“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.

Shorthand for “micro-electromechanical machines,” MEMS are the tiny machines embedded in these products, which provide information regarding position and movement. When your mobile device changes how its screen displays when you rotate it, it is an MEMS device that tells it which way it is oriented. Like most of the electronic innards of a modern computer, MEMS are usually manufactured out of silicon.

With funding from the National Science Foundation, University of Wisconsin-Madison researchers have advanced MEMS technology by integrating new piezoelectric materials on silicon. Piezoelectric materials store an electrical charge when under mechanical force, or expand and contract under the influence of electrical fields. If you’ve used a lighter or propane barbecue that has an electrical igniter, you have seen piezoelectricity at work. Children’s shoes that light up when they step also use piezoelectricity to generate a small electrical current.

The University of Wisconsin-Madison researchers studied a piezoelectric material called lead magnesium niobate-lead titanate, or PMN-PT for short. PMN-PT is a very high-performance piezoelectric crystal that is used, among other things, to deliver waves of ultrasound into the human body to produce 3-D images.

Due to its high level of piezoelectric performance, which includes the ability to work using lower amounts of electrical consumption, PMN-PT would be very useful in MEMS devices. It could be used as part of a machine to act as a tiny switch in optical communications devices, or it could enable a new generation of electronic filters for radio-frequency communications in mobile devices. As a sensor, it could increase sensitivity over currently available MEMS technology.

The problem with PMN-PT is that current commercial manufacturing methods that require the material to be cut, ground and polished from bulk materials. These imprecise “top down” manufacturing techniques mean that it cannot be used for many potential applications. It cannot be handled with enough small-scale precision to make it suitable for use in MEMS devices.

Here is where the new research comes in. The University of Wisconsin-Madison engineers figured out a way to apply fabrication techniques common in the semiconductor industry to PMN-PT. By carefully adding thin layers of a special electrode material on top of a layer of silicon, they were able to add a layer of PMN-PT that performs every bit as well as bulk crystals. The end result of applying atomic-level control to PMN-PT could be more-efficient MEMS circuits, including devices that can convert vibration into electricity for small devices.

Needless to say, we’re on the lookout for the best new technologies that represent investment opportunities. We expect to find exciting candidates in the MEMS field and elsewhere.

Regards,

Ray Blanco,
for The Daily Reckoning

Big Opportunity From Tiny Machines 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.

Yes…we’re going to Japan!

The gist of the Japanese situation is this:

The bubble burst in 1990. But rather than let their big businesses go belly up, the Japanese used every trick in the book. Counter-cyclical deficits up the Shinanho. ZIRP (zero interest rate policy). And QE too.

The economy didn’t grow. It didn’t collapse. It just got stuck…like a moth in amber. No new jobs. No new output. And get this, Japan is expected to lose 40% of its working age population by 2050.

But Japan is a leader, not a follower. Over the next 40 years, Germany will lose more than 30% of its working age population too. Russia and Poland will lose even more.

Growth is expected to be negligible over the next 40 years in Japan. But it will be almost nothing in many other countries too, according to an HSBC report. It estimates that the US will grow at around 1.5% annually. France 1.1%. Denmark, Norway, Sweden — barely anything at all.

What does this sound like to you, dear reader? It sounds like the whole developed world going Japan’s way — with low growth and high debts from here to eternity.

As in Japan, so in Europe and America. The European Central Bank is lending the banks as much as they want — at low rates. The Fed has its own ZIRP…which it says it will keep in place until 2014.

Growth is stalled…debts are mounting up. Hello Tokyo!

But wait…here’s the Congressional Budget Office telling us that Congress will have those deficits under control in no time.

“Deficits to fall sharply, US forecast says,” reports the International Herald Tribune.

What a relief that is! The CBO has crunched the numbers. It has beaten up the 2s. It has punched out the 5s. It has pounded the 6s. And now, finally, like prisoners at Guantanamo, the numbers tell us what we want to hear.

US debt is going down!

Wait a minute…are these the same number crunchers who, at the beginning of the 21st century, forecast federal surpluses as far as the eye could see?

Yes, it is!

But, okay, that didn’t work out exactly as planned. They crunched the numbers but then the numbers got un-crunched on their own. Damned numbers! You just can’t trust them.

So, how can we trust these numbers?

That’s just it, dear reader, we can’t. In order to work out as planned, they require:

1. Congress has to let the Bush tax cuts expire on schedule. Hmmm… Will that happen? Beats us. It probably depends on who wins the elections in November…which probably depends on what the economy does between now and then…which probably depends on more things than we can begin to estimate and compute.

But the central idea of it — that Congress will act responsibly — seems like something you can’t say with a straight face. Will pandas stop eating bamboo? Will teenagers stop slouching? Will liquor stores make free home deliveries? Nope. Everything has a nature of its own. And the nature of Congress is to spend money it doesn’t have on things it doesn’t need. And then to push the bill onto the next Congress…the next administration and the next generation.

2. Not only do taxes have to go up, so does economic growth. There’s a problem right there. According to prevailing theories, if you increase taxes during a de-leveraging spell, you don’t get faster rates of GDP growth. You get slower growth.

The CBO acknowledges this problem, to a degree. It allows as how unemployment may go up, thanks to the tax increases. In fact, they say it will go to 9% in 2013.

How will the President, Congress and the Fed react to rising unemployment? Mightn’t it tempt them to engage in a little more counter-cyclical stimulus…at the expense of the tax cuts?

And what happens to growth rates? The CBO figures that growth can outstrip deficits. Maybe. Maybe not. Now, it’s not even close. There’s a $1.1 trillion deficit this year. Growth? Maybe a fifth of that. In other words, debt is growing 5 times faster than the economy.

During Mr. Obama’s first (and maybe last) term, US debt will grow by more than $5 trillion. Another term like that and we’ll be over $20 trillion.

And already the weight of debt is pressing down growth rates…and it’s getting worse.

And if HSBC is right, US growth will be very slow. Will deficits also be very low? Below 1.5% of GDP? Down from over $1 for the last 4 years to under $225 billion for the next 40?

Heck, we’re as soft-headed as anyone. We’d like to see the whole problem go away too. And maybe it will…

But we wouldn’t bet on it…

Bill Bonner
for The Daily Reckoning

Debt Beats the Economy in a Growth Race 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.

The ECB meets today to set monetary policy, and ECB President Mario Draghi will hold a press conference following the meeting, so we could see some additional euro volatility throughout the trading day. Draghi will definitely be questioned on the ECB’s possible role in securing a second round of funding for Greece. The ECB reluctantly entered the debt markets, purchasing bonds in order to keep rates from rising too dramatically. They have accumulated a substantial position in Greek debt, and the IMF wants them to agree to take a write-down on this debt in order to reduce Greek debt levels. The bonds purchased by the ECB were already at a discount, but Greece wants them to take an even larger discount on these holdings. The bonds bought by the ECB in its Securities Market Program are exempt from the current debt-swap deal, but Greece needs additional debt reductions, and the IMF is pressuring the ECB to write down this debt.

It will be interesting to see what Draghi decides to do, as many of his cohorts in the ECB aren’t interested in booking big losses on this debt. And if the ECB is forced to participate in the Greek debt write-downs, what will that mean for the other distressed debt that the ECB has purchased? It would certainly seem to set a precedent that the ECB would have to follow in dealing with other debt purchased through their QE efforts of the past year.

The data released this morning in Europe will give the ECB a bit of good news to start their meeting. Economic confidence in the euro area rose in the first quarter after posting losses in the previous two. The positive move was led by an improvement of expectations for the euro region over the next six months, according to the Ifo research institute, with the indicator measuring future expectations rising from 57.4 to 70.5. This is still under its long-term average, but a good move in the right direction. ECB President Draghi has said 2012 will be a “much better” year and, these data indicate many of the business leaders seem to agree.

The Bank of England will be meeting also, and many expect BOE Gov. Mervyn King to announce additional stimulus measures. Economists predict King will announce an increase of 50 billion pounds to their target for bond purchases, and some expect an even larger 75 billion pound increase. Growth in the U.K. has resumed (albeit very slowly) following a contraction in the last quarter of 2011. But King has indicated he would like to see stronger numbers, and doesn’t seem to be worried about any inflationary impact of pumping additional funds into the U.K. economy. The risk of slipping back into a second recession seems to far outweigh any future negative impacts of additional stimulus measures in the mind of the current BOE leader. With rates near zero, additional bond purchases is the preferred policy tool of the BOE, and an increase is being priced in by the markets.

At least one Federal Reserve president here in the U.S. would also like to see additional bond purchases. John Williams, the Fed president of San Francisco, said he thinks there is room for additional purchases of mortgage-backed securities by the Fed. “There’s only so much headroom to do further Treasury securities of a medium- or long-term duration. But there is more room out there in the mortgage-backed securities space,” Williams told reporters in California. Fed chairman Ben Bernanke said yesterday that he sees a “long way to go” before the job market returns to normal, and additional bond buying is one option that is still on the table. It makes me a bit nervous to be following in the footsteps of the BOE and BOJ in what seems like another round of QE.

No data releases in the U.S. yesterday, but today is Thursday, which means we will get the weekly jobs numbers. Initial jobless claims are expected to have increased to 370,000 from 367,000 last week, and continuing claims are expected to have risen to 3.5 million. This data may seem counter to last week’s unexpected drop in the jobless rate to a three-year low, but the reason for this drop in the big number is that workers are simply giving up looking for work. So while last week’s announcement of a drop in the unemployment rate to 8.3% sent stocks soaring, the rate doesn’t give the true picture of the U.S. labor market. Chairman Bernanke pointed this out in his speech to the Senate Budget Committee yesterday, saying the job market remains a “long way” from returning to normal.

China’s inflation unexpectedly moved higher in January, according to reports released yesterday. Consumer prices rose 4.5% from a year earlier, a number that was higher than every economist’s predictions. The rise in prices was partially due to a weeklong holiday in January, which increased the number of shopping days available for consumers to make purchases. The higher inflation rate reduces the possibility of further policy easing in the near term, but most economists are expecting inflation to cool in the coming months.

The hike in consumer prices in China is yet another indication that the Chinese economy is not headed for a meltdown. This is good news for the commodity-based currencies of the New Zealand (NZD) and Australian dollars (AUD), and both hit near-term highs yesterday. The Kiwi traded back above 84 cents for the first time since September of last year. A report released in New Zealand showed employment grew last month, albeit at a slower rate than expected. New Zealand employment rose 0.1% in January versus a median forecast growth of 0.4%.

The Aussie dollar’s recent moonshot stalled a bit yesterday, as the Greek negotiations stumbled. The AUD$ has been on a two-month move higher, vaulting from below 97 cents at the end of November to a high of 1.0845 yesterday. The Reserve Bank’s move to keep interest rates unchanged, and their positive outlook on global growth prospects, has given investors confidence in the Australian dollar.

The guys who read the technical charts say the Aussie dollar looks overvalued at the current levels and suggest waiting to see a pull back to $1.05 before making any additional purchases. Another story I read on Bloomberg suggests the Aussie’s recent rally will force the Reserve Bank to resume cutting interest rates as higher Aussie dollar prices will negatively impact Australian exports. I guess it is just additional proof that you can spin things any way you want. I still feel the commodity currencies are the place to invest.

Then there was this… On my drive to work this morning, I heard a newscaster saying how it was nice to see Congress finally coming together to pass an important piece of legislation. I wondered could it be real deficit reduction? Tax reform? Tort reform? No, it was the bill that would ban members of Congress from profiting from using inside information in trading stocks. Shouldn’t this be illegal already? In fact, it is, as members of Congress are not exempt from existing insider trading laws, but the Constitution’s protection of their “speech or debate” makes it extremely hard to investigate violations. A 60 Minutes report back in November showed some members of Congress, including House Speaker John Boehner and Minority Leader Nancy Pelosi, had bought stock in companies while legislation that might affect those businesses was being debated. I guess it is good news that they are finally doing something about the loophole, but wouldn’t their ethics already prevent this? Oh, I forgot, I am talking about Congress.

To recap. The Greek leaders have been given 15 days to find additional cuts to offset pension costs. The ECB and BOE meet and both may be adding to their bond buying. The ECB has to decide if they want to take a haircut on their Greek debt. Chinese inflation pushed higher, causing a rally to the commodity currencies. And our Congress is set to pass a law which really shouldn’t be necessary.

Mike just pointed out a headline that the Greek parliament has come to an agreement on additional cuts which should seal the deal on a second round of funding. This should send the euro and the risk currencies higher today!

Chris Gaffney
for The Daily Reckoning

The Greeks are Given Another 15 Days to Find More Cuts 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.

I just met this remarkable fellow, full of wisdom on investing, yet hardly known beyond a small group of fans. His name is Thomas Phelps, and he’s had quite a career. He was The Wall Street Journal’s Washington bureau chief, a former editor of Barron’s, a partner at a brokerage firm, the head of the research department at a Fortune 500 company and, finally, a partner at Scudder, Stevens & Clark (since bought out by Deutsche Bank). Phelps retired in Nantucket after a varied 42-year career in markets.

Along the way, Phelps figured out a few things about investing. He conducted a fascinating study on stocks that had returned $100 for every $1 invested. Yes, 100-to-1. Phelps found hundreds of such stocks, bunches available in any single year, that you could have bought and enjoyed a 100-to-1 return on — if you had just held on.

This was the main thrust of our conversation: The key is not only finding them, but keeping them. His basic conclusion can be summed up in the phrase “Buy right and hold on.”

“Let’s face it,” he said, “a great deal of investing is on par with the instinct that makes a fish bite on an edible spinner because it is moving.” Investors, too, bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes them to make a lot of trades… and never enjoy truly mammoth returns.

Investors crave activity. Wall Street is built on it. The media feed it all, making it seem as if important things happen every day. Hundreds of millions of shares change hands every session.

But investors need to distinguish between activity and results. “When I was a boy, a carpenter working for my father made this sage observation: ‘A lot of shavings don’t make a good workman.’” As you can see, Phelps is a man of folksy wisdom.

“Investors,” Phelps continued, “have been so thoroughly sold on the nonsensical idea of measuring performance quarter by quarter — or even year by year — that many of them would hit the ceiling if an investment adviser or portfolio manager failed to get rid of a stock that acted badly for more than a year or two.”

What investors should do is focus on the business, not on market prices. Phelps showed me financial histories of a long list of companies — earnings per share, returns on equity and the like. No stock prices. After one example, he asked: “Would a businessman seeing only those figures have been jumping in and out of the stock? I doubt it.” But if they just sat on it, they’d be rich.

And this is the nub of it. Phelps is not a fan of selling good businesses.

He talked about how his friend Karl Pettit — an industrialist, inventor and investor — sold his shares of IBM stock many years ago to start his brokerage business. He sold them for a million bucks. That stake would eventually go on to be worth $2 billion — more than he ever made in his brokerage business.

Phelps told me the story of how he sold his Polaroid stock to pay a steep doctor’s bill of $7,415 back in 1954. “Here is the confirmation of the sale,” he said, which he keeps as a reminder of his folly. Less than 20 years later, his Polaroid stock was worth $843,000. That’s an expensive doctor’s visit.

Phelps also stands against market timing. He told me about how he predicted various bear markets in his career. “Yet I would have been much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”

Because of his bearishness, he missed opportunities that went on to deliver 100-to-1. “Bear market smoke gets in one’s eyes,” he said, and it blinds us to buying opportunities if we are too intent on market timing.

“He who lives by the sword shall perish by the sword,” he added. “When experienced investors frown on gambling with price fluctuations in the stock market, it is not because they don’t like money, but because both experience and history have convinced them that enduring fortunes are not built that way.”

Phelps showed me a little schematic that reveals how much a stock must compound its value to multiply a hundredfold:

35 years — 14%
30 years — 16.6%
25 years — 20%
20 years — 26%
15 years — 36%

You’ll note that these are very long holding periods, but that’s the point. The greatest fortunes come from gritting your teeth and holding on. You’ll also see it’s a fairly high hurdle. You need growth.

(Several stocks we own are giving us annualized returns above Phelps’ tough 100-fold hurdles so far: IAG (39%), FLS (28%), MEOH (32%), TIE (25%) and GTLS (70%) — to name those we have held for at least one year. Twenty years is a long time, though…)

Phelps advises looking for new methods, new materials and new products — things that improve life, that solve problems and allow us to do things better, faster and cheaper. There is also an admirable ethical streak to Mr. Phelps’ style. He emphasized investing in companies that do something good for mankind. Finally, focus on cheap stocks, though you have to look beyond past figures.

“There is a Wall Street saying that a situation is better than a statistic,” Phelps said. Relying only on published growth trends, profit margins and price-earnings ratios is not as important as understanding how a company could create value in the years ahead.

Phelps is quick to add that he is not advocating blindly holding onto stocks. “My advice to buy right and hold on is intended to counter unproductive activity,” he says, “not to recommend putting them away and forgetting them.”

And so what if you don’t get a hundredfold return? The point of Phelps’ brilliant teaching method is to focus your attention on the power of compounding, to forget the day-to-day burps and ripples of stock prices. You can see the power of such ideas in the stocks we own: If you had bought Canadian Natural Resources (NYSE:CNQ) 10 years ago, for example, and held on no matter what — through recessions, bubbles, credit crises — you’d have multiplied your money 11-fold. Brookfield Asset Management (NYSE:BAM) went up nearly sevenfold. Buy right and hold on, indeed.

It is an investment tragedy of a sort to think that people have owned these stocks and not reaped those gains because they were trying to time the market or trade in and out. Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years, but still delivered the big 100-to-1.

“One of the basic rules of investing is never, if you can help it, take an investment action for a noninvestment reason,” Phelps advises. Don’t sell just because the price moved up or down, or because you need to realize a capital gain to offset a loss, etc. You should sell rarely, and only when it is clear you made an error. One can argue that every sale is a confession of error, and the shorter time you’ve held the stock, the greater the error in buying it — according to Phelps.

I love Mr. Phelps’ ideas. They are hard to implement, I know. But some people have. He related the experiences of individuals, former clients and old associates who got rich by buying right and holding on. Only the most-exceptional individuals can do it. Phelps wishes he had learned these insights when he was younger.

Now, I have a little confession to make about Mr. Phelps… I didn’t actually meet him. He’s been dead since 1992, reaching the ripe old age of 90. Every quote above comes not from a conversation, but from his book, 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities, published in 1972.

I recently picked up a near mint copy for $22. This forgotten book should be a classic. Do not let the implausibility of making 100-to-1 on your stocks distract you. The main idea is to know how such returns have happened and what investors needed to do to get them. Aiming a little closer to that goal is bound to improve your results.

Phelps wrote as much. “Just a slight change in a golfer’s grip and stance may improve his game, so a little more emphasis on buying for keeps, a little more determination not to be tempted to sell… may fatten your portfolio. In Alice in Wonderland, one had to run fast in order to stand still. In the stock market, the evidence suggests, one who buys right must stand still in order to run fast.” I think it is superb advice.

I recommend the book, which is a pleasure to read and has plenty of good ideas, analogies and stories. They are particularly relevant now, given all the trouble in the world. I am inspired by his philosophy of buying right and holding on. I think you should try to do more of that, too.

Regards,

Chris Mayer,
for The Daily Reckoning

The Value of a Thief 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.

But are gold buyers making a big mistake? Is history repeating itself? The New York Times suggests it is:

As it was in 1980, could it be again in 2012?

The 1980 presidential election was fought by a Democratic incumbent weakened by a poor economy amid worries that the United States had lost its ability to compete in the world. Gold prices had risen to unprecedented levels as the election approached, and the Republican nominee hinted he might propose a return to a gold standard.

That Republican, Ronald Reagan, won the election and soon appointed a commission to study the role of gold in monetary systems. To gold bugs, it appeared to be the best chance in decades to move the country toward gold and away from what they like to call “fiat money,” a currency anchored by nothing more than government dictates.

Last month, Newt Gingrich, seeking to widen his support in the days leading up to the South Carolina primary, promised that he would appoint a new gold commission. “Part of our approach ought to be to re-establish something Ronald Reagan did in 1981 and that is to have a commission on gold to look at the whole concept of how do we get back to hard money,” he said in a speech.

No, dear reader, history is not repeating itself. The NYT is wrong…about everything. Well, almost everything. It understands that gold is a threat to its big advertisers…and most of its readers (who don’t own any gold). It is also a threat to most economists — who have built their careers on not understanding how a real economy actually works…and whose income and whose professional status now depend on a gold-free, centrally-planned economy.

So, to prove that gold is a ‘barbarous relic’ and that gold bugs walk on four legs, they merely put the question to economists.

The University of Chicago last month asked a panel of 40 economists, including former advisers to both Democratic and Republican presidents, if they agreed that “price-stability and employment outcomes would be better for the average American” if the dollar’s value were tied to gold. Every one of them disagreed, some with more than a little incredulity that such a question was worthy of discussion.

“Why tie to gold?” asked [the very witty] Richard Thaler, a University of Chicago professor. “Why not 1982 Bordeaux?”

“Eesh,” responded Austan Goolsbee, a Chicago colleague and former adviser to President Obama. “Has it come to this?”

The Times goes on to report that “even economists with some sympathy to gold opposed the idea” of a gold-backed dollar. And Mr. Ben Bernanke, former professor of economics at Princeton, says he doesn’t think gold is money.

Oh yeah, replied Congressman Ron Paul, then why do central banks hold gold…and not things such as ’82 Bordeaux or diamonds?

Mr. Bernanke replied that it was just a matter of “tradition.”

Yes, he’s right…it is a matter of tradition, like marriage…like property rights…like government…like murder…like teenagers who moon adults out of car windows…or like drivers who give each other the finger.

Traditions become traditions because people keep doing them. And they keep doing them for reasons that aren’t likely to go away. Times change. Conditions change. Human nature doesn’t.

But let us go back to the New York Times’ silly notion that we are about to relive the period following ’80. What seems to have triggered the idea was Newt Gingrich’s proposal to study the idea of going back on the gold standard. Every right thinking person in the country — the Times implies — knows the idea is foolish. And the price of the yellow metal is sure to fall, as it did after the Reagan election, when people realize how foolish it is.

But gold didn’t fall after ’80 because the Reagan administration didn’t put it back in the monetary system. It fell because Paul Volcker made it unnecessary. Instead of printing money, Volcker tightened up…taking out some of the money that was already there. And he did it under conditions that were not merely unlike those of today…but almost the exact opposite.

Then, the US was still a creditor to the rest of the world, not a debtor.

Then, the US was still running positive trade balances, not losing money every month.

Then, US stocks were at bargain levels…selling for 5 to 8 times earnings; today, they’re twice as expensive.

Then, US bonds were cheap too…with yields for US Treasury debt as high as 18%, or nearly SIX TIMES as high as today’s long bonds.

Then, US households had debt of only 60% or 70% of their disposable income, not 120% like today.

Then, the Fed was determined to stifle inflation; now it is determined to cause it.

Then, the federal government’s debt was less than 40% of GDP. Now, it’s over 100%.

Then, even in today’s inflation adjusted terms, the US government ran a deficit of $197 billion. Today, the deficit is $1.1 trillion.

Then, stocks had been going down for the previous 14 years; bonds had been going down for at least 31 years. Now, stocks and bonds have been going up, generally, for the last 30 years.

This final point is now just a detail. It’s the heart of the matter. With bonds at a 30-year low, Paul Volcker could squeeze inflation…begin a 3-decade period of rising bonds (with falling interest rates)…and an 18-year bust in the gold market.

Will that happen again? Impossible!

What kind of strange history would it be if it could repeat itself…from totally different initial conditions? Could Napoleon march on Moscow…if he had started out in Chicago rather than Paris? Could Liz Taylor have married Richard Burton twice if she’d died in a traffic accident after her first marriage?

Can gold now repeat its path of ’80-’98, even though today’s situation is almost the opposite in every way?

No, dear reader, history doesn’t repeat itself. It just stutters out the same truths, over and over. G..g..g..g..gold is m…m…m…money. It says.

The N..N…New Y…Y…Y…York Times is full of s..s..s..s…

…error!

Who knows what the future will give us? We don’t. Not here at The Daily Reckoning…

…but we see what could be a bad moon rising. No, we’re not talking about a Great Correction…or even a Depression. Who really cares if GDP goes up or down? You can go broke with honor…with a sense of humor…and with grace and dignity. You can happily go broke.

But you can’t go to Hell with grace and dignity.

In the following article, the FBI notes that 18 people a year have been convicted, mostly of ‘white collar crimes.’ You wouldn’t think this would call for comment. But the FBI says these people are “extremists” who believe they have a right to protect themselves from what they see as an overbearing government. The G-men tell us that these extremists can turn violent “at the drop of a hat.”

How long before they’re rounded up? And maybe they’ll round up “potential domestic terrorists” too, even those who have never committed any crime? And what about gold bugs? They may look harmless, but they give aid and comfort to dangerous elements, don’t they?

Here is the FBI preparing the public for a trip to Hell.

(Reuters) — Anti-government extremists opposed to taxes and regulations pose a growing threat to local law enforcement officers in the United States, the FBI warned on Monday.

These extremists, sometimes known as “sovereign citizens,” believe they can live outside any type of government authority, FBI agents said at a news conference.

The extremists may refuse to pay taxes, defy government environmental regulations and believe the United States went bankrupt by going off the gold standard.

Routine encounters with police can turn violent “at the drop of a hat,” said Stuart McArthur, deputy assistant director in the FBI’s counterterrorism division.

“We thought it was important to increase the visibility of the threat with state and local law enforcement,” he said.

In May 2010, two West Memphis, Arkansas, police officers were shot and killed in an argument that developed after they pulled over a “sovereign citizen” in traffic.

Last year, an extremist in Texas opened fire on a police officer during a traffic stop. The officer was not hit.

Legal convictions of such extremists, mostly for white-collar crimes such as fraud, have increased from 10 in 2009 to 18 each in 2010 and 2011, FBI agents said.

“We are being inundated right now with requests for training from state and local law enforcement on sovereign-related matters,” said Casey Carty, an FBI supervisory special agent.

FBI agents said they do not have a tally of people who consider themselves “sovereign citizens.”

J.J. MacNab, a former tax and insurance expert who is an analyst covering the sovereign movement, has estimated that it has about 100,000 members.

Sovereign members often express particular outrage at tax collection, putting Internal Revenue Service employees at risk.

Regards,

Bill Bonner
for The Daily Reckoning

Why Gold is Money Despite Changing Conditions 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.

Well, Dear Reader, we’re here to tell you: America is in decline.

We can give it to you straight because we’re not running for public office. And if we were elected, we would immediately demand a recount.

Anyone who tells you America is not in decline is either running for office…or not paying attention.

In 1969, more than one out of every three dollars of income in the entire globe was earned in the US. That’s what the IMF’s World Economic Outlook tells us.

By 2000, that number had fallen…but not by much. The US still took home 31% of global income. But in the last 10 years, the US share has fallen hard — losing more than 7%. Now, only 23% of the world’s income is generated by the US.

Ten years ago, China’s economy measured about 1/8th the size of the US. Now, it is 41%. Another decade and it will be the biggest in the world. It is already bigger by several measures. And even if its growth declines to 7% a year, it will still surpass the US in a dozen years.

Hey, don’t take it personally. The entire developed world is in decline — with America leading them all down.

By 2050, according to a new study from HSBC, today’s emerging economies — as a whole — will be larger than Europe, America and Japan put together.

The New York Times reports:

The American economy’s reported 2.8 percent growth in the fourth quarter, at an annual rate, was seen as mildly encouraging. But it meant that over the previous 10 years, the economy had grown at a compound annual rate of just 1.7 percent. Until the current cycle, there had been no similar prolonged period of slow growth since the Depression.

The International Monetary Fund’s latest forecasts indicate that there is not likely to be a pickup in growth anytime soon, either in the United States or other large industrialized countries.

…if the fund’s forecasts of 1.8 percent real growth in 2012 and 2.2 percent in 2013 prove to be accurate, the 10-year American rate at the end of 2013 will have fallen to 1.5 percent… But it will still be a little above the 0.9 percent compound growth rate in the decade from 1929, the year the Depression began, to 1939.

For Britain, which endured a horrible decade in the 1970s that led to talk of the “British disease,” the previous postwar low, not shown in the charts, was in the 10 years ending in the second quarter of 1983, an annual rate of 0.95 percent. The figure for the 10 years through 2011 is 1.4 percent, but the I.M.F. predictions indicate the 2013 figure will fall to just 0.94 percent. The fund expects the British economy to grow by just 0.6 percent this year and by 2 percent in 2013.

The situation is even worse in Italy, where the fund expects the economy to contract by 2.2 percent this year and 0.6 percent the following year. If that happens, Italy’s economy will be smaller at the end of 2013 than it was 10 years earlier. The French economy is forecast to have grown at a 1 percent annual rate over the same 10-year period.

As the developed economies stagnate, the ‘emerging’ economies grow. Nineteen of the world’s top economies in 2050 will be those we regard as “emerging” today. China and India will hold the number 1 and number 3 spots, with the US sandwiched between them.

So far, we are just talking about numbers. Try to imagine a world in which today’s emerging markets have more economic power, and vastly more people, than today’s leaders. It is not just China and India who will be calling the shots, but Brazil, Turkey, Russia, Mexico and Indonesia too.

New technologies, new fashions, new ideas, new music, new cars, new movies…all are likely to come from countries where, today, Westerners are afraid to drink the water. Now, they are imitating us. Soon, we will be listening to pop Indian sitar music, eating doner kebabs and watching movies made in Jakarta.

Military power, too, is likely to shift to the growing economies. Like a body builder with a protein shake, they will use their increasing resources, human as well as material, to add muscle. But their muscle will be young, built with new technology and new techniques. America’s geriatric, expensive, bureaucracy-ridden, zombified military industry will be unable to match it.

It is one thing to talk nonsense to the voters. They love that kind of stuff. It flatters them. It comforts them.

But only a fool would believe it.

Which is what worries us. The candidates seem to think “declinism” is just a state of mind…and that economic and military success can be had by act of willpower.

“Decline,” writes Charles Krauthammer, “is a choice.”

And it’s a choice the candidates think they can avoid just by giving more money to America’s military industry.

“I will insist on a military so powerful no on would ever think of challenging it,” adds Mitt Romney.

But military spending is not a way to resist decline; it is a sign of it…and a cause of it. Osama bin Laden understood how it worked. By 2000, he had already brought one great empire, the Soviet Union, to its knees, luring it to spend money it didn’t have in a war it couldn’t win. He thought he could do the same to the US. So far, it looks as though he was right.

Lt. Col. Daniel L. Davis has been described as a “whistleblower.” He’s ratting out the military for failing in Afghanistan, just as Osama bin Laden predicted.

He doesn’t seem to understand. The military is not protecting the US in Afghanistan; there’s nothing to protect it against. Nor did it ever intend to “win” a war in Afghanistan. It never even identified what winning would mean or how it would know when it had won. This was always a zombie war, not a real war. Its purpose was only to transfer wealth and power to the military industry. In that sense, the war is a great success.

The Armed Forces Journal has the story:

Truth, lies and Afghanistan
How military leaders have let us down

By LT. COL. DANIEL L. DAVIS

I spent last year in Afghanistan, visiting and talking with US troops and their Afghan partners. My duties with the Army’s Rapid Equipping Force took me into every significant area where our soldiers engage the enemy. Over the course of 12 months, I covered more than 9,000 miles and talked, traveled and patrolled with troops in Kandahar, Kunar, Ghazni, Khost, Paktika, Kunduz, Balkh, Nangarhar and other provinces.

What I saw bore no resemblance to rosy official statements by US military leaders about conditions on the ground.

Entering this deployment, I was sincerely hoping to learn that the claims were true: that conditions in Afghanistan were improving, that the local government and military were progressing toward self-sufficiency. I did not need to witness dramatic improvements to be reassured, but merely hoped to see evidence of positive trends, to see companies or battalions produce even minimal but sustainable progress.

Instead, I witnessed the absence of success on virtually every level.

Regards,

Bill Bonner,
for The Daily Reckoning

When Emerging Markets Shape the Developed World 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.

Take for instance yesterday, when I said that thing in Greece were unraveling very quickly… Less than an hour after I hit “send” on the Pfennig, I saw a quote from French President, Sarkozy, who said, “we couldn’t be closer to a deal in Greece”… Hmmm… Seems that there was no reason for me to be so Donnie Downer on Greece! Yeah, and I’ve got some swampland I need to sell you… Hey Disney World was built on swampland, so you’ve got that going for you! HA!

This morning, the euro (EUR) has climbed back above 1.31, on news that the Greek leaders have agreed to meet today (now probably) to put the final touches on structural economic reform, which has been demanded by the Trokia (or Troika — tomato, tomato, it’s all the same) and consists of the IMF, the European Commission and the European Central Bank (ECB). The Trokia had demanded these economic reforms before the next round of bailout funds are released. The Greek leaders need to cut 850 million euros from their spending, which will account for 1.5% of GDP…

This trading range in the euro lately has been as tight as a pair of new shoes on a rainy day… The euro has either bumped up above 1.31, or fallen below it… 1.32 had been a tough row to hoe for the euro, and so, the trading range has been established… And I believe it will remain there as long as the Sword of Damocles is hanging over Greece…

Remember when I kept telling you that the Bank of Japan (BOJ) and the Finance Ministry were saber-rattling and trying to verbally intervene to get the yen (JPY) weaker, but that it wouldn’t be long before they were digging into that treasure chest of yen that has been allocated for intervention? And then nothing? Nada, zilch, zero, a big goose egg!

Ahhh Grasshopper, it only appeared to us that the BOJ was sitting on its hands… Last night the Finance Ministry released a report showing that the BOJ had conducted 1.02 trillion yen ($13 billion) worth of unannounced intervention during the first week of November. So, who knew? Who knew the BOJ could be stealth-like? This way, the markets weren’t aware of the intervention, because the BOJ spread it out, and was quiet about it… And it worked, (as best as intervention can, that is) bringing the yen from its post-WWII high of 75.35 to 76.50… But, that’s not what the BOJ had to have had on their minds… The yen is still too strong for exporters at 76.50, so… Can we expect to find out about more “stealth intervention”? I think so…

The Aussie dollar (AUD) is stronger this morning on a relief trade… The Reserve Bank of Australia (RBA), unexpectedly left rates unchanged, and instead of dire words, signaled optimism that global economic growth will strengthen. The Aussie dollar touched $1.0810 after the rate announcement, but has since fallen back below $1.08… But not far, and still stronger than yesterday!

The New Zealand dollar/kiwi (NZD) really liked the fact that the RBA left rates unchanged, because it has clutched on to the Aussie dollar’s coattails in recent times, and if the Aussie dollar is going to rally on the news, then kiwi gets to rally too!

I see where The Washington Post, (WP) must have a Pfennig reader… For they ran a report last night about how the unemployment rate here in the US is falling because of the millions of workers who have given up looking for work… The Washington Post writer believes that if all 2.8 million people who have given up looking for work were actually counted as “unemployed” that the Unemployment Rate would be 9.9%, not 8.3%…

Of course, the WP writer would do a better job if they dug even deeper into the phony, trumped up BLS labor report, to find how John Williams at Shadow Stats thinks the unemployment rate is really 22%…

While I’m here in the US, St. Louis Fed Head, James Bullard was speaking in Chicago yesterday, and had this to say about the Fed keeping interest rates near zero to counteract a high degree of slack in the US economy… “If we continue using this interpretation of events, it may be very difficult for the US to ever move off of the zero lower bound on nominal interest rates. This could be a looming disaster for the United States.” — James Bullard.

Fed Head Bullard is telling you all and anyone who will listen that we are all turning Japanese! He didn’t say it, but the scenario he described is exactly what has happened to Japan… I sure hope someone is listening in the Fed Head circles…

Today, the data cupboard will print Consumer Credit for December… You may recall how this number exploded in November by $20 billion… Well, December credit is expected to hit $7 billion… This data is covered little, and I wonder why… It’s very telling about what’s going on, don’t you think?

Over in Germany this morning, the December print of Industrial Production (IP) was very weak, as it decreased 2.9% from November. There could be two things at work here… First, there’s not much work that gets done as Christmas closes in for German workers… And second, the German economy softened… But none of the other data we saw from this time period indicated that, so I’m going to go with what’s behind door number 1!

Today, Big Ben Bernanke will testify before the Senate on the economic outlook and the Federal Budget situation… Last week, when Big Ben talked to the House, the lawmakers tried like all get out to get Bernanke to fess up to messing up the economy, but as I reported here on Friday, he redirected the lawmakers questions to him talking about what he wanted to talk about, which was how he wants the lawmakers to get deficit spending under control.

It will be interesting to see how Big Ben is treated in the Senate… Either way, he’s a master of redirecting, and the talk will all come back to lawmakers getting deficit spending under control! Which is a good subject to talk about, but I’m sure what the lawmakers have to say about what Bernanke is doing to the dollar is also a good subject to talk about!

Last week I told you how the Swiss franc/euro cross rate was nearing the floor of 1.20 that the Swiss National Bank (SNB) set last fall. I said then that it would be interesting to see the SNB’s resolve in defending this cross level… New SNB Chairman, Thomas Jordan, is setting the markets straight on his resolve. Jordan said, “We remain firmly committed to defending the minimum exchange rate of 1.20 francs per euro. This commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday. We will not tolerate any trading below the minimum rate.”

Well… I guess he told the markets where he stand, eh? But… As I’ve said before, money talks and bulldookie walks… It’s now up to the markets to see if the SNB is really going to defend the cross or not… Which, by the way, this morning is weaker than it was last week at 1.2070…

One of the things that I look at periodically is the “misery index”, which is comprised of the Unemployment Rate and the inflation rate… I like to see where the US is compared to other countries like Norway and Australia or Canada, etc.

Well, my most recent look at the Misery Index showed the following recent results…

US 11.30% up from 2011’s 10.60%
Canada 9.9% down from 2011’s 10.10%
Norway 3.0% down from 2011’s 5.9%
Australia 8.3% up from 2011’s 7.60%

I think it is important to a country’s psyche to have a lower misery index number…

So… If that’s as interesting to you as it is to me, I’ll keep this up-to-date going forward.

I see where the 3.6 million workers in the German metal and electrical industries union are demanding 6.5% wage increases. This is going to be a very heated negotiation, because in 2010, German companies did quite well, but… Most economists believe that the German economy will slip this year, along with the rest of the Eurozone, into a recession…

And in the UK it appears that the Bank of England (BOE) will extend their bond purchase program (quantitative easing)… And remember what I’ve told you now for a couple of years… What happens in the UK usually comes ashore here within 6 months… So, if the BOE is extending QE, then the Fed will be doing it soon enough…

And gold is still trying to find traction to move higher, as it slips on the overall better feeling about what’s going on in the global economies… I find this to be temporary… So, could be a good time to pick up some gold at cheaper prices, eh? I said could be…

Then there was this… From The Economist… First, I’ll give you the snippet of the Economist story and then tie it all together in a neat bow… OK… Here’s The Economist… “China and the US might be laying the foundation for another Cold War over China’s territorial claim for the South China Sea, The Economist’s Banyan columnist writes. None of the nations with interests in the South China Sea is making progress toward settling disputes. “So the chances are that America, with its mighty Navy and abiding interest in the freedom of navigation and commerce, will become still more involved.” — The Economist

Chuck again… Remember Rome? Remember how the Roman army got too extended putting out fires everywhere? Hmmm… Iraq, Afghanistan, Iran, South China Sea, doesn’t this scare anyone else?

To recap… The RBA left rates unchanged, and surprised the markets last night, sending the Aussie dollar over $1.08. It has slipped back below the figure this morning, but still stronger than yesterday! Japan has been doing stealth intervention to keep a lid on yen, going back to November, and The Washington Post figures out the funny bookkeeping at the BLS…

Chuck Butler
for The Daily Reckoning

RBA Sounds Upbeat About Global Economic Growth 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.

On Friday, Americans were still convinced that they were never going broke. The Europeans were still squabbling about how they were going to keep from going broke And the Japanese were telling each other that going broke wouldn’t be so bad.

For the United States of America, the road to hell has never been so smooth. The country has been borrowing its way to ruin for many years. But now, the skids are greased. The wheels are oiled. Strap on your seat belt. Whee!

Lenders practically insist that the US government take their money. Reuters reports:

The US government may ask investors to pay for the privilege and safety of holding short-term debt issued by its Treasury Department.

In response to clamor from investors, the Treasury said on Wednesday it was looking closely at allowing negative-yield auctions. This would mean bidders who want the security of US government debt in the face of global insecurity, might have to pay a premium for it.

Doing so would allow the US government to benefit from something that is already occurring on the secondary market, where investors have accepted negative yields in recent months to protect their cash from financial strains.

Remarkably, Wall Street is asking to be able to pay a premium for US debt even after the United States lost its prized AAA rating last year and as the government heads for a fourth straight year with $1 trillion-plus budget deficit.

“It is the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible,” according to minutes of the Treasury Borrowing Advisory Committee, which includes 21 financial institutions that make markets for US government securities.

On Tuesday, the nonpartisan Congressional Budget Office said the United States was headed for a fourth straight year of $1 trillion-plus budget deficits, a condition that Republicans want to use as ammunition to hammer President Barack Obama’s spending record in the November voting.

Debt is still rising. At some point, it has to stop. Then, the feds go broke.

Why?

Because they are all living on borrowed time and borrowed money, only paying current expenses — including the interest on past borrowing — by borrowing more and more money. When the borrowing stops, they will no longer be able to pay their bills. And when that happens, their bonds will drop in value — fast. Governments will go broke. So will all the people who depend on the feds and their IOUs. Banks. Insurance companies. Retirees. Investors. The defense industry. The education industry. The healthcare industry.

Will this be a bad thing? Not necessarily. What has to happen sometime might as well happen now; get it over with. The longer debt builds up, unchecked, the more debt there is to liquidate when the end comes. Better for the end to come sooner, rather than later, in other words. If the end were allowed to come, we’d soon be at the beginning again.

But if there was one theme that ran through all the “Capitalism in Crisis” essays it was this: the end must be prevented, at all costs. Capitalism is inherently unstable, the writers agreed. Governments must use their power to keep it from going nuts. Otherwise, it may put an end to things.

We disagree. Markets — free markets — are meant to be unstable. They are meant to crack-up from time to time. And thank God they do. Otherwise, we’d be stuck forever with zombie industries and dead end investments. Every once in a while, capitalism throws a tantrum. But so what? Crises, breakdowns, crashes, washouts, liquidations — they’re just fast and efficient ways to get rid of the zombies.

And it’s not just developed countries that are subject to the temper fits of capitalism. Even China — a country still run by people who call themselves communists — is subject to capitalism’s mood swings.

Here’s a report from Bloomberg:

China’s economy is headed for a “hard landing” this year as weaker demand overseas chokes off exports, said Gary Shilling, who correctly forecast the US recession that began in December 2007.

A Chinese government report yesterday showed that export orders fell last month even as manufacturing expanded. The Shanghai Composite Index (SHCOMP) dropped 1.1 percent yesterday as stronger manufacturing boosted concern that the world’s second-largest economy will decelerate further as the government refrains from loosening monetary policy to tame inflation and curb property prices.

“They slammed on the brakes,” Shilling, president of A. Gary Shilling & Co., a Springfield, New Jersey-based consultancy firm, said at the Bloomberg Link China Conference in New York yesterday. “Transition is not easy because they are geared up to exports.”

China’s economy expanded 10.4 percent annually in the past 10 years, five times the pace of the US, as the government boosted spending on roads and bridges and manufacturers exported everything from toys to socks. Shilling defines a hard landing as a growth rate below 6 percent.

The economy grew at a 9.2 percent rate in 2011 and its expansion will slow to 8.5 percent this year, according to economists’ estimates compiled by Bloomberg.

Shilling, 74, has been calling for a hard landing in China since at least a year ago, advising clients to sell copper and the Australian dollar as a play on the downturn.

Shilling forecast the US recession in 2007 and warned investors a year earlier that residential real estate was a bubble about to burst. As the Standard & Poor’s 500 index fell [to] a more-than 12-year low in March 2009, he said that higher unemployment would curb consumer spending, leading to “weaker stocks.” The gauge has since rallied 96 percent.

Nobody can be right all the time. Even here at The Daily Reckoning, our timing is occasionally off — by a year or two. After all, we figured the US stock index, the Dow, would be down to 6,000 by now. We thought the post-crisis bounce would have come to an end years ago. Instead, the Dow is over 12,000…and still bouncing along.

But give it time!

Bill Bonner
for The Daily Reckoning

How to Prolong an Inevitable Market Correction 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.