Louis James: We get a lot of letters from readers who know about your international lifestyle and wonder about the tax advantages they assume it confers. Is this something you care to talk about?

Doug Casey: Yes; something wicked this way comes, indeed. But first, I have to say that as much as I can understand the guy who flew his airplane into an IRS building, as we once discussed, I do not encourage anyone to break the law. That’s not for ethical reasons — far from it — but strictly on practical grounds. The Taxman can and will come for you, no matter how great or small the amount of tax he expects to extract from you. The IRS can impound your assets, take your computers, freeze your accounts, and make life just about impossible for you, while you struggle to defend yourself against their claims and keep the rest of your life going. The number of IRS horror stories is beyond counting. As the state goes deeper into insolvency, its enforcement of tax laws will necessarily become more draconian. So you absolutely don’t want to become a target.

L: So… just bow down and lick the boots of our masters?

Doug: Of course not. People can and should do everything they can to pay as little in taxes as possible. This is an ethical imperative; we must starve the beast. It could even be seen as a patriotic duty — if one believes in such things — to deny revenue to the state any way possible, short of endangering yourself. Starving the beast may be the only way to force it back into its cage — we certainly can’t count on politicians to make the right choices — they’re minions of the state. They inevitably act to make it bigger and more powerful… The state, the media, teachers, pundits, corporations — the entire establishment, really — all emphasize the moral correctness of paying taxes. They call someone who doesn’t do so a “tax cheat.” As usual, they have things upside down.

Let’s start with a definition of “theft,” something I hold as immoral and destructive. Theft is to take someone’s property against his will, i.e., by force or fraud. There isn’t a clause in the definition that says, “unless the king or the state takes the property; then it’s no longer theft.” You have a right to defend yourself from theft, regardless of who the thief is or why he is stealing.

It’s much as if a mugger grabs you on the street. You have no moral obligation to give him your money. On the contrary, you have a moral obligation to deny him that money. Does it matter if the thief says he’s going to use it to feed himself? No. Does it matter if he says he’s going to feed a starving person he knows? No. Does it matter if he’s talked to other people in the neighborhood, and 51% of them think he should rob you to feed the starving guy? No. Does it matter if the thief sets himself up as the government? No. Now of course, this gets us into a discussion of the nature of government as an institution, which we’ve talked about before.

But my point here is that you can’t give the tax authorities the moral high ground. That’s important because decent people want to do the morally right thing. This is why sociopaths try to convince people that the wrong thing is the right thing.

If an armed mugger or a gang of muggers wanted my wallet on the street, would I give it to them? Yes, most likely, because I can’t stop them from taking it, and I don’t want them to kill me. But do they have a right to it? No. And every taxpayer should keep that analogy at the top of his mind.

L: I also believe that the initiation of the use of force (or fraud, which is a sort of indirect, disguised form of force) is unethical. It doesn’t matter what the reason for it might be nor how many people might approve of the action. But some people claim that taxation is really voluntary — the price one pays for living in society… and if I’m not mistaken, the US government says the federal income tax is voluntary.

Doug: [Snorts] That is a widely promoted lie. It’s propaganda to help statists claim the moral high ground, confuse the argument, and intimidate people who aren’t critical thinkers. Just try not volunteering to pay it and see what happens. Taxation is force alloyed with fraud — a nasty combination. It’s theft, pure and simple. Most people basically admit this when they call taxation a “necessary evil,” somehow mentally evading confrontation with the fact that they are giving sanction to evil. But I question whether there can be such a thing as a “necessary evil.” Can anything evil really be necessary? Can anything necessary really be evil?

Entirely apart from that, if people really wanted anything the state uses its taxes for, they would, should, and could pay for it in the marketplace. Services the state now provides would be offered by entrepreneurs making a profit. I understand, and am somewhat sympathetic, to the argument that a “night-watchman” state is acceptable; but since the state always has a monopoly of force, it inevitably grows like a cancer, to the extent that the parasite overwhelms and kills the host. That’s where we are today.

I think a spade should be called a spade, theft should be recognized for what it is, and evil should be opposed, regardless of the excuses and justifications given for it. Ends do not justify means — and evil means lead to evil ends, as we see in the bloated, corrupt, dangerous governments we have all over the world.

L: That runs counter to the conventional wisdom, Doug. Evil or not, most people think taxation is part of the natural order of things, like rain or day and night. Death and taxes are seen as the two inevitable things in life, and you are a silly idealist — if not a dangerous madman — if you believe otherwise.

Doug: That saying about death and taxes is both evil and stupid; it’s a soul-destroying and mind-destroying perversion of reality. It’s evil, because it makes people reflexively accept the worst things in the world as permanent and inevitable. As for death, technology is actively advancing to vanquish it. Who knows how far medicine, biotech, and nanotech can delay the onset of death? And taxes are, at best, an artifact of a primitive feudal world; they’re actually no longer necessary in an advanced, free-market civilization.

People also once thought the world was flat, that bathing was unhealthy, and that there was such a thing as the divine right of kings. Many things “everyone knows” just aren’t so, and this is one of those. A government — for those “practical” people who think they need one — that stuck to the basic core functions of police and courts to defend people against force and fraud and a military to defend against invasion, would cost a tiny, tiny fraction of what today’s government costs, and that could be funded in any number of ways that essentially boil down to charging for services.

As it is now, the average US taxpayer probably works half of the year just to pay direct and indirect taxes. That doesn’t even count the cost of businesses destroyed by regulation and lives lost to slow approval of new treatments by regulators, or a million other ways governments burden, obstruct, and harass people.

Stay tuned for Part II of the interview, tomorrow…

Regards,

Doug Casey,
for The Daily Reckoning

Doug Casey on Taxes and Freedom 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Were it not for the fact that you’d still have to suffer the eternal torment of actually living with your wicked, miserable little self, life as a willing and active member of The State might be pretty tempting. After all, Team State — operating in direct competition with Team Freedom — enjoys some rather significant advantages, both on and off the field.

For one thing, Team State writes the rules of the game…rules it claims the right to change at any time and for any reason. It can choose to make Team Freedom’s goal the size of a pea, for example, and its own goal the size of…well…whatever it wants. It can recruit a million, steroid-jacked players to wear its own colors, and limit Team Freedom’s membership to a couple of wimpy, though doggedly irreverent, newsletter writers. Who listens to those guys, anyway? Pshhh…

Off the field, Team State may choose to sequester part or all of Team Freedom’s funding. And if Team Freedom doesn’t like it, Team State — reading again from its own rulebook — can choose to simply begin kidnapping members of Team Freedom at gunpoint and locking them up in cages.

More troubling still, Team Freedom suffers the added disadvantage of large scale defection and even of outright collusion with the enemy. In other words, many of Team Freedom’s players are really (whether knowingly or not) playing for the other team…using morally malleable catchphrases like “fair share,” “civic duty” and “social contract” as a way to distract and bamboozle some of Team Freedom’s star players. They read aloud and with unashamed authority from Team State’s own rulebook, exclaiming with sweaty excitement, “But it’s the law! Look, Team State wrote it down, right here!”

And what can Team Freedom do about all this, other than vote for another member of Team State to act as game referee every four years or so? Nothing. Or so it would seem…

Fellow Reckoners will by now be aware of the latest scheme by Team State to encroach on the lives of those they clearly consider to be “their property.” Sens. Chuck Schumer and Bob Casey, two of the more…er…“active” members of Team State, held a press conference Thursday morning on Capitol Hill where they outlined legislation that would prevent Eduardo Saverin, the Brazilian-born, Singapore residing co-founder of FaceBook, from ever returning to the United States.

Now, why would these senators do such a thing, you ask? What do a couple of freeloading, career barnacles have against the entrepreneurial spirits of a go-getting, 30-year-old success story?

Turns out that, back in September of last year, Saverin decided he didn’t want to be considered a US tax slave anymore…a move 1,700 other now-freer people also made during the same year. Abiding by the law, as decreed by members of Schumer and Casey’s Team State, Saverin relinquished his citizenship and moved to Singapore back in 2010, a place where he (and his property) are treated in less of a “gun-in-your-face, gimme-all-your-money” manner.

According to industry estimates, the move should “allow” Saverin to keep about $67 million more of his own money than he would have otherwise been “entitled to” were he still officially a US resident when Facebook makes its IPO, tomorrow.

Of course, the fact that he followed the law, to the letter, wasn’t enough for the senators. Why? Put simply, they didn’t get (what they saw as) their cut. Curiously, Schumer claims Saverin somehow owes “the country” something…beyond the hundreds of millions of dollars he must — and does — already pay.

“Saverin has turned his back on the country that welcomed him and kept him safe, educated him, and helped him become a billionaire,” Schumer said at the conference. “This is a great American success story gone horribly wrong.”

Apparently, helping to found a free product that serves 901 million voluntary users is not enough for Schumer and Casey. Of course, the Senators are not in the business of voluntary transactions, so we can see how this achievement might be lost on them. After all, their own transactions are made not with a handshake, but looking down the barrel of a gun.

So what’s their beef, specifically, this time?

Facebook today serves approximately 180 million people in the US alone…including both Sens. Schumer and Casey. One might think that, if the Senators were so upset with Saverin, as they piously claim, they would take down their own Facebook pages. Since they have not, we encourage Fellow Reckoners to swing by and leave them a warm and fuzzy message. (See links above.)

Clearly not embarrassed to showcase their own conspicuous lack of real world marketing skills, Schumer and Casey are calling their little bill the “Ex-PATRIOT — Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy — Act.” Seriously. Who, besides Team State, would even let these guys play for their side?

The proposal targets wealthy Americans who seek to renounce their citizenship — and, along with it, their tax slave status — unless the unfortunate, would be escapee can convince the IRS they are not leaving the country “for tax purposes.”

In other words, individuals looking to protect their property must first convince the thieves that they are seeking to do so for reasons other than protecting their property. Yes, you read that correctly. If the person is unable to prove the “innocence of their intent” to the IRS — just imagine! — they will be subject to a 30% capital gains tax on all future US investments…regardless of where they live…and assuming they still want to invest in their former jailer’s country at all.

Stranger still, the newly emancipated individuals will not be allowed back into their cell. Said Schumer: “They could not set foot in this country again.”

The battle line has been redrawn again, Fellow Reckoner. But as always, where the state exists, freedom does not. And where freedom exists, the state does not.

Choose your team wisely.

Joel Bowman
for The Daily Reckoning

P.S. As always, we encourage our readers to “pirate” any and all of our material. Feel free to share and “like” this article…especially, today, on Facebook.

Run, Saverin! Run! 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Well, a gloriously strong chávena de café at one of this city’s many colorful, street side vendors (not Starbucks) will set you back one Brazilian real, or around fifty cents. In other words, pretty cheap. A Caipirinha on the deck of what is surely the most unique hotel bar your editor has recently visited, however, will cost you the equivalent of maybe forty chávenas de café — about twenty dollars. Still, you pay for the view…and for the city skyline in the background.

As for those other markets — the kind with ticker symbols and stock charts — they’re a bit harder to get a handle on. The little arrows have been almost exclusively red this month…and the little squiggly lines tracking index performance have been trending almost exclusively south. In fact, the Dow achieved its so-far high for May at 1pm on the very first day. Since then it’s been down…down…down…

Gold is lower too…down another $15 an ounce overnight. The Midas metal is back to where it began the year, at about $1,565. But how could that be? Aren’t central banks around the world working furiously to debase their flimsy fiat notes? And aren’t the Chinese buying the stuff hand over fist? As Eric Fry showed last week (in his essay “China Buys Gold…No Matter Who’s Selling”), the squiggly line representing the Middle Kingdom’s monthly gold imports from Hong Kong is trending almost exclusively upward.

Yes, Fellow Reckoner, it’s tough to know quite what’s going on in those other markets. Government-caused distortions abound. Price fixing — including for the price of money itself! — sends strange signals to buyers and sellers, convincing them to do things they ordinarily wouldn’t do. Like buy a house they could never afford or speculate in the stock market instead of save their hard-earned for a rainy day. Thus are false booms fueled…and real corrections avoided. For a time…

At least when we pay outrageous prices for a cocktail at a tourist trap we know we’re being taken for a ride. But it’s a ride we’re willing to pay for. Conversely, when the state takes us for a ride, we don’t have any choice. That’s why we have to look for alternative investments…market workarounds…contrarian viewpoints…

Speaking of which, we received the following “letter” from a Fellow Reckoner in response to our Lysander Spooner vs. the USPS musing last week. Writes our friend David S…

Glad to have an excuse to write to you about my own area of research — postal history. We talked a little about postal history near the end of the Rancho Santana Sessions in March.

The Wikipedia article that you cited is inaccurate in part. The United States Post Office did not have a 12-cent stamp in 1844 when Spooner started his American Letter Mail Company; in fact it had yet to issue any stamps. A few local postmasters were permitted to experiment with stamps in 1845; the first national postage stamps in the United States were issued in 1847. In 1844, when Spooner started his company the letter rates in the US were based upon distance and the number of sheets of paper, ranging from 6 cents under 30 miles to 25 cents over 400 miles for a single sheet of paper. And, none of the rates were 12 cents. Since envelopes counted as a second sheet of paper, they were not generally used.

The Post Office Act of 1845, besides strengthening the monopoly on letter mail, reduced the postage rates to 5 cents per half ounce under 300 miles and 10 cents per half ounce over 300 miles. By matching the rates of the private mail companies (there were others besides Spooner) it was easier for the government to force them out of business.

By the time the 3-cent letter rate was established in 1851, Spooner had sold his mail business and moved on to other things. That rate reduction was not so much in response to Spooner as to other reformers. And, the 3-cent rate was not short-lived, but in fact rates were reduced even more. The 3-cent letter rate continued until 1883 when it was reduced to 2 cents; the rate was essentially halved in 1885 when the weight step was raised from half an ounce to a full ounce. The 2-cent per ounce rate lasted from 1885 until 1932 except for a couple years during World War I when the letter rate was 3 cents to raise money for the war effort.

All of this is simply factual background on postal operations in the 1840s — it does not change the essential points about Spooner’s argument against the Post Office Department (as it was known then, the USPS dates to 1971) or refute your conclusions about private business. I just like to see the story accurately told.

There is however, one additional point to consider when seeking to understand Spooner. He was an abolitionist and cheap postage was a major focus of that movement until the 1851 3-cent rate. They needed cheaper rates of postage for mailing anti-slavery tracts. So in many respects the cheap postage reformers of the 1840s were more interested in their other agendas than just in reforming the Post Office. For more on this perspective, you might read my paper, “Cheap Postage: A Tool for Social Reform” published by the Smithsonian two years ago in their postal history anthology. Mine is the final paper in the volume.

I enjoy your columns and I am always happy to discuss postal history.

Thanks for the corrections, David. We’re always happy to discover new and more accurate information…especially when it comes from our Fellow Reckoners.

Joel Bowman
for The Daily Reckoning

The Difference Between Market and Government Swindles 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

JPMorgan made headlines late last week for a $2 billion trading loss that’s likely to grow over time. Today, the bank’s CIO fell on her sword for the trading gaffe. Ina Drew, a 30-year veteran of the firm decided today was a good day to “retire” from her trading desk.

JP Morgan’s costly error was the result of “reaching for yield,” just like retirees all over the US are doing. When traditional fixed income securities like Treasuries and CDs provide almost no yield whatsoever, the only remaining option is to reach in to riskier markets to try to find some yield. Reaching for yield — overpaying for income-producing securities in a low-rate environment — usually leads to a painful tumble off the proverbial ladder.

As part of the banking crisis fallout, the Federal Reserve pushed interest rates down close to zero, and is telling investors to expect zero rates until 2014. Savers will have gone six years without interest income, all so the Fed can implement its grand experiment to rebalance portfolios away from cash and US Treasuries.

“We’ll buy the Treasuries,” the Fed implicitly says to investors, “so you can push up the stock market to create a wealth effect for the economy.” This begs the question: What happens if the Fed decides to unwind its gigantic Treasury portfolio? Wouldn’t that reverse the stock market wealth effect at warp speed? The answer is yes, but here’s the dirty secret: The Fed is never going to unwind its portfolio. It’s going to be forced by investors (and Congress) to keep the reserves it has injected into the banking system intact, so it can keep rates low on the US national debt. That’s why we’ve been looking for short ideas that would suffer in an environment of rising commodity costs.

It’s inevitable and unfortunate that retirees starved for yield are overpaying for risky assets like REITs, junk bonds and even financial products that create “synthetic” yield. A synthetic yield means a yield created by derivatives, rather than the underlying security. These derivatives often cap upside returns in exchange for higher current income. As such, these structured products are essentially a slow return of capital masquerading as income. Some annuity products sold to retirees fit this description.

Back to JPMorgan, and the specifics of its $2 billion trading mishap. This is important, because it’s a consequence of our still-broken financial system…

JPMorgan last night warned in its 10-Q that it’s going to take an earnings hit in the second quarter from trades in its Chief Investment Office (CIO). CEO Jamie Dimon felt the need to schedule an impromptu conference call explaining the impending losses from CIO’s hedging activities.

JPMorgan’s Treasury and CIO department is tasked with investing the bank’s excess cash, while hedging the credit risk that exists on the rest of the bank’s $2.3 trillion balance sheet. Most people forget that banks are among the biggest fixed-income investors, and are suffering in a low-interest rate environment along with retirees. It’s hard to shed a tear, I know. So JPM decided it was a good idea to play along with the Fed’s encouragement to exit low-yielding securities and move out along the risk spectrum to invest its excess cash to enhance shareholder returns.

JPM’s $1.1 trillion in deposits exceed its loan portfolio by $407 billion, so it has lots of excess cash looking for a return. At March 31, CIO managed a $374 billion portfolio of securities — presumably in a manner that hedges JPM’s credit risk. There is derivative exposure too, as we discover in the 10-Q. The CIO can create synthetic credit risk by shorting credit default swaps, in which it would collect insurance premiums from underwriting the default risk on a specific entity. The result is synthetic interest income if everything is peachy and default doesn’t occur; if not, the result is repeated margin calls and a complete blowup if the reference entity defaults. Think a mini version of AIG in 2008.

Jamie Dimon refused to provide any detail about the derivative trades on the conference call, but we can guess. Here is my guess: JPM owns a boatload of credit risk. Therefore, if CIO were trying to offset this risk, it would probably sell short credit default swap insurance (CDS). Some of the biggest rises in CDS spreads since March 31 were in European banks. If CIO was short a basket of CDS on European credit indexes that included European banks, then its hedging activities could wind up inflicting large losses. If so, the CIO would have had to post more and more margin with its counterparty as the trade went against it. At some point, Dimon was informed of this unpleasant reality and decided to unwind the losing trade and break the news in the 10-Q.

JPM’s conference call was a stark reminder that investing in large derivatives-trading banks (the “Too Big to Fails”) is investing in a volatile cocktail of credit risk. Executives manage this credit risk with minimal disclosure about what types of risk they’re taking. “Just trust us,” is what they say. “We have sophisticated ‘Value at Risk’ models managed by rocket scientists,” they say. As you recall from the financial crisis, this was a formula that blew up spectacularly.

Jamie Dimon was very defensive and combative in response to questions on the call. He couldn’t provide specifics about the mark-to-market loss lurking in the CIO trading books — for obvious reasons: Other traders on Wall Street, like sharks smelling the scent of blood, would make JPMorgan’s exit from these underwater derivatives positions an even-more painful experience, while pocketing derivatives trading profits.

We won’t know any more detail until JPM reports its second quarter, when Dimon promised to provide more detail — presumably after unwinding the losing trades. This episode is one of many flashing signs that the global banking system is more fragile than advertised. JPM has built a reputation as one of the better risk managers among the world’s largest banks. If JPM had this surprise, what derivatives accidents lie in wait at other banks? With the eurozone on the verge of heightened drama and bank restructurings, I don’t think stock market bulls want to find out.

Finally, I’d be remiss to not mention our wonderful financial system regulators. Using the logic of the idiots (Dodd and Frank) that supposedly “reformed” Wall Street after the financial crisis, what we need now is another new regulatory agency. Dodd-Frank was a thin coat of paint over a cracked and broken banking system; since it failed to accurately diagnose the causes of the financial crisis, it was a dud and a nuisance from day one.

More legal complexity, more wasted money and red tape and more lack of regulator accountability is what we got, when in reality, a big part of the problem was regulators not policing activities at the Too Big to Fail banks. Here’s an idea — one that banking history expert Jim Grant has been pushing for years: It’s called “capitalism.” Take away the subsidies and bailouts for banks, along with the regulatory red tape. If they want to blow themselves up, fine — but losses would fall on the risk managers making those decisions and bank shareholders, not taxpayers or depositors. Push to return the investment banking business back to the partnership model that worked much better. Then, with the senior partners’ capital on the line, we’ll see how many derivatives blowups occur.

Regards,

Dan Amoss
for The Daily Reckoning

A Big Oops at JP Morgan! 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Nah…let’s change the subject.

Today, our hearts go out to the poor 1%…

Yes, dear reader, they’re blamed for the crisis…

They’re reviled, calumnied, and criticized…

They’re hunted by the taxmen…

And now they are being shunned by the very institutions they most wanted to get to know. Bloomberg:

US Millionaires Told Go Away as Tax Evasion Rule Looms

That’s what some of the world’s largest wealth-management firms are saying ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business.

Renato de Guzman, chief executive officer of Bank of Singapore Ltd., said in industry meetings of private bankers he attends in Singapore, not accepting US clients is “quite a prevailing sentiment”.

“I don’t open US accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward US clients as “Draconian.”

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the US to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all US citizens living abroad, which could affect their ability to generate returns.

Most offshore hedge funds will no longer take US clients. Overseas banks don’t want their money either.

Why? Because there are over 400 pages of new regulations in the FATCA legislation. Way too much for a sane person.

Everybody wants to tax the rich, investigate them, crucify them…

But what did they do wrong?

In 1970, the top 10% of California’s taxpayers paid 28.2% of all the personal income tax in the state. Who complained? They were pulling their weight. Paying their fair share.

Now, 78% of all California’s personal income tax comes from these “rich” people.

But what, exactly, happened between 1970 and 2010 that shifted so much wealth and so much tax burden to the top earners? As you can see, it wasn’t just cutting their taxes — they’re paying more now than ever.

So what happened?

The whole system changed. Richard Nixon cut the dollar loose from gold. He may not have upset the world, but he changed the US economy. Instead of being an economy based on real money where real savings and real production increased real wages and profits, it became a smoke and mirrors economy…with money that you couldn’t trust…GDP growth that was largely phony…and zero real growth in wages.

From the ’70s to 2012, US stocks — measured by the Dow — rose more than 13 times. From under 1,000 to over 13,000. Here’s a question: how could America’s companies be so much more valuable…when their customers hadn’t gotten a penny richer?

Follow the money. From 1970 to 2008, the US money supply (M-2) grew from $624 billion to $8.2 trillion. Guess how much that is. It’s 1,314% — almost the same as the Dow.

“The only real force that ultimately makes the stock market or any market rise (and to a large extent, fall) over the longer term,” writes analyst Kel Kelly, “is simply changes in the quantity of money and the volume of spending in the economy. Stocks rise when there is inflation of the money supply (i.e., more money in the economy and in the markets).”

You’ll recall, Dear Reader, that we are getting suspicious of GDP. As we said yesterday, it measures how fast the wheels are spinning; it doesn’t tell you if you are getting anywhere.

What happened over the last 30 years in the US? Money…funny money from the feds…was causing the wheels to spin faster and faster. But the economy got nowhere…

…except deeper in debt.

Yes, the phony money caused people (many of them in Japan and China) to produce more stuff.

And, oh yes, it shifted money from the middle classes to the rich, by increasing the relative value of their investments 13 times…while simultaneously holding real wages flat.

Ken Gerbino explains it in another way:

It is the paper money created out of thin air that creates the unfair distribution of wealth that is making the middle class fall more behind and the poor more poor. Newly created money and credit in a paper money system benefits those that can access the money first and buy capital goods and real property…before the new money circulates and makes all prices go up. Wages also do not keep up with the inflation and that creates another squeeze on the middle class…the bottom 90% of our citizens went from owning a big piece of the income gains (65%) in the 1960s to being squashed in the 2002-2007 period to 11%.

Now, the feds have the voters where they want them. Forty-six million on food stamps. And millions more dependent on federal handouts… Most people can’t afford to oppose the government. They need it to eat. The Week reports:

“Over the last three decades, annual spending on the top federal programs for the poor and near-poor — such as Medicaid, food stamps and Pell grants — soared from $126 billion (in inflation adjusted 2011 dollars) to $625 billion. Today, the average poor person receives $13,000 in federal aid, up from $4,300 in 1980. Programs that transfer wealth to the middle classes are even more massive, with Social Security consuming $725 billion last year and Medicare $560 billion. All told, the US spends nearly $2.1 trillion on social programs, 60% of all federal spending.”

The feds have the rich where they want them too. They’re now pariahs…all over the world. Nobody wants them. Nobody likes them. Banks won’t touch their money.

Now, the feds can squeeze them for campaign contributions and tax money as hard as they want.

Regards,

Bill Bonner
for The Daily Reckoning

Taxing the Rich to Fix the 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Americans, by and large, run all their affairs within the confines of the US. The US economy is so large and so varied that it’s easy to assume that everything you want to do with your wealth can be done without crossing any borders. And people in the US, like people anywhere, live with the habits and attitudes developed over generations. They’re only human. In the case of Americans, those habits grew out of long experience with a government that was small and that generally practiced the rare virtue of following its own laws. In a happy exception to mankind’s experience with rulers, there was little to fear from it.

Stay at home is still the norm for Americans, but it’s a norm that is slowly fading. Every billion-dollar tick of the government debt clock, every expansion of the government’s regulatory apparatus, every overreaching judicial decision made in the name of a compelling public need, every inversion of protection for citizens into license for the state and every intellectually tortured discovery of a new meaning in the Constitution’s 4,400 old words leaves a few thousand more people wondering how prudent it is to consign all their eggs to a single national basket. Encounters with high-handed IRS agents and eager TSA gropers do nothing to ease that concern. And for those who listen thoughtfully, the messages from our designated leaders and their would-be replacements only hurry the dawning sense of unease.

Specific worries include exposure to predatory lawsuits; fear of where income tax rates might climb; the prospect of losing a family business in a regulatory battle or simply through estate tax; the fragility of financial institutions that have operated for forty years with the assurance that the Federal Reserve would rescue them from any folly; the possibility that a government desperate to protect the dollar from collapse might impose foreign exchange controls or capital controls; the memory and precedent of the forced gold sales of 1933; and the thought that a government floundering in deficits might start pilfering from IRAs and other pension plans.

But beyond those particular worries, and perhaps more important than any of them, is the sense that from here on, anything goes. The politicians will do whatever they find expedient, because there is no longer anything to stop them — not an electorate that is jealous of its freedoms and certainly not the Constitution, which is now just a playhouse for judicial imagineering. No one can know what’s coming next from the government and the financial system it has fostered, but for many of us there is an awful suspicion that we are not going to like it.

Most Americans still have yet to stick a single financial toe across the border, but more and more are considering it. Many, perhaps millions of toes are now twitching at the thought. Their owners want to end their absolute dependence on what happens in the US. They want to prepare for whatever is coming down the road, even though they don’t know what it will be. They want to be as ready as possible, even though their worries can only guess at what’s ahead.

Because internationalizing your financial life means dealing with the unfamiliar, the project can seem more complex than it really is, so it’s best to start with the simplest measures, even if by themselves they don’t give you all the safety you’re looking for. Even from a simple beginning, what you learn with each step will make the next step easier to plan. Start with the first rung on the ladder of internationalization. Then climb, at your own speed, to reach the right level of protection.

Rung 1: Coins in Your Pocket

Gold coins that you’ve stored personally give you something whose value doesn’t depend on the health of the US economy, doesn’t depend on any financial institution in the US and doesn’t depend on any US government policy. Gold coins are portable and hold their value no matter where in the world you might take them. They’re internationalization in a wafer. Safety cookies.

It’s best to buy the coins for cash, for maximum privacy. And there is a good reason to favor one-tenth-ounce gold Eagles. Gold coins mean readiness for troubled times; if you ever need to dispose of the gold in an informal market, it will be easier to do so with small-denomination coins that are widely recognizable and whose value matches the scale on which large numbers of people normally trade.

The premium on one-tenth-ounce coins (the price compared with the value of the gold content) is higher than on the larger coins — usually about 15% for the small coins vs. 5% for one-ounce Eagles. But the premium isn’t a dead cost, like a commission or bid-ask spread. The premium is a second investment; it’s what you pay for the packaging, and you can expect to recover it when you sell or trade. And in the circumstances when you would have the strongest reasons for thanking yourself for having bought some gold, the premium you paid will look like a bargain.

Rung 2: A Foreign Bank Account

On its own initiative, the IRS can freeze any bank account in the US without warning. The action might arise from mistaken identity, from an erroneous filing by some other taxpayer, from your failure to respond to an IRS notice in time or even from a postal error. And that’s what can happen without malice. Other government agencies have similar powers to act on their own, without giving you an opportunity to object in court. And any one of them might act against you for any of their specialized reasons — perhaps because someone resents your inattention to the needs of the migratory birds that visit your property or perhaps because someone thinks it would be fun to point to you as a terrorist, drug smuggler, arms dealer or child-porn merchant.

In principle, there are legal avenues for undoing a freeze or a seizure. But you’d need a lawyer, and being suddenly penniless could get in the way of hiring one.

A foreign bank account protects you from being trapped in such a nightmare. The US government can get to your foreign bank account eventually, because it can get to you. But a lightning seizure is very unlikely, because it would require a foreign government to override its own legal processes, which it generally wouldn’t be willing to do except in a grave emergency. So if your liquid assets at home were frozen, you would have cash outside the US to fund the legal cost of untangling the problem.

A foreign bank account is also a way to step back from the uncertainties of the US dollar, since the account could be denominated in another currency.

The US government has seen to it that Americans are no longer welcome customers at foreign banks. So forget about opening a Swiss bank account in your own name. However, if you apply in person (not by mail), you still can open a bank account in Canada. Be prepared to show your passport and to give the bank an original utility bill that confirms your place of residence.

Rung 3: Gold Abroad

The forced gold sales of 1933 were the work of an executive order signed by President Roosevelt. The purported legal basis for the order was the Trading With The Enemy Act, a legislative artifact of World War I. I have yet to find an explanation of how the authority for an order requiring Americans to sell their gold to the government at the government’s official price of $20 per ounce could be found in the Trading With The Enemy Act, but the fact that the enemy in question had gone out of business 15 years earlier didn’t seem to interfere with the legal logic.

The forced sale was a prelude to an increase in the official gold price to $35. The government’s reason for wanting that price rise was to gain leeway for a substantial, though limited, inflation of the dollar while keeping the dollar on the international gold standard. The forced sale was a way for the government, which operated in a political environment that still disfavored deficit spending, to capture the profit from the price rise. That profit would be a kitty for more spending without more borrowing.

Today there is no gold standard for the government to stay on. And deficit spending isn’t something politicians especially want to avoid; they’ve promoted it as a civic duty, to stimulate the economy. So the depression-era motives for a gold grab don’t seem to apply. Yet you can’t listen to a conversation between two gold investors without hearing the seizure topic coming up.

Are they just scaring each other? I don’t believe so. There are two potential motives for the government to again treat gold differently from everything else.

If the dollar’s slide in foreign exchange markets threatens to turn into a panic, the government might want to use gold sales to foreigners to mop up foreign-held dollars — in which case it might see a need to mop up the gold owned by its own citizens. That’s bad enough, but a second motive is a good bit nastier. At a visceral level, people who have centered their lives on government just don’t like gold. It’s an affront to the government’s authority to command and control and an insult to government’s supposed aptitude for solving economic problems. So disrespectful. From their point of view, every ounce purchased by an American is another tomato hurled at the political class. And the purchasers still constitute a tiny minority of the voting population. What could be more satisfying and convenient for the politicians than to kick sand in the face of gold investors for being such lousy citizens?

A new attack on gold ownership probably wouldn’t be a point-for-point reenactment of 1933. There are many weapons for mugging gold investors. It could be a prohibition on gold ownership coupled with a prohibition on sales of gold to foreigners. The only one left to buy would be the government, and being the only bidder, it would be a very low bidder. It could be a commandeering of privately owned gold, with token compensation like the $15 per day paid for jury duty. It could be a super tax, say 90%, on gold profits, which would get the job done slowly… or quickly if it were accompanied by a mark-to-market rule. Or it could be something none of us has thought of yet.

Not only can’t we know the shape of a future gold grab, we can’t know whether or how the rules would touch foreign-held gold. Owners of gold stored outside the US would be a minority of a minority. Their gold wouldn’t be the low-hanging fruit — it would be higher up in the tree and more trouble to get to. That’s why, in a casino sense, gold overseas is a different bet and a better bet than gold at home.

Maybe it will turn out that storing gold overseas won’t matter at all, in which case a little effort will have been wasted. And maybe it will turn out to matter a great deal.

To be continued tomorrow…

Regards,

Terry Coxon
for The Daily Reckoning

Protecting Your Assets from an Out-of-Control Government, Part I 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

On the home front, as we reported last week, over the last 4 years more people have been declared disabled than have found jobs.

And overseas, an American soldier shipped out to serve in Afghanistan is more likely to be killed by himself than by the enemy. That is, the suicide rate is higher than the rate of combat losses.

Which raises a question. What kind of military force would fight a war in which its soldier’s worst enemy was himself?

Answer: one that has gone rogue.

What happens when a military establishment goes rogue? Simple, it stops serving the country and begins serving itself. Instead of protecting the nation from war, it deliberately causes wars. Instead of defending the country’s most sacred principles, it over-turns them in the interests of national security. Instead of holding expenses to those that are actually necessary and appropriate, it sucks up so many resources it weakens…and ultimately destroys…the economy it is meant to serve.

Typically, as the nation becomes more financially desperate, it also becomes more disorganized and unhappy. Strikes, mob violence, terrorist attacks increase. Then, to the noise of cheering crowds, the military makes its move.

That is what happened, for example, in Argentina in 1975. Isabelita Peron was making a mess of the economy. Her chief economist was a fellow named Celestino Rodrigo, who believed he was the Archangel Gabriel reincarnated. No kidding.

Rodrigo knew no more about economics than, say, Ben Bernanke. On July 17, 1975, he devalued the peso…yes… by “more than 100%.” Which proves our point about money from “out of nowhere.” Take away 100% of something and what do you have left? Nothing. So, what do you take away the “more than 100%” from? The same place you got the money in the first place.

At first, the crowds were delighted with Rodrigo. Then, he raised prices and the fickle mobs of Buenos Aires turned on him. They coined the term “rodrigazo” to describe the fiasco. He was gone in a few weeks. So was Isabelita, who had to be rescued from the roof of the president palace by helicopter.

Then what happened? Another election? Nope. Robert Cox tells us:

“…the armed forces, encouraged by the establishment, the media and public opinion, not to speak of the guerrilla/terrorist organizations, preferred another military dictatorship…”

When economic policies fail, people soon get sick of the politicians. They want a more muscled form of leadership. Uri Avnery describes what happens:

In some countries, they arrest the president, occupy government offices and TV and annul the constitution. They then publish Communique No. 1, explaining the dire need to save the nation from perdition and promising democracy, elections etc.

In other countries, they do it more quietly. They just inform the elected leaders that, if they don’t desist from their disastrous policies, the officers will make their views public and precipitate their downfall.

Such officers are generally called a “junta”, the Spanish word for “committee” used by South American generals. Their method is usually called a “putsch”, a German-Swiss term for a sudden blow. (Yes, the Swiss actually had revolts some 170 years ago.)

What almost all such coups have in common is that their instigators thrive on the demagoguery of war. The politicians are invariably accused of cowardice in face of the enemy, failure to defend national honor, and such.

Don’t expect a military coup in America. It won’t be necessary. The security industry already gets 8% of GDP — about the same amount as America’s deficit. With that kind of money to spend, there is barely a single member of Congress or a single corporation that the Pentagon can’t buy.

More to come…

Regards,

Bill Bonner
for The Daily Reckoning

The Pentagon Goes Rogue 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

But Debbie took the stage again Sunday when the left-wing Syriza party gained a surprisingly large number of seats in Parliament. The leftists hope to form a coalition government that would nationalize banks, repeal recent labor reforms and immediately cancel the bailout accords with the European Union and the IMF.

In other words, these politicians are threatening to undo the very austerity measures that the EU and the IMF adore. Whether or not such “leftist reforms” would benefit Greece, the idea that the Greeks would unhinge their EU shackles is worrying investors.

The major European stock markets dropped about 2% — pushing several stock indices on Europe’s periphery deeper into the red for the year. The Spanish, Italian, Portuguese and Greek stocks markets are all showing losses for 2012. Looking back over the last 12 months, all four of these markets have tumbled at least 33% in dollar terms.

For a fleeting moment earlier this year, many investors placed the Eurozone crisis in the past tense. But now it appears that the crisis is very much in the present and future tense. “Euro Near Three-Month Low on Greek Leadership Concern,” a Bloomberg News headline declares. “Alexis Tsipras, whose Syriza party placed second in Greek elections on May 6…said he wouldn’t agree to join forces with New Democracy and Pasok, the two Greek parties that have supported austerity measures in return for international funds.”

“When you have the guy who’s supposed to form the coalition saying that there’s a moratorium on debt limits,” a currency strategist tells Bloomberg, “that the bailout is not necessarily in place — stuff like that is getting people a little skittish,”

Indeed…and the skittishness is rippling across the Atlantic. Here in the US, the “risk-off” trade is back on. Stocks and commodities down; bonds and the dollar up. Although the major US stock indices are still clinging to gains for 2012, the S&P 500 is off about 4% since early April.

These modest signs of investor distress will no doubt inspire renewed bailout/austerity/manipulation efforts by the European and US governments’ financial meddlers. As we have observed time-after-time since the 2008 crisis, there is no economic downtick that is not simultaneously a call to action — a call to government action.

Regrettably, most of these government actions address symptoms rather than the disease itself. They “cure” gangrenous limbs with Lidocaine rather than amputations. As a result, a smattering of politically connected banks and corporations feel better, but the overall economy remains deathly ill.

The European interventions of the last two years tell the tale. Northern European taxpayers have sent hundreds of billions of euros to their southern neighbors, while the European Central Bank has printed more than €1 trillion and funneled most of that money to large European banks. As a result of all of these shenanigans, many large European banks feel much better. But millions of taxpayers are poorer… and the Greeks themselves are no better off.

In 2010, before the first bailout, the Greek government owed about €310 billion, all of it to banks and other members of the private sector. Today, a whopping 73 percent of Greek debt sits on the books of the European Central Bank, euro-area governments and the IMF. And by the time the EU and the IMF finish sending their bailout euros to Greece in 2015, Greek debt will total about €316 billion, close to 100% of which will be held by the ECB and other government agencies.

In other words, the Greek’s monstrous government debt load would be just as large in 2015 as it was in 2010. But government agencies would be on the hook for those debts instead of European banks and other private investors.

Is this really a remedy? If so, for whom?

This sort of remedy rewards imprudent banks, punishes taxpayers and condemns the Greeks to years of indentured servitude. And it probably condemns the entire European economy to a sustained period of slow-to-negative growth.

Unfortunately, while such governmental “do-gooding” almost always fails to restore health and viability to a sickly economy, it almost always succeeds in nourishing a lot of “do-badding.” By rewarding imprudence — over and over — government-sponsored bailouts encourage bad behavior…over and over.

Eric Fry
for The Daily Reckoning

How Bailouts Encourage Bad Behavior 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

“Backlash,” said The Financial Times…referring to an “anti-austerity wave” that washed over Europe in weekend voting.

If the FT doesn’t mind mixing metaphors, we don’t either. But our metaphors are a bit different. What has happened is not a backlash but a wake-up call. It comes as voters realize that the placebo medicine — phony, half-hearted austerity measures peddled by the Euro elite — don’t work. They want an elixir with more of a kick to it. That’s why the leftists are gaining so much ground.

In Greece, support for leftwing parties has trebled since the last elections. But what do you expect? The typical family has lost almost a third of its real income since the recession (which continues) began. Youth unemployment is at 50%. Young Greeks fear being a ‘lost generation’ that must emigrate in order to find jobs.

In France, Francois Hollande promises to be reasonable. But he won the election by attacking Sarkozy’s austerity moves. He won’t make Sarkozy’s mistake. Instead, he’ll go after the rich with a top marginal tax rate of 75%…and promise ‘growth,’ not ‘austerity.’

The trouble with the austerity proponents is that they didn’t go far enough. Budgets were cut. But not enough. The average deficit is still about 5% — well above the Maastricht 3% limit. This left the deficit nations in tough spots. They cut spending, which angered the leftists and the layabouts. But they still were beholden to lenders to cover their deficits. And whenever their unemployment rates rose…or the GDP growth rate fell…they had to pay more for their borrowed money.

Real austerity — with deep cuts and balanced budgets — could work. But it contradicts the whole idea of government, which is to transfer as much wealth from the outsiders to the insiders as possible. Besides, such deep cutbacks would probably trigger a zombie revolution.

And by the way, ‘austerity’ is coming to the US too — if Congress doesn’t stop it. Economists are calling it the “fiscal cliff.” The nation is scheduled to run off the edge on Dec. 31st… Mohammed El-Erian explains:

Economists are rightly starting to warn that the United States faces a worrisome “fiscal cliff” at year’s end. The blunt spending cuts mandated by the 2011 compromise on the debt ceiling — and the failure of the “supercommittee” that followed — along with across-the-board tax increases would derail the US recovery and undermine the well-being of the global economy. We should be avoiding the edge of this cliff — and politicians should not believe that they have until the end of this year to act.

The sequestration mandated by the Budget Control Act of 2011 and the reversal of the Bush-era and payroll tax cuts would essentially mean withdrawing from the economy some 4 percent of the national income in one blunt go — and this doesn’t factor in possible knock-on effects. The importance of this issue cannot be overstated. A fiscal contraction of this magnitude and composition would stop dead in its tracks the economy’s nascent healing and job creation. Consumption and investment would be harmed. Foreigners would become more cautious about buying our ever-increasing debt issuance. And with our internal growth momentum weakened, the headwinds from the European debt crisis could prove overwhelming.

The austerity show has been playing in Europe for the last two years. That’s why half of Europe is in recession…with the other half not far behind. Europeans are tired of it.

So, now the Europeans seem to be giving up on phony austerity and turning to phony growth. They are going to spend more borrowed and printed money. This will look vaguely like “growth.” There will be more jobs and more incomes. But there will be precious little real prosperity going on.

Of course, going for growth is precisely what got the developed world into such a jam in the first place. Too many people spent too much money they didn’t have on too many things they didn’t need.

In America, the Fed encouraged it with low rates…then after the private sector debt bubble blew up, the feds made up for the missing spending by spending more themselves.

In Europe, the euro-feds made a debt bubble possible by establishing a single currency bloc…with harmonized interest rates. All of a sudden Greece and Ireland could borrow as easily and cheaply as France and Germany. And so they did; they borrowed their way to the brink of bankruptcy.

Now, Francois Hollande has a plan. He wants to make Europe more like America…with a central bank that lends to government directly and “mutualization” of credit risk. In other words, he wants to do what Alexander Hamilton did to the US in 1791: make the states collectively responsible for each other’s debt. And then he’ll let the ECB print the money to buy sovereign bonds directly.

Yes, dear reader, the trend towards centralization continues…with central financial planning…central bank counterfeiting…and everybody going broke together.

In Europe, as in America, it’s one for all…and all for one…

…and every man for himself.

Bill Bonner
for The Daily Reckoning

US Austerity in the Face of a “Fiscal Cliff” 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

In contrast, Goyette suggested, “America has become a piñata: Everybody gets a crack at it. Presidents and other elected officials pass the big stick around as a reward to those who help keep them in charge of the piñata party.”

Goyette’s book came out in 2009. Since then, we have learned that the party is even more debauched, nay demented, than he ever imagined. And you, dear reader, were not invited…

• It turns out Federal Reserve officials hold regular meetings with well-connected insiders, tipping them off to future Fed moves. On Aug. 15, 2011, Chairman Ben Bernanke clued in an economist named Nancy Lazar about “Operation Twist” — the Fed’s attempt to bring down long-term interest rates.

Ms. Lazar’s clients, according to The Wall Street Journal, pulled down double-digit returns on 10-year Treasuries between the time of that meeting and the time Operation Twist was unveiled to the public on Sept. 21. Sorry you missed out.

• Treasury Secretary Hank Paulson sat down for lunch with hedge fund managers on July 21, 2008, and informed them a federal takeover of Fannie Mae and Freddie Mac was imminent. Ten days earlier, he swore up and down to Congress no such takeover was in the works.

The takeover, in fact, occurred on Sept. 6 — giving the hedge fund managers their own handsome payday in a six-week span. Again, you were excluded.

Before you object too loudly, we daresay you might wish to consider the consequences.

The Repeal of Habeas Corpus? When Free Speech No Longer Matters

On December 31, 2011, President Obama signed the Department of Defense Authorization Act into law. This is normally the routine annual budget for the Pentagon. But inserted into this year’s bill is language giving the president the authority to use the military to imprison terrorism suspects — including US citizens — indefinitely, and without charges.

In other words, the “great writ” of habeas corpus is in danger of repeal. No longer would the government have to justify to a judge why it holds someone in custody.

“Take away this great writ,” writes The Future of Freedom Foundation’s Jacob Hornberger, “and all other rights — such as freedom of speech, freedom of religion, freedom of the press, gun ownership, due process, trial by jury and protection from unreasonable searches and seizures and cruel and unusual punishments — become meaningless.”

Without habeas corpus, you could be thrown in prison for the “terrorist” act of criticizing the government and the government would never have to declare the precise reason it hauled you away. And in theory at least, the First Amendment would still be in force!

“This defense bill,” says The Rutherford Institute’s John Whitehead, “not only decimates the due process of law and habeas corpus for anyone perceived to be an enemy of the United States, but it radically expands the definition of who may be considered the legitimate target of military action.”

“This bill will not only ensure that we remain in a perpetual state of war — with this being a war against the American people — but it will also institute de facto martial law in the United States.”

135 SWAT Raids per Day: “Life Goes on, But It Is Debased…”

Rampant corruption and the apparatus for wide-scale repression: These are the hallmarks of what military theorist John Robb calls “the hollow state.”

“The hollow state has the trappings of a modern nation-state (‘leaders,’ membership in international organizations, regulations, laws and a bureaucracy), but it lacks any of the legitimacy, services and control of its historical counterpart,” Robb wrote in 2008. It is merely a shell that has some influence over the spoils of the economy.

“The real power,” Robb continues, “rests in the hands of corporations and criminal/guerrilla groups that vie with each other for control of sectors of wealth production. For the individual living within this state, life goes on, but it is debased in a myriad of ways. The shift from a marginally functional nation-state in manageable decline to a hollow state often comes suddenly, through a financial crisis.”

It is in this context that the growing “militarization” of police looks even more ominous than it does on the surface.

The Pentagon has distributed $2.6 billion in military surplus to local police agencies since 1997. Thus do towns of only a few thousand people have their own SWAT teams. Time was their use was limited to hostage-takings and other high-stakes situations. SWAT raids nationwide numbered only 3,000 per year in the early 1980s, according to University of Eastern Kentucky criminologist Peter Kraska.

Nowadays, SWAT teams are used to serve routine warrants. By the time Kraska stopped counting in the mid-2000s, the annual number had exploded to 50,000 — an average of more than 135 per day.

What happens when the tinder-dry combination of piñata-party corruption and a police-state structure meet the spark of violence?

We don’t know where all this is going… but we know it makes us uneasy…which is why we are increasingly interested in casting our gaze for investment opportunity far, far away from US shores.

The US remains a land of (some) opportunity, but it has lost its monopoly.

Regards,

Addison Wiggin,
for The Daily Reckoning

“America Has Become a Piñata…” 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. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".