitution and The Rule of Law only strengthens the growing monster.

Two Views of Government

Two diametrically opposed views of government played a role in our metamorphosis:

• 1. Government as Passive, Unbiased Referee
• 2. Government as Active Player

Government as Passive, Unbiased Referee

The concept of government as an honest broker used to be acceptable to many (although probably not the Founding Fathers). Fifty or sixty years ago this view was reflected in statements like: "If you can't trust your government, who can you trust?" Today, few make such statements outside of comedy club routines.

Even the libertarian Milton Friedman believed, for a time, that government could be an unbiased referee. When asked late in life about his biggest mistake, he replied that some early policy recommendations he made were based on this erroneous assumption.

If government were honest and unbiased, it would be reasonable to grant it a larger role than if it were not.  However, even this unrealistic assumption cannot justify the excessive government of today.

Government as Active Player

Public Choice Theorists, like Nobel Laureate James Buchanan and Gordon Tullock, provided an alternative view of government that was consistent with that of the Founders. They saw government as just another institution in the sense that it is populated by self-interested individuals. As such, it would be an active player in the economy and society to the extent possible.

So long as these individuals could benefit from outcomes, government could not be an honest broker. In their view, those who "serve" are no different from the "greedy" businessman who politicians regularly condemn.

This view of human nature drove the Founders to develop The Constitution, The Bill of Rights and the separation of powers in an attempt to contain misbehavior by government. Public Choice theory is merely a  modern intellectual affirmation of what our educated Founders knew two and one-half centuries ago.

Government is necessarily run by self-interested individuals until we discover a way to breed and elect angels.  Friedrich Hayek, among others, argued that a biased process attracts and enables the "worst" to succeed in government. (See "The Road to Serfdom" for his reasoning).

Passive and unbiased government is not impossible, merely highly improbable. Noble phrases like "public service" are should be seen as modern day examples of what Nock saw as self-serving propaganda.

What Does This Mean?

Public Choice theorists deal with the difficulties of providing the proper incentives and disincentives to prevent self-interest from exploiting positions in government.  Charles R. Anderson recently used a taxonomy that is consistent with Public Choice and history. He described two orientation of government --  principled versus pragmatic. 

Mr. Anderson's description of the two follows:

1) A government which is highly limited by principle in power and scope to the purpose of protecting the equal, sovereign rights to the individual to life, liberty, property, the ownership of one's own mind and body, and the pursuit of personal happiness. This is the legitimate government envisioned by the Declaration of Independence and the Constitution.

2) A so-called pragmatic government not restricted by principle to a limited scope and with few powers which is inclined to bestow special privileges on special interests. Such a government may be a democracy, an oligarchy, a one-party state, or a dictatorship and it must of necessity trample the rights of the individual because our personal interests are too diverse for government to foster all of our interests. It must pick which interests it will favor and which it will suppress.  It violates the principle that government should do no harm.

Brave New Schools

'Gay' indoctrination in bull's-eye of new campaign

Voters could rescind demand to promote sexual alternatives to kids

By Bob Unruh

A California state law scheduled to be enacted Jan. 1 is in the bull's-eye of a new campaign that would rescind its most egregious effects.

SB48, approved by the California legislature in 2011 and signed into law by Democratic Gov. Jerry Brown, mandates that all children from kindergarten through 12th grade in all "instruction" be taught to admire "the role and contributions of lesbian, gay, bisexual and transgender Americans."

Critics have said children as young as 6 years old will be taught to admire homosexuality and same-sex "marriages" and to support the political activism of so-called "Lesbian, Gay, Bisexual, Transgender, Intersex and Questioning" (LGBTIQ) political groups.

And parents will neither be notified of the teaching requirements nor allowed to opt their children out of such indoctrination, they say.

This week, however, the Pacific Justice Institute announced a coalition is beginning work on a referendum that would allow voters to approve superseding regulations that focus on the historical significance of any group or person irrespective of gender orientation.

In an announcement at the Stop SB48 website, the group Capitol Resource Family Impact said the plan actually would do what Brown claimed when he signed the pro-"gay" bill: Affirm that "history must be honest."

"The bill he signed specifically required an incomplete and inaccurate presentation in all social science classes in our public schools," the campaign organizations said.

Jack Hibbs, one of the sponsors, insisted SB48 went too far.

"We all know that the issue of homosexuality is controversial. It is unacceptable to require that our schools shine a spotlight on this lifestyle on the one hand and then demand that history books and teachers censor shortcomings on the other," he said.

Kevin Snider of the Pacific Justice Institute said, "We drafted an initiative that responds to the perception that some want to ignore the contributions of certain individuals. This initiative prohibits history book exclusion of anybody based on their membership in a protected class. But it requires an accurate, historical portrayal of any individual."

Earlier, a related coalition tried to put SB48 to a vote of the people, but it fell short of the required number of signatures.

Karen England of Capitol Resource Family Impact said, "We feel very positive about our ability to gain the necessary signatures."

Snider told WND the plan would be to have new language supersede the legislature's strategy.

Previously, a campaign by SaveCalifornia.com warned parents of the dangers of SB48 and said the only real answer was for parents to remove their children from school.

"In the face of this clear and present danger, we have the only real solution. With a heart for God and families, we are urging parents to come to grips with reality, then rescue their children from immoral schools," the campaign said

Randy Thomasson, president of SaveCalifornia.com, which also operates the RescueYourChild.com website that provide specifics about the issue, has been expressing alarm over the waves of activism in California's schools regarding homosexuality and other alternative sexual lifestyles for more than a decade.

It was in 1999, he reports, that Gov. Gray Davis signed into law AB 537, which allowed teachers and students to use their school day to proclaim openly and display their homosexuality, bisexuality or transsexuality. Included in that expression of "rights" was the ability of cross-dressing teachers and school workers to access the restroom of their choice.

Thomasson pointed out that SB48 is just the latest California law "mandating the homosexual-bisexual-transsexual agenda – as well as heterosexual fornication – in every government school in California without exceptions, and without parental exemption."

The mandates have come even while "three out of four 4th graders in California government schools cannot read proficiently."

SB48 was pushed through the Democrat-controlled state legislature..

Previous moves were made through:

• SB 543, signed by Gov. Arnold Schwarzenegger in 2010, "allows school staff to remove children ages 12 and up from government schools and taken off-campus for counseling sessions, without parental permission or involvement. The purpose is to permit pro-homosexuality teachers and administrators to remove sexually confused children in 6th grade and up from campus and take them to pro-homosexuality counselors who will encourage them to embrace the homosexual lifestyle."
• ACR 82, approved by the California Legislature in 2010, "creates de facto 'morality-free zones' at participating schools (pre-kindergarten through public universities). Schools that become official 'Discrimination-Free Zones' will 'enact procedures' (including mandatory counseling) against students from pre-kindergarten on up who are accused of 'hate,' 'intolerance,' or  'discrimination'." What is the hate? Peacefully speaking or writing against the unnatural lifestyles choices of homosexuality and bisexuality.
• SB 572, signed by Schwarzenegger in 2009, establishes "Harvey Milk Day" in K-12 California public schools and community colleges. In classrooms, schools and school districts that participate, children will now be taught to admire the life and values of late homosexual activist and teen predator Harvey Milk of San Francisco the month of May.
• SB 777, signed by Schwarzenegger in 2007, prohibits all public school instruction and every school activity from "promoting a discriminatory bias" against (effectively requiring positive depictions of) transsexuality, bisexuality and homosexuality to schoolchildren as young as five years old. SB 777 means children will be taught their "gender" is a matter of choice.
• AB 394, signed by Schwarzenegger in 2007, effectively promotes transsexual, bisexual and homosexual indoctrination of students, parents and teachers via "anti-harassment" and "anti-discrimination" materials, to be publicized in classrooms and assemblies, posted on walls, incorporated into curricula on school websites, and distributed in handouts to take home.
• SB 71, signed by Gov. Gray Davis in 2003 and implemented in 2008 through the new "sexual health" standards approved by appointees of Schwarzenegger and State Superintendent of Public Instruction Jack O’Connell, teaches children as young as 5th grade that any consensual sexual behavior is "safe" as long as you "protect" yourself with a condom, and teaches children that homosexuality, bisexuality and transsexuality is "normal."
• AB 1785, signed by Davis in 2000, required the California State Board of Education to alter the state curriculum frameworks to include and require "human relations education" for children in K-12 public schools, with the aim of "fostering an appreciation of the diversity of California’s population and discouraging the development of discriminatory attitudes and practices," according to the state legislative counsel's digest.
• AB 537, signed by Davis in 1999, permits teachers and students to openly proclaim and display their homosexuality, bisexuality or transsexuality, even permitting cross-dressing teachers, school employees and student on campus, in classrooms, and in restrooms.

The SaveCalifornia campaign recommends homeschooling or private schools – preferably church schools. Does it cost?  Yes, but it says that with anything in life, there is a cost.

"There's a battle for your child, Whoever fights harder will win," Thomasson said.

SB48 takes the state even a step beyond its demand that students in public schools every year honor Harvey Milk, a homosexual activist and reported sexual predator, as well as an advocate for Jim Jones, leader of the massacred hundreds in Jonestown, Guyana.

In honoring Milk, schools are advocating for the acceptance of what Milk sought: the entire homosexual, bisexual and cross-dressing agenda; a refusal to acknowledge sexually transmitted diseases spread by the behavior; his behavior as "a sexual predator of teenage boys, most of them runaways with drug problems"; advocacy for multiple sexual relationships at one time; and "lying to get ahead"; according to SaveCalifornia.com, the leading statewide pro-family organization promoting moral virtues for the common good.

A 1982 biography of Milk tells of a 16-year-old named McKinley, who "was looking for some kind of father figure."

"At 33, Milk was launching a new life, though he could hardly have imagined the unlikely direction toward which his new lover would pull him," the book says.

It also states, "It would be to boyish-looking men in their late teens and early 20s that Milk would be attracted for the rest of his life."

The consequences of refusing to accept the state's beliefs about homosexuality can be devastating, SaveCalifornia documents.

Thomasson said in a report that he got an email from a parent whose daughter had objected to attending a "gay straight alliance rally to honor Harvey Milk at Moreno Valley High School."

Said the email, according to Thomasson, "You were right our daughter was told she had to attend a gay straight alliance rally to honor Harvey Milk. … She shared she was a christian with the teacher and only after she saw Lauren was clearly upset about going to this rally did she issue her a hall pass. She was persecuted by another student but made it out of the class. I picked up her and she was very upset. How many other Christians were forced to go to this rally?"

The account from 16-year-old Lauren provided more details, Thomasson reported.

"When she walked into her U.S. History class Monday, May 23, she saw the words 'Gay-Straight Alliance Assembly – Harvey Milk' on the blackboard. Her teacher, obviously a pro-homosexuality agenda sympathizer, told Lauren and every other student walking in to go to the assembly. Lauren protested, but the teacher didn't listen to her at first. Lauren again said she didn't want to go, and finally the teacher exempted her, but only her," he said.

"Lauren got out of that one, but her fellow students were corralled into the brainwashing assembly, like cattle going to slaughter, where the homosexual sponsor of the on-campus Gay-Straight Alliance told them how they must support the homosexual-bisexual-transsexual agenda of Harvey Milk. Later, a Muslim classmate told Lauren she wished she had refused to go to the assembly, too."

The report described how the teacher, several days earlier, had "played several minutes of the R-rated Milk film, which showed two homosexual men in bed together."

"Parents, realize there was NO advance parental notification of this happening or the opportunity to opt out your children. Even more, realize there was no parent permission sought, no opt-in form to sign. No, Harvey Milk sexual indoctrination, and other sexual indoctrination implemented, because of other perverse laws are being done behind parents' backs and despite parents' objections," Thomasson's report said.

WND previously reported what happened to one irate parent who found out about a public school's sexual indoctrination of his children and demanded changes – he spent the night in jail.

David Parker, who brought a case against Estabrook Elementary school in Lexington, Mass., several years ago, eventually ended up withdrawing his children from the school because of the harassment they endured in the dispute.

An appellate court said the indoctrination was appropriate because same-sex "marriages" are legal in Massachusetts following the work of former Gov. Mitt Romney and others, and the refusal of the U.S. Supreme Court to intervene.

That left the school district not only teaching behaviors the Parker family considered immoral but deliberately refusing to tell them when it would be taught, so they could keep their children home.

Parker noted the ruling says teachers "have a constitutional right to coercively indoctrinate little children [into whatever they choose to teach]."

A WND/Wenzel Strategies poll earlier this  year indicated an overwhelming majority of Americans believe elementary school is no place to promote the homosexual lifestyle. Even among liberals there is the strong belief that such lessons should be left outside the door of the classroom.

"Whether they object on moral grounds or simply out of concern that many U.S. schools are failing in their core missions of teaching basics doesn't really matter – the vast majority of American adults want this type of curriculum kept out of the classroom," Wenzel chief Fritz Wenzel said.

The scientific telephone survey was done April 19-21 with a margin of error of 3.23 percentage points. It found that 65 percent of all respondents objected to teaching elementary school children that homosexuality is a "normal alternative lifestyle."

The question was, "Do you believe elementary school children should be taught that homosexuality is a normal alternative lifestyle?"

Only 22 percent said yes, and 13 percent were unsure.