America declared war on two losers

Why did the most powerful military nation on Earth freak out over a 19-year-old idiot in a backward baseball cap? 

by Sean Collins 

Soon after the bombs exploded at the Boston Marathon, pundits on the left and right started speculating about the culprits. Both projected their prejudices and fantasies, in the hope that the identity of the attacker would in itself discredit their political opponents. As it happens, both got it wrong.

Liberals were hoping the bombers would turn out to be right-wing, Tea Party-loving nutcases. Dina Temple-Raston of National Public Radio ventured: ‘April is a big month for anti-government, and right-wing, individuals. There’s the Columbine anniversary. There’s Hitler’s birthday. There’s the Oklahoma City bombing. There’s the assault on the Branch Davidian compound in Waco.’ David Sirota in Salon blurted out: ‘Let’s hope the Boston Marathon bomber is a white American.’ Sirota turned out to be correct – the bombers were white (Caucasians, literally) and Americans (one a naturalised citizen, the other a long-time resident) – but clearly not in the way he and other liberals had hoped for.

Conservatives had also leapt to a conclusion – that the perpetrators were Islamic terrorists. The day after the bombs went off, the Wall Street Journal referenced the botched car-bombing attempt by Faisal Shahzad in New York’s Times Square in 2010, and warned: ‘The Boston bombing is above all a reminder of the continuing need for heightened defences against terror threats. As the years since 9/11 without a successful homeland attack increased, the temptation was to forget how vulnerable the US is, and to conclude that the worst is over.’ Did conservatives guess correctly? Well, many thought so when it was revealed that the bombers, the Tsarnaev brothers, were Muslims, but two brothers with a family background in Chechnya certainly wasn’t expected or predicted in advance.

Emboldened by discovering the bombers’ ties with Islam, conservatives have been the most vocal in the aftermath of last Friday’s manhunt, eagerly slotting the bombers into an old motif: the global war against Islamist terrorism. Michael Mukasey, former attorney general under George W Bush, announced: ‘Make no mistake, it was jihad.’ Republican congressmen Peter King and Lindsey Graham rushed to claim that the Tsarnaevs are ‘enemy combatants’ (who can be denied legal rights), rather than common criminals.

But the evidence that the Tsarnaevs are soldiers in a war is lacking, to put it mildly. They are Muslims, their family is ethnically Chechnyan, and they watched and posted a few jihadist videos. The older one, Tamerlan, spent six months overseas in 2012, and was considered suspicious by Russian intelligence and America’s FBI. That’s about it. No evidence of being part of a coordinated effort, nor of having membership in a group like al-Qaeda. It seems pretty clear that the Tsarnaevs were the ones who were responsible for setting the bombs off, and represent no one but themselves.

Slap the label ‘global terrorism’ on a violent act, and all sorts of fearful images and associations are generated, but the reality of the Tsarnaevs was much more mundane. How can anyone take the two brothers as serious ‘combatants’? Their bomb was crude (gunpowder and metal parts in a pressure cooker), the target site was ‘soft’ and not terribly spectacular in symbolic value, and the number killed by the bombs (three), while deeply tragic, was not exceptional when comparedwith death rates in American cities like Chicago, which averaged about three homicides every two days last year.

The brothers’ amateurism was revealed during the events of Thursday evening, when they bragged to the owner of the car they hijacked: ‘Did you hear about the Boston explosion? I did that.’ They then stole $45 from the driver and, failing to get cash out of his ATM (and getting caught on the bank camera in the process), robbed a small convenience store. Then, following a shootout with police, one brother drove over the other’s body as he escaped. Not exactly the most organised or well-funded of global conspiracies.

A city shut down, liberty surrendered

‘A bomb can’t beat us’ rings hollow

by Wendy Kaminer 

Some of the stories we tell about ourselves in the aftermath of terror such as the Boston bombings are true. Many people react reflexively with bravery and compassion, rushing towards an attack to aid its victims. Many open their homes to strangers.

Some of the stories we tell are naive: ‘This is a progressive town, the People’s Republic’, a teacher at the Cambridge, Massachusetts high school attended by the Tsarnaev brothers remarked. ‘How could this be in our midst?’ he wondered, as if progressivism were a cure for all evil. DzhokhorTsarnaev was ‘not an outcast; he was not bullied’, the Cambridge school superintendent stressed, as if bullying were the cause of all evil.

Some of the stories we tell are bravado. When people praise Boston’s proverbial toughness, I shrug. Boston is home to over 600,000 individuals; some are resilient and others are not. Bravado has its virtues though, in times of grief and terror. It’s self-medicating. Maybe acting tough can help you feel tough. Maybe you can approximate the person you wish yourself to be.

But not all our bravado is helpful or harmless. Some of the stories we tell about the nation are delusions that cloak weaknesses and wrongs, which fester unacknowledged. Red Sox player David Ortiz brags that ‘nobody is going to dictate our freedom’, and I assume he hasn’t heard of the Patriot Act or wholesale warrantless wiretapping, much less the Cyber Intelligence Sharing and Protection Act. Crime novelist Dennis Lehane can be excused for declaring that ‘they messed with the wrong city’, but don’t take seriously his confidence that not much will change. ‘Trust me’, he adds implausibly, ‘we won’t be giving up any civil liberties to keep ourselves safe because of this’.

Of course we will. We’ve been surrendering liberty in the hope of keeping ourselves safe for the past decade. The marathon bombings will hasten our surrender of freedom to the watchful eye of law enforcement. The Boston Globe is already clamouring for additional surveillance cameras, which are sure to be installed to the applause of many Bostonians. You can rationalise increased surveillance as a necessary or reasonable intrusion on liberty, but you can’t deny its intrusiveness, or inevitable abuses.

You shouldn’t deny the fear that drives the diminution of freedom. You’ll only end up looking foolish. ‘A bomb can’t beat us’, President Obama assured Bostonians three days after the attack. ‘We don’t hunker down… we don’t cower in fear.’ Yes we do. Less than 24 hours after Obama left town, hundreds of thousands of us were ‘sheltering in place’.

Think Again: Austerity

The big spenders are wrong: Maintaining sustainable budgets is essential to economic growth

BY ANDERS ASLUND

In the current global financial crisis, austerity has become a term of abuse -- one that connotes unnecessary pain and suffering on the part of already-hurting citizens. But that couldn't be further from the truth. What austerity actually means is "measures to reduce a budget deficit" or responsible fiscal policy. And that's hardly the only misconception that has clouded our economic thinking of late.

Although you'd never know it, the so-called global financial crisis is really a public debt crisis -- and the countries that have reigned in their spending are now growing briskly while the profligate founder. Here are five other myths about austerity that have muddied the waters.

1. "Growth Requires Fiscal Stimulus."

Wrong. In fact, the opposite is true. Sustainable long-term economic growth requires sound public finances as well as capital, labor, human capital, technology, and strong institutions. British economist John Maynard Keynes, the original proponent of stimulus spending, argued in The General Theory of Employment, Interest and Money that classical economic theory is "applicable to a special case only" and "that the duty of ordering the current volume of investment cannot safely be left in private hands." But stagflation in the 1970s taught us that the relevance of Keynesianism was limited to brief periods of recession. Even Keynes envisaged that budgets should be balanced over the course of the business cycle.

For a fiscal stimulus to be permissible there must be what economists call "fiscal space" for it. In other words, the public debt accrued through stimulus spending must be sustainable. The trouble is, fiscal space is difficult to establish, and it's typically much smaller than we think. During a severe financial crisis, moreover, public debt usually doubles, meaning that there is virtually no fiscal maneuverability. By the end of 2011, for example, eurozone public debt averaged fully 98 percent of GDP, and by the end of 2012, the six biggest Western economies had the following debt-to-GDP ratios: 83 percent in Germany, 89 percent in Britain, 90 percent in France, 107 percent in the United States, 126 percent in Italy, and 237 percent in Japan. None of these countries has any fiscal space.

We may be witnessing an African economic miracle

By almost every measure and in most countries, life is getting better in Africa

By dan o’ brien

This week the Government and an organisation run by former president Mary Robinson hosted a conference in Dublin on some of the problems and challenges in the developing world. Quite rightly, the event focused on what has yet to be done. But in so doing it may have downplayed progress.

There has been a sustained surge in economic growth across Africa. There is a strong link between economic and political progress, and the two tend to be mutually reinforcing. For decades, bad economics and bad politics fed off each other in Africa. The continent appeared to be trapped in a vicious circle of decline. Now it looks to be in the early stages of a virtuous cycle as the institutional, political and security underpinnings of economic growth strengthen.

A foundation stone for the African renaissance has been greater security in a region that has been plagued by violence since wars of independence began in the middle of the last century.

Now the continent is becoming less bloody. In the 1990s, there were 328,000 fatalities in conflict in sub-Saharan Africa, according to the Conflict Data Program at Sweden’s Uppsala University. In the 2000s, fatalities were down by between a half and two-thirds.

The Beginning of the End for Hezbollah

The camel passes, but the desert remains

By Michael J. Totten

The Middle East taught me pessimism. Much of the region goes in circles instead of progressing, and I’ve seen one country after another circle the drain.

Optimism is very American. It’s not exclusively American, and of course we have our own setbacks and failures, but things have generally trended toward the better in American life since the nation was founded.

The Middle East, though, teaches another way of looking at history’s trajectory. My own naïve optimism was dashed on the rocks in Lebanon and Iraq and hasn’t recovered. I never even bothered with optimism in Egypt. There’s nothing there to be optimistic about.

And I rarely meet anybody who actually lives over there who isn’t a pessimist. Expecting the best while everyone around you is expecting the worst is a difficult thing to pull off. It probably isn’t advisable even to try.

But I’m finding a bit of homegrown optimism in some quarters of Lebanon now, despite the fact that the economy is on its back and the Syrian war threatens to blow the country to pieces again, and I’d be remiss if I didn’t report it. The place has a serious case of the jitters and everyone knows this summer will be the third bad one in a row, but the medium and long term might be a little bit better, at least for some.

Danes Rethink a Welfare State Ample to a Fault

‘Why work?’

Robert Nielsen, 45, said proudly last year that he had basically been on welfare since 2001

By SUZANNE DALEY

It began as a stunt intended to prove that hardship and poverty still existed in this small, wealthy country, but it backfired badly. Visit a single mother of two on welfare, a liberal member of Parliament goaded a skeptical political opponent, see for yourself how hard it is

It turned out, however, that life on welfare was not so hard. The 36-year-old single mother, given the pseudonym “Carina” in the news media, had more money to spend than many of the country’s full-time workers. All told, she was getting about $2,700 a month, and she had been on welfare since she was 16.

In past years, Danes might have shrugged off the case, finding Carina more pitiable than anything else. But even before her story was in the headlines 16 months ago, they were deeply engaged in a debate about whether their beloved welfare state, perhaps Europe’s most generous, had become too rich, undermining the country’s work ethic. Carina helped tip the scales.

With little fuss or political protest — or notice abroad —Denmark has been at work overhauling entitlements, trying to prod Danes into working more or longer or both. While much of southern Europe has been racked by strikes and protests as its creditors force austerity measures, Denmark still has a coveted AAA bond rating.

But Denmark’s long-term outlook is troubling. The population is aging, and in many regions of the country people without jobs now outnumber those with them.

Some of that is a result of a depressed economy. But many experts say a more basic problem is the proportion of Danes who are not participating in the work force at all — be they dawdling university students, young pensioners or welfare recipients like Carina who lean on hefty government support.

The old guard is back in charge

The Eternal Comedy of Italian politics

The Economist

WHAT we are witnessing in Italy is remarkable, and at times scarcely believable. On April 20th, after five failed attempts to elect a new president, an electoral college that includes the members of both chambers of parliament, plumped for the incumbent, Giorgio Napolitano, who is 87 years old. Nicholas Spiro, a sovereign risk analyst, called it “the clearest indication yet of the utter dysfunctionality of Italian politics”.

Desperate to retire, Mr Napolitano had ruled himself out as a candidate. But the leaders of the two biggest mainstream parties, Pier Luigi Bersani, the secretary general of the centre-left Democratic Party (PD), and Silvio Berlusconi, the de facto leader of the conservative People of Freedom (PdL), had earlier gone to the Quirinal palace to beg him to stay on. Poor Mr Napolitano wearily agreed.

In the ballot that followed he received 738 votes out of a possible 1,007. It is the first time in the 65-year history of the Italian republic that a president has been voted in for a second term.

The insistence on Mr Napolitano’s return was both an extraordinary admission of defeat, and an equally striking act of defiance. It came against a background of almost deafening calls from the younger generation of Italians for new faces, new policies and a form of politics less oppressively dominated by the country's almighty parties.

The most obvious and radical expression of their demands is in the Five Star Movement (M5S), co-founded by a former comedian, Beppe Grillo. But it is also clearly discernible in the radical Left, Ecology and Freedom (SEL) party and in parts of the traditional parties, notably the moderate faction within the PD that looks to Matteo Renzi, the young mayor of Florence. The mainstream party leaderships ignored them all.

Limit Austerity, EU appartchik Barroso Says

Same Old, Same Old

By ALESSANDRO TORELLO, FRANCES ROBINSON and PAUL HANNON

A top European Union official signaled his support Monday for relaxing Europe's austerity drive, in what could be a significant break for countries struggling to hit tough budget targets amid persistent economic weakness.

In a speech, European Commission President José Manuel Barroso said the policy of austerity pursued by the EU in recent years no longer has the public backing needed to work.

"While I think this policy is fundamentally right, I think it has reached its limits," Mr. Barroso said. "A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support."

His comments are the latest in a series of public statements that indicate a shift in European economic policy is under way. They also coincided with the release of new figures that showed some of the euro-zone countries with the most aggressive austerity programs were having the least success in narrowing their deficits.

The International Monetary Fund last week said the bloc should ease back on austerity, while a number of governments outside the EU have made the same call, arguing that its belt-tightening is holding back the global economic recovery and could end up being self-defeating.

The policy's support among economists has also taken a beating. A study published last week by three economists at the University of Massachusetts found basic flaws in an influential paper from 2010 by the U.S. economists Carmen Reinhart and Kenneth Rogoff that said high government debt levels hurt economic growth.

In his speech, Mr. Barroso hinted that some countries could be given longer to get their budget deficit in line with EU rules, which ostensibly limit it to 3% of gross domestic product.

"Even if the policy of correcting deficit is fundamentally correct, we can always discuss fine-tuning of pace," he said. He noted, however, that EU finance ministers would have to agree to any change in the timelines.

Spanish Finance Minister Luis de Guindos said on Sunday that his new budget plans to be presented later this week will emphasize economic growth and reduce the stress of spending cuts.

How Government Killed the Medical Profession

We’re about to experience the two-tiered system that already exists in most parts of the world that provide “universal coverage.”

by Jeffrey A. Singer|

I am a general surgeon with more than three decades in private clinical practice. And I am fed up. Since the late 1970s, I have witnessed remarkable technological revolutions in medicine, from CT scans to robot-assisted surgery. But I have also watched as medicine slowly evolved into the domain of technicians, bookkeepers, and clerks. 

Government interventions over the past four decades have yielded a cascade of perverse incentives, bureaucratic diktats, and economic pressures that together are forcing doctors to sacrifice their independent professional medical judgment, and their integrity. The consequence is clear: Many doctors from my generation are exiting the field. Others are seeing their private practices threatened with bankruptcy, or are giving up their autonomy for the life of a shift-working hospital employee. Governments and hospital administrators hold all the power, while doctors—and worse still, patients—hold none.

The Coding Revolution

At first, the decay was subtle. In the 1980s, Medicare imposed price controls upon physicians who treated anyone over 65. Any provider wishing to get compensated was required to use International Statistical Classification of Diseases (ICD) and Current Procedural Terminology (CPT) codes to describe the service when submitting a bill. The designers of these systems believed that standardized classifications would lead to more accurate adjudication of Medicare claims.

Europe, a Troubled Region

As goes the money supply, so too goes the overall economy

BY STEVE HANKE

The most recent banking crisis in Europe erupted on the Island of Cyprus. Among other things, one result of the final EU-IMF bailout package was the imposition of capital controls, or restrictions on currency convertibility.

Currency convertibility is a simple concept. It means residents and nonresidents are free to exchange domestic currency for foreign currency. However, there are many degrees of convertibility, with each denoting the extent to which governments impose controls on the exchange and use of currency.
The pedigree of exchange controls can be traced back to Plato, the father of statism. Inspired by Lycurgus of Sparta, Plato embraced the idea of an inconvertible currency as a means to preserve the autonomy of the state from outside interference.
The temptation to turn to exchange controls in the face of disruptions caused by hot money flows is hardly new. Tsar Nicholas II first pioneered limitations on convertibility in modern times, ordering the State Bank of Russia to introduce, in 1905–06, a limited form of exchange control to discourage speculative purchases of foreign exchange. The bank did so by refusing to sell foreign exchange, except where it could be shown that it was required to buy imported goods.
Otherwise, foreign exchange was limited to 50,000 German marks per person. The Tsar’s rationale for exchange controls was that of limiting hot money flows, so that foreign reserves and the exchange rate could be maintained. The more things change, the more they remain the same.
Before more politicians come under the spell of exchange controls, they should reflect on the following passage from Nobel laureate Friedrich Hayek’s 1944 classic, The Road to Serfdom:

“The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges.

The debt-ridden EU stares bankruptcy in the face

Wherever we now look at the EU, its affairs seem to be in an astonishing mess

All the EU crises go back to the most widely misunderstood of all the treaties, the Single European Act, which Margaret Thatcher was ambushed into accepting in 1985

By Christopher Booker

Shouldn’t it be making more headlines than it has that the European Union is today insolvent – since its astronomic debt in unpaid bills is nearly twice as large as its annual income? Such is the crisis lately highlighted by its parliament’s budget committee, which finds that the EU now owes 217 billion euros, or £182 billion, as compared with its current year’s income of just £108 billion. Much of this represents “cohesion funding” relating to Eastern Europe, in contracts agreed under the EU’s current budgetary arrangements. But when, at the end of this year, those arrangements come to an end, the rules strictly prohibit the EU from rolling forward its debts from one period to the next. So, in eight months’ time, it will lurch into bankruptcy.

Wherever we now look at the EU, its affairs seem to be in an astonishing mess. There is the ongoing slow-motion train crash of the euro. There is rising panic over the policy of unrestricted immigration, which threatens at the year’s end to flood richer countries such as Britain with millions of Romanians and Bulgarians. As Europe’s economies stagnate or shrink, the EU’s environmental policies fall apart, with the growing refusal of many countries, led by Poland and Germany, to accept curbs on fossil fuels.

What all these signs of breakdown have in common is that the policies giving rise to them all go back to the most widely misunderstood of all the European treaties, the Single European Act, which Margaret Thatcher was ambushed into accepting in 1985. This was the treaty she said was not necessary, because initially she thought all it was about was making the workings of the original Common Market more effective under the existing rules.

What she didn’t realise, because she was not properly briefed by her officials, was that it was always intended to be about very much more than just a “single market”. As its name indicated – and as Richard North and I for the first time set out in detail in our book The Great Deception – the Single European Act was always planned, by Jacques Delors, François Mitterrand, Helmut Kohl and the other European leaders who ganged up against her, to be the first of two treaties that would take the old “Community” a further giant step forwards to being a “Single Europe”. The other, the Treaty on European Union, was to be agreed at Maastricht five years later.

The Single European Act was the treaty that set in train the plan to create a single currency (which was why, up to the last minute, Mrs Thatcher considered vetoing it). It opened the door to unrestricted immigration by turning Europe into “a space without frontiers”. It created that Cohesion Fund, and it was the treaty that gave the EU the power to dictate environmental policy, under which, as early as 1991, it drew up its Strategy to Limit Carbon Dioxide Emissions in response to the panic over global warming.

It was because Mrs Thatcher was so misled about these wider purposes that she herself never explained to the British people that it was about so much more than the “Single Market” – although even this was to produce that unprecedented avalanche of directives which, far from boosting Europe’s prosperity, has left it the least dynamic economic bloc in the world.

Up From Totalitarianism

A remarkable ex-Marxist on God, socialism, and Princess D

By JOSEPH SHATTAN

LESZEK KOLAKOWSKI WAS a philosopher and historian of ideas. He received his doctorate in 1953 for his study of Spinoza. Under different circumstances, he might have led a satisfying but obscure academic life, publishing dense scholarly works that hardly anyone read, and remaining largely aloof from the world’s troubles and turmoil.

It was Kolakowski’s misfortune, however, to be born in Poland in 1927, on the eve of that nation’s darkest hour. As a teenager, he endured the Nazi occupation, lived among Poles who risked their lives saving their Jewish compatriots, and taught himself Latin, French, and German, as well as philosophy. In 1959, he was appointed to the chair of the history of modern philosophy at Warsaw University, but soon found himself in hot water with the authorities because of his political views. In 1968, Poland’s Communist government expelled him from Warsaw University and banned him from teaching and publishing. After a brief stay in Canada and the U.S., he settled in England and was senior fellow at All Soul’s College, Oxford, until his retirement.

Throughout his lifetime, Kolakowski never ceased to write. His masterwork, Main Currents of Marxism, traced the trajectory of what Kolakowski called “the greatest fantasy of the 20th century,” which began in an attempt to create a perfect society, and ended up as the foundation for “a monstrous edifice of lies, exploitation and oppression.”

But Kolakowski was the author of some 30 other books, as well as countless articles, nearly all of which were directed at general audiences, and dealt with the most urgent issues of our time. His daughter, Agnieszka Kolakowska, has brought together many (but by no means all) of his essays in a splendid collection called Is God Happy?

As might be expected, many of these essays deal with Marxism, socialism, and communism. For example, in a devastating response to British leftist E.P. Thompson, who accused Kolakowski of betraying the socialist idea, Kolakowski explained why that idea was flawed from the outset:

All attempts to examine [the socialist] experience lead us back not only to contingent historical circumstances but to the very idea of socialism and the discovery of incompatible demands hidden in this idea.…We want a society with a large autonomy of small communities, do we not? And we want central planning in the economy. Let us try to think now how both work together. We want technical progress and we want perfect security for people; let us look closer how both could be combined. We want industrial democracy and we want efficient management: do they work well together? Of course they do, in the leftist heaven everything is compatible and everything settled, lamb and lion sleep in the same bed.” [“My Correct Views on Everything,” 1974]

Maximizing mistakes and profits

How Hospitals Profit From Making Mistakes

by Michael Krieger

One of the many things holding the nation back at the moment is the complete lack of incentive to be a creative, productive and honest member of society versus the tremendous incentive to be a corrupt, thieving, lackey for the establishment.  In a free market system, with a strict set of rules governing the game that is applied to everyone equally, market signals and incentives exist for companies to create a great product and to meet customer needs with great service.  In contrast, within a crony capitalist system, the primary incentive is to get as close as possible to political and corporate power in order to financially benefit from their oligarchical ownership of the controlled economy.

It is only within a completely disconnected from reality, crony, fraudulent economy where you could have a situation in which hospitals actually earn much larger profit margins from making mistakes and harming their patients, than from providing excellent care.  We learn from theNew York Times that:

Hospitals make money from their own mistakes because insurers pay them for the longer stays and extra care that patients need to treat surgical complications that could have been prevented, a new study finds.

Changing the payment system, to stop rewarding poor care, may help to bring down surgical complication rates, the researchers say. If the system does not change, hospitals have little incentive to improve: in fact, some will wind up losing money if they take better care of patients.

The Party at Wall Street is not sustainable

The bubbles being created by the Fed will be far greater and more devastating than any other in history

By Michael Pento

When central bankers dedicate their existence to re-inflating asset bubbles, it shouldn’t at all be a surprise to investors that they eventually achieve success. Ben Bernanke has aggressively attempted to prop up the real estate and equity markets since 2008. His efforts to increase the broader money supply and create inflation have finally supported home prices, sent the Dow Jones Industrial average to a record nominal high and propelled the bond bubble to dizzying heights.

The price of any commodity is highly influential towards its consumption. This concept is no different when applied to money and its borrowing costs. Therefore, one of the most important factors in determining money supply growth is the level of interest rates. The Federal Reserve artificially pushed the cost of money down to 1% during the time frame of June 2003 thru June 2004. It is vitally important to note that these low interest rates were not due to a savings glut; but were rather created by central bank purchases of assets. This low cost of borrowed funds affected consumers’ behavior towards debt and was the primary reason for the massive real estate bubble.

Today, the Fed Funds rate has been pushed even lower than it was in the early 2000’s. In addition, unlike a decade ago when the Fed held the overnight lending rate at 1% for “just” one year, the central bank is in the process of pegging short-term rates at near zero percent for what will amount to be at least seven years. However, this time the primary borrower of the central bank’s cheap money isn’t consumers as much as it is the Federal government. Mr. Bernanke has already increased the monetary base by over $2 trillion since the Great Recession began in late 2007, which has helped cause the M2 money supply to grow by $3 trillion–an increase of 40%!

Therefore, it isn’t such a mystery as to why there are now partying down on Wall Street like it is 1999; and we are once again amused with anecdotes of real estate buyers making millions flipping homes.

But all this money printing has not, nor will it ever, restore the economy to long-term prosperity. Despite the Fed’s efforts to spur the economy, GDP growth increased just 1.5% during all of 2012 and grew at an annual rate of just 0.1% during Q4 of last year. The future doesn’t bode much better. This year consumers have to deal with higher taxes, rising interest rates and record high gas prices for March. Don’t look for exports to rescue the economy either. Eurozone PMIs are firmly in contraction territory and Communist China is busy dictating the growth rate of the economy by building more empty cities—clearly an unsustainable and dangerous economic plan.

This means that the Federal Reserve will keep interest rates at record lows for significantly longer than the time it took to construct any of its previous bubbles. Also, the central bank will take years to reduce its $85 billion per month pace of monetary base expansion back to neutrality. Meanwhile, surging money growth will continue to force more air into the stock, real estate and bond markets for several years to come.

Debt, Growth, and the Illusions of Social Scientism

Everyone interprets the world by applying a theory

by Tomas Salamanca

For all the politicians and economists who have been doggedly nonchalant about escalating levels of public debt, this was a good week. Making their week was the revelation that the statistical calculations in an influential paper were off. It is not often that a math error causes such a mix of glee and consternation as we have seen over the past several days. But the computations in question, advanced by Kenneth Rogoff and Carmen M. Reinhart, both professors at Harvard, are widely thought to have swayed governments in the Western world towards austerity policies. Thanks to a paper out of the University of Massachusetts, the empirical grounds for those policies have allegedly been swept away. Actually, what the Rogoff-Reinhart affair demonstrates is that empirical evidence does not, and indeed cannot, decide economic controversies.

That it can is the defining conceit of the neo-classic orthodoxy in contemporary economics. In this, the economics profession has long been following the dominant trend in the social sciences where a philosophic commitment to positivism became firmly ensconced in the post-World War II era. Positivism is the view that the truth of statements concerning the world we experience through our five senses can only be established by passing the test of observation. It is a philosophy influenced by the enormous success of the natural sciences in comprehending the physical and non-human universe.

Its proponents in the social sciences believe that this accomplishment holds the key to eventually securing important truths about human affairs. If the testing of hypotheses through experiments and the analysis of data is what finally advanced our understanding of the natural order after millennia of idle speculation and disagreements, then that method of inquiry is our surest bet to replicate this intellectual achievement in the human order. Because so much of their subject-matter is reducible to numbers, economists have been more disposed than the general run of social scientists to adopt sophisticated mathematical techniques and models in generating empirical tests.

Though the quantitative approach taken by Rogoff and Reinhart was relatively straight-forward – what they basically did was sort the historical data into four different groups by level of public debt and then calculate the average level of real GDP growth for each group – they did go the positivist route of testing a hypothesis. Their hypothesis was that, beyond a certain level, public debt would exhibit a significant relationship with economic growth. Using figures from 1946 to 2009, Rogoff and Reinhart originally found that, on average, real growth falls 0.1% per year when the public debt of an advanced economy exceeds 90% of GDP. That compares to an annual growth rate of 2.8% at debt levels between 30-90% of GDP and 4.1% when debt was under 30% of GDP.

Cyprus and the Unraveling of Fractional-Reserve Banking

Better Still, Free Banking

By Joseph Salerno

The “Cyprus deal” as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s.

This trend continued with the currency crises in Russia, Mexico, East Asia, and Argentina in the 1990s in which fractional-reserve banking played a decisive role. The unraveling of fractional-reserve banking became visible even to the average depositor during the financial meltdown of 2008 that ignited bank runs on some of the largest and most venerable financial institutions in the world. The final collapse was only averted by the multi-trillion dollar bailout of U.S. and foreign banks by the Federal Reserve.

Even more than the unprecedented financial crisis of 2008, however, recent events in Cyprus may have struck the mortal blow to fractional-reserve banking. For fractional-reserve banking can only exist for as long as the depositors have complete confidence that regardless of the financial woes that befall the bank entrusted with their “deposits,” they will always be able to withdraw them on demand at par in currency, the ultimate cash of any banking system.

Ever since World War Two governmental deposit insurance, backed up by the money-creating powers of the central bank, was seen as the unshakable guarantee that warranted such confidence. In effect, fractional-reserve banking was perceived as 100-percent banking by depositors, who acted as if their money was always “in the bank” thanks to the ability of central banks to conjure up money out of thin air (or in cyberspace).

Perversely the various crises involving fractional-reserve banking that struck time and again since the late 1980s only reinforced this belief among depositors, because troubled banks and thrift institutions were always bailed out with alacrity—especially the largest and least stable. Thus arose the “too-big-to-fail doctrine.” Under this doctrine, uninsured bank depositors and bondholders were generally made whole when large banks failed, because it was widely understood that the confidence in the entire banking system was a frail and evanescent thing that would break and completely dissipate as a result of the failure of even a single large institution.

Getting back to the Cyprus deal, admittedly it is hardly ideal from a free-market point of view. The solution in accord with free markets would not involve restricting deposit withdrawals, imposing fascistic capital controls on domestic residents and foreign investors, and dragooning taxpayers in the rest of the Eurozone into contributing to the bailout to the tune of 10 billion euros.

Nonetheless, the deal does convey a salutary message to bank depositors and creditors the world over. It does so by forcing previously untouchable senior bondholders and uninsured depositors in the Cypriot banks to bear part of the cost of the bailout. The bondholders of the two largest banks will be wiped out and it is reported that large depositors (i.e., those holding uninsured accounts exceeding 100,000 euros) at the Laiki Bank may also be completely wiped out, losing up to 4.2 billion euros, while large depositors at the Bank of Cyprus will lose between 30 and 60 percent of their deposits. Small depositors in both banks, who hold insured accounts of up to 100,000 euros, would retain the full value of their deposits.

Better or Worse?

It all comes down to how much you have to lose

by Daniel Greenfield

All politics are the politics of the future. The one cause that we all champion, regardless of our political orientation, is the cause of the future. All that we fight for is the ability to shape the future.

The fundamental political question is, "Do you believe things are getting better or worse?" Ruling parties tend to answer, "Better", opposition parties tend to answer, "Worse". The deeper answer to that question though lies in our perceptions of the past and the future.

The left tends to view the past negatively and future shock positively. It wants change to disrupt the old order of things in order to make way for a new order. It hews to a progressive understanding of history in which we have been getting better with the advance of time, the march of progress mimics evolution as a means of lifting humanity out of the muck and raising it up on ivory towers of reason through a ceaseless process of change.

The right often views the past positively, it sees change as a destroyer that undermines civilization's accomplishments and threatens to usher in anarchy. It fights to conserve that which is threatened by the entropic winds of change. The conservative worldview is progressive in its own way, but it is the progress of the established order. It sees progress emerging from the accretion of civilization, rather than from the disruption of revolution.

Where the left tends to be unrealistically optimistic about the future, acting like a child running to the edge and jumping off, without remembering all the bumps and bruises before, the right tends to be pessimistic about the future. It tends to be wary of change because it is all too aware of how dangerous change can be.

Youth who do not understand the value of what is around them rush to the left. As they achieve a sense of worth, of the world around them and of their labors, they drift slowly to the right. Age also brings with it a sense of vulnerability. Knowing how you can be hurt, how fragile the thin skin of the body, the fleshy connections and organs dangling within, brings with it a different view of the world. Once you understand that you can lose and that you will lose, then you also understand how important it is to defend what you have left.