The national debate on gun control underwent a kind of paradigm shift last week when non-profit outfit, Defense Distributed, introduced The Liberator, a fully 3D-printable weapon, to the Internet. Many hailed it as a game changer.

Until that moment, the public discourse had been focused on what the government “should” or “should not” do with regards to regulating citizens’ means of self defense. Then, with the click of a mouse, the conversation shifted from what the government “should” do to what, if anything, it “could” do.

If one could simply print a gun in the privacy of their own home, what, exactly, was anyone going to do about it? The Liberator is a single shot, .22 calibre plastic handgun. To be sure, that’s no match for the kind of heat The State’s goons are packing. But how long would it be before the blueprints for more complex weapons — semi- and/or fully-automatic weapons — become available online? Not long, we’d reckon.

Wasting no time to think, windbag senators with names like “Schumer” bravely donned their chainmail and went about loading bronze-tipped arrows into their bows. Lest we forget: these are people who have dedicated their entire lives to acquiring permanent residence on the front lines of the last battle. And so they stood, lances pointed into the dark, ready for action. Alas, the enemy was nowhere to be seen. Before the senators even thought to look up the term “asymmetrical warfare,” The Liberator’s files were busy zipping across cyberspace at warp speed, finding their way into the digital quivers of users all over the world.

The Liberator was free.

In a frantic attempt to demonstrate its own ignorance as to how the Internet actually works, the US State Department counter-attacked on Thursday, sending a letter to Defense Distributed demanding the removal of the online files which allow users to 3D-print their own, unregistered Liberator at home.

It’s as if they thought the toothpaste could just be pushed right back into the tube. Wrong.

Cody Ross, the brains behind Defense Distributed did, indeed, comply with the Fed’s demands. But by the time the files were removed from his site, over 100,000 people around the planet, in hundreds (perhaps thousands?) of separate jurisdictions, had already downloaded them…and posted them on hundreds more sites. It takes a half-baked chimpanzee about six seconds to find the blueprints online. Granted, that puts them out of the senators’ reach…but that’s hardly the point.

The message from The People was clear: Your move, State.

Of course it is true that, in addition to their intellectual arsenal of rocks and spears, The State, through a combination of brute force and dumb luck, has also managed to acquire a vast and impressive cache of extremely deadly weapons… like Predator drones, Abrams tanks and nuclear-armed atrocities of many and varied descriptions. But what good is a rocket-launcher against a swarm of killer bees? And is that even the point?

As Fellow Reckoners know, we have a soft spot for the underdog…the misfit…the downtrodden. And so, sensing that Defense Distributed will be assuming the “Little Guy” role from here on out, we penned a few unsolicited notes on the company’s behalf…

Dear The State,

Let’s be clear: our 3D gun doesn’t attempt to compete with the big, manly weapons you’re always prattling on about (at least not directly). Rather, it calls into question your claim to be able to control and regulate every aspect of our lives, from whom we form relationships with, to whom we contract with and on what terms, to what substances we put in our own bodies, to how much of our life and property you are entitled to and, yes…to the inanimate objects with which we choose to defend ourselves and our families.

So please, feel free to fixate on the “adequacy” of your own big, strong weapons. The rest of us will be busy downloading ours.

Sincerely,

The People

Regards,

Joel Bowman
Editor at Large for The Daily Reckoning
Follow on Twitter: @JoelBowman

Our friend was clearly exasperated. He couldn’t believe it.

“Ten-to-one” wasn’t the time…nor the odds he’d been offered for backing some dodgy ol’ nag down at the racetrack. It was — it is — the unofficial “blue” rate at which pesos are exchanged for dollars here in Argentina.

“Why is this peculiar?” Fellow Reckoners want to know. “Why should those of us who don’t carry Argentine liabilities worry about what’s going on south of the Pampas?”

Ah, we’re glad you asked. Think of the Argentines as a kind of canary, deep down the mineshaft of monetary mismanagement. What the Argentine government does not know about how to ruin an economy is probably not worth knowing. In 160th position, the latest Heritage Economic Freedom Index ranks the uselessly resource rich country a couple of slots above Uzbekistan…and a couple below Angola. Cristina Kirchner’s bestest buddy, the late Hugo Chavez, managed to drive his own poor nation down to the 174th spot on that list before his bilged corpus reached room temperature, narrowly beating out the centrally-planned paradises of Zimbabwe, Cuba and North Korea. In Christina’s eyes, there’s still more work to be done in impoverishing “her” people.

In other words, the Argentine state is a shining example for all meddler states…yours included. So, back to our story…

The ten-to-one exchange rate is important because it tells us (albeit approximately) just how detached from reality the Argentine government has become…and it is a leading indicator on just how detached from reality all governments eventually become. It also reveals to us the sad and sorry state of the local economy, as experienced by real and honest people, those hard-working folk who don’t hold positions in the nation’s political class.

At ten-to-one, the “blue” rate demonstrates an enormous spread over the official exchange rate, which currently sits at 5.14 pesos to the USD. La brecha — the spread — between what the government decrees and what the market realizes is, in other words, non-trivial.

We took a bottle of wine to a friend’s place a couple of nights back. One hundred pesos it cost us. At the official exchange rate, that’s a $20 vino tinto. Not bad (and a good drop it was, too!) At the unofficial rate, however, it worked out at only $10. How could this be?

First of all, Argentina has fantastic wine at any price. Your editor’s wife won’t have him spend more than a few months per year in climates that aren’t conducive to producing fantastic local wine. We go along because we don’t want any trouble…

Secondly, nobody changes dollars for pesos here at the official rate. Not if they know what’s good for them. A few blocks from where we sit is a casa de cambio that follows the unofficial rate. Everyone knows it’s there. The police — mostly corrupt and “on the take” anyway — know it’s there too. Heck! they stand right across the street, smoking cigarettes and watching people come and go…nervous old ladies clutching their purses…young businessmen converting their pay out of pesos…sweaty foreigners in backpacks who read about the “dolar blue” online and want a better rate than CFK’s goons will give them. The cerdos policias do nothing. They can do nothing. There are thousands of places around the city where people buy dollars illegally.

The whole scene is a pretty fair example of Gresham’s Law, where (simply stated) “bad money drives out good.”

As with everything here in Argentina, there is the “official” number…and then the truth. “Officially,” inflation runs at just shy of 10%. Unofficially, it’s closer to 30%. And, truthfully, it’s probably a fair bit higher again. Maybe 40%…or more. As such, Argentine savers — who are used to thieving politicians swiping their hard-earned dough — look to save in currencies their government can’t (directly) manipulate. The US dollar is the most popular choice…hence the reason it’s virtually illegal to buy them…and hence the reason for the black market premium.

When we first came to Argentina a few years back, taxi drivers wouldn’t take 100 pesos notes. They couldn’t make change. Now, it’s a different story.

“Hoy por hoy, no es mucho,” they say. The value of the peso decays by the day…and along with it goes the value of the savings and retirement accounts of the long-suffering people of Argentina.

And so, from time to time la gente organize protests and demonstrations against “La Dictadura.” They bang their pots and march up and down the streets. They gather around el obelisco, waving placards and chanting slogans. But for what? Isn’t asking the State not to steal your money a bit like lobbying the KKK to amend their unequal employment policy? Ain’t gonna happen, brother! Just as racism and bigotry form a core part of the KKK’s…ahem… “value set,” stealing, coercion and violence are defining components of the State’s genetic code. After all, if it didn’t steal from you, it wouldn’t be called “the State”…it would be called “a business,” and you’d be free to purchase its goods and services (such as they are)…or not.

“All governments engage in larceny and fraud,” observed Bill Bonner earlier in the week, “using their authority to transfer wealth and power from the outsiders to the insiders. But the clever government does so by deception… while the clumsy one does so with no pretense or excuses.”

We have little doubt that ten-to-one will soon become twenty-to-one… thirty-to-one…one-hundred-to-one and beyond. It’s in the nature of governments to steal from their people. The Argentine people have come to expect it. They march along and bang their pots…but secretly they are making escape plans. Those in the “civilized” world, by contrast, have no idea what’s coming. Our sense is, they’ll find out soon enough…

Regards,

Joel Bowman
Editor at Large for The Daily Reckoning
Follow on Twitter: https://twitter.com/JoelBowman

Leaders of two of the world’s largest criminal organizations gathered in Washington, D.C. this week for the World Bank/IMF Spring Meetings. The Mob fête was attended by all the usual suspects…central bankers…trade secretaries…finance ministers…policy wonks and assorted other rapscallions and reprobates.

Their wooden pledges sounded nice enough…

U.S. Treasury Secretary Jack Lew called for “universal women’s empowerment.” World Bank President Jim Yong Kim called for “universal education.” As for the IMF’s own Managing Director, Christine Lagarde, madam had ideas of her own:

“What we need is a full-speed global economy,” she told the audience, “growth that is solid, sustainable, balanced, but also inclusive and very much rooted in green developments.”

“Why stop there?” we wondered. Why not promise strawberry ice-cream for the elderly…and winning lottery tickets for all inner city families of five or more…and high-speed Internet for orphans…and…and…and…

It’s easy to make pledges, Fellow Reckoner, to promise every downtrodden dolt and hard knock story something for nothing. The hard part comes in actually paying for it all. As everyone knows, strawberry-flavored Internet lottery jackpots don’t come cheap!

And yet, the powers-that-won’t-stop-being don’t seem overly concerned in the face of this inconvenient accounting truth. Shocker! Their masterly payment plan is, to quote the Talking Heads, the “same as it ever was.”

As we remarked in these pages a couple of Weekenders ago, the Fed, the BoE and the ECB are providing a massive “jolt” of freshly inked currencies to their respective economies, hoping to prop up optimistic asset prices. The rate of expansion is, says Bill Bonner, “unprecedented in world history.”

We’re talking, of course, about ZIRP, QEI, QEII, Operation Twist (OP) and other such dubious, acronymic concoctions. All the tools’ tools, in other words.

But wait! Doesn’t EZ money policy lead to rank malinvestment and moral hazard…the exact same recipe that baked the world economy into such a sordid mess the last time? Well, yes.

As CounterPunch’s Mike Whitney explains, using this graph:

Investors have boosted their borrowing to near-record levels to load up on stocks. The last time that margin debt was this high was just before the bubble burst in 2007. In January, New York Stock Exchange (NYSE) margin debt tipped $366 billion, just shy of the 2007 peak of $380 billion. The Fed’s zero rates and $85 billion per month bond buying program (QE) have sparked the same irrational exuberance that preceded the Crash of ’08. Investors are piling on the leverage because they feel confident that Fed chairman Ben Bernanke will not allow markets to fall too sharply. (This is called the Bernanke Put.)

Skeptical Reckoners might be wondering, therefore, how do these Ph.D. ponies know where they’re going? How do they know their “extraordinary” measures will work? Even by their own admission, they don’t.

Speaking at the same D.C. gabfest, Lorenzo Bini Smaghi, a former member of the European Central Bank’s executive board, admitted, “We don’t fully understand what is happening in advanced economies.”

Yes, Mr. Smaghi, we all know that you don’t know what you’re doing. Rest assured, your ignorance was never in question. It is your — and your colleagues’ — arrogance that is on trial.

Like Smaghi, Sir Mervyn King, the outgoing governor of the Bank of England, must have been caught off-guard when he let it slip that, “there is the risk of appearing to promise too much or allowing too much to be expected of us.”

Again, Sir King (…Jr. III Highness Earl Duke etc.), let us repeat: Far from expecting too much from you, we would happily settle for nothing at all. In fact, we want nothing from you. No cure-all levers. No magic buttons. If only you and your meddlesome ilk could stay your chubby little hands. Alas, the possibility of aggressive inaction seems unlikely to prevail…

Reports CNBC: “The IMF was clear in its global financial stability report that it did not want to see an end to the extraordinarily loose monetary policy being implemented across rich countries.”

José Viñals, the IMFs head of financial stability, even went so far as to claim that central banks’ efforts were “absolutely necessary.”

And so, as their engines careen toward the precipice, the central planners busily shovel loads of blind incompetence into the blazing hot furnaces of their own ego. “Full steam ahead!” they holler. “Full steam ahead!”

Regards,

Joel Bowman
The Daily Reckoning’s Editor at Large
Follow Joel on Twittter: @JoelBowman

As you might recall from our scribbles last weekend, the price of a single unit of the digital currency had risen meteorically in recent times…from a “paltry” $12 back in January to a vertiginous high of $260+ this week…before plummeting back to the upper double-digits (as we write). What to make of it all? The question is deeper than a mere price chart reading…it demands actual thinking. More on that in a second…

Meanwhile, back in the world of “real” monies…

Stocks were up 300 points this week…at least as they are priced in the government’s rapidly increasing supply of dead president-emblazoned paper notes. Hmm…

Gold tumbled through the psychological $1,500 mark on Friday. Last we checked, an ounce of the Honest Metal was trading for around $1,480. A buying opportunity? Maybe…

Meanwhile, the Fed, the BoE and the ECB are providing a “jolt” of freshly inked currencies to their respective economies, hoping to prop up optimistic asset prices. The rate of expansion is, says Bill Bonner, “unprecedented in world history.” How will this all end?

“We don’t know,” asserts Bill, with characteristically emphatic uncertainty. “We simply note most of the world’s major central bankers are putting their money on the same color… and as the wheel spins… we urge dear readers to leave the casino.

“Neither in yen, euros, pounds nor in dollars should we be. For when the dust finally settles on this wild riot of radical gambles by central bankers, gold will be the ‘last man standing.’”

Which brings us back to the notion of money…and of man’s inextricable relationship to it.

First there was commodity-backed money: gold/silver/bimetal-pegged coins and the like. Then came politically-backed money: Think of the post-’71 U.S. notes, backed by the “full faith and credit” of the United States…and the formidable military industrial complex standing behind them. And now…what? A mathematically-based currency? That’s what the “bitbugs” would have us believe. But are they to be trusted? Will 2+2 always = 4? In the hands of the politicos, no. But in the safekeeping of non-Procrustean “rulers”…i.e., the market?

As we see it, the bitcoin concept can be roughly divided into three main “tiers.”

1. The Bitcoin protocol; the code upon which the bitcoin network, a decentralized ledger of transaction records, is secured. An open-source code, this has been wide open for would-be hackers to “crack” for four or five years now…maybe longer. It’s the “holy grail” of the “hacktiverse.” You’d think some basement-dwelling nerd would have cracked it by now. Of course, just because it hasn’t happened yet, doesn’t mean it can’t happen. And if it does, game over…at least for this iteration of the decentralized, digital currency experiment…

2. The peripheral service providers currently populating and building out the network’s infrastructure. These are the exchange portals, wallets, various apps and associated support software. This “downstream” market is extremely nascent and, as we’ve seen, highly prone to fracture under pressure…for now. And finally…

3. The price of bitcoin itself, largely — at this stage — driven by speculators and “get-rich-quickers.” (Again, for now…)

As we’ve seen in recent months, the network infrastructure is far from robust. But is it, to hijack a Talebian term, “antifragile”? Does it, in other words, become stronger, more resilient, under the increasing strain of speculator-driven stressors? The last crash, in which the currency increased some 30-fold in a matter of weeks…only to collapse 16-fold in a matter of hours, would seem to suggest so. Why? Because the underlying, first tier code remained strong, allowing the second tier participants to resume building out a stronger, more resilient infrastructure on its solid foundation. Antifragility.

The bitcoin economy of 2011 could never have supported a participation increase that drove the price of the currency to even $50, much less $100…or more. It fell from $30 per coin to less than $2. The message to downstream engineers was clear: you’ve got all your work ahead of you. After some post-shock frustration, they got back to work.

If you build it, goes the old adage, they will come. And come they did. In droves. This time, the network infrastructure cracked in spectacular fashion…though at a much higher pressure point. Moreover, the price fell far less this time around, in percentage terms, than in the last episode.

If and where it stabilizes is, of course, anyone’s guess…but the real question remains one concerning first tier integrity. Will the foundation upon which the concept is built remain strong? Additionally, will the second tier infrastructure participants continue to respond to corrections creatively, organically, building new and better services?

Markets that are “allowed” to crash, sometimes violently, are usually quick to adapt and evolve, something akin to Schumpeter’s “creative destruction.” They are dynamic, responsive, adaptive. In sharp contrast, markets that receive government/taxpayer-sponsored bailouts are “fragilized”…rendered deaf to the market’s timely lessons…and mute in response to the new demands and expectations of market participants.

This is a complex subject, Fellow Reckoner, one deserved of more head scratching in the future.

Joel Bowman
for The Daily Reckoning

“Taxes are what we pay for a civilized society.”

Its effortlessly officious author, Associate Justice of the United States Supreme Court Oliver Wendell Holmes Jr., could scarcely have been more wrong in his (albeit paraphrased) assertion. Unless, that is, the mustachioed Rooseveltian meant to define “civilized society” as an arrangement that favors and promotes rule by brute force and violence, rather than one of free and voluntary association.

If, indeed, that was Justice Holmes’ idea of “civilized,” we shudder to think what he regards as uncivilized. But shudder we will…

Let us consider, by way of illustration, the concept of the caveman, that apocryphal amalgam of prehistoric humans so often used to epitomize the unwashed, uncivilized elements of mankind’s past. To what does this boorish troglodyte resort when it comes to resolving complex matters of dispute? What is his go-to instrument for dealing with the problem posed by, say, the natural scarcity of goods? With what tool does he arbitrate over issues involving titles, rights, and claims?

Like Justice Holmes, Capt. Caveman’s preferred instrument of justice is… a club. Force, in other words. “It’s my way… or (insert oafish, baboonlike noises here) me club you to death.”

There is no opt-out here. No choice. And therefore, it must be said, no freedom. As the author Salman Rushdie (a man who has spent a good deal of his life under threat of force and violence from a particularly hysterical clutch of our fellow primates) once remarked, “Freedom to reject is the only freedom.”

Justice Holmes may have liked paying taxes. (He may have liked being flogged with a club, too. Who are we to say?) But by mandating that others do likewise, by employing the force of the state to ensure that they do, by denying them the freedom to reject the state’s claim on their property and to defend themselves against it, he is wielding the club — dangerously disguised as a gavel — of a decidedly uncivilized version of “justice.”

There are, of course, those questionless minds among us who take false refuge in such meaningless platitudes as, “But… but… but it’s the law!” To which we reply, “What kind of law is yours that seeks to endorse violence, rather than to protect us from it?”

“The purpose of the law,” observed classical liberal theorist Frederic Bastiat, “is to prevent injustice from reigning.” It is not to cause justice, in other words, but to shield us from its opposing force. And how are we to know when a law has fallen into the service of evil? The Frenchman offers this simple litmus test:

“See if the law take from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what that citizen himself cannot do without committing a crime.”

And if we find the state of affairs to be as such? Bastiat urges us to “abolish this law without delay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals.”

For Holmes and his wretched ilk, the difference between “them” and “us,” between savage and civilized, is not to be found in the distance between war and peace, between force and voluntarism, between slavery and freedom. His is a civilization measured in degrees according to the size and efficacy of the agent of force… and the sickening pleasure its beggarly subjects derive in forever dwelling on the harsh receiving end of it.

Of course, the liberty-minded recognize immediately, almost instinctively, that no amount of initiated force is ever tolerable in a truly just and civilized society. Indeed, this is the core tenet of the nonaggression principle. Writes noted free market economist Walter Block on the subject:

“The nonaggression axiom is the lynchpin of the philosophy of libertarianism. It states, simply, that it shall be legal for anyone to do anything he wants, provided only that he not initiate (or threaten) violence against the person or legitimately owned property of another.”

In stark contrast to this fundamental bedrock of freedom, Justice Holmes not only implicitly advocates the use of force… but explicitly revels in it as a kind of privilege for which to be eternally thankful.

Wherever this core principle is endorsed, it betrays in its proponents a profound disgust for the human species, a disgust so visceral that it compels, urges, lusts even, for their ownership over and enslavement of others… all for the slaves’ own good, of course.

The impulse to own and to be owned is rooted in a foul and reprehensible sociopathy, one forged from a deep self-loathing, at once slavish and brutal. As such, it stands in special need of constant and public denunciation, of fierce, unapologetic, and uncompromising resistance by all who strive to further the cause of liberty.

Joel Bowman
Original article posted on Laissez Faire Today

“More likely,” observes Laissez Faire Books’ Jeffrey Tucker, “the plan to tax all Cyprian bank deposits 6.75-10% will trigger one. Or maybe just the talk of it already has. We can’t know for sure, because the government of Cyprus has declared a banking ‘holiday,’ a term that means that the robbers take a vacation from being held accountable for their actions.

“True to the nature of government propaganda,” continues Mr. Tucker, “the Cypriot head of state, Nicos Anastasiades, says this ‘stability levy’ is necessary to forestall ‘a complete collapse of the banking sector.’ It’s the same kind of language we heard in fall 2008 — an intimidation tactic used to shove through TARP and unending bailouts.”

Predictably, the measures met with harsh resistance. Turns out people don’t like having their money stolen…even if they’re happy to receive money stolen from others. Reading from that tired old playbook, Cypriot legislators have since sought to shift the terms of the heist to focus on higher-net-worth depositors, those who are “able” to shoulder a larger portion of the “social responsibility.”

One new draft bill proposes that accounts under €20,000 ($25,900) be spared, while a larger scythe would be taken to those above that amount. “From each according to his ability, to each according to his need” was the tune to which Marx marched.

The question, of course, is will the masses fall in line? It seems likely. In times of scarcity, those with plenty (or indeed any) become unpopular. They begin to feel the targets on their foreheads…the sniper’s red dot burning into their brow. Then the crowds grow restless, whipped into a frenzy by government officials demanding action, each of whom has his own eye on a portion of the to-be-stolen loot. Folks with something to lose begin looking around nervously. Some bunker down…others head for the escape chutes…

“Back in the bad old days of 2009,” recalls Dan Denning of The Daily Reckoning Australia, “it was like Stalingrad every day. Trapped capital was encircled by wealth-destroying news events. Money that could still walk fled to the core of the global financial system.

“Are we going to see the same pattern again?” Mr. Denning wonders. “The weekend drama in Europe could prompt another money migration from the periphery to the core — from southern Europe to northern Europe and from the euro to the dollar. It depends on how self-aware and how arrogant Europe’s political leaders are.”

The moment may soon arrive when are again forced to choose between the certainty of government-sponsored theft…and the uncertainty of decentralized workarounds.

On that last note, one data point that has not gone unnoticed: While fear and uncertainty spreads across the European banking sector, that fringy cybercurrency we’re hearing so much about, Bitcoin, shot up roughly 25% overnight.

Maybe a 400%-plus increase YTD signifies a bubble…then again, parachutes tend to appreciate rather quickly when the plane begins to nose-dive.

Our advice: Grab a chute now before they’re all gone…

Regards,
Joel Bowman

Original article posted on Laissez-Faire Today

Overall, US equity markets rose by midday, boosted by better than expected jobless claims.

Weekly jobless claims fell more than expected to 332,000, while the four-week moving average dropped to the lowest level since 2008, indicating continued improvement in the labour market.

Gold, meanwhile, is lurking dangerously close to a two-year low. Hmmm… What to make of it all?

We don’t know any more than you do, Fellow Reckoner. If we had to guess, we’d abstain. And if pressed, we’d double down on that position. Perhaps that sounds lazy. Maybe it is. But that’s not, in and of itself, a bad thing. There are times when a lot of inaction is better than even a little over-action. Now might be one of those times…

Besides, the Feds take most of the fun out of the guessing game anyway. Those jobs numbers stink to high heaven. Here are figures that couldn’t lie straight in bed…cooked up by politicians that can’t spell the word “save” without the letters S, P, E, N and D (in caps, no less!). Invest four minutes analyzing their figures and you’ll quickly find you’ve wasted five.

Of course, the propensity to stretch the truth is not unique to US politicians. All over the world, in countries near and far, people posing as statesmen are fudging the data, massaging the message and generally picking their neighbors’ pockets. Here in South America the story is no different. Back across the Rio de la Plata, the Argentine government is doing what it does best, which is to say, it’s destroying its currency. Poor folks trying to save are forced to invent all manner of creative workarounds to escape the state’s tragic narrative. One measure is to bank outside the country, usually somewhere here in Uruguay.

Montevideo, Uruguay’s capital city, is a dump. There are some pretty, old buildings, sure…a few nice parks…a plaza or two. But overall, the place boasts a palpable paucity of attractive features. When the gods were handing out redeemable characteristics, Montevideo’s representative must have been taking a lunch break. But it does have a couple of things going for it (at least for now): a relatively safe and secure banking system and a currency that’s not yet singed around the edges. As such, wealthy porteños have been banking here for decades.

One might, if one were so inclined, hold a portion of his wealth at a bank here in Montevideo. It’s still relatively easy to open an account and, although the process is not quite “sin preguntas,” it’s much simpler than in Buenos Aires. A document proving income and a passport gets you most of the way through. Having opened an account, our hypothetical individual might choose to hold his savings here in US dollars (a relative bastion of security for those forced to use pesos). Then, once a month or so, this individual might journey to Uruguay to make a withdrawal. Returning home with a few dollars in his pocket, he might then choose to exchange them on the “blue market” at a far more favorable rate than what the government there claims as “official.”

The brecha, or spread, between the government’s 5-to-1 rate and the blue market’s near-8-to-1 is not insignificant. Those who can deal in dollars, therefore, do. Gresham’s Law: “When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.” (Wikipedia)

The phenomenon can also be seen with regards to that fringy cyber currency, bitcoin. A single coin goes for a little under $50. At the official rate, that’s about 250 Argentine pesos, give or take a few notes. But the market demands 400 pesos per coin. Contrary to the government’s assertion, markets — which is to say people — know their daily needs and wants better than any policy maker ever could.

Joel Bowman
for The Daily Reckoning

Nevertheless, the Kentucky senator has been all over the news this week. Social media feeds lit up Wednesday with messages of support for the man many see as the Libertarian Party’s next champion. The hashtag #StandWithRand flashed throughout the Twittersphere. Catchy Rand memes swept across Facebook networks.

What exactly had the senator done to inspire such impassioned furor?

Filibuster: n.
1. a. The use of obstructionist tactics, especially prolonged speechmaking, for the purpose of delaying legislative action.
b. An instance of the use of this delaying tactic.

At precisely 11:47am Wednesday, Senator Rand Paul began the act of filibustering. He began talking, in other words, for a very, very long time.

“I will speak until I can no longer speak,” he boldly declared. “I will speak as long as it takes, until the alarm is sounded from coast to coast that our Constitution is important, that your rights to trial by jury are precious, that no American should be killed by a drone on American soil without first being charged with a crime, without first being found to be guilty by a court.”

Let it never be said that we are opposed to the use of “obstructionist tactics” to delay, preferably indefinitely, “legislative action.” But it’s time to count the chips.

To be sure, the CIA’s ongoing drone campaign is a vitally important issue. We’ve reckoned on it many times in these very pages. (See here, here, here and here…for starters.) Still, one can’t help but notice how tightly confined are the terms of the “public debate”…how stymied the “discussion”…how lamentably theatrical the issue has become. Especially in the grandest theatre of them all: Congress.

A few things worth noting. Senator Paul was not, in this particular instance, asking that the Obama Administration cease its relentless campaign of murder against non-US citizens on non-US soil. Nor was he here suggesting that US citizens be spared death-by-Hellfire missile should they happen to be outside the fifty states when the thunder begins. Incredibly, he was not even asking that the Nobel Peace Prize-winning president rule out killing US citizens with weaponized drones in the United States “without [them] first being found to be guilty by a court.”

The man was simply asking whether the State might clarify its position vis-à-vis the use of unmanned aerial vehicles to carry out extrajudicial assassinations of innocent American citizens in their own backyard.

Thursday afternoon, the Attorney General of the United States, Eric Holder, replied to Paul’s 13-hour filibuster with a single-paragraph memo:

Dear Senator Paul,

It has come to my attention that you have now asked an additional question: “Does the President have the authority to use a weaponized drone to kill an American not engaged in combat on American soil?” The answer to that question is no.

Sincerely,

Eric H. Holder Jr.

Curiously enough, the Attorney General’s curt response appeared to have all but satisfied Senator Paul.

“I’m quite happy with the answer,” he told CNN on Thursday afternoon. “I’m disappointed it took a month and a half and a root canal to get it, but we did get the answer.”

Not so fast, senator.

Holder’s pithy correspondence might have been vaguely acceptable had it not contained so many conspicuously pregnant caveats, were it not perforated with conveniently malleable terms and had the issuing government not boasted an unwavering historical tendency to “creatively interpret” the letters of its own laws.

Take the politically pliable phrase “engaged in combat,” for instance. It doesn’t take much effort to imagine a situation in which it might be deemed expedient for the US government to reclassify domestic political dissidents as “enemies” and, therefore, “engaged in combat.” Presumed “combatants” might include, say, those who openly embrace an anarchist philosophy, one that, by its very definition, squares them off as “enemies of the state.” Or they might simply be civilians caught in the dronefire and reclassified as combatants after the fact.

If that last point sounds a bit paranoid, consider that it is exactly the same “trial by fire” process used by the Obama administration when counting the dead in Pakistan and other drone “hot spots” abroad. In May of last year, the New York Times ran a story detailing the government’s despicable accounting trickery (emphasis ours):

Mr. Obama embraced a disputed method for counting civilian casualties that did little to box him in. It in effect counts all military-age males in a strike zone as combatants, according to several administration officials, unless there is explicit intelligence posthumously proving them innocent.

In the unlikely case that the point here is lost, let us be crystal clear: The Obama administration already retro-classifies any male aged 16-65 who happens to be killed in a drone strike abroad as a “military combatant.” After all, the government argues, why else would they be killed by a drone strike?

Though we can’t imagine the posthumous exoneration of a victim to be of any succor to grieving widows and orphans, it does provide convenient political cover for thugs and murderers seeking to extend and expand their lustrously profitable drone wars.

The conscientious Reckoner might well be moved to ask what kind of sick, sociopathic germ could stand behind such a heinous campaign of lies and terror. Continued the Times:

This counting method may partly explain the official claims of extraordinarily low collateral deaths. In a speech last year Mr. Brennan, Mr. Obama’s trusted adviser, said that not a single noncombatant had been killed in a year of strikes.

And lo! Here we find the same Mr. Brennan, John Brennan, Obama’s trusted adviser, the man whom Senator Paul was to stand against…and whom was yesterday confirmed, by a Senate vote of 63-34, as the brand new director of the Central Intelligence Agency.

Regards,

Joel Bowman,
The Daily Reckoning’s Editor at Large

The Dow hit a new record yesterday. 14253.77 was the high water mark at the close…and the tide was still rising this morning. Surely this is good news, right?

We’ll answer our own question, emphatically: Yes and No.

Sorry to seem like a fence-sitter here, Fellow Reckoner…but facts matter. And all the facts aren’t quite in yet. The run up in stocks has been just one of the effects of Bernanke’s loose monetary policy. As readers of these pages well know, the Fed Head has pinned interest rates to the floor, forcing savers out of traditionally secure investments and into the go-go world of high risk speculation.

Everybody is in the pool, in other words. No wonder the water is rising!

Markets may indeed be “deep and liquid,” but that’s merely an assessment of quantity, not quality. In other words, it’s tough to tell whether stocks are rising because of strong economic fundamentals…or because a bunch of chubby tourists piled into the shallow end.

Moreover, records only really matter when you have a reliable unit of measurement in which to calibrate them. Stocks are most commonly measured in dollars. But is a dollar a reliable unit of measurement? Bernanke and his fiddlesome antecessors at the Fed were charged with maintaining the greenback’s integrity. They’ve been on the job for an entire century. And yet, weighed against gold, the once-mighty buck has lost roughly 97% of its value. And now stocks, measured in shrinking dollars, are proclaimed to be at an all-time high. And the Feds get the credit! What kind of Procrustean scam is this?

It’s as if, while enduring rampant hyperinflation, Zimbabwean businesses were to gloat about “record profits” because they sold a loaf of bread for a million Zimbabwean dollars. Never mind that it took a trillion of them to buy a roll of toilet paper, a fact that probably inspired more than a few people to simply cut the middleman out altogether, giving their single-ply currency the treatment it sorely deserved.

Or, to switch metaphors, it’s easy to declare yourself a giant when you shave 97% off the value of a meter. Measurements matter, in other words.

Tellingly, US stocks are NOT at an all-time high in terms of gold…or oil…or virtually any other commodity of real world value. They are, however, at an all-time low…adjusted for bitcoin.

In the end, there’s no problem so bad that a Central Planning committee can’t get together and make it still worse. These are the men and women who arrive at the construction site with a wrecking ball, and promptly get to work.

Joel Bowman
for The Daily Reckoning

Would-be buyers of the fringy cyber experiment have had to watch as the price of their beloved currency shot to within (as of this writing) a few cents shy of $35 per coin. No buyer wants to see that kind of action…unless they are also an “already boughter.”

In other words, current owners and maybe-one-day sellers are sitting fairly pretty. Since the beginning of January, the bitcoin price in dollars has rocketed roughly 270%. Not a bad move for those who spent the past couple of months “hoarding.” (The correct word, let it be on the record, is “saving.”) And not bad for a currency that suffers the ignominy of existing without the indispensable aid of a central bank.

To be sure, true believers will still be scooping the controversial coins up for what they surely see today as a bargain. As we remarked in this space earlier in the week…

“Speculation about the potential value of a single coin varies widely [in the bitcoin community]. We’ve heard wide-eyed forecasts running into the many thousands of dollars. That’s why enthusiasts are scrambling to build their stash now, before the price rockets….Get rich or die mining, as they say.”

Of course, as we all know, the Bitcoin crowd is really just a of cabal of dissidents, brimming with lunatics who would trust the free market to its own devices, without the tireless vigilance and service of the government. (“But who would build the…?”) What might happen if these malcontents were to gain traction, with their silly little ideas about “liberty this” and “freedom that”?

Imagine for a moment, Fellow Reckoner, a scenario in which the value of a currency was determined by the people who actually use it, and not by some all-knowing, all-powerful demigod on a Federal Reserve board. What might happen to central banks as they exist today?

Imagine that fees and charges more or less disappeared, so that opening a digital wallet was as easy as setting up an email account, and sending and receiving payments as simple as firing off a text message. What might happen to banks and financial institutions that today shower their loyal customers in myriad penalties and fees?

Imagine that bureaucratic red tape vanished into the ether, so that anyone with a sound idea and the gumption to see it through could enter the self-regulating ecosystem of service providers without need of state license or permit? What would happen to that friendly monopoly of mega banks steadfastly committed to fragilizing the global financial system…not to mention the chubby-mitted congress of politicians diligently taking bribes from them on our behalf?

Imagine that transactions of the currency were virtually anonymous, so that individuals could conduct their daily business, buying and selling goods and services, in cryptographically-ensured security and privacy. What might happen to the lifeblood of The State when it is unable to easily invade the privacy of its citizens in order to track and steal their money for them?

Imagine that…

No! Let us imagine no more! We must put a stop to this. We must rage against these margin-traipsing ne’er-do-wells. And we must sully the name of their wretched cyber currency initiative.

And finally, we must hope the bitcoin price falls back through the floor…so a better buyer again we can be.

Regards,

Joel Bowman
The Daily Reckoning’s Editor at Large
Twitter: https://twitter.com/JoelBowman