How Detroit went broke

The answers may surprise you

By Nathan Bomey and John Gallagher

Detroit is broke, but it didn’t have to be. An in-depth Free Press analysis of the city’s financial history back to the 1950s shows that its elected officials and others charged with managing its finances repeatedly failed — or refused — to make the tough economic and political decisions that might have saved the city from financial ruin.

Instead, amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here.

The numbers, most from records deeply buried in the public library, lay waste to misconceptions about the roots of Detroit’s economic crisis. For critics who want to blame Mayor Coleman Young for starting this mess, think again. The mayor’s sometimes fiery rhetoric may have contributed to metro Detroit’s racial divide, but he was an astute money manager who recognized, early on, the challenges the city faced and began slashing staff and spending to address them.

And Wall Street types who applauded Mayor Kwame Kilpatrick’s financial acumen following his 2005 deal to restructure city pension debt should consider this: The numbers prove that his plan devastated the city’s finances and was a key factor that drove Detroit to file for Chapter 9 bankruptcy in July.

The State of Michigan also bears some blame. Lansing politicians reduced Detroit’s state-shared revenue by 48% from 1998 to 2012, withholding $172 million from the city, according to state records.

Decades of mismanagement added to Detroit’s fiscal woes. The city notoriously bungled multiple federal aid programs and overpaid outrageously to incentivize projects such as the Chrysler Jefferson North plant. Bureaucracy bogged down even the simplest deals and contracts. In a city that needed urgency, major city functions often seemed rudderless.

When all the numbers are crunched, one fact is crystal clear: Yes, a disaster was looming for Detroit. But there were ample opportunities when decisive action by city leaders might have fended off bankruptcy.

If Mayors Jerome Cavanagh and Roman Gribbs had cut the workforce in the 1960s and early 1970s as the population and property values dropped. If Mayor Dennis Archer hadn’t added more than 1,100 employees in the 1990s when the city was flush but still losing population. If Kilpatrick had shown more fiscal discipline and not launched a borrowing spree to cover operating expenses that continued into Mayor Dave Bing’s tenure. Over five decades, there were many ‘if only’ moments.

“Detroit got into a trap of doing a lot of borrowing for cash flow purposes and then trying to figure out how to push costs (out) as much as possible,” said Bettie Buss, a former city budget staffer who spent years analyzing city finances for the nonpartisan Citizens Research Council of Michigan. “That was the whole culture — how do we get what we want and not pay for it until tomorrow and tomorrow and tomorrow?”

Ultimately, Detroit ended up with $18 billion to $20 billion in debt and unfunded pension and health care liabilities. Gov. Rick Snyder appointed bankruptcy attorney Kevyn Orr as the city’s emergency manager, and Orr filed for Chapter 9 on July 18.

 For this report, the Free Press examined about 10,000 pages of documents gathering dust in the public library’s archives. Since most of those documents have never been digitized, the Free Press created its own database of 50 years of Detroit’s financial history. Reporters also conducted dozens of interviews with participants from the last six mayoral administrations as well as city bureaucrats and outside experts. Among the highlights from the review:

■ Taxing higher and higher: City leaders tried repeatedly to reverse sliding revenue through new taxes. Despite a new income tax in 1962, a new utility tax in 1971 and a new casino revenue tax in 1999 — not to mention several tax increases along the way — revenue in today’s dollars fell 40% from 1962 to 2012. Higher taxes helped drive residents to the suburbs and drove away business. Today, Detroit still doesn’t take in as much tax revenue as it did just from property taxes in 1963.

EU's democracy problem goes all the way down

The creation of a bureaucratic European order has become as transcendent a cause as loyalty to the Soviet Union was for many a last century West European Marxist 

By Tom Gallagher

It is natural that Jose Manuel Barroso should last week have expressed his displeasure at the British Conservative contingent in the European Parliament for faltering in their commitment to the European cause. He presumably sought to embarrass them by warning that they were in danger of becoming another UKIP.

In 2008, he unwisely remarked that the Eurosceptic views of the British public didn’t really count because ‘the people who matter in Britain’ want to adopt the Euro. A super-bureaucrat who wags his finger at whoever dares to break the top-down European consensus is a gift for those who wish to tilt the balance back to a Europe of democratic nation-states.

Barroso will be gone by next spring; his hopes of becoming the next secretary-General of NATO hopefully staying unfulfilled.

On the morning of his ‘State of the Union’ address, I happened to be attending a conference on the campus in the Portuguese capital where, back in 1975, he had organized student unrest in his days as a Maoist law student.

I listened to a group of Ph.D students with enquiring minds explain why for many of their generation the only option was to leave as quickly as possible. The country is in the grip of a devastating economic crisis that has produced record youth unemployment and business closures. But the instinct of the dominant political blocs on the rhetorical left and centre-right is to sit out the crisis and postpone change indefinitely.

The Labour elite's secret problem... they can't stand the working class

Labour, like the Tories, no longer speaks for any major part of the British people

Hating the working class? Then Labour Prime Minister Gordon Brown talks with resident Gillian Duffy ahead of the 2010 General Election

By PETER HITCHENS

How long does it take for the penny to drop? It is amazing how slow voters  have been to see  that the two major parties have been stolen from them, and are now their enemies.

I spend a lot of time here pointing out that the Tory Party is a now a nest of anti-British, anti-family liberals. But Labour is just as bad.

The Labour Party of 1945 was pretty Left-wing. But it was patriotic, Christian and genuinely working-class. It hated cheats and it loathed crime. Several members of the Labour Cabinet of 1948 voted to keep the death penalty.

It did not support immigration. It set up the NHS to care for hard-working people whose illnesses were in many cases caused by that hard work. It was (rightly) deeply suspicious of the first steps towards creating what is now the EU.

It supported grammar schools, seeing that they gave the children of the poor a ladder out of that poverty. It favoured strong national defences.

I suspect that millions of Labour voters still feel roughly the same way. But the party does not. Like the Tory top deck, Labour’s London elite loathe and despise their members.

We have absolute proof of this thanks to the meeting between Gordon Brown and Mrs Gillian Duffy during the last Election, when Mr Brown responded to Mrs Duffy’s completely reasonable fears about mass immigration by calling her a bigot behind her back. He apologised – for being caught – but who can doubt it was his real view?

This week we saw two more examples of the problem. 

One was the absurd shadow Minister Chris Bryant, trying to be strong on immigration.

Understanding the forces that govern their own lives

The Illogic in Fractional Reserve Banking

by James E. Miller

If there was one business venture the leftist and forgotten “Occupy” movement was right to distrust, it was the banking industry. In the wake of the 2008 financial crisis and subsequent bailing out of the world’s financial system by fascist states, taxpayers – especially the progressive types – were correct to feel amiss. But rather than take a scrutinizing look into the privilege afforded to the banking class, the outraged took to political action in the callow hope of correcting a wrong.

Like any popular uprising, the goal was quickly smothered in favor of further rent-seeking. Instead of aiming consternation at the incestuous relationship between government and the money-changers, occupiers wanted the quick-fix of redistribution. The cries of “this is what democracy looks like” might as well have been “this is what panhandling looks like.” Centralized banking went unquestioned. The nature of fractional reserve practices was ignored – or likely not understood by the pea-brained philosophers. Still, the radical levellers who set-up camp in Zuccotti Park were on to something by asking why their precious public officials voted to shore up the balance sheets of a disproportionately small member caste.

Banking is, to put it bluntly, a strange and unique business. The industry is centuries-old, and the legality of its operations has been questionable since inception. I am referring specifically to the practice of bankers lending out claimed reserves – a contentious issue among libertarian theorists. If the larger public were to become privy to this business model, it may spark a troubling curiosity in the less-moneyed class. But then again, this author never ceases to be amazed by the bounds of common apathy.

Trying To Stay Sane In An Insane World - Part 3

Parasite on a Parasite on a Parasite

by Jim Quinn

In Part 1 of this article I documented the insane remedies prescribed by the mad banker scientists presiding over this preposterous fiat experiment since they blew up the lab in 2008. In Part 2 I tried to articulate why the country has allowed itself to be brought to the brink of catastrophe. There is no turning back time. The choices we’ve made and avoided making over the last one hundred years are going to come home to roost over the next fifteen years. We are in the midst of a great Crisis that will not be resolved until the mid-2020s.

The propagandists supporting the vested interests continue to assure the voluntarily oblivious populace the economy is improving, jobs are plentiful, inflation is under control, and housing is recovering. Bernanke and his band of merry money manipulators, Obama and his gaggle of government apparatchiks, and their mendacious mainstream media mouthpieces have enacted radical measures in the last five years that reek of desperation in their effort to give the appearance of revival to a failing economic system. Stimulating the net worth of bankers and connected corporate cronies through engineered stock market gains has not trickled down to the peasants. Our owners try to convince us it’s raining, but we know they’re pissing down our backs. Our Crisis mood is congealing.

“But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.” - The Fourth Turning – Strauss & Howe – 1997

The core elements of this Crisis have been discernible for decades. The accumulation of private and public debt; the civic, moral, and intellectual decay of our society; the growing power of the corrupt corporate fascist surveillance state; growing wealth inequality created by crony capitalist skullduggery; the peak in cheap easily accessible oil; and global disorder caused by overpopulation, scarce resources, religious zealotry, and war; combine in a toxic brew of unimaginable pain, anguish and tragedy. The Crisis began in September 2008 and the sole purpose of the deceitful establishment has been to avert a catastrophe that is destined to extinguish the wealth, power and control they’ve treacherously procured over the last few decades.

And then there was one

The dark matter of global power

By Tom Engelhardt

In an increasingly phantasmagorical world, here's my present fantasy of choice: someone from General Keith Alexander's outfit, the National Security Agency, tracks down H G Wells's time machine in the attic of an old house in London. Britain's subservient Government Communications Headquarters, its version of the NSA, is paid off and the contraption is flown to Fort Meade, Maryland, where it's put back in working order. Alexander then revs it up and heads not into the future, like Wells, to see how our world ends, but into the past to offer a warning to Americans about what's to come. 

He arrives in Washington on October 23, 1962, in the middle of the Cuban Missile Crisis, a day after president Kennedy has addressed the American people on national television to tell them that this planet might not be theirs - or anyone else's - for long. ("We will not prematurely or unnecessarily risk the costs of worldwide nuclear war in which even the fruits of victory would be ashes in our mouth, but neither will we shrink from the risk at any time it must be faced.")

Greeted with amazement by the Washington elite, Alexander, too, goes on television and informs the same public that, in 2013, the major enemy of the United States will no longer be the Soviet Union, but an outfit called al-Qaeda in the Arabian Peninsula (AQAP), and that the headquarters of our country's preeminent foe will be found somewhere in the rural backlands of ... Yemen. 

Our Cages and Labyrinths

The major barriers to social advancement today are the systems of government human beings created

By Jeff Tucker

Over the last year, I’ve had some sense that certain themes are emerging in pop literature and film—themes that are different from dominant strains of the past. I struggled to put my finger on it, but it finally it hit me what these themes are and why they matter.

The plot lines are highly suggestive of what it is like to live in (and overcome) an age of pervasive government control—an age pretty much like our own.

Five shows illustrate the point: Breaking Bad on AMC; Orange Is the New Black and House of Cards, both of which are currently making Netflix a mint in new subscribers; the insanely popular Hunger Games series of novels and films; and Boardwalk Empire, from HBO. Let’s look at what they have in common.

All students of literature and film are trained to find the core source of drama in a story. What is it that is stopping the main characters from achieving their goals, and how do the characters work around those difficulties? In the nineteenth and early twentieth centuries, the sources were predictably natural: terrible weather (Grapes of Wrath), privation and the struggle with poverty (Dickens), caste and class (the Brontë sisters), moral upheaval (Frankenstein, Dr. Jekyll), the reversion to the state of nature as a result of accident (Robinson Crusoe), and so forth.

But times have changed. And twenty-first century popular culture reflects those changes. Given all the progress we’ve made, the obstacles in our world tend no longer to be material but political. In most places in the world today, disease, hunger, shelter, plagues, and natural disaster aren’t the overriding issues affecting daily life as they once were. Something different afflicts today’s generation.

These are the artificial barriers of law and legislation as contrived by bureaucrats and politicians.

The Remaking of the Middle East

The entire Arab state system is being challenged and may be unraveling

By Shlomo Avineri

The Middle East’s descent into extreme violence – with mass killings of Muslim Brotherhood demonstrators in Cairo followed closely by Bashar al-Assad’s use of chemical weapons in Syria’s civil war – has dashed the hopes raised by the Arab Spring in 2011. The question now – and in terms of the future – is how to account for what is shaping up to be a profound historical failure.

In the 1990’s, when communist regimes collapsed in Central and Eastern Europe, and dictators fell in Latin America, Sub-Saharan Africa, and Southeast Asia, the Arab world stood out for its lack of popular, anti-authoritarian movements and developments. And, while the “Arab Spring” demonstrations in 2011 brought down or seriously challenged dictators in Tunisia, Egypt, Libya, Yemen, and Syria, the result has been instability, violence, and civil war, not democratization. Why?

The Arab Spring did not affect all 22 Arab countries equally. The regimes that were brought down, or challenged, were military dictatorships cloaked in republican garb. None of the dynastic monarchies, some of them far more repressive (like Saudi Arabia) were confronted by serious popular challenges, with the exception of small Bahrain, owing to a sectarian divide between its Shia majority and Sunni rulers.

The reasons seem obvious: the military regimes lacked legitimacy and were ultimately based on force and intimidation, while the monarchical dynasties seem to be anchored in history, tradition, and religion. In Morocco and Jordan, the king is considered a descendant of the Prophet, and Saudi Arabia’s king is the Custodian of the Two Holy Mosques in Mecca and Medina, Islam’s most sacred sites.

American Ineffectualism

America is in danger of being the first great power to be laughed off the world stage

by mark steyn
 For generations, eminent New York Times wordsmiths have swooned over foreign strongmen, from Walter Duranty’s Pulitzer-winning paeans to the Stalinist utopia to Thomas L. Friedman’s more recent effusions to the “enlightened” Chinese Politburo. So it was inevitable that the cash-strapped Times would eventually figure it might as well eliminate the middle man and hire the enlightened strongman direct. Hence Vladimir Putin’s impressive debut on the op-ed page this week.

It pains me to have to say that the versatile Vlad makes a much better columnist than I’d be a KGB torturer. His “plea for caution” was an exquisitely masterful parody of liberal bromides far better than most of the Times’ in-house writers can produce these days. He talked up the U.N. and international law, was alarmed by U.S. military intervention, and worried that America was no longer seen as “a model of democracy” but instead as erratic cowboys “cobbling coalitions together under the slogan ‘you’re either with us or against us.’” He warned against chest-thumping about “American exceptionalism,” pointing out that, just like America’s grade-school classrooms, in the international community everyone is exceptional in his own way.

All this the average Times reader would find entirely unexceptional. Indeed, it’s the sort of thing a young Senator Obama would have been writing himself a mere five years ago. Putin even appropriated the 2008 Obama’s core platitude: “We must work together to keep this hope alive.” In the biographical tag at the end, the Times editors informed us: “Vladimir V. Putin is the president of Russia.” But by this stage, one would not have been surprised to see: “Vladimir V. Putin is the author of the new memoir The Audacity of Vlad, which he will be launching at a campaign breakfast in Ames, Iowa, this weekend.” 

Paving the way for the Road to Damascus

We need warrior-kings once again, leaders who can reacquaint word with deed

By Norman Ball 

Like most battered tropes, "the tail wagging the dog" offers a durable, if dog-tired, metaphor for much that afflicts us. While rhetoricians are apt to groan over rote recourse to tired imagery, regular folks use cliches because they strike a cognitive chord. After all, mass appeal is what exhausts language in the first place. The bane of poets, cliche is a sign of democratic affections. Let's have more of it. 

This particular metaphor derives its power from the sense that, rather than addressing the thing-itself, we are forever grappling with epiphenomena, proximate reflections and spun realities. Everything is mediated. Nothing is authentically palpable. Manufactured consent is all about assembling a coalition of the deceived. 

True, we are being lied to with Goebbellian ambition to a point where deceit becomes, for many, an undetectable ethos. No sooner does one explain to a seemingly perceptive friend or colleague the diversionary intent of the current chemical weapons debate than they nod their heads in sage agreement, take due note of the submerged iceberg's immense size and resume stock sound-bites the very next day. Such is the power of the frame. 

There is also, I'm convinced, a social component. Just as people want to make good around the water cooler, no one wants to be the office's perennial, contrarian weirdo. The frame du jour is where polite small-talk gathers. Nothing ventured over doughnuts, nothing gained. 

Within the mainstream media, we are presented daily with messages - tails - that attempt to corral "bodies of facts on the ground". The messages are illicit rearguard actions designed to exert mastery over sleeping dogs. Since lies have a habit of demanding further lies, why undertake this great exertion of deceit? 

Lying somewhere between Straussian arrogance and neo-Platonic contempt, the elite are loath to address, in an open-air forum, the many hellhounds nipping at all of our heels. Are we wrong to dignify this aversion with philosophical pretentions as perhaps it has long since metastasized into pathology? Our leaders seem convinced that subterfuge abets their power. 

Mourning Chile’s coup, ignoring Egypt’s

Our Son of a Bitch is better than theirs

By Tim Black

The fortieth anniversary of the slaying of Allende has exposed some double standards among human-rights groups.

Forty years ago today, on 11 September 1973, the newly re-elected president of Chile, Salvador Allende, was holed up at La Moneda Palace in Santiago. As the AK-47 in his hand indicated, he knew what lay ahead. Senior military figures, with Major General Javier Palacios to the fore, were coming to kill him.

At about four o’clock that afternoon, the 64-year-old Allende was busy fighting back, by all accounts, shooting Palacios in the hand; but the officers were soon to overwhelm him. Once they had killed Allende, they riddled his body with bullets and beat his face in with a rifle butt.

The Chilean coup d’etat, backed by the Commie-fearing US, which clearly didn’t want a socialist nation near its doorstep, had been brewing for some time. Originally, a military takeover had been planned in 1969 in the event of Allende, the leader of the socialist Popular Unity party, being elected to power in 1970. That Allende did win the election that September, and the generals did not respond, was due, in the main, to the balance of social forces. Simply put, the Chilean middle classes and bourgeoisie, who might have been expected to support a coup, were benefiting at the expense of foreign capital. And this, as it happened, was a result of the newly elected government’s decision effectively to repatriate and nationalise lucrative industries, especially copper. In such circumstances, a coup would have proved deeply unpopular.

But by the next election, in September 1973, the terrain had shifted. A long-term US-led blockade – payback for Chile’s expropriation of foreign capital – and internal agitation from the Christian Democrats and the right-wing National Party, had led Chile near enough to the brink of a civil war. Allende’s victory in the presidential elections on 4 September 1973, something which he was almost surprised by, pulled the trigger. The generals executed their long-standing plot. And a democratically elected leader was deposed.

Forty years on, there has been no shortage of melancholy commentaries to mark this dreadful anniversary. And no wonder. The reign of General Augusto Pinochet, Allende’s successor, represented the bloody, brutal continuation and consolidation of the coup. This involved purging Chilean society of Allende supporters, a practice that has left many in Chile with no idea of what happened to friends and family. On the eve of the fortieth anniversary, Amnesty International released a statement to remind people of this: ‘Thousands of torture survivors and relatives of those disappeared during General Augusto Pinochet’s brutal regime are still being denied truth, justice and reparation.’

Is National Food Insurance The Next Big Idea?

Since government took over much of farming and housing, along with healthcare, surely food insurance will be the next big idea

By Hunter Lewis

John Goodman of Southern Methodist University, a leading voice for free market medicine, has asked us to imagine what our groceries stores would look like if they were run like the medical system. In this piece, we will take his observations and add some of our own.

• As you enter the store, note that there will be no prices posted.

• In addition, the price you pay will vary according to who you are and how you will pay.

• You’ll have to come in during office hours because the store will close on weekends and holidays.

• What you want probably won’t be on the shelf. You will be told to come back later.

• If you do find what you want, you will have to wait to pay, perhaps a long time, and you may not be able to charge it then, since getting the price right and your credit checked may take days or weeks.

• Don’t expect to be able to return anything, no matter how defective the product is.

• There won’t be any brands to guide you and labels and sizes won’t be consistent. If you want to compare, better bring your calculator, and anyway how can you compare without prices?

• Most the products will have to be government approved, which costs a lot of money. To pay for that, only patentable products will be offered. So don’t expect any natural food. Only synthetic food, new to nature, will be on the shelves.

• If any food is not government approved, the label will be severely restricted by law, so you won’t be able to tell it is food.

• Please don’t expect new selections you haven’t seen before. It is so expensive to create synthetic food and get it approved, that new products will be few and far between and sell at fantastic prices.

• If you don’t like the store’s product, you can hire a lawyer to sue. The prices charged will reflect all the resulting lawsuits.

• Don’t expect to make selections on your own. Each selection will have to be approved by some licensed professional. Most of these professionals will be paid by the government. Under government rules, they will receive much larger fees if they are employees of a large  government approved food organization, so fewer and fewer of them will work for themselves or, even indirectly, for you. It may seem odd that political progressivism, which began attacking big business, is now herding professionals into them, but get used to it.

• All of your purchases will be electronically recorded. Approximately 800,000 different parties will have access to these records. So if you are going to be embarrassed by a purchase, better not to make it in the first place. If this bothers you, don’t expect any sympathy from the media. The New York Times gets really upset about the government snooping on what books you buy or borrow from a library, but won’t care about what grocery or drugstore products you buy.

• You will of course be required by law to buy a food insurance policy. Only items approved by government will be covered, so government will decide what qualifies as food and thus what you will be allowed to eat.

The Pharisee in the Temple

Parting Ways with the American People

By Angelo M. Codevilla

Some three fourths of Americans oppose making war on Syria. Hence the Republican leadership class’ reflexive advocacy of entry into Syria’s civil war is cutting one of the few remaining ties that bind it to ordinary Americans.

Since September 2008, when President George W. Bush, Congressman John Boehner, Senators Mitch McConnell, John McCain, Lindsay Graham and the entire Republican Congressional leadership plus Karl Rove and his big donors backed by The Wall Street Journal editorial pages were key to foisting the $816 billion Troubled Assets Relief Program on a country that opposed it three to one, the Republican Establishment has united with the Democratic Party again and again to legislate the ruling class’ domestic priorities. Before President Obama elevated the Syrian civil war onto the national agenda, the same cast of characters was chiefly occupied with gathering votes to secure funding for Obamacare against a popular movement to de-fund it.

In short, by 2013 the Republican Establishment had proved itself so alien to the domestic concerns of that majority of Americans who dislike the direction in which the ruling class is pushing it, that the party was becoming irrelevant. Despite the Bush Administration’s disastrous commitment to Nation-Building however, the memory of Ronald Reagan’s and Dwight Eisenhower’s forceful, levelheaded patriotism still lingered about the party.

But by urging war on Syria more vehemently than Obama, the Republican Establishment may have finished off the Republican Party, as we know it. Surely it has discredited itself.

President Obama and his followers say: “strike!” even while acknowledging that no military or political plans exist by which such strikes would make things better rather than worse. Reflecting the public, few Democratic and Republican lawmakers support the war publicly. Obama, while claiming the right to act without Congressional approval, has asked Congress to take responsibility for whatever war he might choose to make—and for its results. In the likely event that Congress were to say No, Obama is poised to pin responsibility on Republicans lawmakers and on the people they represent for America’s decline among nations and for whatever ill consequences may follow from all he has already done with regard to Syria.

Black Swans Are A Myth

Government Intervention Is The Only Black Swan

By John Tamny

Back in 2011, prominent hedge fund manager Mark Spitznagel penned for the Wall Street Journal a highly regarded op-ed about excessive government intervention in our limping economy. Spitznagel likened the intervention to wrongheaded efforts throughout history among forest rangers to put out small forest fires.

Small fires are nature’s way of forests maintaining their positive evolution, and when firefighters attempt to blunt the minor impact of small ones, they ultimately foster much worse blazes later. Spitznagel expertly, and very correctly correlated firefighting with the hubristic efforts among policymakers to artificially blunt the effects of recession. In doing so he channeled Albert Jay Nock, among many others as will soon become apparent.

As Nock long ago wrote, “Any contravention of natural law, any tampering with the natural order of things, must have its consequences, and the only recourse for escaping them is such as entails worse consequences.” Translated, forests are nature as are markets, and if you mess with the natural direction of either, you get much worse down the line.

Many anti-interventionists are asking today what the coming economic forest fire will look like thanks to all the meddling in the markets by our political class, and it says here the fire is already burning brightly. To paraphrase two of Spitznagel’s favorite thinkers in Fredric Bastiat and Henry Hazlitt, the seen is an economy limping toward recovery, but the unseen and raging forest fire is what the economy would look like absent all the intervention. Specifically, how many Microsofts and Intels, how many cancer and heart disease cures, and how many transportation innovations have not reached us precisely because our federal minders won’t let the proverbial – and rather small – economic fires burn so that an economy comprised of individuals can avoid the big ones?

Thankfully for readers eager to understand why the markets and the economy are both a shadow of what they could be, Spitznagel has written an essential new book. Indeed, The Dao of Capital: Austrian Investing in a Distorted World might be one of the most important books of the year, or any year for that matter.

As evidenced by the book’s title, Spitznagel’s economics and investing are rooted in the Austrian School tradition of Carl Menger, Eugen von Bohm-Bawerk, Ludwig von Mises whom he deems the greatest economist of them all, along with Bastiat and Hazlitt. Spitznagel rightly notes about Hazlitt that his Economics In One Lesson is the only book he’ll ever require his children to read, assuming they reveal no broader interest in the subject. To readers who e-mail this reviewer about books to buy, the response is always that a read of Hazlitt’s best known book will have them more informed about how economies work than 99.9% of economists. It’s that good, or perhaps economists are that bad. It would be a good debate.

What’s initially interesting about the endlessly fascinating The Dao of Capital is that Spitznagel ties the supreme logic underlying the Austrian School with Daoist thinkers 25 centuries before who, “in their concept of reversion saw everything emerging from – and as a result of – its opposite: hard from soft, advancing from retreating.” It’s rooted in the notion of ‘roundabout’ whereby the detour beats the direct route. Whether investing or engaging in direct commerce, Spitznagel notes that the normal, indeed human, route is one of taking the direct, perhaps easy, path to money, commercial success, or both.

Central banks and illusions of independence

The mystery of Swiss Central Bankers

by Reuven Brenner 

While much attention is now paid to personalities of incoming central bankers, far less attention is paid to debating central banks' mandates in light of the unusual fiscal and financial intermediary roles they have been fulfilling since 2008. 

The crisis revealed institutional voids that the central banks filled quickly. Such ventures by central banks have been tolerated in the past too: there is nothing new about quantitative easing (QE). The Fed practiced it during the 1940-51 under the Treasury's explicit command, though the technique had no name then. The Fed stopped the practice when it became officially independent again in 1951. 

1940 fiscal parallels and the Fed's independence
Federal Reserve chairman Ben Bernanke acknowledges that he is replicating the monetary policies of the 1940-1951, though takes no note of the unusual circumstances then.  Here is a quote from a 2008 speech:

... Historical experience tends to support the proposition that a sufficiently determined Fed can peg or cap Treasury bond prices and yields at other than the shortest maturities. The most striking episode of bond-price pegging occurred during the years before the Federal Reserve-Treasury Accord of 1951. Prior to that agreement, which freed the Fed from its responsibility to fix yields on government debt, the Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade. Moreover, it simultaneously established a ceiling on the twelve-month Treasury certificate of between 7/8 percent to 1-1/4 percent and, during the first half of that period, a rate of 3/8 percent on the 90-day Treasury bill.
The Fed was able to achieve these low interest rates despite a level of outstanding government debt (relative to GDP) significantly greater than we have today, as well as inflation rates substantially more variable. At times, in order to enforce these low rates, the Fed had actually to purchase the bulk of outstanding 90-day bills.

He fails to mention that during the 1940s, the Fed was carrying out fiscal policy under explicit Treasury orders.   The low interest policy - inflation was in the double digits - helped pay for World War II and the accumulated debt. 

The Fed could do this then both because there was domestic political support for the war effort, and later, as support after the war was weakened, the global conditions stayed such that capital had few places to flow: the US was in the immediate post-war period the safest place. 

However, the world stabilized and capital started to flow to Western Europe too. At the same time, the US abolished the Office of Price Administration in 1947, and the official inflation rate this Office's policy kept artificially low until then hit double digits. Public debates then started about restoring the central bank's independence. This was done in 1951, president Harry Truman's pressure to continue with the "QE" policies to finance the Korean War too notwithstanding. 

There are similarities and differences between that decade and the situation today. 

The similarities are the monetary techniques used to achieve the low interest payments, allowing the Federal government to carry increased debts. There are similarities in the global situation too: during the 1940 decade as well as since 2007 when the present crisis started, grave problems notwithstanding, the US has been the safest place for capital to flow. Europe had big question marks hanging about its future then as now - though for different reasons. Russia, China, India and most of Latin America were not places where much capital could flow or be absorbed.

With much global savings flowing to the US, with domestic savings staying put, and with government policies elsewhere perceived unreliable, it was not surprising that the Fed could maintain low interest rates, the federal government can accumulate debts, and not default - then, as now. 

Al-Qaeda's air force still on stand-by

Lose face, will travel 

By Pepe Escobar
It was 12 years ago today. Historians will register that, according to the official narrative, 19 Arabs armed with box cutters and minimal flying skills pledged to a transnational Terror Inc turned jets into missiles to attack the US homeland, fooling the most elaborate defense system on Earth. 

Fast forward to 2013. Here's a 15-second version of the President of the United States (POTUS) address on Syria, one day before the 12th anniversary of 9/11:

Our ideals and principles, as well as our national security, are at stake. The United States is "the anchor of global security". Although the United States military "doesn't do pin pricks", we still carry the burden to punish regimes that would flout long-held conventions banning the use of biological, chemical and nuclear weapons. 

That's why I have decided to pursue an unlimited, targeted military strike against Washington DC.

For countless global citizens, this alternative version predictably sounds as far-fetched as the official version of what happened 12 years ago. The fog of war obscures in mysterious ways. But the fact remains that the current, "reluctant" (farcical) Emperorcontinues to stake his - and his nation's - "credibility" on a "limited", "kinetic" operation to reinforce his self-defined red line against chemical weapons. 

Lose face, will travel 
In theory, the Russian plan of having Damascus surrender its chemical weapons arsenal works because of its inbuilt Chinese wisdom; nobody loses face - from Obama and the US Congress to the European Union, the UN and the even more farcical "Arab" League, which is essentially a Saudi Arabian colony. 

Although Obama is on a media blitzkrieg stealing the credit for it, Asia Times Online has confirmed that the plan was elaborated by Damascus, Tehran and Moscow last week - after a visit to Damascus by the head of the national security committee of the Iranian Majlis (parliament), Alaeddin Boroujerdi. US Secretary of State John Kerry's now famous "slip" provided the opening. 

Italy floated plans to leave euro in 2011

Private investors have pulled out of Club Med, dumping their claims onto the taxpayers of Germany and the northern creditor states

By Ambrose Evans-Pritchard

So, we now know: Silvio Berlusconi seriously floated plans to pull Italy out of the euro in October/November 2011, precipitating his immediate removal from office and decapitation by EMU policy gendarmes.

Ex-ECB insider Lorenzo Bini-Smaghi has quietly dropped a few bombshells in his new book Morire di Austerita (Dying of Austerity), worth a read if you know Italian.

Mr Bini-Smaghi – until recently on the ECB's six-man executive council, and for many years Italy's man in Frankfurt – states that Silvio Berlusconi was toppled as Italian premier in November 2011 as soon as he began to rattle the EMU cage in earnest.

Specifically, he discussed (threatened?) Italian withdrawal from the euro in private meetings with other EMU governments, presumably with Chancellor Angela Merkel and France's Nicolas Sarkozy, since he does not negotiate with underlings. ("L'ipotesi d'uscita dall euro era stata ventilata in colloqui privati con i governi degli altri paesi dell'euro").

We have long suspected this. Now it is confirmed.

Trying To Stay Sane In An Insane World - Part 2

The main tools of modern finance are mystification, obfuscation and hypnosis

by Jim Quinn

In Part 1 of this article I detailed the insane solutions proposed and executed since 2008 by our owners as they attempt to retain and further expand their ill-gotten wealth, acquired through fraud, deceit, swindles, and the brilliant manipulation and exploitation of the masses through Bernaysian propaganda techniques. Madness has engulfed the entire world, with a concentration of power in the hands of a few psychopathic financial elite wielding an inordinate and dangerous expanse of power over the lives of the common man. They are a modern day version of Al Capone, except their weapons of choice aren’t machine guns, but a printing press, peddling debt, creating derivatives of mass destruction, and peddling heaping doses of disinformation. The contemporary criminal class wears Hermes suits, Rolex watches and diamond studded pinky rings, drops $500 to dine at Masa in NYC, travels by chauffeured limo, lives in $10 million NYC penthouse suites, occupies luxurious corner offices in hundred story glass towers, and spends weekends hobnobbing with the other financial elite at their villas in the Hamptons. They have nothing but utter contempt for the lowly peasants who depend upon a weekly paycheck to make ends meet. Why work when you can steal $1 or $2 billion from farmers with no consequences?

The New Guru of the Central Planners

Another attempt to square the circle

by Pater Tenebrarum

The 'Most Influential Monetary Theorist' of Our Time

Talk is cheap – but not according to Michael Woodford, who is portrayed in this Bloomberg article. It appears that Mr. Woodford is the main author of the new central bank 'shamanism' we discussed in a previous article. In their constant quest to square the circle – this is to say to answer the unanswerable question: “how can we actually make the unworkable, namely central economic planning, work?”, central bankers and their advisors meet regularly to exchange ideas, e.g. at the annual Jackson Hole gathering.

They could of course exchange ideas until the end of the universe and central planning of the economy would still not work. There is no 'better plan' (this is not to say that there are no gradations of central bank policy possible). This is not something they are ever told or would even want to hear. Whenever their interventions blow up into our collective faces, their conclusion is that a 'better plan' needs to be cooked up in order to fix what the previous plan has wrought. It is only natural that they would think so. Admitting that the free market is superior to their schemes would be like foreswearing their life's work. Everything they have ever said or done would come into question. Moreover, admitting that the economy would function far more smoothly and efficiently without their interference would be an admission that their jobs are utterly superfluous.

Thus the constant attempt to square the circle. It is in fact grotesque, almost reminiscent of a Monty Python farce. There you have all these erudite, well-educated people in one spot, earnestly discussing which levers to pull next, and it is all for nothing. Worse, it is certain to cause even more damage!

The Bloomberg article on Mr. Woodford is very interesting, because it inadvertently illustrates some of the ways in which modern-day macro-economic theorizing has become utterly detached from reality. Leave it to Bloomberg's  editors though to once again provide us with an at first glance incomprehensible headline: “Woodford’s Theories Rooted in Japan Slump Embraced by Bernanke”. It takes a brief moment to realize that Bernanke isn't embracing the 'Japan slump', but Woodford's theories, which in turn are deemed to be rooted in the Japanese post bubble experience.