“In the event of hyperinflation,” warns Glen Bradley, who has sponsored one such proposal in North Carolina “depression, or other economic calamity related to the breakdown of the Federal Reserve System… the state’s governmental finances and private economy will be thrown into chaos.”

And with that we find ourselves in peculiar territory this morning.

We’re on a train to D.C. to meet with fellow conspirators — gentlemen from the ‘left’ and the ‘right’ — who share in the belief gold must be reintroduced to the global monetary system. It’s become an unintentional hobby of sorts.

The meeting is classified at the moment, so we’ll reserve comments for another time.

But our current mission is only part of what’s making us uneasy.

We begin today by briefly exploring what our line of work is all about. Scientists who’ve studied probabilities and plotted them on a chart typically find a bell-curve distribution — in which the most likely events bunch up in the middle of the curve.

But a funny thing happens out at the ends of the curve, where the rare events are registered.

“Scientists have found small bumps and bulges,” explains Bill Bonner. “Things that were not expected to happen very often actually happened more than they thought.”

“’Hundred-year floods,’ for example, happened every 88 years. ‘One in a million’ shots hit their mark every 700,000 or so. Statisticians refer to these odd bulges on the extremities of bell-shaped curves as ‘fat tails.’ Instead of tailing off as they are supposed to, the rare events seem to swell up where you don’t expect them.”

We are in the business of anticipating fat-tail events — while the “mainstream media” sit in the middle of the bell curve. Click the graph to enlarge and you’ll get the idea:

The problem is that since 2008, “fat-tail events” — like the collapse of the U.S. dollar and the dismembering of the Federal Reserve system — have become harder for us to stake out.

We were once derided as “doom and gloomers.”

Now doom and gloom has become downright fashionable. Heck, we see the National Geographic Channel debuted a show last night visiting survivalists in their bunkers… and here we are carrying on with business as usual in the “belly of the beast.”

With all that in mind, we daresay that declaring the mother of all financial bubbles might be passe. Don’t get us wrong: It’s still inevitable the bubble will pop.

But today we throw in the towel and make a concession: The monetary mandarins will successfully inflate the bubble a few months longer. And the peace we expect to break out once they’re defrocked of their power and prestige will have to wait for another day.

“The Federal Reserve Open Market Committee (FOMC) has made it official,” writes Daily Reckoning regular Charles Kadlec at Forbes: “After its latest two-day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years.”

And that’s if everything goes according to the plan… based on the Fed’s now-formal target of 2% annual inflation.

Likewise, the Federal Reserve’s latest figures on consumer credit jumped in December — to an annualized 9.3% rate, on top of November’s 9.9%.

We’ve seen nothing like it in 10 years — not since the Fed poured gasoline on the fire first ignited by the tech bust in late 2001 made it possible for automakers to offer 0% financing.

Yes, student loans are a big part of the growth, as they’ve been for many months now. But auto loans are up big, and even credit card use is growing again.

The Wall Street Journal talks to a bank president in Colorado who says loan volume is up because more people now qualify and they’re willing to take on more debt.

The paper also profiled a couple in Pennsylvania financing a new SUV. “We had looked at our budget, and it was something we knew we were comfortable affording,” said Heather Davidson. They’re buying a 2012 Nissan Armada for $57,000.

Presumably they got every bell and whistle available, since the manufacturer’s suggested retail for the base model Armada is $40,275. But hey, why not splurge and trick the thing out? It’s easy payments of $650 a month for the next 72 months, the paper says.

Six years? Oy…

Addison Wiggin
for The Daily Reckoning

Of Fat Tails and Fashionable Gloom and Doom originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

We’d prefer to invite you to a quieter place, Fellow Reckoner…somewhere we could talk in private. A speakeasy, perhaps. Somewhere off the radar. Alas, that’s becoming increasingly difficult.

In fact, according to recruitment propaganda handed out by the FBI and the Department of Justice to Internet cafe owners across the country, a person may be considered “suspicious” if they “are overly concerned about privacy” or if he/she “attempts to shield the screen from view of others.”

Other “Potential Indicators of Terrorist Activities Related to Internet Café,” according to this particular flyer, include, “paying with cash,” traveling an “illogical distance to use [the] Internet Café,” acting “nervous” or exhibiting “suspicious behavior inconsistent with activities.”

What constitutes an “illogical distance,” we wonder? Two miles? Five? Twenty? What about visiting a cafe while on vacation? Is that an “illogical distance” from a person’s home? Come to think of it, what does an “illogical distance” even mean? Negative three miles? Minus six miles? Moreover, how would one even know the distance a person traveled to email grandma or fill out online job applications? Should we be spying on them?

Well… Yes, say the Feds.

If a fellow citizen arouses your suspicion — based on what must surely be the vaguest criterion imaginable — the federal agencies encourage you to “be part of the solution.” How? Well, they’d like you to…

“Gather information about individuals without drawing attention to yourself. Identify license plates, vehicle description, names used, languages spoken, ethnicity, etc.”

They’d like to recruit you, in other words. Just imagine, a whole community of spooks, moles, informants, sleuths and…

Wait…who WOULDN’T be nervous in an Internet Café in the USA these days?

And that’s not all. The Fed’s cheerfully-titled “Communities Against Terrorism” flyer series identifies 25 “threat areas” where you might encounter suspicious persons. These include such notorious ne’er-do-well hangouts as:

• Dive/boat shops

• Martial arts centers/Paintball

• Hobby shops

• Farm supply stores

• Financial institutions

• Electronics stores

• Shopping malls

• Hotels/Motels and, just to be on the safe side,

• The General Public

In each of these “threat areas,” the Feds helpfully outline a suggested course of action for those who wish to be part of their “solution.” Again, snitching, spying and behavior generally bordering on paranoia and harassment seem to capture the general gist of it.

For example, if you are out and about in the “General Public” one weekend and you happen to notice “people over dressed for the weather,” the Feds would like you to embark on a snooping mission, maybe even involving following “Mr. Tight-Knit-Cashmere-Cardigan-on-a-Late-Summer-Day” to his car. And don’t be scant on the details. Explains the flyer:

“Providing a detailed description of persons or vehicles is imperative for a successful follow up by law enforcement personnel.”

We’ll come back to exactly what a “successful follow up” means in just a second, but before we get to that…

What to do if your suspected, inappropriate fiber for the season-wearing, possible perp-to-be notices that you are on their tail? And what if, after being stalked through a public place by someone they don’t know, this sketchy individual becomes nervous and departs quickly when you approach them?

Well, they’re only digging themselves deeper. According to the Potential Indicators of Terrorist Activities Related to the General Public flyer, “departing quickly when seen or approached” could be grounds for further suspicion. It says so right there, in the section helpfully titled, “What Should I Consider Suspicious?”

Also in this section: “Questions regarding sensitive information such as security procedures or systems,” “Vehicles that appear to be overloaded,” and, again, just to be safe, “People acting suspiciously.”

But back to the “successful follow up” for a second. What, exactly, would that look like? What sinister plots and stratagems might all this covert invigilation and spying on each other help foil?

We told you about the foiled plot to destroy America involving two British, twenty-something hipsters last week. Well, now there’s the case of telecommunications sales manager Saad Allami, a man who knows a thing or two about living in a…eh…“watchful” community.

Mr. Allami was arrested last month while picking up his 7 year-old son from school in Quebec. During the next 24 hours, while he was being detained, a team of police officers (heroes/patriots/national treasures) stormed Mr. Allami’s home, telling his wife she was “married to a terrorist.” Meanwhile, Mr. Allami’s colleagues, who were on their way to a conference in the Big Apple were also detained at the US border for hours due to their “connection” with Mr. Allami.

And what had Mr. Allami done to deserve this, the swift hand of justice? The Canadian Press provides the shocking details of his master plan:

On Jan. 21, 2011, Allami sent a text message to colleagues urging them to “blow away” the competition at a trade show in New York City.

According to Mr. Allami’s lawsuit, “The treatment of the plaintiff and his wife was cavalier, illegal, aggressive, accusatory, and in violation of their most fundamental rights.”

Exactly as you’d expect, in other words.

Like we said, we’d love to have spoken to you in private, away from the prying eyes and ears of Big Brother…and his thousands of officious little goose-stepping generals on the ground.

But, as you can see, we can’t. He is everywhere. He is everyone and anyone. We know he is listening. And now, so do you.

Act accordingly.

Joel Bowman
for The Daily Reckoning

Why Personal Privacy is Now Public Enemy #1 originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

One of the more striking features of this whole modern spectacle must surely be the stark contrast between the state and the free markets that exist stubbornly, gloriously, in spite of its best efforts. Wherever evidence presents itself, it appears to do so with the sole purpose of expressing this juxtaposition in ever-higher relief.

This is no mere coincidence, Fellow Reckoner. The two entities are day and night…white and black…truth and government statistic. To the extent that the former exists, the latter does not. One produces; the other consumes. One adds value and meaning to peoples’ lives; the other subtracts value and feeds on the self-worth of those it engulfs. One is dynamic, responsive, nimble and creative; the other is brittle, deaf, lethargic and breathtakingly inelegant in all its forms. One serves customers, the other serves sentences.

It might well be said that, while the free market bends over backwards to serve the needs and desires of individuals, the state merely bends individuals over backwards.

The latest battle between these diametrically opposed nemeses is today being played out in the theater of intellectual property rights. Thanks to shared, copied articles, you’ve no doubt read all about it here and elsewhere. (In addition to some excellent commentary in these very pages, we would further refer interested Reckoners to this piece, penned by Mr. Stephan Kinsella, a man many consider the libertarian expert on this most important subject).

To be sure, the IP skirmish is just one of many such political hot spots, but it may well be one of the most important.

Free individuals’ ability to copy and learn from each other (without denying anyone else a single atom of realized, tangible or even “ownable” property in the process) is an important — arguably vital — tool in our ongoing struggle against the oppression of the state. It is an advantage, in other words, of immeasurable importance and one we surrender at our peril.

To illustrate the point, here is an excerpt from an excellent article by Kevin Carson that appeared on the Center for a Stateless Society website earlier this week:

Because local nodes in self-organized networks are free to take action or innovate without waiting for permission from an administrative apparatus, and every other node in the network is similarly free to learn by example and adopt the innovations without permission, they fully exploit agility advantages of networked communications in ways that authoritarian hierarchies are unequipped to.

[And here is a link to the full article, which we are happy to share with you without permission from the author, in case you’re interested: Why the State Will Fail.]

By larding itself with bureaucracy, inefficiency and structural rigidity — all designed to serve the privileged, politically-connected looter class working the machine behind the curtain — the state positions itself at a considerable disadvantage with respect to the free markets — the self-organized networks — that it seeks to crush.

Happily, we don’t have to follow this path by subscribing to the state’s sinister web of dysphemisms and doublespeak. We can, instead, reject its definition of sharing and learning and emulating as “pirating,” and as something, therefore, to be outlawed. We can likewise reject the state’s logically-circular notion that ideas — non-scarce, un-ownable patterns of knowledge — ought to enjoy violence-backed protection against “aggression”…from a violence-based institution that exists only because of aggression.

Most private citizens would have the decency to feel embarrassed if they had to defend this warped sort of logic. The state, on the other hand, revels in its position…but only because it doesn’t have to defend it. It simply claims the right to enforce it. A big difference, you’ll surely agree.

But here, too, the state’s designs to undo all that humanity has come to enjoy as a result of said copying, emulating and learning from each other comes unstuck. How, exactly, does one grant — much less enforce — an unnatural monopoly on intangible, infinitely reproducible concepts? How does one erect a protective circle around things that have no physical properties?

The state’s strategic efforts (SOPA, PIPA, ACTA and the like) to crack down on the spread of ideas ultimately amount to little more than a woeful, modern day adaptation of the mystical dream snare. Fortunately for us, ideas (and dreams) cannot simply be “caught” in a net…just as they won’t be caught on the net. The brave individuals who daily resist this tyranny ingeniously find workarounds to the state’s feeble-minded aggressions. And bravo to them!

Continues Mr. Carson:

We saw this recently with the development of Firefox’s DeSopa circumvention utility before SOPA even came up for a vote, and Anonymous’s massive same-day DDOS attack in response to a federal takedown of MegaUpload that had been months in the planning. Last summer Tor developers released a workaround the very same day Iranian authorities thought they’d shut down the encrypted router network.

The second the state constructs a wall, 2…4…8…10,000 copies of the very idea it was built to contain emerge on the other side. They are like ornery little neutrinos, seemingly popping in and out of existence as if only to mock the government’s Neanderthalic, cinder block goals.

Fortunately for us, good ideas don’t need or seek protection, nor do they exist to serve any one master. They are non-scarce entities and, as such, are here to serve us all.

On that last note, if you would like to share, copy or “pirate” any article you see appear in The Daily Reckoning, we’re making it as easy as possible. You can:

1) Go to our website and forward the link to your favorite articles to friends or,
2) Find and “like” us on Facebook, where you can share our articles or,
3) Do likewise by following us on Twitter.

As the author Paulo Coelho recently wrote in a fantastic blog post (which you are free to read here):

“Pirates of the world, unite and pirate everything I’ve ever written!”

Joel Bowman
for The Daily Reckoning

How Piracy Works Against an Unnatural Monopoly originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Recall from yesterday’s 5 that in his monthly letter, Gross groused that near-zero interest rates would hamstring developed economies and even “give a rise to commodities and gold as store of value alternatives when there is little value left in paper.”

In a follow-up interview, Gross was asked to pick between Obama and Romney in a hypothetical general election matchup. He begged off the question, and then proceeded to turn the name of the good doctor into an adjective.

His attempt to elaborate was thin on specifics, but interesting: “I think both parties have basically done the same thing… Both parties have followed a policy that hasn’t promoted long-term investment in the United States. And I think, ultimately, we need to produce things, as opposed to paper.”

Say it ain’t so…

From Washington state, we see the emergence of a group of rogue legislators whose activities might be worth watching.

Reps. Matt Shea and Jason Overstreet are sponsoring a bill affirming the legal tender status of gold in the Evergreen State.

That alone isn’t remarkable. Similar moves are afoot in other states, and it’s now the law in Utah… although as we noted at the time the practical effect is limited.

What really got our attention is that Messrs. Shea and Overstreet are among five sponsors of a bill standing up to the National Defense Authorization Act — or as it’s come to be known around our office, the Repeal of Habeas Corpus Act.

The Washington State Preservation of Liberty Act condemns the law’s provision for detention of terrorism suspects indefinitely and without charge. And it goes a step further, prohibiting state and local employees — including Washington National Guardsmen — from cooperating with federal officials enforcing the law.

We have no idea whether the bill will pass or, if it did, what the practical impact would be. But in another strange item getting our attention this morning, we have a good idea what the worst-case scenario would look like.

“In the next couple of years,” writes our friend John Robb at Global Guerrillas, “the number of advances in technology, deployments, use cases and awareness of drones will be intense.

“In five years, they will be part of everyday life. You will see them everywhere. Not just one or two drones. SWARMS of drones.  Tens. Hundreds. Thousands. Millions (potentially if the cost per unit is small enough).”

Mr. Robb then points us to this video of “experiments performed with a team of nano quadrotors at the GRASP Lab, University of Pennsylvania.”

Imagine a swarm of these descending on the Washington state Capitol building…

Using drones, “A small number of people in Washington, D.C.,” writes Mr. Robb, “can control/operate a vast 24/7 killing field for very few $$.

“Even a mildly radical post to a blog, Facebook or Twitter (particularly if it could lead to a flash mob or an Occupy-style protest) would invite inclusion on the drone assassination list (in that case, the occasional flash of a car being blown up by a drone patrolling a highway and IDing a listed driver will become common).”

Bill Gross and the rogue legislators in Washington are on notice.

Addison Wiggin
for The Daily Reckoning

Taking Back Habeas Corpus originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

How does this place handle the high costs of this labor? It’s the sort of question that is impolite to ask. A passing familiarity with the existing labor regulations, mandates, taxes and edicts on resident documentation permits anyone to figure this out. The place survives and thrives because all these niceties are ignored. The whole arrangement works through quid pro quos, barter, cash, underage labor and undocumented workers.

They know it. We know it. No one is hurt.

Consider another case lately in the news. A report from ABC did some sleuthing on educational institutions all over Australia, where government demands that everyone sign up for public school or officially register as home schooling. The report estimates that 50,000 families completely ignore these rules. Some families don’t believe they should have to register. Others have discerned that there is more risk by going legal than schooling underground.

We all know of such cases. We know a person who bakes cheesecakes in her kitchen and sells them to friends — all while ignoring licenses, health regulations, mandates on oven size, zoning laws and all the rest. Her kids help her in exchange for a weekly allowance — an arrangement that looks a lot like child labor. We know of people who have one normal job but also a job on the side making jewelry, designing websites or tutoring. They prefer cash.

All these small anecdotes — and we know many of them — come from every place in the world, especially with the recession’s intense economic pressures. Faced with the choice of complying with government or making a decent life for themselves, people tend to choose the latter. So it is with hundreds of street vendors in San Francisco. It’s this way for thousands of workers in Shanghai who make licit products in the day and “pirated” products at night.

This will be increasingly true in the digital economy now that the US government has shown its teeth and arrested and destroyed property in the name of enforcing copyright. The Web will not suddenly become the great land of compliance. Instead, those providing gray-area services will become more anonymous, less traceable, more private and obscure.

This is already happening, as ever more people are being forced to use IP-scrambling proxies to surf and put their content behind impenetrable walls. There is a tragic loss here, but it might prompt the final showdown in the great struggle between power and market.

Digital or not, the state can’t make trading, sharing and associating go away. It only inspires the traders and entrepreneurs to avoid risks in different ways.

During Prohibition, the speak-easies sensing a threat would change the passwords to get in the door. With the massive increase in government all over the world, vast swaths of the world economy have begun to operate just like these speak-easies of old. They were zones of freedom, but their operations were distorted because they didn’t have access to law and courts and because the people who ran them were from a class of citizens that was willing to take crazy risks.

We know all of this anecdotally, but what does it all amount to in the macroeconomic sense? I’m right now reading Stealth of Nations by Robert Neuwirth. It is a mind-blowing book because it is the first in our time to attempt a broad look at the meaning of all this unregulated, untaxed, unofficial economic activity. Neuwirth estimates that fully half the world’s workers are involved at some level in what he calls System D.

This is the sector that is variously called the “underground” and the “informal sector.” He prefers System D (the street term derived from the African French word for highly motivated people) because it is nonjudgmental. It refers simply to the sector of economic life that exists “outside the framework of trade agreements, labor laws, copyright protections, product safety regulations, anti-pollution legislation and a host of other political, social and environmental policies.”

He documents the amazing workings of System D and demonstrates that it is the world’s second-largest economy, amounting to economic productivity of $10 trillion, which is probably a low estimate. At the pace at which government is growing, System D is set to employ as many as two of three workers by 2020. My own sense is that Neuwirth actually underestimates the size since he overlooks sectors like health, education and finance — which are surely three of the fastest-growing components of System D.

Neuwirth himself is not a libertarian or a free market thinker in any sense. He is a reporter with a lefty bias — a genuine leftist who believes in exalting the contribution of the poor and the working classes to the social and economic order. His reporting led him to discover that a main driving force for the classes is the need for economic relationships, and then also to notice that the state itself is the main barrier to their advancement.

He remains ideologically conflicted throughout the book. For example, he rails against child labor on one page, but then notes that were it not for child labor, many kids around the world would not be able to buy clothes, food and education and would likely turn to prostitution or some form of subjugation. But ideology is not the main contribution here. It is framing up the reality in a way that we can become conscious of the whole.

Reflecting on the sheer vastness of this sector of life, one realizes the fiction, for example, embodied in official government statistics that record only the on-the-books sector of economic life. These agencies are pumping out half-truths and whole myths every day. One further realizes the immense damage that would be done to humanity in general should there come a time when government actually managed to enforce all its edicts. It would be catastrophic. We owe much of our prosperity to people’s willingness to enter the rebel class.

Regards,

Jeffrey Tucker
for The Daily Reckoning

The Speak-Easy Economy originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

What we know so far…

First, it was clear from the get-go that there was a bubble in finance and housing. The only people who couldn’t see it were the people in finance and housing…and the feds. It reached its peak in ’05-’07…then, exploded.

Second, it was obvious that the US economy entered a period of debt destruction — a Great Correction, we called it. There was never really any hope of ‘recovery.’ Once it blows up, you can’t put the pieces of a bubble back together.

Third, the question then was how long the Great Correction would last…which depended on what it was correcting. No one knows. We’re still correcting the debt bubble, which could take another 10 years or so. But this correction could be tough; there are other things going on. Which led us to start asking questions about what we don’t know:

Can any government in the developed world survive? Will there be enough growth to keep them from going broke? Was the growth of the post-war period a fluke? Was the Industrial Era driven entirely by cheap energy…a ‘growth spurt’ that is now played out? Are the developed economies so burdened by zombie institutions that they can never hope to compete with the emerging markets? How do governments shuck off the zombies?

Those questions gave us something to think about.

We saw, for example, that the theories of government were mostly wishful thinking, apologia, and claptrap. Government is raw force…used to transfer wealth and status to the insiders who control it. The reason for the triumph of democratic government is that it gives more people the illusion of power…and welcomes more people as insiders (however modest their participation). As time goes by, more and more groups get special privileges, contracts, jobs, tax breaks, bailouts, protections and redistributions. Eventually, there are more insiders collecting wealth than there are outsiders producing it. Then, reform is practically impossible. The political system is entirely under the control of the zombies. The only resolution of this is catastrophe — either in the form of bankruptcy, hyperinflation, war, revolution, or some combination.

Zombies are expensive parasites. The more political power they gain, the less flexible and adaptable the economy and the society become. Capitalism is corrupted. The ‘system’ cannot correct itself. Politicians may talk about cutting spending, balancing the budget, and protecting the nation’s finances. But they can’t do it. The leeches want more and more blood. Sooner or later, the host goes broke.

But bankruptcy is not the biggest menace — not for the US. An empire risks losing its soul as well as its money. That is the drama we are watching in the Republican presidential race. The devil has already laid his trap — the Pentagon budget, Homeland Security, Patriot Act, the Defense Authorization Bill, sidelining Congress, torture, the use of drones at home and abroad, the pre-meditated murder of Osama bin Laden. It is probably just a matter of time until it springs shut.

“Wait, Bill,” writes a reader. “You keep going on and on about the Pentagon. But the military is going to take the budget bullet, if you know what I mean. That’s where the automatic cuts are focused.”

Oh yeah? More below…

Of course, we don’t know what will happen. We’re just watching, wondering…guessing…like everyone else. We’re also probably a bit more ‘pessimistic’ than most observers. Because we have a lower opinion of our fellow man than most people do. Not that he is bad. But he is subject to influence. And sometimes the influences upon him are rotten. The average person we meet is a decent enough character; we almost always like him. But the average Roman in Caligula’s reign was probably a decent fellow too. Sometimes people get trapped…where the worst take over…and decent people can’t stop them.

Remember the meeting at Davos with the “remodeling capitalism” theme? We were suspicious and dismissive. After all, no one ever modeled capitalism in the first place. It seemed vain to talk about remodeling it.

Besides, we’ve seen these architects and decorators at work before. We wouldn’t want to live in a house they designed.

Stephen Roach, an economist with Morgan Stanley and Yale, took part in the discussion. His account of the conference confirms our guess: this was the most prestigious meeting of dumbbells on the planet.

One speaker urged a repudiation of materialistic values. Another wanted to confront human rights abuses. Another wanted to make some point about the Arab Spring.

Two thirds of the participants, writes Roach in The Financial Times, “felt capitalism was not working.” But none seemed to have any idea of what capitalism really is…or what might be wrong with it.

A group of Occupy agitators broke into a chant: “No speeches. No stage. Join us!”

Join us? Why?

“We simply cannot continue to cut our defense budget if we are to remain the hope of the Earth,” says Mitt Romney.

Where do candidates get this sort of stuff? Who writes lines like that? Who takes them seriously?

According to Romney, the Earth itself longs for more US military spending.

His adversary, Newt Gingrich, says he thinks that Obama’s Pentagon cuts will make the US as vulnerable to attack as it was before World War II.

But the Pentagon won’t really have less money to spend. They’re not really talking about cutting defense spending; they’re talking about cutting projected military spending increases. Even after the ‘cuts,’ the US military will still be spending more than the next 10 biggest spenders put together.

While Republican candidates try to out-Rambo each other, the president himself sends teams of Navy Seals to rescue American hostages…and never fails to remind Americans that he was the one who ordered the killing of Osama bin Laden.

All the candidates think the American people want war. Or…what?

Actually, Americans don’t want war. The latest Pew Research polls show them more opposed to foreign military adventures than at any time in the last 15 years. They’re more interested in getting a job…and protecting their retirements. Given the choice, they would probably want to see military spending cut back and the money put into their own pockets.

But they won’t be given the choice. The system is rigged. Between them and the outcomes are 10,000 lobbyists and millions of zombies. This is why representative democracy doesn’t work.

Decent people will generally have decent responses to decent questions. Put to a ballot, how would American’s vote?

1. Should the US balance its budget…or continue to spend $1.50 for every dollar in revenue?
2. If you have to give up something, which would you rather do without: foreign wars…or domestic health and retirement benefits?
3. Should Congressmen be forced to leave Washington after a maximum of 2 terms?
4. Should members of Congress be forced to live by the same laws as the voters?
5. What do you say to a flat 10% tax rate, on all income…across the board…? Yes or no?
6. Should the President be allowed to kill or imprison anyone he wants, without due process of law?

Our guess is that the voters would do the right thing.

But they’ll never get the chance. The system is in the hands of the zombies now. Lobbyists, lawyers, connivers, chiselers, contractors, layabouts and scalawags and world-improvers — each one takes a little piece of the old republic…until there’s nothing left.

Tomorrow: how the zombies work…

Regards,

Bill Bonner,
for The Daily Reckoning

Persistent Questions About the Future of the US Economy originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Stocks went down. Oil stayed under $100. The yield on the 10-year note fell under 2%. And gold just kept going up.

The New York Times reported:

The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.

“What did we learn today? Things are bad, and they’re not improving at the rate that they want them to improve,” said Kevin Logan, chief United States economist at HSBC. “That’s what they concluded — ‘We’ve eased policy a lot, but we haven’t eased it enough.’”

The new forecast showed that the Fed expects to hit its inflation target over the next three years, but to fall well short of its goals for unemployment. The Fed projected that unemployment would drop no lower than 8.2 percent this year, just slightly below the current rate of 8.5 percent, and no lower than 7.4 percent by the end of next year. By the end of 2014, the Fed still expects that at least 6.7 percent of people actively interested in working would not be able to find jobs.

How do you like that, dear reader? The Fed has goals for unemployment and inflation. Targets. And it moves its policies around in order to achieve its goals.

Of course, it doesn’t necessarily hit its goals. Still, we’re supposed to believe that by trying to hit them it somehow encourages them in the right direction…

Most people believe they are successful. Which makes us wonder. Maybe the Fed should set goals for other things? Weight-loss goals, for example.

The idea is that by changing interest rate and banking policies the Fed actually influences inflation and employment. So, there’s a logic to thinking that the Fed should set targets and try to hit them. Trouble is, if it could really change things for the better, why does it put up with an 8.5% unemployment rate now — four years after the subprime crisis began? Why doesn’t it exercise its magic to bring the rate down…?

Well, we all know the answer. It can’t. Once you’ve taken interest rates down to zero…and announced that you’ll leave them there for the next three years…what more can you do? Drop money from helicopters? Right!

But no point in getting ahead of ourselves. Right now, interest rate policy doesn’t work. Because the money supply is expanded by retail and commercial bank lending, not central bank lending. The Fed lends money to the money-center banks. They’re happy to take the Fed’s money. But that doesn’t mean they will multiply it out by risking it in the economy.

So, for the moment, they might as well set a fat goal…too…

Excuse us as we pause in admiration and shock…

We had a sneaking suspicion that Alan Greenspan, former Fed chief, was not as dumb as he pretended to be. When he was on the job he could barely say a straight sentence. Probably because he didn’t really believe what he was saying.

Since he’s been unemployed, he’s begun to speak more clearly. In yesterday’s Financial Times he has an opinion on capitalism which is actually among the best in the series. In it, he makes a good point. Anti-capitalists are not really annoyed at capitalism. What bothers them is “crony capitalism:”

“Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favors on private individuals or business. That is not capitalism. It is called corruption.”

Or you could call it zombification…or geriatric capitalism…or, as Kurt Richebächer used to call it, “degenerate capitalism.” But it’s not real capitalism.

The ‘greed’ that preoccupies Occupy Wall Street demonstrators is not a feature of capitalism, Greenspan points out. It’s a feature of human nature. He might have pointed out that socialists are just as greedy as capitalists. They are just more corrupt. Rather than get their gains by honest deception, they get it by brute force — by using the police power of government to take it from others.

Greenspan provides an example of a corrupt system, designed to protect the wealthy from competition — immigration law. It keeps out qualified foreigners willing to work for less:

“The H1B program is in effect a subsidy for the wealthy, a policy that is anathema to the supporters of capitalism.”

He goes on to suggest that “improvements” to capitalism, such as those to be considered today in Davos, are not likely to be good ones.

Good on you, Alan.

*** “Hey Bill,” writes a Dear Reader, “How can you say America is going to Hell? We’re the most Christian country in the world.”

The trouble with Christians is that from time to time they render unto Caesar far more than he deserves…and lose sight of their own faith. Hardly had the martyrdoms stopped under Emperor Constantine than early Christians began pointing the figure, calling one another heretics…and then murdering each other.

Christian crusaders sacked the Christian city of Constantinople on their way to the Holy Land …where they did even worse mischief. In the 15th century, Lutherans under Charles V gave Rome a worse sack than the barbarians had a thousand years before. They raped nuns, murdered priests, and stole whatever they could carry off.

And now, once again, Christian mobs are calling for blood. Jon Utley, who we met Tuesday night, explains why America’s evangelical Christians are an ungodly bunch. Logically, they should support Ron Paul. He opposes abortion, gay marriage and promiscuity. He’s never been divorced. Two of his brothers are ministers. And he’s a Baptist. What more could they want?

What they want, Utley explains, is to live by the sword:

Why…are evangelical leaders now opting for Santorum, and before him Gingrich? The one big area of disagreement with Ron Paul is war; foreign wars and the domestic one against drugs. For this they oppose him. Santorum supports unending war in Afghanistan, backing Israel without limit and a new war against Iran.

Earlier there was a major far leftist candidate who supported all the issues that evangelicals oppose, and was a vocal proponent for expanding Israeli settlements on the West Bank and promoting the war on Iraq. He was overjoyed when open homosexuality became allowed in the military, he supports abortion, gay marriage and the leftist agenda for big, intrusive government; power to labor unions as well as expanded, unconstitutional police powers within the US. Evangelicals adore him and went all out to support him 2006, when he lost his primary race and ran as an independent for the Senate. He is Senator Joseph Lieberman of Connecticut.

All this shows how evangelical leaders put support for wars ahead of their social values. Their support includes every new law giving Washington ever greater police powers over American citizens, such as the Patriot Act, Military Commissions Act and the recent National Defense Authorization Act which tear asunder much of the Bill of Rights. Most also supported torture of prisoners of war (with the notable exception of Chuck Colson of Prison Fellowship). All this comes with their “social values.”

They loved George Bush. They were major supporters of the two wars against Iraq and the occupation of Afghanistan. Fear and ignorance of the outside world joins together with a belief that God uniquely favors America. Mostly poorer Southerners they also have strong affinity for the American military and its industrial complex. In addition, author Chris Hedges has written about how they are joined by many Northern blue collar families hurting from new technology, globalization, and poor schools in seeing government as out to undermine their communities and social values. Their solace is to hope for Armageddon.

Evangelicals like to quote a biblical text that God favors those who favor the Jews. However, for them they mean only Jews who make wars and contribute to chaos in the Middle East. Jewish peacemakers are cursed in their view. No tears were shed for Yitzak Rabin who negotiated peace with the Arabs until Israeli fanatics killed him. Indeed Pat Robertson said that Rabin was killed because he was trying to thwart God’s plans.

Herein lies their antipathy to Ron Paul, who in all other respects is a family values conservative. Indeed, most of them are Baptists who used to look upon Catholics with suspicion. Today they would prefer Senator Santorum or Newt Gingrich, both Catholics, to Ron Paul, who is Baptist. Santorum is no libertarian believer in limited government (he would use government to enforce his social values) and urges absolute support for Israel and the military industrial complex. These evangelicals don’t want peace because it would mean postponing Armageddon. That’s why their leaders oppose Ron Paul.

Jon Basil Utley is Associate Publisher of The American Conservative.

Regards,

Bill Bonner
for The Daily Reckoning

Unattainable Government Goals originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

“You mean the economy is really going to get worse, huh?”

“No, I mean it’s going to hell.”

We had been invited to watch the State of the Union address with a group of dinosaurs…a group approaching extinction with dignity and intelligence. You might call them ‘thinking conservatives,’ ‘paleo-conservatives’ or ‘constitutionalists.’ Whatever they were, they were not like the scoundrels currently running for the Republican nomination or the yahoos who vote for them. They were more like a renegade, retrograde group…like a secret society of White Russian intellectuals after the Revolution of 1917. They cling to hope…that the nation will come to its senses…that the constitution will again be honored…and that the old republic, established by the founding fathers, will be resurrected…

…they will hang on to their hope…until they are hanged by a rope.

“What do you mean?”

“I mean…it is on the road to hell… This isn’t just about losing money. Heck, the US is going broke. But you can go broke with honor. Good people go broke. Smart people go broke. Dumb people go broke. You can’t go to hell with honor. Bad people go to hell.”

“You’re saying the American people are bad?”

“Not by nature. No people are bad by nature. Even Republicans are not bad by nature. Or good. They’re all subject to influence. And now Americans are under a bad spell…being influenced to do terrible things…”

We turned to the TV. There was the commander-in-chief. The gist of his message was that the economy was getting better…thanks to all the feds’ nifty programs and fixes. He spoke of all the wonderful things he and his group of fixers had done.

But he didn’t seem content with what he has achieved. Something vexed the chief executive. It was not the economy. Nor the constitution. Nor the foreign wars.

What stuck in POTUS’s craw was ‘fairness.’ He didn’t seem to think there was enough of it. And he felt it was his job, or part of it, to determine what was fair…and how to make sure it happens.

In his wisdom, he has determined that it isn’t fair for a rich person to pay less than 30% of his income to…well…to the feds.

Here’s the Bloomberg report:

President Barack Obama, offering an election-year prescription to spur the economy, said the wealthiest Americans should pay more taxes in the name of fairness, to bring down the deficit and ensure those trying to make ends meet don’t have to “make up the difference.”

In his State of the Union address last night, Obama called on Congress to embrace a tax plan named for billionaire Warren Buffett that would require those making $1 million or more pay at least 30 percent in taxes. With congressional gridlock heightened by the 2012 election, there is little chance the proposal will pass.

“You can call this class warfare all you want,” Obama said in a nationally televised speech before a joint session of Congress. “But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.”

The president’s 65-minute address was directed at both voters and Congress. The populist themes — tax fairness, help for homeowners, cracking down on US financial crimes and unfair trade practices in China and investigating the lending practices that preceded the housing crisis — are those he will be repeating as he campaigns for a second term.

On the same day that Barack Obama revealed that 30% was fair, Mitt Romney revealed that he paid less than 14% of his income in US federal taxes.

Fourteen percent of income seems like more than enough to us. Serfs in the Dark Ages paid less. But it’s not enough to satisfy our main man, Barry Obama. He wants more. And all the low-life zombies who decide elections want more too. ‘The rich’ should pay more, they say.

Even a lot of the world’s rich people think so. Also in the news was a report telling us that a group of very nice billionaires has gotten together at a very chilly place and suggested that they should all pay more in taxes.

Ukrainian billionaire Victor Pinchuk wants to talk about income inequality. So does Irish billionaire Denis O’Brien and Indian billionaire Vikas Oberoi.

The three are among a contingent of at least 70 billionaires who are joining more than 2,500 business and political leaders at the World Economic Forum’s annual meeting in Davos, Switzerland, this week, according to a list of attendees and promotional materials obtained by Bloomberg News. A half-dozen of the richest participants, interviewed in advance of the conference, say economic disparity needs to be addressed.

Some sessions in a series labeled “Ensuring Inclusive Growth and Development” will touch on income inequality, said Kevin Steinberg, chief operating officer of the forum in the US. A panel titled “Remodeling Capitalism” is scheduled for Jan. 27 at the Swiss Alpine High School auditorium, six shuttle- bus stops away from the conference’s main location.

See there. A group of people in Davos is going to figure out how to ‘remodel capitalism.’ Out with the dowdy old rattan furniture. Throw out the chintz. Let’s get contemporary!

Already, there’s a problem. If you think you can remodel capitalism you are hopelessly already lost. You must presume someone modeled it in the first place. Who? When? How?

Fact is, capitalism is what you get when you don’t have master designers on the job. It’s what happens when POTUS and the feds leave it alone. It’s what you get when people are allowed to work out their own designs, one by one, willingly… without a gun to their heads… When they can make money or go broke themselves…and Washington doesn’t care.

But that’s the trouble with Davos. They’re all meddlers. They’re all world improvers. And they’re all making the world a worse place.

“If James Madison and the rest of the people who were at the constitutional convention came back to the US they wouldn’t recognize it,” said a man we met last night at the Watergate.

“They’d be appalled. They put all that work into the US Constitution…using every trick they could think of to limit the power of the executive branch. Because they knew that if you let the executive branch get away with it, it’s only a matter of time before it becomes a tyrant. It doesn’t matter whether you call it a king or a dictator…or an emperor…once you put too much power in one man’s hands, you will corrupt the man who has the power…and destroy the society that gave it to him.

“That was the whole point of the constitution. It was to limit power. They put in checks and balances…and the Bill of Rights. They thought about it. They figured it out. They wanted to be sure that the US really was different. The people were meant to be sovereign. They were meant to be in control.

“And the role of the government…and the only role of the government…was to protect the liberty and sovereignty of the people. And they knew too that the main threat to individual liberty was the government. That’s why you needed warrants…you need to have a trial by a jury of your peers…you needed habeus corpus. They built all these protections into the system to protect the individual from the government. They weren’t there to protect the individual from Al Qaida or from China. They were there to protect the individual citizen from the government.

“And now, with this anti-terrorism bugaboo all of those protections have gone away. The president has the power to put any American citizen in jail — for life. No charges. No witnesses. No hearing. No trial. No nothing.

“He can have you tortured. He can have you killed.

“I mean, President Obama has powers that King George would have envied. And he got those outrageous powers without a word of protest. Nobody said anything. Congress said nothing. The people said nothing.

“Yeah…I guess that’s what you mean about Americans going to hell. I guess they deserve to go to hell. But, of course, that’s exactly what we’re trying to stop…

“And now the prez has more power than Louis the 14th… And he was upposed to be an absolute monarch I mean, Louis had to pay for his wars. He had to pay for his public buildings. He had the nobility against him much of the time. He had much of Europe against him.

“America was lucky. It was far from Europe. It was protected by oceans from foreign domination. Every backwoodsman had a rifle and he knew how to use it. You know that when King George sent troops to put down the revolution a letter appeared in the London paper. It came from a man who had lived in the colonies. He told his countrymen that if they were shipping out to fight the Americans they should be sure to write their Last Wills and Testaments before they left. Because the Americans all had guns and knew how to use them.

“And that is also why the new government of the US went to such lengths to try to curb the power of the army. There was to be no standing army. The whole idea was a nation of free men. Armed and ready to protect themselves. And the constitution was very clear, if the president wanted to make war he had to convince congress not only to approve it…it also had to raise an army and raise the money to pay for it.

“But now the president can make war on whomever he pleases with no act of Congress. He doesn’t even have to ask the congress for money. There’s so much money sloshing around in the Homeland Security and Pentagon budgets that he can make war on anyone.

“The apologists for this kind of thing say the president will only use his new powers for good causes. But that’s not what history tells us. Even if one or two presidents resist…and govern more or less benevolently, like Caesar Augustus…it won’t be long before we get a Caligula, a Nero, or a Gingrich…

“So now we send out drones and hit squads to kill people in Afghanistan and Pakistan. And soon — it is just a matter of time before the power corrupts the US president, if it hasn’t already — that the drones and hit squads target Americans on American soil.”

“Yeah…you.”

Regards,

Bill Bonner
for The Daily Reckoning

Obama’s Fairness Doctrine originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

How their hands do tremble. How their voices quiver, knowing that a second of free expression might cost the author his life. How shall we ever find our way home again, to the land of the free?

We awoke with a start. A dystopic vision had crept into our peaceful, evening reverie. We had dozed off somewhere over the Rio del Plata, on our return to Buenos Aires from Punta del Este. The distasteful images — the jackboot thuds, the stale smoke of a dimly-lit bar, the vague but unmistakable sense of fear, of dread — lingered a bit longer in our sleep-fogged head. Better order some more of that cheap wine, we thought, reaching for our newspaper.

What is happening in the world, Fellow Reckoner? The age of secrecy, of spooks and goons, of disappearing enemies and suspicion among friends, is bearing down on us. The lessons of history were cast on stony ground, it seems, left to whither in the ignorance of night.

Barely a day goes by when we don’t read of some new encroachment on our freedoms. Last week it was the freedom to share information online. The L.A. Times relayed the details:

“After receiving indictments from a grand jury in Virginia for racketeering conspiracy, conspiracy to commit copyright infringement and other charges on Jan. 5, federal authorities on Thursday arrested four people and executed more than 20 search warrants in the U.S. and eight foreign countries, seizing 18 domain names and an estimated $50 million in assets, including servers run in Virginia and Washington, D.C.”

The four men were arrested in New Zealand, with, presumably, the collusion of the New Zealand government. The arm of the Empire is indeed long. So what did these individuals, who face a maximum prison sentence of 55 years each if convicted, do, exactly? They hosted a website, megaupload.com, that allowed for digital file sharing. In other words, they built the ultimate mixed-tape swap meet where individuals — millions of them — could gather to share media files.

Now, one might assume that artists would want their music distributed, to have their artwork seen and heard by as many eyes and ears as possible. Correct. In fact, that was exactly what megaupload — a website owned and operated by recording artists — was trying to accomplish. Explained Jeffrey Tucker in the Weekend Edition:

“[T]he trendline with Megaupload was clearly toward using the space to launch new artists with new content: not piracy but creativity. As Wired.uk wrote, this crackdown came shortly after Megaupload announced music producer Swizz Beatz — married to Alicia Keys — as their CEO. They had rallied a whole host of musicians including Will.i.am, P Diddy, Kanye West and Jamie Foxx to endorse the cloud locker service. Megaupload was building a legitimate system for artists to make money and fans to get content.”

Are you connecting the dots here, Fellow Reckoner? Let’s see…an old, entrenched industry with political clout (and a distinct lack of actual artists) hires the arm of the state to ride roughshod over a new, innovative competitor with a superior distribution model…a model actually endorsed by artists. It’s a classic case of parasites affecting to serve their host. And it doesn’t stop there.

In almost every facet of modern life, those privileged few, who were ostensibly appointed to “serve and protect,” have stolen into a role of bullying and intimidation.

Consider the Transport and Security Administration, for example, one of the most glaringly obvious examples of nefarious mission creep.

“We are your neighbors, friends and relatives,” declares their website, invoking an ominous Big Brother tone. The TSA was founded, again according to the agency’s website, “to protect the nation’s transportation systems so you and your family can travel safely.” Bare that in mind next time one of the 50,000 spooks is gate-raping you at the airport. Rand Paul, to his credit, refused this humiliating procedure just today on his way to Washington D.C. The Kentucky Senator was, of course, detained for daring to refuse the mandatory invasion.

We are reminded, constantly, of Orwell’s Newspeak Dictionary, in particular the reference to what the author calls “blackwhite.” Orwell described it as “…loyal willingness to say black is white when party discipline demands this. It also means the ability to believe that black is white, and more, to know black is white, and forget that one has ever believed the contrary.”

The obedient citizen will therefore recognize a department bent of launching massive, undeclared military offensives against nations afar as the Department of Defense. He will learn to refer to the department that invades his personal privacy and security as the Department of Homeland Security. He will come to know the department that claims the right to kidnap him from his place of business for helping people around the world share information as the Department of Justice. He will call the theft of his property and that of his fellow workers Internal Revenue. He will consider it his civic duty to surrender this property…and when he notices one among his group who does not pay, he will dutifully, with a sense of pride, notify the appropriate authority. He will salute soldiers who kill people he has never met, in places he has never been, as heroes. And when he sees something, you can be sure he will say something.

Eventually, before the citizen knows it, he will have become everything his state wants him to be. When black is white, and he knows it to be so, he will finally be a patriot.

Joel Bowman
for The Daily Reckoning

Knowing Your Role as an Obedient Citizen originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

In the old days, if you were stopped for speeding, the peace officer was polite — you could get out of your car, meet the cop on neutral ground, and chat with him. You didn’t have a serious problem unless you were obviously drunk or combative. Now, you don’t dare make a move. You better keep your hands in plain sight on the steering wheel and be ready for a Breathalyzer test without probable cause. The law enforcement officer will stand behind you with his hand on his gun. And you’re the one who’d better be polite.

L: There has been a polar reversal. The cops used to address citizens as “sir” or “ma’am.” Now, the correct response in a traffic stop is: “Yes, sir! I would love to inspect the bottom of your boot, sir!”

Doug: [Laughs] That’s right. My friend Marc Victor gives out magnetized business cards. People ask, “Why?” He answers that it’s so clients can put them on the bottom of their cars or refrigerators, so they can see it when the cops throw them to the ground.

L: Marc’s a good man. There’s a handy video on Marc’s website, offering advice on what to do if you’re pulled over by the police in a traffic stop.

Doug: A good public service announcement. At any rate, I think there’s no question that the US has turned the corner on every basis: politically, socially, morally, and now, economically…

L: Okay, but, Doug, you said that in 1979 too. The question is, how do we know when the door is going to close?

Doug: [Laughs.] Well, sometimes I feel a little like the boy who cried wolf. But Roman writers like Tacitus and Sallust saw where Rome was going before it got completely out of control. Should they have said nothing, for fear of being too early? Here in the US, it should have gone over the edge back in the 1980s, but we got lucky. There was still a lot of forward momentum, which can last for decades when you’re speaking of civilizations. There was the computer productivity boom. The Soviet Union collapsed, China liberalized, and Communism was discredited everywhere except on US college campuses. The end of the Cold War opened up vast areas of the world to the global market. And most surprising of all, Volcker tightened up the money supply and interest rates went high, causing people to save money and stop borrowing to consume.

L: That’s not happening this time.

Doug: No. We got lucky back then. Since the ’90s we’ve had a long and totally phony, debt-driven boom that’s now come to an end. I feel very confident that there’s no way out this time. There are huge distortions and misallocations of capital that have been cranked into the system for two decades. And not just in the US this time, but in Europe, China, Japan, and elsewhere.

The US is very clearly on the decline. The fact that in spite of bankrupting military expenditures to no gain for the American people, those in power are talking overtly and aggressively about attacking more countries — Iran and Pakistan in particular — is extremely grave. The fact that they attacked Libya — which, incidentally, is going to turn into a total disaster, a civil war that will last for years — shows it’s not stopping. Sure, Obama brought troops home from Iraq — another disaster that’s going to remain a disaster for years to come — but at the same time he put a company of combat troops in Uganda, of all places and Marines in Australia, to provoke the Chinese.

Back home, I’ve read reports that people are being stopped for carrying gold coins out of the US, in Houston in particular. Now we have authorization of the military to detain US citizens, on US soil, with no trail, and indefinitely, on the verge of becoming law. And Predator Drones have been used to hunt down farmers on their own ranches.

I could go on and on. This is not like spotting early signs of decay in America’s expansionist wars of the 19th century or things getting worse with FDR. Most people can’t see it with all the noise and confusion, but we’ve reached the edge of the precipice.

L: Don’t worry about exactly where the edge is, just assume it’s there and take appropriate action?

Doug: Yes. It really is there. It’s a clear and present danger. But most Americans are as oblivious as most Germans were in the ’30s. In fact, most of them support what’s going on, just as most Germans supported their government in the ’30s and ’40s.

L: So… don’t worry about figuring out exactly when the gates will shut. Assume they are shutting now?

Doug: That’s right. One should be actively and vigorously looking to expatriate assets, cash, and even one’s self. A prudent person will always be diversified politically and internationally.

L: What about people who have jobs they can’t continue doing from abroad and who need the income?

Doug: They should still prepare, as best they can, to be ready to go on a vacation when things get hot — a vacation from which they might not return for a long time. All that needs happen, with the hysteria that’s building in the US, is for a major terrorist incident — real or imagined — to occur. Homeland Security will lock the country down.

Look, I know it sounds extreme, and the comparison to pre-WWII Germany has been made many times, but it bears repeating. Germany was the most literate, civilized, and even mellow, in some ways, country in Europe. It was much admired all around the world — a nation of shopkeepers, small farmers, and scholars. But the whole character of the place started changing in 1933, and it just got worse and worse. By the end of 1939, if you weren’t out, you were done.

L: [Pauses] Well, not a cheerful thought. Actions to take?

Doug: Things we’ve said before: Set up foreign bank accounts in places you like to travel, while you can. Set up vault arrangements for physical precious metals outside the US. Buy foreign real estate that you’d like to own, because it can’t be forcibly repatriated. Offshore asset protection trusts are a good idea too. Become an International Man. Let me emphasize that US taxpayers should stay within all US laws, because the consequences of breaking them are unbelievably draconian.

Generally, one simply must internationalize one’s assets. The biggest danger investors face, by far, is not market risk — huge as that will be — but political risk. The only way to insulate yourself from such risk is to diversify yourself politically and geographically.

L: Right then… words to the wise. Thanks for your insight.

Doug: You’re welcome.

Doug Casey and Louis James
for The Daily Reckoning

Getting out of Dodge, Part II originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.