“The truth is that the State is a conspiracy designed not only to exploit, but above all to corrupt its citizens.” – Leo Tolstoy

“None are more hopelessly enslaved than those who falsely believe they are free.” – Johann Wolfgang von Goethe

In 1912, Ludwig von Mises’s masterwork The Theory of Money and Credit was published; and to this day, this book is underappreciated. How can this be? After all, in this book, Mises unveiled his regression theorem demonstrating commodity money, such as gold, can have its purchasing power traced back in time to the point where gold was not a medium of exchange. Mises, accordingly, eliminated the conundrum in which the marginal-utility explanation of money demand would merely be a case of circular reasoning; money emerged out of barter and his logic is irrefutable. Mises also laid the foundation for the Austrian theory of the trade cycle, which correctly deduces that economic boom-bust cycles are caused by inflationary bank-credit expansion as enabled by central banks and their governments. While writing The Theory of Money and Credit, Mises was pondering the issue of economic calculation in a socialist state. Per Murray Rothbard,

Mises writes that he was led to consider the socialist calculation problem by his work on The Theory of Money and Credit. Here Mises realized for the first time with keen clarity that the money economy does not and cannot calculate or measure values directly: that it only calculates with money prices, the resultants of such individual valuations. Hence, Mises realized that only a market with money prices based on the evaluations and exchanges of private owners can rationally allocate resources, since there is no way by which a government could calculate values directly. Hence, for Mises his article and book on socialism was part and parcel of the development of his expanded integration of micro and macro, of direct monetary exchange, that he had begun but not completed in The Theory of Money and Credit.[1]

Without private ownership in the means of production, economic calculation is impossible. Per Joseph T. Salerno, “a single human mind … would be utterly incapable of determining the optimal pattern of resource allocation or even if a particular plan were ludicrously and destructively uneconomic.”[2] To be sure, the collapse of the USSR demonstrated the harmful, resource-misallocating, and uneconomic nature of the socialist state.

Ludwig von Mises, indisputably, was correct about the inherent irrationality of the socialist state. Because Mises, however, grudgingly believed in the necessity of the state, he did not extend his critique to the irrational essence of the state itself – after all, he believed that government was necessary for providing national defense, courts, prisons, and police protection/security.[3] He did not see free-market solutions emerging in lieu of these state-provided services.

Given the nature of all states, is it not true that government entities are incapable of rationally allocating resources? In a socialist state, an economy cannot emerge due to the impossibility of economic calculation under collective ownership of the means of production, as prices for production goods cannot materialize. Owing to the character of all states, however, it is impossible for bureaucratic operatives to rationally allocate resources, which is due to the impossibility of applying a profit-and-loss test to the operations of the state. Such impossibility arises as a state’s revenues are based not on voluntary market exchanges but are based on coercion mostly via taxation. In a world of scarcity, it stands to reason that entities which misallocate resources and destroy capital are fundamentally irrational and undesirable. Any entity that comes into existence based on coercion and theft and then is incapable of rationally allocating resources under its control is criminal in nature and harmful to mankind. This entity is the state.

The State Is Anticapital

Capital is wealth, in whatever form, and is used or is capable of being used to produce additional wealth. Farmland, seeds, tools, buildings, and draft animals are examples of capital that predate the emergence of the state. Just as there was a day when gold emerged as money, there was a day where the state was born. It is axiomatic, however, that capital existed prior to the emergence of the state. As Linda and Morris Tannehill wrote,

Wealth does not exist in nature but must be created. The only means of creating wealth is value-production and free exchange – the manufacture and trade of some desired good or service. One may obtain wealth directly, by productive work, or one may obtain it indirectly, by looting it from a producer, but the wealth must be created by production in the first place in order to exist at all.[4]

For man to satisfy his needs and desires, there are the economic means and the political means.[5] Correspondingly, the “state is an organization of the political means. No state, therefore, can come into being until the economic means has created a definite number of objects for satisfaction of needs, which objects may be taken away or appropriated by warlike robbery.”[6] The state, consequently, was born on coercion, expropriation, theft, and violence.

The most aggressive expropriator of wealth is the socialist state. Under socialism, the state takes ownership of all means of production, including land. Prior to the emergence of the socialist state, for example in the USSR, much of the means of production and land were privately owned. On the formation of the USSR, all means of production and land were collectivized and, therefore, brought under control of the Soviet Union’s central planners. A more accurate way to describe this collectivization process is to call it for what it is: state-sponsored coercion and theft on the grandest scale known to mankind.

After 74 years of existence, the Soviet Union collapsed, thereby exposing socialism’s devastation to its people, resources, and capital. “As the Soviet Union came to an end, the public had been reduced to a collective of hunter gatherers, barely existing at a subsistence level.”[7] The total state, as exemplified by the Soviet Union, led to the total impoverishment of its people – not to mention that it murdered approximately 20 million of its own citizens.[8]

Although states openly steal property, there are varying degrees of “respect” states concede with regard to private-property ownership. People in the United States, for instance, feel relatively secure in their ownership of private property. It is, nonetheless, a grey area as to who owns land and houses in the United States. For if someone fails to pay property taxes, then the taxing authority can legally confiscate the house or tract of land. Moreover, the 16th Amendment to the US Constitution allows for direct taxation – and, therefore, Uncle Sam has claimed prior ownership to the fruits of everyone’s labor in the United States. Money is property, just as much as real estate is, and both are subject to confiscation in the United States.

The More Power a State Has, the More Its Criminal Nature Is Exposed

The very existence of the state puts humanity on a slippery slope toward state servitude, grinding poverty, and premature death:

Just as “the power to tax involves the power to destroy,” the sanctioning of state authority to regulate even one percent of our conduct is to admit its authority as to the rest.[9]

Ludwig and Margit von Mises escaped the clutches of the epitome of totalitarianism: Nazi Germany. It is widely known how murderous this totalitarian state was. During Ludwig von Mises’s lifetime, the extent of the Communist bloc’s criminality and destructiveness was not known. When The Black Book of Communism: Crimes, Terror, Repression was published in 1999, the evil and criminal nature of the total state, as laid bare by Communism, was exposed for the whole world to see.

There is an erroneous mindset that Nazism represents the extreme right of the political spectrum while Communism represents the extreme left. This is a mistake, as private-property ownership and liberty are demolished under the totalitarian state, regardless of its label. In other words, totalitarianism is totalitarianism. The authors of The Black Book of Communism drew this exact conclusion:

One thing is certain: Crimes against humanity are the product of an ideology that reduces people not to a universal but to a particular condition, be it biological, racial, or sociohistorical. By means of propaganda, the Communists succeeded in making people believe that their conduct had universal implications, relevant to humanity as a whole. Critics have often tried to make a distinction between Nazism and Communism by arguing that the Nazi project had a particular aim, which was nationalist and racist in the extreme, whereas Lenin’s project was universal. This is entirely wrong. In both theory and practice, Lenin and his successors excluded from humanity all capitalists, the bourgeoisie, counterrevolutionaries, and others, turning them into absolute enemies in their sociological and political discourse. Kautsky noted as early as 1918 that these terms were entirely elastic, allowing those in power to exclude from humanity whenever they so wished. These were the terms that led directly to crimes against humanity.[10]

Under the total state, there is no private property including ownership of one’s own body. Those exercising power under a totalitarian regime see nothing wrong with killing people for the sake of the state. It is no wonder that Communist regimes killed nearly 100 million people during the 20th century.[11]

The 20th century, overall, was a bloody one. Dr. R.J. Rummel has coined the term democide, which means “the murder of any person or people by a government, including genocide, politicide, and mass murder.”[12] These deaths do not count combat deaths attributed to war. In the 20th century, according to Dr. Rummel, democide accounted for 262 million deaths.[13]

As states gain power and liberty recedes, the evil, criminal, and murderous nature of the state becomes self-evident.

All States Subsist on Coercion and Theft and Are Uneconomic

There is an assertion that a social contract exists in which individuals tacitly consent to give up some of their freedoms in exchange for the benefits of a political order and security as provided by the state. In reality, who consents to being murdered by a state in the name of political order? Who consents to being taxed? Whether an individual is more likely to be murdered by a state or is merely taxed and bossed around by a state has everything to do with where someone is born and has nothing to do with consenting to the dictates of the state.

Taxes are not voluntary contributions made to the state. Figuratively speaking, taxes are collected at gunpoint and failure to pay may land one in prison or worse. Per Lysander Spooner,

If the government can take a man’s money without his consent, there is no limit to the additional tyranny it may practise upon him; for, with his money, it can hire soldiers to stand over him, keep him in subjection, plunder him at discretion, and kill him if he resists.[14]

What Spooner described is the unvarnished reality that the state represents the negation of liberty. For if an individual does not fully own the fruit of his labor (i.e., money income), then he lives in a condition of tax slavery.

Taxation also depresses production. It is a natural response to prevent a thief from stealing one’s belongings. Yet if the thief is the state, mankind has the inclination to keep as much as possible away from the government and the economic impact is deleterious. On this matter, let’s turn to Frank Chodorov:

Taxes of all kinds discourage production. Man works to satisfy his desires, not to support the state. When the results of his labor are taken from him, whether by brigands or organized society, his inclination is to limit his production to the amount he can keep and enjoy.[15]

Chodorov further comments,

While we are on the subject of discouragement of production by taxation, we should not overlook the greater weight of indirect taxes, even though it is not so obvious. The production level of a nation is determined by the purchasing power of its citizens, and to the extent that this power is sapped by levies, to that extent is the production level lowered. It is a silly sophism, and thoroughly indecent, to maintain that what the state collects it spends, and that therefore there is no lowering of total purchasing power. Thieves also spend their loot, with much more abandon than the rightful owners would have spent it, and on the basis of spending one could make out a case for the social value of thievery. It is production, not spending, that begets production. It is only by the feeding of marketable contributions into the general fund of wealth that the wheels of industry are speeded up. Contrariwise, every deduction from this general fund of wealth slows down industry, and every levy on savings discourages the accumulation of capital. Why work when there is nothing to it? Why go into business to support politicians?[16]

A private company’s revenues are derived from spontaneously emergent, market-based demand (in other words “organic” demand), whereas a state’s revenues arise from theft. States are anticapital, irrational, and uneconomic in and of themselves.

If there is any contract that must be broken, it is the alleged social contract between individuals and the state. Living standards would rise, due to increased capital accumulation and savings, which in turn would result in more goods and services being brought to the market.

Economic Calculation

What is economic calculation and why is it important? In Human Action, Ludwig von Mises succinctly answers these questions:

The task which acting man wants to achieve by economic calculation is to establish the outcome of acting by contrasting input and output. Economic calculation is either an estimate of the expected outcome of future action or the establishment of the outcome of past action. But the latter does not serve merely historical and didactic aims. Its practical meaning is to show how much one is free to consume without impairing the future capacity to produce. It is with regard to this problem that the fundamental notions of economic calculation – capital and income, profit and loss, spending and saving, cost and yield – are developed. The practical employment of these notions and of all notions derived from them is inseparably linked with the operation of a market in which goods and services of all orders are exchanged against a universally used medium of exchange, viz., money. They would be merely academic, without any relevance for acting within a world with a different structure of action.[17]

In a territory where the institutions of private property and sound money are honored, all goods and services can be coherently exchanged on the free market. Under these conditions, money prices emerge for both consumer goods and producer goods. Prices for producer goods are a derivative of the prices of consumer goods, with the prices of producer goods emerging through price imputation.[18]

With private ownership in the means of production, an economy can flourish. Entrepreneurs can make rational business decisions and subject such decisions to the profit-and-loss test:

Monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production. He calculates in order to distinguish the remunerative lines of production from the unprofitable ones, those of which the sovereign consumers are likely to approve from those which they are likely to disapprove. Every single step of entrepreneurial activities is subject to scrutiny by monetary calculation. The premeditation of planned action becomes commercial precalculation of expected costs and expected proceeds. The retrospective establishment of the outcome of past action becomes accounting of profit and loss.[19]

A tool businessmen use to determine the success or failure of past actions is a financial statement, which includes a balance sheet and an income statement. It is important to understand that all entries in the balance sheet and income statement are expressed in terms of money. A businessman can directly correlate whether his company’s capital base (i.e., the company’s net worth as reflected in the balance sheet) is expanding or contracting depending on if the company turned a profit or made a loss. Such monetary calculation assists a businessman in deciding to maintain or change a business plan based on satisfying the ever-sovereign consumer.

In business, a private company can gauge the demand for its products through its sales volume. Using generally accepted accounting principles (GAAP), sales are recorded as the very top entry of an income statement (also known as a profit-and-loss statement) using the term “revenues.” Revenues are generated through the voluntary exchanges of money, from customers, in return for the products sold to customers. A company will know quickly if there is a demand for its product – for if sales do not materialize or are significantly below expectations, then the company’s revenues will reflect this lack of customer demand. A revenue shortfall, in turn, most likely will reveal a company with an unprofitable business model in which revenues fall short of covering production and overhead costs. Hence, the income statement will reveal a net loss. The company’s capital base will shrink as a result of this loss.

A GAAP income statement, for a private company, would look like the following:

• Revenues
• Cost of Revenues Earned
• Gross Profit
• General and Administrative Expenses
• Net Income from Operations
• Other Income (Expenses)
• Net Income (Loss)
• Retained Earnings, Beginning of Year
• Retained Earnings, End of Year

If the company turns a net income, its retained earnings will increase, thus resulting in an increase of the company’s capital base. If the company turns a net loss, then retained earnings will shrink and this results in the diminution of its capital base. This is the elegance of economic calculation.

The State Cannot Calculate

All states are extramarket constructs and are always and everywhere incapable of economic calculation. Without the profit-and-loss test, with private property being a prerequisite, socialism does not allow an economy to emerge. Socialism is, therefore, irrational. If a state allows private-property ownership within its territory, and a free-market economy emerges, it does not follow that such a state is rational. For such a state is incapable of rationally allocating resources under its command, as public entities do not have the ability to measure their performance through the profit-and-loss test. Public entities, ultimately, depend on coercion and theft to fund themselves and their programs. Hence, the mindset of bureaucrats is political and not economic in character.

In a world of scarcity, rational resource allocation is critical to supporting human life. For those of a political mindset, should we expect rationality and logic with respect to matters of economics?

Rational conduct would be divorced from the very ground which is its proper domain. Would there, in fact, be any such thing as rational conduct at all, or, indeed, such a thing as rationality and logic in thought itself? Historically, human rationality is a development of economic life. Could it then obtain when divorced therefrom?[20]

In states where private property is allowed, there exists a false perception that state bureaucrats can rationally allocate resources. This is an illusion foisted on a gullible public. If a public entity runs a surplus, it is hailed as being operated responsibly. If the public entity runs a deficit, it is seen as a problem that must be rectified by the bureaucrats in charge.

Public-sector accounting does measure revenues and expenses. There is, however, no profit-and-loss test precisely because a state or public entity is not a market-based phenomenon. Public-sector accounting, accordingly, is purely self-referential in that state operatives desire to know if enough money is being skimmed from its subjects in order to remain viable. Public-sector accounting also provides an air of respectability in that public entities want to promote the illusion of accountability to the populace. The objectives of public-sector accounting are conveyed as follows:

Traditional objectives:

• To provide a financial summary
• To enable detailed comparisons of spending to be made with the budget
• To allow the identification of spending to ensure it complies with the law and other legal authorities
• To provide the basis for the next budget

Modern objectives:

• To inform the stakeholders about the financial situation of the government
• To provide possible investors with information about creditworthiness
• To aid management decision making
• To identify assets and liabilities
• To facilitate democratic transparency[21]

Note such terms and concepts as compliance with the law, budgeting, stakeholders, creditworthiness, and democratic transparency; throw in the term “sustainability” and public-relations perfection will have been achieved.

Services most often associated with the public sector are police protection, security, legal system, roads, national defense, and money production. Of course, there are numerous welfare programs such as Social Security and Medicare – but these are not services in that they are pure transfers of wealth.

To reiterate, because a state’s revenues are generated through coercion, via taxation, there is no way of gauging any organic demand for the services the state provides to its populace. Without a legitimate gauge for measuring the demand for a state’s services, as there is no connection between demand and revenues (such as there is in private enterprise), a state has absolutely no means of calculating if it is rationally allocating resources.

It also follows that because state services cannot be tested against the metrics of organic demand, then it is impossible for state bureaucrats to know if they are meeting the most urgent needs of the populace; it is impossible for taxes to act as a substitute for market-generated revenues. Only market-based revenues serve to provide the signals of how much and what type of services are actually demanded by people.

In the United States, for example, there has materialized a web of public entities – municipal, state, and national – that has parasitically fastened to a market society – siphoning resources away from where countless individuals would have otherwise directed their own money and resources. How many smart bombs, drones, fighter jets, military bases, policemen, judges, social workers, CIA spies, and IRS agents are demanded by John Q. Public? Whether or not a public entity runs a surplus or a deficit does not answer this question. Because a state is not a market-based phenomenon, although it still may be able to gauge its expenses using prices that have emerged on the free market, it can never gauge the demand for its services as a state’s top-line income is derived from theft and not from free-market demand. This lattice work of public entities, therefore, serves to misallocate resources on an enormous scale.

State-Controlled Money versus the Free Market

Per Ludwig von Mises’s regression theorem,

money, in any society, can only become established by a market process emerging from barter. Money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists. Money can only emerge, "organically" so to speak, out of the market.[22]

Contra to what public officials and statists assert, there is no economic law prohibiting the private production of money,[23] let alone security services,[24] defense,[25] justice,[26] and roads.[27] Yet governments, being the criminal enterprises that they are, have succeeded in supplanting market-based money (gold and silver) with fiat money.

With the emergence of the state came the multicentury process of governments gaining control over monetary systems. Such usurpations typically began with the state seizing absolute control of the minting business – with the state naming the monetary unit to separate it from the underlying weight of the coin (which opens the door for coinage debasement). The next step was for states to enact legal-tender laws dictating what money could be. As money substitutes were brought into widespread use, in recent centuries, governments gave banks the privilege of suspending payment in specie. All of this set the table to bring central banking into the picture, whereby governments grant central banks a monopoly on the note of issue.[28]

Directly due to the effects of central banking, stock-market bubbles arose in the United States in the 1920s, the 1980s, and the late 1990s /early 2000s. Each bubble was fueled by the Federal Reserve’s easy-money policies and led directly to the Great Depression,[29] the record stock-market crash of 1987, and the crash of the NASDAQ/dot-com bubble, which imploded over the period of 2000–2001.[30] The Austrian theory of the trade cycle provides the only explanation for these booms and busts. As Roger Garrison explains,

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy’s capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.[31]

Famously, after the attacks of 9/11, Federal Reserve Chairman Alan Greenspan reduced the federal-funds rate (which stood at 6.5 percent in November of 2000) to 1 percent in July of 2003. The federal-funds rate remained at 1 percent until June of 2004.[32] Such artificially low interest rates stimulated a housing bubble as enabled by the government-sponsored enterprises of Fannie Mae and Freddie Mac.

Frank Shostak eloquently describes how loose monetary policy was the proximate cause of America’s housing bubble:

We can define a bubble as activities that spring up on the back of loose monetary policy of the central bank. In other words, in the absence of monetary pumping these activities would not emerge. Since bubble activities are not self-funded, their emergence must come at the expense of various self-funded or productive activities. This means that less real funding is left for productive activities, which in turn undermines those activities. In short, monetary pumping gives rise to the misallocation of resources, which as a rule manifests itself through a relative increase in non-productive activities against productive activities.[33]

Accordingly, the mass delusion that a long-term consumer durable, such as a house, will increase in price, year after year, directly emanated from the Federal Reserve’s monetary pumping. The bubble-headed assumption that housing prices would never decline demonstrates that easy money certainly led to a massive clustering of error, culminating in a terrible bust in the housing market.

By September of 2008, the Federal Reserve’s easy-money policy came home to roost when major American financial institutions recognized that their balance sheets were in tatters. Reckless lending for home mortgages led to widespread mortgage-loan defaults. Because Wall Street had turned into a mortgage-debt securitization machine and American financial institutions’ balance sheets were stuffed full of such mortgage-backed securities – whose prices dropped precipitously, due to the aforementioned loan defaults – money-center banks and powerhouse Wall Street firms were brought to their knees.

On October 14, 2008, “the U.S. government announced a series of initiatives to strengthen market stability, improve the strength of financial institutions, and enhance market liquidity.”[34] The cornerstone initiative was the “Troubled Asset Relief Program (TARP), in which the secretary of the Treasury would expend as much as $700 billion in two installments to purchase rotten paper, such as mortgage-backed derivatives, from banks and other financial institutions.”[35]

Wall Street titans such as Citigroup, Goldman Sachs, and JPMorgan Chase initially felt the pain of the 2008 economic collapse. However, because such financial institutions were deemed “too big to fail,” Secretary of the Treasury Hank Paulson saw to it that these insolvent behemoths were bailed out at the expense of Main Street. Robert Murphy concludes,

The TARP was crooked from the very start, using taxpayer funds to bail out some of the world’s richest people from their own foolish investments. The claims that it made taxpayers money are unfounded. Even worse, TARP taught investment bankers an important lesson: During a boom, make as much money as you can, no matter how short-term the profits will be. When the bubble pops, the Treasury and Fed will be there with a taxpayer-funded pillow.[36]

When government controls money, through a central bank, combined with the power to tax, the criminal activities undertaken by the state can be nothing short of audacious and supremely damaging.

Under a free market, where gold and silver coins are privately minted and used as money, such state-induced boom-bust cycles, as exemplified by America’s housing bubble, could not emerge. Conversely, when the criminal enterprise, known as the state, controls the production of money, history illustrates how economically destructive the state can be.

Conclusion

As a state grows, the free market becomes hampered and recedes. Because all states are incapable of rationally allocating resources under their command, it logically follows that the total state must snuff out an economy altogether. When Economic Calculation in the Socialist Commonwealth was published, Mises’s “seminal journal article in 1920 on the impossibility of economic calculation under socialism was the most important critique ever leveled at socialism.”[37] Fundamental to this critique was the absolute necessity of private ownership in the means of production.

Ludwig von Mises, therefore, was a fierce defender of private-property ownership. For without private property, an economy cannot emerge:

It is an illusion to imagine that in a socialist state calculation in natura can take place of monetary calculation. Calculation in natura, in an economy without exchange, can embrace consumption goods only; it completely fails when it comes to dealing with goods of a higher order. And as soon as one gives up the conception of a freely established monetary price for goods of a higher order, rational production becomes completely impossible. Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.[38] (Emphasis in the original)

Mises did not, however, view socialism as systematized robbery.[39] Had he been aware of the Soviet Union’s brutal treatment of kulaks during its collectivization process, it is possible he would have changed his mind. Per The Black Book of Communism,

Recent research in the newly accessible archives has confirmed that the forced collectivization of the countryside was in effect a war declared by the Soviet state on a nation of smallholders. More than 2 million peasants were deported (1.8 million in 1930–31 alone), 6 million died of hunger, and hundreds of thousands died as a direct result of deportation.[40]

Such shocking information may have jarred Mises into grasping that all states, by definition, exist based on systematized robbery and violence. In turn, any entity whose very existence depends on systematized theft and coercion inherently must misallocate resources and destroy capital. In a world of scarcity, such an institution must be deemed antihuman and irrational. Socialism, accordingly, isn’t the problem; the state itself is.

Mises, to be sure, had serious misgivings about the state:

Private property creates for the individual a sphere in which he is free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power. It thus becomes the basis of all those activities that are free from violent interference on the part of the state. It is the soil in which the seeds of freedom are nurtured and in the autonomy of the individual and ultimately all intellectual and material progress are rooted.[41]

Inherent to private property is the right to self-ownership, “a right held by everyone by virtue of being a human being.”[42] Every person, in other words, has a property right in his own body. By extending Mises’s view of private property to each person’s body, the sphere in which mankind would maximize freedom along with intellectual and material progress would be where no state exists at all.

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• Mises, Ludwig von, 1998, Human Action, Auburn, AL: Ludwig von Mises Institute.
• Mises, Ludwig von, 2003, Epistemological Problems of Economics, Auburn, AL: Ludwig von Mises Institute.
• Mises, Ludwig von, 2006, The Causes of the Economic Crisis: And Other Essays Before and After the Great Depression, Auburn, AL: Ludwig von Mises Institute.
• Murphy, Robert P., 2010, “Was TARP good for the Taxpayers?,” Mises Daily, October 07.
• Murphy, Robert P., 2011, Study Guide to The Theory of Money & Credit by Ludwig von Mises, Auburn, AL: Ludwig von Mises Institute.
• Notten, Michael van, 2006, The Law of the Somalis: A Stable Foundation for Economic Development in the Horn of Africa, Trenton, NJ: The Red Sea Press.
• Oppenheimer, Franz, 1999, The State: Its History and Development Viewed Sociologically, New Brunswick, NJ: Transaction Publishers.
• Rajsic, Predrag, 2012, “Assuming Away Reality,” Mises Daily, May 02.
• Rothbard, Murray N., 1988, Ludwig von Mises: Scholar, Creator, Hero, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 1990, What Has Government Done to Our Money?, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 1991a, The Case for a 100 Percent Gold Dollar, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 1991b, “The End of Socialism and the Calculation Debate Revisited,” The Review of Austrian Economics, 5, 2.
• Rothbard, Murray N., 1994, The Case Against the Fed, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 1998, The Ethics of Liberty, New York, NY: New York University
• Press.
• Rothbard, Murray N., 2000, America’s Great Depression, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 2004, Man, Economy, & State: A Treatise on Economic Principles: with Power and Market, Government and the Economy, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 2006, For a New Liberty: The Libertarian Manifesto, Auburn, AL: Ludwig von Mises Institute.
• Rothbard, Murray N., 2007, The Panic of 1819: Reactions and Policies, Auburn, AL: Ludwig von Mises Institute.
• Rummel, Rudolph available at http://en.wikipedia.org/wiki/Rudolph_Rummel.
• Salerno, Joseph T., 1993, “Mises and Hayek Dehomogenized,” The Review of Austrian Economics, 6, 2.
• Salerno, Joseph T., 1999, “The Place of Mises’s Human Action in the Development of Modern Economic Thought,” The Quarterly Journal of Austrian Economics, 2, 1.
• Sanchez, Daniel James, 2012, “Mises on the Basics of Money,” Mises Daily, March 28.
• Sanchez, Daniel James, 2012, “The Measurement Chimera,” Mises Daily, April 09.
• Shaffer, Butler, 2009, Boundaries of Order: Private Property as a Social System, Auburn, AL: Ludwig von Mises Institute.
• Shostak, Frank, 2003, “Housing Bubble: Myth or Reality?,” Mises Daily, March 04.
• Spooner, Lysander, 1852, Trial by Jury, Cleveland, OH: Jewett, Proctor, & Worthington.
• Steele, David Ramsay, 1981, “Posing the Problem: The Impossibility of Economic Calculation under Socialism,” The Journal of Libertarian Studies, V, 1.
• Strigl, Richard von, 2000, Capital & Production, Auburn, AL: Ludwig von Mises Institute.
• Tannehill, Linda and Morris, 1993, The Market for Liberty, San Francisco, CA: Fox & Wilkes.
• Thornton, Mark, “The Economics of Housing Bubbles,” Auburn, AL: Ludwig von Mises Institute.

Notes

[1] Rothbard (1998), pp. 37–38.

[2] For an excellent analysis of Economic Calculation in the Socialist Commonwealth, read Joseph T. Salerno’s postscript titled “Why a Socialist Economy is ‘Impossible.’” Mises (1990), pp. 51–71.

[3] Mises (1983), p. 27.

[4] Tannehill (1993), p. 113.

[5] Oppenheimer (1999), pp. 24–25.

[6] Ibid p. 27.

[7] Maltsev (1993), p. 25.

[8] Courtois, et al. (1999), p. 4.

[9] Shaffer (2009), p. 282.

[10] Courtois, et al. (1999), pp. 752–753.

[11] Ibid p. 4.

[12] Wikipedia Rudolph Rummel.

[13] Ibid.

[14] Spooner (1852), Appendix.

[15] Chodorov (2007a), p. 225.

[16] Chodorov (2007a), pp. 225–226.

[17] Mises (1998), pp. 211–212.

[18] See Dan Mahoney On Austrian Value Theory and Economic Calculation.

[19] Mises (1998), p. 230.

[20] Mises (1990), p. 21.

[21] See Noel Hepworth: Chartered Institute of Public Finance and Accountancy, University of Malta, February 2003

[22] Rothbard (1988), p. 19.

[23] See Jorg Guido Hulsmann’s The Ethics of Money Production “Monetary Reform” pp. 240–242.

[24] See Linda and Morris Tannehill’s The Market for Liberty Chapter 8 “Protection of Life and Property.”

[25] See Hans-Hermann Hoppe’s Chapter 10 “Government and the Private Production of Defense” in The Myth of National Defense: Essays on the Theory and History of Security Production.

[26] See Michael van Notten’s The Law of the Somalis Chapters 3, 4, and 5.

[27] See Walter Block’s chapter “Road Socialism” in The Privatization of Roads and Highways edited by Walter Block.

[28] Rothbard (1990), pp. 57–69.

[29] See Murray Rothbard’s America’s Great Depression.

[30] See Mark Thornton’s The Economics of Housing Bubbles p. 21.

[31] Garrison (1996), p. 112.

[32] See Mark Thornton’s The Economics of Housing Bubbles p. 15.

[33] Shostak (2003), p. 1.

[34] See Board of Governors of the Federal Reserve System Troubled Asset Relief Program (TARP) Information.

[35] Higgs (2008), p. 1.

[36] Murphy (2010), p. 7.

[37] Rothbard (1988), p. 25.

[38] Mises (1990), pp. 19–20.

[39] Hulsmann (2007), p. 445.

[40] Courtois, et al. (1999), p. 146.

[41] Mises (1985), pp. 67–68.

[42] Rothbard (2006), p. 35.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

The Best of Eric Englund

An insolvent company can stay afloat much longer than anticipated. For example, on July 5, 2006, Karen De Coster and I published an essay titled General Motors, Market Engineering, and Confidence "Protection." In this essay, we stated: "With such a weak balance sheet, GM will not survive a recession. Hence, bankruptcy is a possibility…" On June 1, 2009, nearly three years after we wrote this essay, General Motors filed for Chapter 11 bankruptcy. I was amazed it took that long for GM to throw in the towel. In May of 2005, I wrote an essay critical of Bill Ford, Jr. and Ford Motor Company. I asserted, in this piece, that Ford Motor Company will go bankrupt. Six years later, Ford Motor Company is still standing; yet, I steadfastly maintain it will go bankrupt as Ford's balance sheet remains a train-wreck. Twenty-six months ago, I penned an essay titled The New York Times Company's Self-Inflicted Insolvency. How is The Gray Lady staying afloat even though, in my opinion, she is still insolvent? In one word, debt.

So let's take a look at The New York Times Company's financial condition at fiscal year-end 2010. Please note I adhere to a conservative method of financial analysis which dictates that intangible assets are always fully discounted. Without further ado, here are the not-so-pretty highlights of The Gray Lady's sad state of financial disrepair:

• Long-term debt and capital lease obligations stood at $996.4 million.
• From fiscal year-end 2008 to fiscal year-end (FYE) 2010, long-term debt and capital lease obligations have increased by $416 million; which is a 71.7% increase over this two-year period.
• Looking at the balance sheet on an "as-given" basis, the total-liabilities-to-equity ratio is 4 to 1. Anything over 3 to 1 indicates uncomfortably high leverage.
• After discounting $1,004.5 million of intangible assets, The New York Times Company has an allowable net worth of negative $340.4 million.

What may give some adoring supporters of The Gray Lady some solace is her improvement, in working capital, since fiscal year-end 2008. As of FYE 2010, allowable working capital stood at $284 million. This is a vast improvement over her allowable working capital position, of negative $460.8 million, at FYE 2008. Two consecutive years of profitability, to be sure, will help rebuild working capital. On the other hand, the improvement in working capital also came at the price of going much deeper into debt over the past two years; with three key debt transactions being highlighted below (amounts owed are as of FYE 2010):

• $227.7 million owed to companies affiliated with Carlos Slim. Proceeds from this loan netted The New York Times $221.3 million in 2009. The effective interest rate, on this transaction, is 17%
• $217.3 million owed in relationship to sale-leaseback financing of The New York Times' ownership interest in its headquarters building. Proceeds from The Gray Lady's sale-leaseback arrangement netted her $210.5 million in 2009. The effective interest rate, on this transaction, is 13%.
• $220.1 million owed on 6.625% senior unsecured notes issued in November of 2010. This transaction netted the Times $220.2 million in cash and has an effective interest rate of 7%.

These long-term borrowings, over the past two years, were instrumental in helping The New York Times to pay down its bank line to $0 (down from $380 million), to redeem $259.5 million of long-term debt, to make debt repayments of $99.6 million, and to bring working capital significantly into positive territory. Unquestionably, replacing $380 million of short-term bank debt, with long-term debt, gave working capital a considerable boost.

Taking on debt, at such high interest rates, clearly indicates The New York Times Company's management team is desperate. Keep in mind that this heavy borrowing binge is a manifestation of The Gray Lady's reckless financial management during the first decade of this millennium. Regarding the time period of 2000 through the third quarter of 2008, I stated the following in my essay The New York Times Company's Self-Inflicted Insolvency:

Since 2000, The New York Times Company has generated a respectable cumulative net income of $1,598,062,000. Yet management, over the same period, has paid out $2,779,601,000 for stock buybacks and dividends. This means, during the present decade, stock buybacks and dividends have exceeded cumulative net income by an astonishing $1,181,539,000. Is it any wonder The New York Times’ balance sheet is such a train-wreck? Operationally, this company has done well during the past nine years. Conversely, the company’s balance sheet has been hideously mismanaged by an incompetent executive management team — as supervised by a grossly negligent board of directors.

So, as a result of this negligent financial management, the Times had to load up on debt in order to stay afloat a while longer — how much longer is anyone's guess.

In light of the terrible economy and the grim prospects for print media, what is the prognosis for The Gray Lady? As Gary North points out in his excellent LRC piece titled Why I Hung Up on a New York Times Reporter, 2011 is not shaping up, so far, to be a good year for The New York Times. In the first quarter of 2011, both operating profit and earnings per share have declined dramatically when compared to the first quarter of 2010. As Dr. North stated in his article: "Profits are fading fast. It is clear what is happening. The Times is going belly-up."

I agree and the sooner the better.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

The Best of Eric Englund

Through Warren Buffett's letters to Berkshire Hathaway's shareholders, and his op-ed pieces, one can conclude Warren Buffett has little respect for private property rights. If Mr. Buffett took the time to read Frank Chodorov's masterful book The Income Tax: Root of All Evil, he would properly conclude (I hope) taxation is theft. Instead, he celebrates the Sixteenth Amendment to the U.S. Constitution and has written forcefully about his support for income taxes, estate taxes, and double taxation of dividends (for more on these matters, read this Forbes article: Warren Buffett’s Tax Fetish). Warren Buffett earnestly portrays himself as a loyal financial supporter of Uncle Sam and deems himself to be Uncle Sam's "grateful nephew." However, when examining how Warren Buffett and Charlie Munger have structured Berkshire Hathaway's investment portfolio, it is painfully clear Warren Buffett does not put his money where his mouth is. For someone who has pledged financial allegiance to the United States, Mr. Buffett speaks with a forked tongue.

So let's begin with how Warren Buffett paints his image as to being one of Uncle Sam's most devoted financial benefactors. He does so by writing this folksy passage in his February 27, 2004 letter to Berkshire Hathaway's shareholders. To be sure, he gushes about the staggering amount of federal taxes Berkshire Hathaway will pay against its fiscal-year 2003 income, and wonders aloud how he can do even more to help Uncle Sam carry his "fiscal load." Without further ado, here is the spin master himself, Warren Buffett:

On May 20, 2003, the Washington Post ran an op-ed piece by me that was critical of the Bush tax proposals. Thirteen days later, Pamela Olson, Assistant Secretary for Tax Policy at the U.S. Treasury, delivered a speech about the new tax legislation saying, “That means a certain Midwestern oracle, who, it must be noted, has played the tax code like a fiddle, is still safe retaining all his earnings.” I think she was talking about me.

Alas, my “fiddle playing” will not get me to Carnegie Hall — or even to a high school recital. Berkshire, on your behalf and mine, will send the Treasury $3.3 billion for tax on its 2003 income, a sum equaling 2% of the total income tax paid by all U.S. corporations in fiscal 2003. (In contrast, Berkshire’s market valuation is about 1% of the value of all American corporations.) Our payment will almost certainly place us among our country’s top ten taxpayers. Indeed, if only 540 taxpayers paid the amount Berkshire will pay, no other individual or corporation would have to pay anything to Uncle Sam. That’s right: 290 million Americans and all other businesses would not have to pay a dime in income, social security, excise or estate taxes to the federal government. (Here’s the math: Federal tax receipts, including social security receipts, in fiscal 2003 totaled $1.782 trillion and 540 “Berkshires,” each paying $3.3 billion, would deliver the same $1.782 trillion.)

Our federal tax return for 2002 (2003 is not finalized), when we paid $1.75 billion, covered a mere 8,905 pages. As is required, we dutifully filed two copies of this return, creating a pile of paper seven feet tall. At World Headquarters, our small band of 15.8, though exhausted, momentarily flushed with pride: Berkshire, we felt, was surely pulling its share of our country’s fiscal load.

But Ms. Olson sees things otherwise. And if that means Charlie and I need to try harder, we are ready to do so.

I do wish, however, that Ms. Olson would give me some credit for the progress I’ve already made. In 1944, I filed my first 1040, reporting my income as a thirteen-year-old newspaper carrier. The return covered three pages. After I claimed the appropriate business deductions, such as $35 for a bicycle, my tax bill was $7. I sent my check to the Treasury and it — without comment — promptly cashed it. We lived in peace.

Being one of America's top-ten taxpayers, indeed, indicates Berkshire Hathaway is "…pulling its share of our country's fiscal load." Buffett's key phrase in this passage, with respect to carrying Uncle Sam's fiscal load, is this: "And if that means Charlie and I need to try harder, we are ready to do so." This is pure baloney and hypocrisy, on Buffett's part, and I will show you exactly why — this folksy, self-promoting quote truly is a gift which keeps on giving.

Before exposing Warren Buffett's insincerity, let's allow Buffett to provide some more spin regarding his deep devotion to Uncle Sam. On November 16, 2010, the New York Times published Buffett's op-ed piece titled Pretty Good for Government Work. In this piece, Buffett heaps praise on the federal government's response to the financial crisis of 2008:

When the crisis struck, I felt you would understand the role you had to play. But you've never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.

Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

Buffett goes on to close this op-ed piece depicting himself as one of Uncle Sam's steadfast supporters:

So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.

Your grateful nephew,

Warren

Well, Mr. Buffett, how grateful are you really? Are you and Charlie Munger honestly trying harder to help Uncle Sam carry his fiscal load? Certainly you are aware that your beloved Uncle Sam needs to borrow over a trillion dollars to cover his deficit for fiscal-year 2011. The company that you and Charlie run, Berkshire Hathaway, is one of the wealthiest and most liquid on the face of the planet. You decide how to deploy Berkshire Hathaway's war chest of funds. Therefore, if your actions are consistent with your words, Berkshire Hathaway would have loaned Uncle Sam tens-of-billions of dollars; with such loans appearing on Berkshire Hathaway's balance sheet as fixed maturity securities. Actions, ultimately, speak louder than words.

So let's see if Berkshire Hathaway's latest financial statement (dated 9/30/10) reveals Warren Buffett to be a grateful nephew dedicated to helping Uncle Sam carry his considerable fiscal load. We must begin by examining Berkshire Hathaway's balance sheet. At September 30, 2010, Berkshire Hathaway had $34.46 billion of cash and an investment portfolio of $117.08 billion. Hence, this company's cash and investments totaled to $151.54 billion. Within this total, Berkshire's fixed maturity securities amounted to $36.35 billion. By going to Note 4 of this financial statement, it is divulged that Berkshire Hathaway's holdings of Uncle Sam's debt obligations amounts to a paltry $2.25 billion. Uh, oh; I'm beginning to sense "ungrateful nephew" is a better description of Warren Buffett.

To give some additional context as to why it is obvious Warren Buffett's actions are completely at odds with his words, consider the following:

• Of Berkshire Hathaway's total fixed maturity securities, only 6.2% were Uncle Sam's debt obligations.
• Less than 2% of Berkshire Hathaway's investment portfolio consisted of U.S. Treasuries and U.S. Agency debt (in other words, Uncle Sam's debt obligations).
• Less than 1.5% of Berkshire Hathaway's total liquid assets were comprised of U.S. Treasuries and U.S. Agency debt.
• Berkshire Hathaway's foreign government fixed maturity securities totaled to $12.03 billion versus $2.25 billion of Uncle Sam's debt obligations.

With Berkshire Hathaway's cash and investments of $151.54 billion, and Warren Buffett's proclamation that he stands ready to work harder at helping the federal government carry its fiscal load, does it not seem duplicitous to have loaned Uncle Sam a trifling $2.2 billion. To add insult to injury, Berkshire Hathaway's portfolio of foreign government fixed maturity securities exceeds U.S. debt obligations by almost $10 billion. Does this mean Mr. Buffett loves foreign governments five times more than he does Uncle Sam? Why are Buffett's actions inconsistent with his words? Does the "grateful nephew" not trust his beloved uncle? Never in history has there been a time where Uncle Sam has become so dependent on the kindness of lenders. So, Uncle Sam, has Warren Buffett forsaken thee?

Ah, the truth of the matter is that Warren Buffett has never trusted Uncle Sam. Is it not risky, after all, to lend to an entity capable of creating money out of thin air? This is the essence of what Warren Buffett wrote, on February 25, 1985, in his letter to the shareholders contained in Berkshire Hathaway's 1984 annual report:

…we dislike the purchase of most long-term bonds under most circumstances and have bought very few in recent years. That's because bonds are as sound as a dollar — and we view the long-term outlook for dollars as dismal. We believe substantial inflation lies ahead, although we have no idea what the average rate will turn out to be. Furthermore, we think there is a small, but not insignificant, chance of runaway inflation.

Such a possibility may seem absurd, considering the rate to which inflation has dropped. But we believe that present fiscal policy — featuring a huge deficit — is both extremely dangerous and difficult to reverse. (So far, most politicians in both parties have followed Charlie Brown's advice: "No problem is so big that it can't be run away from.") Without a reversal, high rates of inflation may be delayed (perhaps for a long time), but will not be avoided. If high rates materialize, they bring with them the potential for a runaway upward spiral.

While there is not much to choose between bonds and stocks (as a class) when annual inflation is in the 5%-10% range, runaway inflation is a different story. In that circumstance, a diversified stock portfolio would almost surely suffer an enormous loss in real value. But bonds already outstanding would suffer far more. Thus, we think an all-bond portfolio carries a small but unacceptable "wipe out" risk, and we require any purchase of long-term bonds to clear a special hurdle. Only when bond purchases appear decidedly superior to other business opportunities will we engage in them. Those occasions are likely to be few and far between.

To be sure, Warren Buffett has remained true to the words he penned nearly 26 years ago. Berkshire Hathaway, over the years, has avoided purchasing U.S. Treasury bonds because Warren Buffett and Charlie Munger distrust the long-term soundness of the dollar. Specifically, they fear the "…chance of runaway inflation." In spite of missing out on a major bull market in T-bonds, Berkshire Hathaway's investment portfolio has performed so spectacularly well that Warren Buffett's investment acumen has become the stuff of legend.

Although far from legendary, Warren Buffett's cognitive dissonance, regarding taxes, is maddening. On the one hand, he celebrates the Sixteenth Amendment and brags about the billions of dollars Berkshire Hathaway pays in federal income taxes — after all, Buffett is self-described as Uncle Sam's "grateful nephew." Yet, on the other hand, he basically refuses to lend money to Uncle Sam for fear that the federal government will pay back the loans with cheaper dollars; which is, as Ron Paul describes, the inflation tax. Taxation is theft regardless if it is through the overt coercion of income taxes or through the stealth of inflation. Apparently, Warren Buffett approves of theft at gunpoint yet detests having his pocket picked. Go figure.

Don't get me wrong, I thoroughly sympathize with Warren Buffett's aversion to lending money to the U.S. government. Frank Chodorov would have agreed with this aversion, and would have preferred that Berkshire Hathaway not lend a single dime to Uncle Sam — for reasons that go well beyond the devastation that inflation brings to a portfolio of Treasury bonds.

But, please Mr. Buffett, stop draping yourself in the American flag and shamelessly promoting yourself as one of the U.S. government's top financial benefactors willing to do more to help Uncle Sam carry his fiscal load. Your company has tens-of-billions of dollars which could immediately be loaned to Uncle Sam, who is in desperate need of it, yet no such loans are forthcoming from you. This is nothing short of hypocritical.

Perhaps Uncle Sam should ask his grateful nephew the following question: How do you put your money where your mouth is when you speak with a forked tongue?

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

The Best of Eric Englund

Sovereign debt certainly has been in the financial headlines in 2010; with Greece getting the lion’s share of attention. In the midst of Greece’s debt crisis, Standard & Poor’s downgraded Greece’s credit rating to "junk" status. S&P’s rationale for this rating reduction was straight forward: "The downgrade results from our updated assessment of the political, economic and budgetary conditions that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory." What is not stated by S&P is that by joining the European Union, Greece no longer has its own central bank so it can’t paper over its debt crisis by printing more money.

Conversely, the United States’ central bank loves to use its printing press and is actively purchasing U.S. Treasury bonds with the objectives of keeping interest rates low and spurring economic growth in the U.S.; which will not work. As of October 15, 2010, a 30-year Treasury bond was yielding 3.98%. In addition to the Federal Reserve’s monetizing of Uncle Sam’s debt, such a low yield has also come about as individuals and large institutions, including banks, perceive U.S. Treasuries to be a safe haven; hence they are lending to this "AAA" rated borrower in droves. As George Goncalves stated: "Treasury bonds are gaining u2018rock star’ status…" Considering the heady levels the bond market has attained, is it possible that a bond bubble has emerged in the United States?

Egon von Greyerz, of Matterhorn Asset Management, certainly thinks so. He believes, indeed, there is a bond bubble of global proportions. Here is what he stated in a recent article:

The bond market is the biggest bubble in financial markets worldwide, in our opinion. Investors around the world are worried about the state of financial markets and therefore believe that government bonds represent a safe haven. These investors will receive the most enormous shock on two accounts. Firstly, no government will be able to repay the debts outstanding. So there will either be government defaults, moratoria, or money printing that totally destroys the value of the bonds. Secondly, interest rates are likely to go up significantly to at least 10—15%, totally destroying the value of the bonds.

Financial-market luminaries, such as Marc Faber, Jim Rogers, and Peter Schiff do believe U.S. Treasury bonds are in a bubble. In fact, in this interview, Jim Rogers states he is considering shorting U.S. Treasury bonds. If Rogers is thinking about shorting bonds, you should too.

Presently, I do hold a short position pertaining to U.S. Treasury bonds. I have taken this position via an inverse bond fund. Here is a description of this mutual fund:

The investment seeks total return, before expenses and costs, that inversely correlates to the price movements of Long Treasury bonds. The fund employs, as its investment strategy, a program of engaging in short sales and investing to a significant extent in derivative instruments, which primarily consist of futures contracts, interest rate swaps, and options on securities and futures contracts. It invests at least 80% of net assets in financial instruments with economic characteristics that should perform opposite to fixed-income securities issued by the U.S. government.

I did not take this short position without undertaking appropriate research. In January of 2005, LRC published my essay titled Should the US Government’s Sovereign Credit Rating be Downgraded to Junk? Here we are, over five years later, and Uncle Sam’s financial condition is much "junkier."

When I wrote the above-mentioned essay, the U.S. Government’s balance sheet revealed a deficit net worth of over $7.7 trillion. As of fiscal year-end September 30, 2009, the U.S. Treasury is reporting that Uncle Sam’s net worth is a mind-numbing deficit $11.5 trillion — I have included the 2009 balance sheet, below, for your viewing displeasure.

(In billions of dollars) 2009

Assets:
`

Cash and other monetary assets (Note 2)
393.2

Accounts and taxes receivable, net (Note 3)
90.2

Loans receivable and mortgage backed securities, net (Note 4)
538.9

TARP direct loans and equity investments, net (Note 5)
239.7

Beneficial interest in trust (Note 6)
23.5

Inventories and related property, net (Note 7)
284.6

Property, plant, and equipment, net (Note 8)
784.1

Securities and investments (Note 9)
93.1

Investments in Government sponsored enterprises (Note 11)
64.7

Other assets (Note 12)
155.9

Total assets
2,667.9

Stewardship land and heritage assets (Note 27)
`

Liabilities:
`

Accounts payable (Note 13)
73.2

Federal debt securities held by the public and accrued interest (Note 14)

7,582.7

Federal employee and veteran benefits payable (Note 15)
5,283.7

Environmental and disposal liabilities (Note 16)
341.8

Benefits due and payable (Note 17)
160.8

Insurance and guarantee program liabilities (Note 18)
166.2

Loan guarantee liabilities (Note 4)
69.4

Liquidity guarantee (Note 11)
91.9

Other liabilities (Note 19)
354.1

Total liabilities
14,123.8

Contingencies (Note 22) and Commitments (Note 23)
`

Net position:
`

Earmarked funds (Note 24)
752.7

Non-earmarked funds
(12,208.6)

Total net position
(11,455.9)

Total liabilities and net position
2,667.9

But the news gets much worse. It is important to understand Uncle Sam does not have "his" financial statement prepared according to generally accepted accounting principles (GAAP). Most notably, if you go to page 158 of the U.S. Government’s 2009 audited financial statement (Table 6), you will see that the net present value of future Social Security and Medicare costs is $107 trillion. Under GAAP accounting, it could be argued that such liabilities would be included in the U.S. Government’s balance sheet as accrued liabilities. One could confidently assert, therefore, that Uncle Sam’s liabilities exceed assets by over $118 trillion. How the rating agencies continue to rate the United States as a AAA risk completely escapes me. Uncle Sam’s financial condition is a train wreck. Without the Federal Reserve’s printing press, this confidence game couldn’t keep moving forward.

For up-to-date information, with respect to the debt and liabilities the U.S. is racking up at warp speed, I suggest visiting U.S. Debt Clock.org. As of October 15, 2010, the national debt was approaching $13.6 trillion and unfunded liabilities were approaching $111 trillion. One would suppose even Alexander Hamilton would be alarmed at such surreal figures. Ah, but the bond market is forecasting tranquility and absolute safety for the next 30 years.

This is exactly why I like the idea of being short U.S. Treasury bonds. Wall Street analysts, for the most part, will not sound the alarm indicating a bond bubble has emerged. After witnessing the subprime-mortgage collapse and then the ensuing bailout of Wall Street, I have concluded Wall Street is a criminal enterprise designed to separate you from your money. So don’t expect any help from these crooks. As for the rating agencies, such as Fitch, Moody’s, and Standard & Poor’s, they won’t sound the alarm simply due to the fact that they are incompetent. After Enron, MBIA, and the entire subprime mortgage-backed securities disaster, who takes the rating agencies seriously anymore? So while institutions and individuals flee to the alleged safety of long-term U.S. Treasuries, AAA rating and all, the "shorts" properly view Uncle Sam as a subprime borrower; and have detected an opportunity to profit when the Treasury-bond bubble bursts.

As a quick tangent, I highly recommend Christine Richard’s book covering the downfall of MBIA. It is titled Confidence Game: How a Hedge Fund Manager Called Wall Street’s Bluff. This book masterfully details how a hedge fund manager skillfully dissected MBIA’s business model and financial condition; and then openly questioned its AAA rating via a critical research report. The backlash, against this hedge fund manager, was vicious. In the end, he was vindicated when MBIA was stripped of its AAA rating and imploded. The reward for his lonely battle, against Wall Street and the rating agencies, was over a billion dollars in profits for his investors via astutely purchasing credit-default swaps and shorting MBIA’s common stock.

Aside from the above-mentioned inverse bond fund, there are other vehicles available to short U.S. Treasury bonds. There are exchange-traded funds (ETFs) that appreciate as bond prices fall (examples linked here and here). There is also a mutual fund "that corresponds to one and one-quarter times (125%) the inverse (opposite) of the daily price movement of the most recently issued 30-year U.S. Treasury bond." To be sure, there are other vehicles for shorting Treasury bonds; but the purpose of this essay is to provide an idea allowing one to profit when the Treasury-bond bubble bursts — further research and risk assessment are up to you.

Without a doubt, I do see U.S. Treasury bonds as the next big short. Uncle Sam, after all, has a subprime financial condition yet is rated AAA. Keep in mind the hedge fund managers, who profited from the subprime-mortgage meltdown (as chronicled in The Big Short), waited several years for their positions to pay off; thus patience is a virtue when holding a short position in U.S. Treasury bonds. Even if interest rates rise and bond prices drop like a stone, the U.S. could ban the short-selling of Treasury bonds. Political risk, therefore, must be considered when taking a short position in T-bonds. Consequently, shorting T-bonds is not a risk-free proposition. This aside, I savor the idea of making money by shorting the long-term debt of the retarded, clumsy "debtaholic" known as Uncle Sam.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

The Best of Eric Englund

When I discovered Austrian economics, in 1999, I gradually undertook a process of intellectual rebirth. I read many of the masterful books written by Hayek, Mises, and Rothbard. The more I read, the more I came to understand that the economics, history, and social studies classes I attended, from grade school through grad school, were laden with pro-statist junk. Years of indoctrination in public schools, which I attended, tend to shape a person into a non-thinking, state-worshiping, sponge who absorbs "news" and information from the mainstream media and mistakes it for knowledge. This being stated, could it be that science itself has been tainted by statism? Say it isn’t so as I immensely enjoyed taking science courses while attending school. Alas, the poisonous reach of the state leaves nothing unscathed.

Let’s face it; for the most part, teachers aren’t very bright. The vast majority are state propagandists who cannot imagine a world without an omnipotent state. In their little minds, all we have is due to the beneficence of the state. It is no wonder teachers preach the religion of statism, which permeates each and every subject they teach, including science.

From the classroom to the mainstream media, conventional wisdom dictates that the science is settled when it comes to DDT, AIDS, and anthropogenic global warming. We "know" DDT is a dangerous, carcinogenic pesticide; that AIDS is caused by a deadly virus named HIV; and that mankind’s carbon dioxide emissions are causing global warming. Why would anyone want to revisit these topics considering the exhaustive and damning media coverage given to these subjects?

To me, the answer is simple. For all of those years I spent in public school classrooms, I received what I now call "junk education" (from personal experience, I firmly believe such junk education is endemic to private schools as well). It was time for me to ask tough questions, to read dissenting views, and to expunge the pollution spewed into my brain by teachers, media talking heads, and others. Due to discovering Austrian economics, there was a specific catalyst which thrust me from gradualism into re-education overdrive.

In August of 2001, I attended Mises University. For me, it was a life-changing experience. Every class I attended was interesting due to the top-flight quality of the instructors teaching each course. The lecturers, at Mises University, sang the praises of capitalism and hit all of the right notes based upon the unshakable foundation of Austrian economics. I came away, from Mises University, with the understanding that general prosperity emerges through capitalism, not the state. To be sure, plenty of books were available for sale and I partook as an eager consumer; I wanted, after all, to supplement my wonderful experience with something tangible to take home.

Accordingly, on August 10, 2001, I purchased Dr. George Reisman’s magnificent book Capitalism (he autographed it for me); and I thumbed through it later that day. When I arrived at chapter three, titled "Natural Resources and the Environment," I was thunderstruck by Part B, of chapter three, subtitled "The Ecological Assault on Economic Progress." This is when I had the epiphany that my public school education had polluted my mind with enough rubbish to seriously impede my intellectual growth.

It hit me that my grade school education — of the late 1960s and early 1970s — was peppered with environmentalism, statism, and a distaste for economic progress. Woodsy Owl implored me to "give a hoot, don’t pollute," while Smokey Bear informed me that "only you can prevent forest fires." I recall, on numerous occasions, having folks dressed as either Woodsy or Smokey drop by our elementary school and essentially lecture us about our duty to protect Mother Earth; which, by implication, seemed to be the property of the state.

It is clear to me, in retrospect, the only "religions" allowed in my public school were that of environmentalism and statism — we performed the pledge of allegiance at the beginning of each and every school day. Yes, we were allowed to celebrate Christmas by putting on an annual Christmas show for our parents, but the posters of Smokey and Woodsy were posted year round. And, of course, each classroom housed an American flag to constantly remind us of the all-pervading state.

Getting back to that fateful day in August of 2001, here is the passage, from Capitalism, which I found to be of particular importance:

Environmentalism is the product of a growing loss of confidence in reason long predating the collapse of socialism. It is the leading manifestation of a rising tide of irrationalism that is engulfing our culture. As previously mentioned, over the last two centuries the reliability of reason as a means of knowledge has been under a constant attack led by philosophers from Immanuel Kant to Bertrand Russell. The growth of irrationalism has been manifested in a series of developments each of which has contributed to the rise of environmentalism. Among them have been the loss of the concept of economic progress, the growth of irrational skepticism, a growing decline and outright perversion of education, and the cultural devaluation of man.

Statism is even more destructive than environmentalism. The growth of the state has had a profoundly negative impact on science itself, and thus, science education. As George Reisman explains, scientific practice and content have been perverted by the state:

Whether state-sponsored science rests on an existing consensus or on the initiative of an individual politician, it differs radically from genuine science in yet another respect. This concerns the relationship between science and money. In a free market, it is the truth and importance of the science that drives the raising of money. Money is raised in order to facilitate the development and dissemination of the science. Money is the means; science is the end. With state-sponsored science, this relationship is largely reversed.

The state, in effect, offers pots of money in the form of "grants" for the study of matters selected by politicians and their appointees, and then scientists must choose areas of investigation that are most likely to secure them some of that money. The "scientists" gather around the pots of money, like bees around pots of honey, eagerly seeking as best they can to slurp up some of the money by means of writing whatever kind of grant proposals they think will promote the agenda of whichever officials have the power to determine the award of the grants.

The meaning of this state of affairs is that the initiative for science passes from scientists to the state, i.e., to politicians and their appointees. And instead of money serving science, science now serves money, and, it must be stressed, not ordinary money, but money collected at the point of a gun, and made available on conditions determined by politicians and the appointees of politicians.

To be sure, sound scientific practices continue in spite of state intervention. By controlling the purse strings, nonetheless, political agendas do infect science education and science itself.

Whether you attended public or private schools, or paid attention to the mainstream media, it is extremely likely you were authoritatively informed that DDT is a supremely dangerous and carcinogenic pesticide, that AIDS is caused by HIV, and that our earth is warming dangerously with the cause being mankind’s carbon dioxide emissions. In other words, you were indoctrinated with junk science.

What follows is additional narrative containing descriptions of books, essays, lectures, and articles that have been invaluable with respect to deprogramming the aforementioned scientific dogmas, regarding DDT and AIDS, which had infected my brain (I was able to catch onto the global warming scam before it could take root in my noggin). Perhaps you will find it as liberating as I have when it comes to expunging state-sponsored junk science from your mind.

DDT

The earliest indoctrination of junk science, which I recall from grade school, related to the banning of DDT in 1972. My teacher informed me and my classmates that if we didn’t stop using this evil pesticide, the entire food-chain was going to be poisoned, many species of wildlife were going to become extinct, and human beings were going to get sick and some were going to die of cancer. Hence, when DDT was banned by the EPA, in 1972, we school children could breathe easier as this horrible chemical was not going to harm any of us. The science, about DDT, was settled and our public school teacher imparted this wisdom upon us accordingly. No reason to give this matter any further thought; end of story. The state has spoken.

More than 30 years later, DDT leapt back into my consciousness. By chance, I had heard that every 30 seconds a child dies from malaria. Out of curiosity, I did further research and was shocked to find out each year 350—500 million cases of malaria occur worldwide, and over one million people die; most of them young children in sub-Saharan Africa. It struck me as to how tragic it was that DDT is such a harmful chemical as so many people could have been saved by this pesticide; if it was safe.

My Rothbardian radicalism took over and I decided to see if there was another side to the DDT story. I already knew Rachel Carson’s book Silent Spring rallied the environmental movement to bring about the banning of DDT. Well, I hit the jackpot when I found Dr. J. Gordon Edwards’ utter demolition of Silent Spring in his article titled The Lies of Rachel Carson. Dr. Edwards was a professor of entomology, at San Jose State University in California, and taught biology and entomology there for over 40 years.

Carson’s propaganda, in Silent Spring, contributed greatly to the U.S. Government’s banning of insecticides which were capable of preventing human deaths. She shares the responsibility for millions of deaths among the poor people in underdeveloped nations.

Here is something my grade school teacher failed to inform her students with respect to DDT. It was a matter of public record; and thankfully, after all these years, Dr. Edwards recounted this important aspect of DDT’s history. After seven months of testimony

EPA Judge Edmund Sweeney arrived at the conclusion that DDT should not be banned. In his final official decision, issued on 26 April 1972, he stated: “DDT is not a carcinogenic, mutagenic, or teratogenic hazard to man. The uses of DDT under the regulations involved here do not have a deleterious effect on freshwater fish, estuarine organisms, wild birds, or other wildlife… The evidence in this proceeding supports the conclusion that there is a present need for the essential uses of DDT."

In spite of Judge Sweeney’s findings, EPA Administrator William Ruckelshaus unilaterally banned DDT. It did not matter Judge Sweeney’s decision was based upon sound science; backed by a 9,400 page transcript compiled during the hearings. As Dr. Edwards stated: "Ignoring the seven months of testimony and evidence, and the Hearing judge’s deliberations and conclusions, Ruckelshaus personally reversed the Court’s decision and gave the victory to his friends in the Environmental Defense Fund! His decision to ban DDT appeared to be political, rather than reflecting scientific evaluations." This really should come as no surprise as Mr. Ruckelshaus is an environmentalist and a member of the Environmental Defense Fund.

So why was DDT targeted by environmentalists? The answer is ugly, yet simple. Environmentalism is an anti-human movement in which mankind is viewed as a cancer killing Mother Earth. DDT was responsible for saving countless lives and, therefore, added to what environmentalists perceive as a population problem; meaning the lower the human population, the better. Dr. Edwards refers to this horrifying, anti-human environmental agenda in this video-taped lecture.

Michael Crichton was another scientist who found the banning of DDT to be reprehensible. Most people think of Michael Crichton as an author, screenwriter, and film director. Many do not know Dr. Crichton was a medical doctor who graduated from Harvard Medical School in 1969. Consequently, he understood science intimately.

Dr. Crichton knew environmentalism has an anti-human agenda. In fact, he argued environmentalism is a fanatical religion responsible for the deaths of millions of human beings. Here is what he stated in his 2003 speech titled Environmentalism as Religion:

With so many past failures, you might think that environmental predictions would become more cautious. But not if it’s a religion. Remember, the nut on the sidewalk carrying the placard that predicts the end of the world doesn’t quit when the world doesn’t end on the day he expects. He just changes his placard, sets a new doomsday date, and goes back to walking the streets. One of the defining features of religion is that your beliefs are not troubled by facts, because they have nothing to do with facts.

So I can tell you some facts. I know you haven’t read any of what I am about to tell you in the newspaper, because newspapers literally don’t report them. I can tell you that DDT is not a carcinogen and did not cause birds to die and should never have been banned. I can tell you that the people who banned it knew that it wasn’t carcinogenic and banned it anyway. I can tell you that the DDT ban has caused the deaths of tens of millions of poor people, mostly children, whose deaths are directly attributable to a callous, technologically advanced western society that promoted the new cause of environmentalism by pushing a fantasy about a pesticide, and thus irrevocably harmed the third world. Banning DDT is one of the most disgraceful episodes in the twentieth century history of America. We knew better, and we did it anyway, and we let people around the world die and didn’t give a damn.

Rachel Carson, was a scientist with an agenda. Other scientists jumped on her environmentalist bandwagon and fraudulently concluded DDT was some sort of doomsday chemical which must be banned. What a lethal combination it is when environmentalism receives state backing. What emerged was a recipe for junk science that resulted in the deaths of millions. How utterly despicable.

HIV Causes AIDS

Public and private schools claim to have an objective of graduating students with critical-thinking skills. In my opinion, this claim is laughable as I seriously doubt more than a miniscule fraction of teachers properly view the state as a criminal organization. Heck, I seriously doubt most teachers have critical-thinking skills. For the most part, we are taught our government is good, although not perfect, and that it looks out for the best interests of its citizens. And when you live in the most powerful country in the history of the universe, any imperfections one may perceive in our government must be forgiven; after all, be you a Marxist or a state-capitalist, you can always vote for change — how wonderful. With such tripe being pounded into each student’s head for a dozen or more years, it is not surprising nearly every person I meet is a statist. As a result, the vast majority of people uncritically accept whatever information is fed to them by the state; and the state has fed us a whopper when it comes to AIDS.

In April of 1984 federal AIDS researcher, Dr. Robert Gallo, and the Secretary of the U.S. Department of Health and Human Services held an international press conference in which Dr. Gallo declared he had discovered the virus that causes AIDS. I was a senior in college when this discovery was announced; and word, about this lethal virus, spread around campus like wildfire. I do not recall hearing any skepticism about AIDS being caused by a virus. Our government and its paid researchers, as we are instructed, have our best interests at heart. Thus, without further ado, the science was settled regarding the cause of AIDS.

Although there was no evidence proving HIV causes AIDS, in 1988 Congress mandated that the U.S. Surgeon General, C. Everett Koop, send every household in America a brochure about AIDS. Americans, after all, were terrified by the prediction, from scientists and state health officials, that AIDS would become an epidemic and "…would turn into the greatest public health catastrophe of the twentieth century." Some scientists knew Robert Gallo jumped the gun by announcing he discovered the cause of AIDS; while having absolutely no evidence. Ah, but the indispensable state loves to frighten the somnambulant masses; from time to time.

Fast forward, to the summer of 2004, and I had the good fortune of discovering Harvey Bialy’s outstanding book Oncogenes, Aneuploidy, and AIDS: A Scientific Life and Times of Peter H. Duesberg. Consequently, this lead me to read Peter Duesberg’s controversial and masterful book Inventing the AIDS Virus. Dr. Duesberg is a professor of molecular and cell biology at the University of California at Berkeley. He is a man with courage along the lines of Ludwig von Mises. Dr. Duesberg knows the HIV-causes-AIDS hypothesis is incorrect. Like Mises, Duesberg’s steadfast honesty and search for the truth have lead to his marginalization in academia. Duesberg aptly has been dubbed "A Modern-Day Copernicus."

The foreword, to Inventing the AIDS Virus, is worth the price of admission alone. It was written by Kary B. Mullis; winner of the 1993 Nobel Prize in Chemistry. This will give a flavor of what Mullis has to say about Duesberg’s controversial stand against the HIV/AIDS hypothesis:

I like and respect Peter Duesberg. I don’t think he knows necessarily what causes AIDS; we have disagreements about that. But we’re both certain about what doesn’t cause AIDS.

We have not been able to discover any good reasons why most of the people on Earth believe that AIDS is a disease caused by a virus called HIV. There is simply no scientific evidence demonstrating that this is true.

We have also not been able to discover why doctors prescribe a toxic drug called AZT (Zidovudine) to people who have no other complaint than the presence of antibodies to HIV in their blood. In fact, we cannot understand why humans would take that drug for any reason.

We cannot understand how all this madness came about, and having both lived in Berkeley, we’ve seen some strange things indeed. We know that to err is human, but the HIV/AIDS hypothesis is one hell of a mistake.

(It is also refreshing to know Dr. Mullis has not bought into the junk science asserting humankind is causing global warming.)

So where is the epidemic that would become the twentieth century’s greatest public health catastrophe? In Dr. Duesberg’s book, he mentions how the World Health Organization forecasted 100 million people would be infected, by HIV, by early 1990. When it was announced HIV could be found in saliva, talk of "casual transmission" became mainstream and terrifying. Worse yet, who can forget the idea of how a deadly blood-borne virus may end up being spread by mosquitoes? Yet, once again, where is the epidemic predicted by state health officials? Oh, the terror!

In Inventing the AIDS Virus, Dr. Duesberg convincingly acquits HIV of all charges that it causes AIDS. In reality, HIV is nothing more than a passenger virus. Here are his exact words:

In short, a virus that has been in its host for years before a disease occurs, that is typically inactive and rare during a disease, and that is not present in every case of that disease is not a credible suspect for viral disease. It is an innocent bystander or a passenger virus. HIV meets all of these criteria. Since HIV also fails Koch’s postulates, there is no rational basis for the HIV-AIDS hypothesis. In the courts of science HIV must be acquitted of all charges for AIDS — it is an innocent virus.

So, what is AIDS? For an answer, I recommend Christine Maggiore’s concise book titled What if Everything You Thought You Knew about AIDS was Wrong? Christine Maggiore states "AIDS is not a disease." In fact: "All AIDS-defining conditions occur in people who test HIV negative, none appear exclusively in those who test positive, and all existed before the adoption of the name u2018AIDS’." There are over two dozen conditions which are used to define AIDS (such information is also available in Duesberg’s lengthier and more detailed book). Yet, oddly enough, such conditions have medically recognized causes and treatments unrelated to HIV. In other words:

Pneumonia + Positive HIV Test = AIDS

Pneumonia + Negative HIV Test = Pneumonia

Tuberculosis + Positive HIV Test = AIDS

Tuberculosis + Negative HIV Test = Tuberculosis

Worse yet, the drugs used to treat AIDS are themselves lethal. Chemotherapy compounds such as AZT and ddl are prescribed in combination with protease inhibitors to battle the HIV infection. Imagine fighting a pneumonia with extraordinarily toxic drugs that can cause liver failure, fatal damage to the pancreas, and nerve damage throughout the body? This is what comes to pass when a person has a harmless passenger virus (HIV) and happens to catch a pneumonia. Your doctor’s prescription, in other words, may kill you when all you need perhaps is ten days worth of simple antibiotics.

A gem of a quote, from Dr. David Rasnick — a designer of protease inhibitors — can be found in Maggiore’s book:

As a scientist who has studied AIDS for 16 years, I have determined that AIDS has little to do with science and is not even primarily a medical issue. AIDS is a sociological phenomenon held together by fear, creating a kind of medical McCarthyism that has transgressed and collapsed all the rules of science, and has imposed a brew of belief and pseudoscience on a vulnerable public.

Christine Maggiore, over time, found herself in the crosshairs of the government-backed AIDS cabal. In 1992, Christine was diagnosed as HIV positive and was given a death sentence by the medical establishment — she had five years to live. She was encouraged to be retested, and she did so more than a dozen times, and received results of HIV negative, HIV indeterminate, and HIV positive. Such bizarre results lead her to ask questions which, unfortunately, produced a backlash from the very AIDS organizations she was helping to build. At this point, she was on her own and needed to think critically and objectively.

Through her independent research, Christine Maggiore concluded an HIV positive diagnosis is not a death sentence. By 1996, she had written her seminal book What if Everything You Thought You Knew about AIDS was Wrong? Not only was her research and writing first-rate, it was gutsy as well. How dare anyone, who is HIV positive, write a book which questions scientific consensus and provides false hope to other HIV positives? Going against the mainstream viewpoint, to be sure, made her a villain.

On December 27, 2008, Christine Maggiore died of pneumonia. A touching memorial can be found online celebrating the life of this intelligent, loving, and courageous woman. The following passage struck me as to how cruel humans can be when a person chooses to think independently and not blindly buy into state-backed, mainstream nonsense:

In spite of Christine’s strength, she was also under tremendous pressure and scrutiny. She often felt that she wasn’t allowed to get sick like other people. After her daughter died in 2005 of an allergic reaction to an antibiotic for an ear infection, the LA County Coroner — ignoring evidence to the contrary — declared it a death from AIDS and Christine’s suffering increased horribly. She was vilified in the world media and harassed by outspoken opponents of her work who openly gloated that this was her just comeuppance. She and her family endured a yearlong criminal investigation that not only terrorized them, but also robbed them of an opportunity to mourn the loss of their daughter. That loss was twisted into sensationalized and mean-spirited television episodes that portrayed Christine as a quack and a murderer and ultimately as dead. Christine never fully recovered from the unjust treatment that she received around the loss of Eliza Jane and that treatment ultimately exhausted her.

Christine Maggiore’s legacy is one of hope, love, intellect, caring, and respect for those who still believe in the scientific method. Her detractors, who support state-backed terror and robbery, are intellectually and spiritually dead.

In my mind, the HIV=AIDS=Death hypothesis has everything to do with increasing the "health" of the state. Politicians are opportunistic parasites who look for ways to aggrandize the state by painting doomsday scenarios, often "supported" by junk science, and then promising the populace to rescue them from calamity. With both public and private schools preaching the religion of statism, we are mislead to believe — at a very young age — that life would be nasty, brutish, and chaotic without the good and stabilizing forces brought to bear by the state.

In the United States, with AIDS not becoming a public health catastrophe as predicted back in the 1980s, a new scare tactic was devised to keep people in terror of HIV/AIDS. What better way to do so than claiming AIDS is a threat to our beloved state. As Harvey Bialy points out in his above-mentioned book, in 2000 an announcement

came from the White House and its outgoing occupant William Clinton, who declared that AIDS in Africa was suddenly of national security concern to the United States. An article from the Washington Post explains the reasoning for this as follows: "Authors of one intelligence report said the consequences of AIDS appear to have u2018a particularly strong correlation with the likelihood of state failure in partial democracies’ and held out the prospect of u2018revolutionary wars, ethnic wars, genocides and disruptive regime transitions.’" Thus, HIV, not only causes poverty and malnutrition in Africa, but it also is a cause of political instability and potential wars.

There you have it, the state has given a harmless passenger virus, HIV, the bum rap of not only killing human beings, but being a potential state-killer as well. Be very, very afraid.

What is the next bogeyman for the politicians to pull out of their hats? How about declaring a trace gas, essential to life itself, as a threat to Mother Earth’s very existence? Nah, the political elites have more respect for the intellect of their state-loving citizens than that. Or do they?

Global Warming

Anthropogenic global warming (AGW) is a scam being perpetrated by politicians, corrupt scientists, unethical businessmen, and environmentalists. This scam’s ultimate objective is to increase state power over our lives, thereby taking us further down the road to socialism. Along the way, political elites and their cronies will line their pockets at our expense.

What better way to frighten us into submission than to assert mankind’s carbon dioxide emissions are going to cause a global climate catastrophe which may render a great deal of Earth uninhabitable. Let the state, therefore, provide us with edicts, supervision, and laws in order to guide us into becoming more eco-friendly citizens. This state-sponsored scam is one which I unraveled before it took hold in my mind. Most assuredly, I am not "going green."

Okay, I will admit my public school education wasn’t a complete waste. In fifth grade I recall learning about photosynthesis. Integral to the photosynthesis process is a trace gas known as carbon dioxide. Without carbon dioxide, there would be no plant life here on Earth. In turn, no plants means no animals. All those years ago I was taught carbon dioxide was essential to my very existence. As a child, how else could I view this gas other than in a positive light?

Today, the global warming alarmists deem carbon dioxide to be a dangerous pollutant. This tipped me off to the scam immediately. How in the world could life emerge based upon pollution (CO2) as a building block? Carbon dioxide, moreover, is found in beer, sparkling wine, soda pop, and sparkling water. Let’s also not forget carbon dioxide is integral to the process of making bread. Consequently, the global warming alarmists are telling me that I am eating and drinking pollution. This is nonsense on steroids and a lie of epoch proportions. You and I would not be alive without carbon dioxide. To label CO2, as a pollutant, is nothing short of deranged.

Another topic I recall from grade school science pertained to the atmosphere. We learned the two most abundant gases are nitrogen (78%) and oxygen (21%). With how important carbon dioxide is to the formation of life, I was a bit surprised to learn it only comprised approximately .038% of the atmospheric gases. It truly is a trace gas.

Knowing carbon dioxide comprises a minuscule proportion of the atmosphere, it instantly made no sense to me that a runaway greenhouse catastrophe would be precipitated by a trace gas. This, to me, seemed to be a physical impossibility.

Speaking of physics, in July of 2007, German physicists Gerhard Gerlich and Ralf D. Tscheuschner published a seminal paper titled Falsification of the Atmospheric CO2 Greenhouse Effects within the Frame of Physics (this is version 4.0 published January 6, 2009). On page 92 of this document, Gerlich and Tscheuschner conclude:

There are no common physical laws between warming phenomenon in glass houses and the fictitious atmospheric greenhouse effect, which explains the relevant physical phenomena. The terms "greenhouse effect" and "greenhouse gases" are deliberate misnomers.

Not only can carbon dioxide not cause a runaway greenhouse catastrophe, but the whole business regarding greenhouse effects and greenhouse gases is pure bunk. Thus my initial thought of a trace gas not being capable of causing a greenhouse catastrophe wasn’t quite correct because the entire notion, regarding greenhouse gases, is incorrect in and of itself.

What is even more delicious, about Gerlich and Tscheuschner’s paper, pertains to how the anthropogenic global warming hypothesis violates the first and second laws of thermodynamics. Read pages 75 through 79, of this document, and enjoy the smashing annihilation of AGW.

It just goes to show how shameless politicians and environmentalists are when it comes to terrorizing people into submitting to a green-socialist version of social engineering. Not only do they call carbon dioxide a pollutant, they concoct a scam that violates the very laws of physics; and none of this will make the evening news.

Another bothersome aspect, of the global warming swindle, pertains to the lack of any role the Sun takes in climate modeling. It seems as if the climate modelers are writing computer programs along the lines of writing a cookbook without ever mentioning an oven.

An excellent book, which dismantles the AGW scam, is Ian Plimer’s book Heaven and Earth: Global Warming the Missing Science. Dr. Plimer, the Emeritus Professor of Earth Sciences at the University of Melbourne, has written a magisterial tome irrefutably proving anthropogenic global warming is merely junk science. Among the many topics covered, by Dr. Plimer, is the Sun. He opens chapter three — titled "The Sun" — with a sentence Al Gore would never utter: "The Sun is the primary driving force of climate." Imagine that. Perhaps it would make sense to better understand the Sun, and its cycles, in order to bring forth advances in climate science. To convey an important perspective about the Sun, Dr. Plimer points out the following in Heaven and Earth:

Every second, the Sun delivers to Earth the total amount of energy released by an earthquake of Richter magnitude 8. The amount of energy human’s use annually is delivered from the Sun to the Earth in one hour. The known recoverable resource of oil contains the energy that the Sun delivers to the Earth in 36 hours.

So let’s get this straight, Al Gore and his green minions want us
to ignore the Sun. We are to focus, instead, on carbon dioxide as
the most important driver of climate. This despite the facts that
carbon dioxide is a trace gas; it is not a pollutant; the AGW hypothesis
violates the first and second laws of thermodynamics; and it is essential
to photosynthesis which makes CO2 absolutely indispensable to life
on Earth. Plain and simple, AGW is junk science aimed at frightening
the poorly-educated masses; which covers just about everyone.

This begs the question as to what do Al Gore and the politically-connected greenies have to gain from vilifying carbon dioxide, via junk science, and leading us to believe in the "solutions" our beloved governments will provide to us? A great way to find the answers is to read The Politically Incorrect Guide to Global Warming and Environmentalism by Christopher C. Horner. Ultimately, it comes down to money, power, and social engineering; with a lot of fear-mongering along the way.

Be assured we do not want the Chicago Climate Exchange to take wing. One of the directors of the Chicago Climate Exchange is Maurice Strong. He is a former Under-Secretary General of the United Nations and is a flaming environmentalist. He is infamous for stating the following: “Isn’t the only hope for the planet that the industrialized civilizations collapse? Isn’t it our responsibility to bring that about?” Without a doubt, Mr. Strong is an enthusiastic supporter of cap and trade legislation. Should such legislation pass in the U.S., there will be a markedly negative impact on our already morose economy; in the meantime, well-connected folks such as Mr. Strong will profit handsomely by legally fleecing Americans — which is what the Chicago Climate Exchange is all about. In other words, follow the money, and at the end of the trail you will find con-artists like Al Gore and Maurice Strong. If you don’t believe anthropogenic global warming is a state-backed scam, with a key objective of redistributing wealth from the poor and the middle classes to the wealthy, then think again.

Conclusion

Properly examined, the state should be viewed as "…a clumsy, retarded giant, and therefore you have to be careful to limit what tasks you assign it." We have, regrettably, assigned government the tasks of providing education and redistributing wealth for a goodly portion of science funding.

Statism, which clearly retards intellectual growth and critical thinking, has become the opiate of the frightened masses. Statism’s delivery devices include television, radio, newspapers, magazines, and especially schools; private and public. We are surrounded by the state, we are terrorized by it, we are dumbed-down by it, we are murdered by it, and yet, we worship it.

Schools have performed an especially admirable job of producing fools who mistake their pro-statist brainwashing for an education. Therefore, I can see why people have come to believe that a life-saving compound, DDT, is evil and poisonous; I can see how a harmless passenger virus, HIV, is deemed a deadly threat to humanity; I can see how carbon dioxide, a life-giving trace gas, can be labeled as a menace to the entire planet; and everywhere I look, I see an opiated and intellectually truncated populace behaving like battered wives who heap affection and respect upon the abusive and murderous state.

I am reminded of the timeless H. L. Mencken quote: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." Think of DDT, HIV, and carbon dioxide. Only the state, indeed, can save its somnambulant plebes from these make-believe foes.

How many tasks, ultimately, should be assigned to the state? None! The sooner people come to realize this, the sooner they can wake up from the nightmarish opiated stupor that is statism.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

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Per The CPA Journal, public accounting firms do not have a reliable track record with respect to warning "…the investing public of the financial distress and impending failure of their clients through modification of the audit report in accordance with SAS 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern." I will give your competitor, Deloitte & Touche, some credit as it did state the following in General Motor’s fiscal year-end 2008 audited financial statement: "As discussed in Note 2 to the consolidated financial statements, the Corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern." Deloitte & Touche published this on March 4, 2009 and in less than three months, on June 1, 2009, General Motors filed for Chapter 11 bankruptcy.

What I have found, when identifying a financially distressed, publicly-held company, is that it can linger for years — while destroying more and more wealth — before being liquidated or reorganizing in bankruptcy. For example, nearly three years before GM filed for bankruptcy, Karen De Coster and I co-wrote an essay questioning General Motor’s viability and stated "…bankruptcy is a possibility — even if the aforementioned alliance with Nissan and Renault is consummated." There is little doubt, in my mind, The New York Times Company will linger for a while longer before either being purchased for a paltry sum or succumbing to bankruptcy. Either way, the Times will fail with respect to its stated commitment regarding "…the creation of long-term shareholder value through investment and constancy of purpose."

As an auditor, you know how to prepare and to read a financial statement. As a financial analyst, I examine the financial statements, prepared by you, in order to determine the financial health of a company. I use a conservative "Graham and Dodd" approach when it comes to financial analysis; which includes fully discounting intangible assets such as goodwill and deferred tax assets. With respect to the New York Times, what I see is a company that has become quite sickly. To be sure, you know this as well.

So let’s analyze The New York Times Company’s balance sheet as of the third-quarter ending September 27, 2009. It is not a pretty sight.

• On an as-given basis, The New York Times’ working capital position stood at negative $116,583,000. When fully discounting current deferred tax assets of $51,732,000, allowable working capital drops to negative $168,315,000.
• As presented in the balance sheet, this company’s net worth stood at $492,451,000. Keep in mind, however, The New York Times’ balance sheet is grossly unbalanced in the sense that over 36% of its assets are comprised of intangible assets. The components, of intangible assets, are $428,478,000 of deferred tax assets, $658,282,000 of goodwill, and $45,233,000 of "other" intangible assets — which totals to $1,131,993,000 of intangible assets. When fully discounting intangibles, The New York Times’ net worth falls to negative $639,542,000.
• Cash stood at $28,092,000. This is a trifling sum for a company on pace to generate over $2 billion of revenues in 2009.
• The Times has tapped into its $400,000,000 bank line to the tune of $104,500,000.

Oh, and let’s not forget the Times lost $71,028,000 through the nine-months ending September 27, 2009.

Over the past decade, The New York Times Company’s irresponsible financial management has left this company with a balance sheet emaciated as a Giacometti sculpture. I have no doubt, whatsoever, that the Times’ top executives and board members would love to have back the above-mentioned $2,779,601,000 they paid out for stock buybacks and dividends. Such a cash war chest would have allowed management the financial flexibility to re-engineer the company’s business mix knowing that print media is in a dramatic decline; as shown by The New York Times’ swing from profitability (in recent years) to the losses it is now experiencing. Unfortunately, for shareholders, past negligent financial management has left the very same incompetent management team with few options — for financial survival — such as selling assets and cutting costs. Yet, when looking at the Times’ financial fragility, I do not see it surviving this vicious economic depression.

So what will it take for you, Ernst & Young, to truly call into question The New York Times Company’s ability to continue as a going concern? Two key factors come to mind. The first factor is directly related to whether or not the Times can swing back to consistent profitability. Should this not happen, then The New York Times must write down its deferred tax assets because it may not be able to generate enough earnings before the tax benefits expire. If you recall, General Motors wrote down $39 billion of deferred tax assets for this very reason. The second factor is goodwill impairment. Did the Times’ management overpay for the companies it acquired? If The New York Times continues to lose money, then it certainly calls into question if the companies acquired by the Times are as valuable today as they were when the acquisitions were made? As stated in this Information Management Magazine article:

A company must now conduct an annual impairment test to determine whether its goodwill has permanently declined in value. If an acquisition is no longer worth what a company paid for it, the goodwill must be written down to reflect the current value. Companies are now trading a ratable goodwill amortization for goodwill impairment.

Let’s not overlook AOL’s $54 billion write down, of goodwill, in 2002.

It is my hunch you will watch your client wither away, over the next two years, as it continues to lose money, maxes out its bank line, and struggles to stay afloat. Within this time span, I am surmising a substantial chunk of goodwill will be written down. As the spilling of red ink persists, moreover, working capital will fall deeper into negative territory while your tax people determine that the Times’ deferred tax assets must be written down. At this point, your client’s intangible assets will have evaporated; thus allowing the whole world to see that The New York Times Company is broke. There will be no hiding the fact that the Times’ balance sheet is terminally ill suffering from both negative working capital and negative equity. But will you be gutsy enough to issue a "going concern" disclaimer before The New York Times goes bankrupt? Deloitte & Touche did so with GM. Will you follow their example?

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

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Astute balance sheet management, in light of our current economic depression, has been the key to a construction company’s survival. Strong working capital, a strong equity base, and low debt are the hallmarks of a well-managed company — as revealed by its balance sheet. The most important component within working capital, in my opinion, is cash. Unlike what I was taught in grad school, cash is not trash; and my savvy clients know this. Cash is king and ever more so when construction revenues are dropping precipitously. Plain and simple, debts, expenses, and payables are settled in cash. Contractors who run out of cash, and have dismal prospects for picking up profitable construction contracts in today’s difficult economic environment, will fail.

So, do contractors view a buildup of strong cash balances as savings? Absolutely. My clients, who manage household finances in a conservative manner, typically do the same with their respective construction companies. When I see a contractor’s personal financial statement revealing low debt and enough cash (savings) to cover several years worth of living expenses, it is extremely likely his construction company has strong liquidity and little-to-no debt as well. Such companies, characteristically, have been profitable enough to accumulate significant cash holdings to the point where a large percentage of cash is not used for funding day-to-day operations. This "excess" cash is viewed as a rainy-day fund as seasoned contractors realize construction is risky and cyclical; and a strong cash position will help a contractor survive unforeseen problems including a down-cycle in construction.

To this end, during my recent Idaho trip, I posed this question to one of my most successful clients: "With a growing number of contractors struggling or outright failing today, what did you do differently than such competitors?" To me, his answer wasn’t rocket science; it was common sense and music to my ears:

From 2002 through 2007, nearly every contractor in the Treasure Valley was making good money in such a strong economy. Many of my competitors basically went crazy and bought extravagant homes, purchased motor homes, expensive cars, and even built ritzy office buildings for their companies. While they were borrowing and spending as if the boom would never end, my wife and I realized that our company was generating unusually high profits so we decided to save as much money as possible in our personal and corporate bank accounts. We knew this wouldn’t last forever and a day of reckoning would eventually arrive. Today, we are glad we saved as much as we did because our doors are still open and we have been able to keep our core group of employees. We’re in business for the long haul.

And what is happening to the contractors who went "crazy" during the boom years? Well, they are dropping like flies. I am bearing personal witness to this. Heavy real estate and equipment debt are now proving to be financially crippling to numerous contractors. (Be assured that there was a construction equipment bubble which closely tracked the housing and commercial real estate bubbles.) With commercial and residential construction in the tank, competition for public works projects is tremendously intense. Profit margins, accordingly, are razor thin. Poorly capitalized contractors are belatedly recognizing cash has been king all along. Now it is too late for so many contractors to recover from prior financial mismanagement. When cash holdings eventually evaporate, thanks to a lack of savings, employees are terminated and frequently the businesses are shuttered shortly thereafter. It is a gut-wrenching process to watch. It is going to get worse as I foresee countless contractors failing during this coming winter.

There is a lesson here for Paul Krugman. His Keynesian-induced distaste for savings is completely misguided. The contractors who borrowed and spent, spent, spent (corporately and personally) are going out of business at an accelerating pace. Not a single contractor spent his way into prosperity. Those contractors who worked hard, spent wisely, and built up personal and corporate cash war chests are going to survive this depression. They will continue to provide good jobs for themselves and for those fortunate enough to work for such financially conservative business owners. Saving, not spending, is the key to financial survival let alone success.

If Paul Krugman was a businessman and adhered to his own academic beliefs, be assured his business would go broke.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

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Today, conventional wisdom asserts that Ford remains the only sound domestic automaker as Chrysler is in bankruptcy and GM will likely follow suit. Ford, moreover, has not taken any bailout funds, from the Federal government, and this is viewed positively by the buying public. Along these lines, there are Americans who refuse to purchase a car from GM or Chrysler due to their acceptance of bailout funds. Of the "Big 3" U.S. automakers, Ford has the most positive image.

So why did Patrick Archambault, of Goldman Sachs, recommend buying Ford stock on April 22, 2009? Here are some key reasons conveyed in his recommendation:

• Goldman Sachs does not foresee bankruptcy at Ford as the automaker has sufficient liquidity to make it through 2010 without additional funding.
• Ford’s earnings will improve by $9.3 billion from this year through 2012.
• It is estimated that Ford will pick up about 25 percent of the market share GM and Chrysler will lose as they reorganize in bankruptcy and shed brands.

Based upon these factors, and others, Patrick Archambault predicts that Ford’s stock may climb by "…58% percent to $6 within six months."

Mr. Archambault, Goldman Sachs, and Wall Street are depending upon something very important. They are counting on the fact that business analysts on television and in the print media will not question this recommendation. These Wall Street charlatans also know Americans are financially illiterate and can’t read a balance sheet — I’m certain the same holds for members of the aforementioned mainstream media. For if someone actually analyzed Ford’s 12/31/08 fiscal year-end audited financial statement, it would be painfully obvious Goldman Sachs recommended the stock of a company that is insolvent.

Ford Motor Company, indeed, possesses cash and marketable securities totaling $15.7 billion in its automotive operations and $24.3 billion in its financial services unit. Yet, this does not overcome the facts that Ford has a deficit working capital position of $15.1 billion and a deficit equity position of $17.3 billion. Plain and simple, Ford is broke and will not survive, intact, America’s current economic depression. For those who own Ford Motor Company stock, be assured it will head to $0 when Ford goes into bankruptcy; and most likely becomes another state-owned automaker.

Why in the world did Goldman Sachs recommend buying Ford stock? The answer came nearly three weeks after Goldman’s recommendation. On May 12, 2009, Ford announced it had raised approximately $1.4 billion in a stock offering consisting of 300 million common shares. Shortly before Goldman made its buy recommendation, Ford’s common stock was selling for $3.80 per share. Immediately after Goldman’s recommendation, Ford’s stock zoomed up to $4.33 per share. By May 12th, Ford was able to price its 300 million share offering at $4.75 per share. I’d say Mr. Archambault’s recommendation netted Ford an additional $285 million in proceeds, from this stock offering, due to his recommendation (this is the difference between offering 300 million shares at $4.75 vs. $3.80). One could also argue this stock offering may not have transpired at all had a heavyweight, such as Goldman Sachs, not put out a prior buy recommendation on Ford. Is there, nevertheless, a more sinister motive behind this recommendation?

In my opinion, Goldman Sachs was doing the bidding of the Obama administration. We know there is a cozy relationship between the White House and Wall Street; in which the Working Group on Financial Markets (aka: the Plunge Protection Team) exists specifically to serve the President of the United States. Members of the working group have close ties to Wall Street — and especially to Goldman Sachs. With the messy situations President Obama is dealing with at Chrysler and GM, perhaps it would be best to deal with Ford’s looming failure (and subsequent rescue) later rather than sooner. Hence, it would make sense to help Ford raise some cash, on the capital markets, in order to give it some additional cash to "burn" — thereby putting Ford’s financial collapse further into the future.

To strengthen my hypothesis, and to deepen the plot, it is important to bring Ford’s top executive into the picture. Ford’s press release, about this stock offering, states the following: "Net proceeds to Ford from the offering are expected to be used for general corporate purposes, including to fund with cash, instead of stock, a portion of the payments the company is required to make to the Voluntary Employee Beneficiary Association (VEBA) retiree health care trust with the United Auto Workers." The press release further states:

"We are pleased with this equity offering, which is another key step in our plan to transform Ford into an exciting, viable enterprise poised to return to profitability," said Alan Mulally, Ford president and CEO. "By issuing equity now and potentially funding a larger portion of our future VEBA obligations with cash, we are able to further improve our balance sheet and significantly reduce the potential dilutive impact of the VEBA obligations on existing shareholders." (Italics added)

This is a smokescreen in which Ford’s president and CEO must feign excitement in that part of the newly raised capital is being diverted from operations and given to the UAW’s retiree health care trust. Alan Mulally, most definitely, would have preferred for the entire $1.4 billion to be used for working capital purposes. With unions being a significant voting block for Barack Obama, I have little doubt Mr. Mulally was informed this stock offering had strings attached. If Ford was going to get the Working Group’s assistance in raising capital, via a stock offering, some of the funds had to be diverted to President Obama’s powerful ally — the United Auto Workers. After all, UAW executives are smart enough to understand that Ford’s stock may become worthless so it is better to put cash in the retiree health care trust rather than the stock of an insolvent company.

Does the chairman of the SEC, Mary Schapiro, even care about stock manipulation at all? Does it not pique a modicum of curiosity when a major brokerage firm puts out a buy recommendation regarding the common stock of a company which is broke and has bleak prospects due to atrocious economic conditions? And shortly after the buy recommendation this company is able to raise over $1.4 billion — via a stock offering — with a percentage of the funds being diverted to the grubby hands of President Obama’s major ally, the UAW. This certainly looks like manipulation and payola to me. Rest assured, there will be no stock-manipulation investigation launched by the SEC. To be sure, there is no "new" Wall Street. It remains the same old playground for corrupt, wealthy elites to find ways to separate you from your money. Ford Motor Company’s successful stock offering is just another glaring example.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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What is good for the United States is an unhampered free market. In a free market, successfully anticipating and meeting the needs of consumers are rewarded with profits and wealth creation. Conversely, when a business consistently loses money it must either adjust its business model in order to compete more effectively (before its financial condition becomes too weak), or face liquidation. Failure is not the end of the world as the resources tied up in a failed company can be freed up for entrepreneurs to use in other productive ventures.

In all my years as a financial analyst, I have never seen a company as grossly mismanaged as General Motors. This automaker’s financial destitution indicates GM’s management team, laborers, and related union executives may be the most incompetent in U.S. history. It is abundantly clear Americans love automobiles. Hence, it is a no-brainer that the U.S. is a market where a company could become hugely successful and wealthy by manufacturing and selling cars. Since GM’s founding in 1908, it has managed to accumulate — as of fiscal year-end December 31, 2008 — a deficit working capital position of $32.7 billion and a deficit equity position of $86.2 billion. So in the course of 100 years, General Motors has sold millions upon millions of automobiles and has managed to become profoundly insolvent. The Three Stooges could have done a better job of running an automaker.

Within a free market, a company with such shockingly poor financial indices could never be reorganized — it is plainly too far gone from a financial perspective. Thus, it would be liquidated with secured and unsecured creditors doing whatever they can to recover a percentage of the monies they are owed. Common shareholders would be wiped out.

In looking over the details of the above-mentioned exchange offer, I have no doubt this is merely a stop-gap measure as GM would remain deeply insolvent. Here are key points of the exchange offer:

• Common stock plus accrued interest in cash offered for $27 billion of outstanding public debt
• Successful exchange to result in at least $44 billion reduction in total liabilities from bondholders, U.S. Treasury, and VEBA
• Bondholders to own 10 percent of GM after successful exchange offer
• Exchange contingent on VEBA modifications and U.S. Treasury debt conversion conditions resulting in at least $20 billion reduction in liabilities
• Expect to seek bankruptcy relief if the exchange offers are not consummated

What if the exchange offer is successful and total liabilities are reduced by $44 billion? This would still leave GM with an equity position of negative $42 billion. No company can continue to operate when it is so incredibly broke. To be sure, this implies GM would remain a ward of the state and the U.S. Treasury would continue to lend it money; thereby perpetuating this wealth-destruction machine.

To further drive home the point, as to how broke GM is, let’s do a quick thought experiment. If Supreme Commander Obama decided to simply give GM a "gift" of $100 billion, would all be well at General Motors? Undoubtedly, you know the answer is "no." Even with such a generous gift, GM would still be a precariously leveraged company with a total liabilities-to-equity ratio of nearly 13 to 1 — using GM’s 12/31/08 balance sheet as the basis for this analysis. It should be obvious, therefore, that the aforementioned exchange offer is merely placing a bandage on a mortally wounded company.

This is why I cringe when I hear politicians and financial reporters mention any kind of reorganization for General Motors (including Chapter 11 Bankruptcy reorganization). Any such reorganization would automatically imply massive Federal guarantees that will come at enormous taxpayer expense; which also indicates that productive citizens are viewed, in Washington, D.C., as mere abstractions born to serve the needs of America’s political elites.

The marketplace has spoken; GM has failed and it should be liquidated. New entrepreneurial and wealth-creating opportunities most likely will emerge from such a liquidation. To continue down the present path assures more wealth will be destroyed by the financial black hole known as General Motors.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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The New York Times Company is in deep financial trouble. For fiscal-year 2008, The New York Times announced, on January 28, 2009, that it had generated a net loss of nearly $58 million. Within weeks, on February 19, 2009, the Times’ board of directors announced it was outright suspending the quarterly dividend. Accordingly, this once-mighty company’s stock is now trading at under $4 per share on the New York Stock Exchange. Conventional wisdom has it that the creative destruction of the marketplace is rendering print media into the dustbin of history. This does not explain, however, The New York Times’ financial woes; as it is much more than just a print media company. The truth of the matter is The New York Times sits on the brink of bankruptcy due to incompetent and destructive financial management which has left its balance sheet in tatters.

When a publicly traded company announces that it had a losing year, it is typically not viewed as good news. Yet, The New York Times’ net loss for fiscal-year 2008 is an anomaly. Since fiscal-year 2000, the Times has operated profitably for seven of the past nine years. In fact, since 2000, this company’s cumulative net profit has amounted to $1,598,062,000 (which averages out, over a nine-year period, to an annual net profit of approximately $177.6 million). From an operations standpoint, this is a respectable performance.

So how can such a profitable company end up becoming insolvent? Before answering this question, let’s look at the latest available financial statement for the New York Times Company — as found in the September 28, 2008 third-quarter 10-Q. The following points convey my analysis of The New York Times Company’s balance sheet and it is a frightening sight indeed — please note that I adhere to a conservative method of financial analysis which dictates that intangible assets are always fully discounted:

• On an as-given basis, The New York Times’ working capital position stood at negative $371,828,000. When fully discounting current deferred tax assets of $80,617,000, the working capital position drops to negative $452,445,000.
• As presented in the balance sheet, this company’s net worth stood at $797,072,000. Upon fully discounting all intangible assets, including goodwill and deferred tax assets, I derived an allowable net worth of negative $171,419,000.
• Cash stood at $45,848,000. This is a paltry cash position for a company that consistently generates over $3 billion in annual revenues.
• The Times has tapped into its $800,000,000 revolving credit facilities to the tune of $397,850,000.

When a company has a negative working capital position, a negative tangible net worth, a low cash position, and heavy short-term bank borrowings, it is reasonable to conclude such a company is insolvent.

To be sure, it is quite the conundrum as to how a consistently profitable company, during this decade, can end up with such an emaciated balance sheet. The mystery disappears altogether once you look at The New York Times Company’s reckless dividend and stock buyback programs. Since 2000, the Times has repurchased $1,951,727,000 worth of its common stock. Always and everywhere, stock buybacks result in a depletion of cash, working capital, and net worth (please see two other articles, here and here, in which I express my absolute distaste for stock buybacks). As for dividends, since 2000, The New York Times has paid out $827,874,000 in dividends. Fundamentally, I have no problem with a company paying out dividends. When a company, on the other hand, is aggressively buying back its own stock, it strikes me as irresponsible balance sheet management to further deplete cash, working capital, and equity by also paying out a dividend. It appears, ultimately, that The New York Times’ executive management was attempting to manage its stock price. With its common stock presently hovering at $4 per share, management has failed miserably here. Stock-price management, clearly, can be deadly to a company’s financial health.

So let’s do some simple math. Since 2000, The New York Times Company has generated a respectable cumulative net income of $1,598,062,000. Yet management, over the same period, has paid out $2,779,601,000 for stock buybacks and dividends. This means, during the present decade, stock buybacks and dividends have exceeded cumulative net income by an astonishing $1,181,539,000. Is it any wonder The New York Times’ balance sheet is such a train-wreck? Operationally, this company has done well during the past nine years. Conversely, the company’s balance sheet has been hideously mismanaged by an incompetent executive management team — as supervised by a grossly negligent board of directors.

The New York Times, most certainly, is encountering a difficult operating environment. The internet has posed a serious challenge to companies involved in print media. Advertising revenues, moreover, are dropping dramatically due to the current economic depression. Nonetheless, had executive management been prudent and conservative with respect to balance sheet management, the Times would have had a war chest full of cash, strong working capital, and strong equity; thus, allowing it the financial flexibility to survive these very challenging times. As things stand today, in my opinion, the Times’ strategic alternatives are probably limited to either seeking an acquirer or reorganizing under Chapter 11 Bankruptcy.

In closing, it is appropriate to bring The New York Times’ op-ed columnist, Maureen Dowd, into the picture. She recently savaged executives from A.I.G., Bank of America, Citigroup, Merrill Lynch and the U.S. automakers; deeming them to be incompetent, self-serving charlatans. In this January 28, 2009 op-ed piece titled Wall Street’s Socialist Jet-Setters, she calls these executives "boobs," "dumb," "obtuse," and "…careless ghouls who murdered the economy." So Ms. Dowd, what do you think of the executives who "murdered" The New York Times Company’s balance sheet? What names would you like to call them?

Shall we bring on the shackles? Shall we bring on the show trials?

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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How far do politicians believe they can push the global-warming scam? We know, after his inauguration, Barack Obama intends to officially classify carbon dioxide as a "dangerous pollutant." After such a declaration, his actions will reveal whether he truly views carbon dioxide as a threat to humanity or whether he is simply using a shameless scare tactic to further consolidate Federal power and to move the U.S. further along the road to socialism. If carbon dioxide is incredibly dangerous as Al Gore and Barack Obama claim it to be, then all options, for reducing carbon dioxide emissions, must be considered.

Once President Obama declares carbon dioxide to be a dangerous pollutant, every single American brewery, winery, and distillery will be, by definition, a "dangerous polluter." Thus, if manmade carbon dioxide output must be drastically reduced to save the planet and humanity itself, then President Obama must strongly consider reinstating alcohol prohibition in these United States. Al Gore, to date, hasn’t had the guts to push the global-warming scam to the point of suggesting global alcohol prohibition and I highly doubt President Obama has the guts to do so in the U.S. Both of these political hacks, after all, are socialists and certainly are not in love with Mother Earth and humanity, but with power and celebrity.

Anyone with a fifth-grade education understands that the fermentation process is integral to producing alcoholic beverages. In the fermentation process, yeast interacts with sugars to create ethyl alcohol and carbon dioxide. Uh oh, there is that evil "pollutant" carbon dioxide. Who would have ever guessed the wonderful wines, beers, and distilled spirits we enjoy so much are born from pollution? Come to think of it, the beers and champagnes populating store shelves everywhere still contain carbon dioxide. By Barack Obama’s definition, I would be drinking a dangerous pollutant every time I enjoy one of my favorite ales. Should I consult a doctor before drinking pollution? Even if prohibition prevents me from drinking polluted adult beverages, in the future, what about soda pops and naturally-carbonated sparkling waters? Should these polluted beverages be banned as well? Perhaps President Obama will provide us with some guidelines about ingesting pollution.

If President Obama (and Al Gore for that matter) sincerely believes carbon dioxide poses such a dire threat to Mother Earth and humanity, then the carbon dioxide emissions from breweries, wineries, and distilleries would be viewed as a serious problem. In the United States alone, annual wine production is about 2.44 billion liters while annual beer production is approximately 23 billion liters. Throw in distilled spirits and it is inescapable to conclude that a whole lot of manmade carbon dioxide is being generated by wineries, breweries and distilleries. Once President Obama pronounces carbon dioxide to be a dangerous pollutant, what will he do about the "pollution" emanating from breweries, wineries, and distilleries?

The first thing President Obama should do is to lead by example and ban all alcoholic beverages from the White House (Al Gore should do the same in his household). Secondly, he and Al Gore should create a national awareness as to the polluting nature of the adult-beverage industry with the objective of building a consensus to bring back prohibition in order to save our planet and the human race. These two shrill politicians have asserted that the stakes are quite literally this supremely high, hence foregoing alcoholic beverages is a sacrifice all Americans should be prepared to make. For goodness’ sake, our planet is at stake!

Let’s take Barack Obama’s absurd assertion, that carbon dioxide is a dangerous pollutant, one step further. By using Obama’s "logic," life itself is built upon pollution. It makes me wonder, once again, if our new President is smarter than a fifth grader. For if one is familiar with photosynthesis — and most fifth graders are — it is a process of converting light energy to chemical energy and storing it in the bonds of sugar. Plants only need light energy, carbon dioxide and water to make the aforementioned sugar. Photosynthesis, which cannot take place without carbon dioxide, occurs in plants (and a few bacteria) and is responsible for feeding nearly all life on Earth. But let’s not stop there. Another vital function photosynthesis performs pertains to generating the very oxygen which oxygen-breathing animals require for survival. So let’s get this straight Mr. Obama, you believe the life-giving process of photosynthesis is built upon pollution? If this is your firm conviction, then you have left me wondering if enough oxygen is making it to your brain. Yet what I do know now is that the gospel, according to Barack Obama, avows that life itself is dependent upon pollution. How utterly surreal.

Barack Obama, Al Gore, and politicians around the world are using global warming, and the outrageous lie that carbon dioxide is a pollutant, to increase state power and, thereby, reduce human liberty. It is an incredibly powerful scam which is frightening people into willingly giving up their freedoms in exchange for "saving" the planet. Therefore, step by step, country by country, the global-warming scare is helping politicians pave the road to socialism.

So why don’t we hear American, British, French, German and other politicians calling for the shuttering of breweries, distilleries, and wineries (or at least taxing their products into oblivion)? It is the same reason you will never hear an American politician call for a $100/hour minimum wage or for sending every adult American a $1,000,000 stimulus check. Taking a scam too far leads to intense examination and exposes the scammers for the frauds they are. Hence, gunning after wine, beer, and spirits makers would undoubtedly create such a backlash, against the global-warming charlatans, that the scam wouldn’t hold up under such mass scrutiny. After all, if you are compelling people to give up alcohol — to help save the planet — then the science had better be extremely sound. Questionable science, built upon faulty computer models, simply won’t cut it.

As Barack Obama, using parts of FDR’s playbook, attempts to lead us further down the road to socialism, be assured global warming will be used as a weapon to mentally terrorize Americans into further exchanging liberty for "safety." It is a near-certainty, nonetheless, that breweries, distilleries, and wineries will not be deemed "dangerous polluters" in spite of the fact carbon dioxide is a byproduct of fermentation. To be sure, this will expose the hypocrisy of politicians, such as Obama. And, it will also reveal the grandiose concept, of saving the Earth from global warming, is nothing more than a ruse designed to help governments grab more power.

In George Reisman’s phenomenal book Capitalism, he describes why socialists such as Al Gore, Barrack Obama, and for that matter Arnold Schwarzenegger (who has turned out to be a greenie) will leave adult-beverage makers alone — in spite of their prodigious carbon dioxide emissions:

It follows that the rulers of a socialist state must live in terror of the people. By the logic of their actions and their teachings, the boiling seething resentment of the people should well up and swallow them in an orgy of bloody vengeance. The rulers sense this, even if they do not admit it openly; and thus their major concern is always to keep the lid on the citizenry.

Indeed, Barrack Obama’s mind may be polluted with contradictions and megalomania, but he and his ilk are savvy enough to have learned the lessons from America’s failed experiment with alcohol prohibition (combined with the fact that anthropogenic global warming is supported by flimsy science). Accordingly, it is much easier to keep the lid on a citizenry permitted to legally self-medicate with alcohol — especially during the present economic depression — than to draw the ire of citizens forced to seek adult beverages on the black market.

So raise your glass of wine and say "cheers" to Barack Obama: our new Hypocrite-in-Chief.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Two of America’s highest-profile advocates of wealth redistribution are Barack Obama and Warren Buffett. Presently, President-elect Obama is pushing to redistribute $50 billion to Detroit’s three failing automakers. He is particularly concerned about the possibility that GM may file for bankruptcy in a few months. As for Warren Buffett, you may not be aware that he is a strong proponent of the income tax, the estate tax, and double-taxation on dividends (for more on this matter, read this Forbes article: Warren Buffett’s Tax Fetish). With these two gentlemen being kindred spirits, perhaps Mr. Obama should "invite" Mr. Buffett to "give a little more" as alluded to in Berkshire Hathaway’s 2003 annual report (more below). Berkshire Hathaway, after all, has a lot of money and General Motors needs a good sum of it. So why not have the Obama White House broker a deal — under threat of sending Buffett to jail — to merge General Motors into Berkshire Hathaway? What is good for GM, as the saying goes, is good for the country…and Barack Obama will see to that.

It would be a smashing idea for President-elect Obama to read Warren Buffett’s 2003 letter to shareholders. In this letter, Buffett takes umbrage to the allegation that he and his company are tax avoiders. Hence, Mr. Buffett brags about the fact that Berkshire Hathaway’s 2002 tax return was 8,905 pages long and that Berkshire is amongst the top-ten taxpaying entities in the United States. He goes on to state that Berkshire Hathaway "…was surely pulling its share of our country’s fiscal load" and that if outsiders see otherwise then "…that means Charlie and I need to try harder" and "…we are ready to do so."

The following excerpt was penned by Mr. Buffett, in the aforementioned letter to shareholders; and will surely warm the heart of his fellow redistributionist Barack Obama:

On May 20, 2003, the Washington Post ran an op-ed piece by me that was critical of the Bush tax proposals. Thirteen days later, Pamela Olson, Assistant Secretary for Tax Policy at the U.S. Treasury, delivered a speech about the new tax legislation saying, "That means a certain Midwestern oracle, who, it must be noted, has played the tax code like a fiddle, is still safe retaining all his earnings." I think she was talking about me.

Alas, my "fiddle playing" will not get me to Carnegie Hall — or even to a high school recital. Berkshire, on your behalf and mine, will send the Treasury $3.3 billion for tax on its 2003 income, a sum equaling 2% of the total income tax paid by all U.S. corporations in fiscal 2003. (In contrast, Berkshire’s market valuation is about 1% of the value of all American corporations.) Our payment will almost certainly place us among our country’s top ten taxpayers. Indeed, if only 540 taxpayers paid the amount Berkshire will pay, no other individual or corporation would have to pay anything to Uncle Sam. That’s right: 290 million Americans and all other businesses would not have to pay a dime in income, social security, excise or estate taxes to the federal government. (Here’s the math: Federal tax receipts, including social security receipts, in fiscal 2003 totaled $1.782 trillion and 540 "Berkshires," each paying $3.3 billion, would deliver the same $1.782 trillion.)

Our federal tax return for 2002 (2003 is not finalized), when we paid $1.75 billion, covered a mere 8,905 pages. As is required, we dutifully filed two copies of this return, creating a pile of paper seven feet tall. At World Headquarters, our small band of 15.8, though exhausted, momentarily flushed with pride: Berkshire, we felt, was surely pulling its share of our country’s fiscal load.

But Ms. Olson sees things otherwise. And if that means Charlie and I need to try harder, we are ready to do so.

I do wish, however, that Ms. Olson would give me some credit for the progress I’ve already made. In 1944, I filed my first 1040, reporting my income as a thirteen-year-old newspaper carrier. The return covered three pages. After I claimed the appropriate business deductions, such as $35 for a bicycle, my tax bill was $7. I sent my check to the Treasury and it — without comment — promptly cashed it. We lived in peace.

All of us, indeed, may live in peace as long as we pay our taxes. If you don’t pay your taxes, well, then an expensive fight with the IRS and jail time may be in your future.

To be sure, I adhere to what Murray Rothbard stated in his magnificent book The Ethics of Liberty:

If, then, taxation is compulsory, and is therefore indistinguishable from theft, it follows that the State, which subsists on taxation, is a vast criminal organization far more formidable and successful than any "private" Mafia in history. Furthermore, it should be considered criminal not only according to the theory of crime and property rights as set forth in this book, but even according to the common apprehension of mankind, which always considers theft to be a crime.

Plain and simple, taxation is theft. Therefore, Barack Obama and Warren Buffett celebrate theft. But here is the rub, Barack Obama will soon have the full backing of Uncle Sam’s police state while Buffett sits atop of Berkshire Hathaway’s $120 billion net worth (as of September 30, 2008). If our 401(k)s and our IRAs are now fair targets for the redistributionists, in addition to our incomes, then why not Berkshire Hathaway’s war-chest of a balance sheet?

So here is the deal President Obama should offer Warren Buffett: Merge Berkshire Hathaway with General Motors in order to save hundreds of thousands of jobs and in order to assure that tens-of-billions of dollars of GM’s pension and retirement benefits continue to be honored. (Keep in mind that even after such a merger, Berkshire Hathaway will still have a net worth of approximately $60 billion and will remain one of the strongest companies in America — GM’s net worth is presently close to negative $60 billion; so doing the math is pretty easy). Conversely, if Mr. Buffett doesn’t accept the "offer," then the Federal government will simply take over Berkshire Hathaway, merge it with GM, while sending Buffett to prison — without trial — as a suspected terrorist. Gotta love the Patriot Act.

Buffett, to be sure, will take the deal so that he may continue to live in peace with his master. After all, it is difficult to say "no" to a nuclear-armed Commander-in-Thief.

And then the unwashed masses shall celebrate a highly successful redistribution at the expense of an ultra-wealthy man instead of at the expense of an abstraction Buffett and Obama call "the taxpayers." My guess is that Warren Buffett won’t attend this celebration as he was given a raw deal that he couldn’t refuse. At this point maybe Buffett’s fetish, for redistributionist theft, will be cured.

Load the shotgun; I hear wedding bells for Microsoft and Ford.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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All of the insanities of the environmental movement become intelligible when one grasps the nature of the destructive motivation behind them. They are not uttered in the interest of man’s life and well-being, but for the purpose of leading him to self-destruction

~ George Reisman

Recently, one of my favorite clients organized a salmon-fishing trip attended by his key employees, vendors, and creditors. It was highly enjoyable, indeed, to spend time fishing and chatting with professionals such as architects, structural engineers, bankers, project managers, etc. One conversation, however, impacted me the most. A lively discussion, regarding the housing bubble and its aftermath, was underway when a gentleman interjected that: "Environmentalism has cost my family a lot of money." The first thought that entered my mind was: "Where did that comment come from?" Nonetheless, after hearing his tale of woe, it struck me that environmentalism is racism.

What did this gentleman say that led me to this conclusion? His story is straightforward and disturbing. While the housing bubble was expanding, the demand for lumber was high and this made standing timber quite valuable. He had dozens of acres of his family’s property logged with the proceeds being used for paying down debt and the balance being put aside as savings. Alas, about 20 acres of his property were deemed, by local government, to be "wetlands" and he was absolutely forbidden, by law, to harvest any of the timber within this "protected" area. This cost him, and his family, tens of thousands of dollars of income that would have materialized had his private-property rights not been violated by government.

He pointed out the supreme absurdity of the applicable environmental law: "Beavers are constantly cutting down trees within this protected area; but if I did so, I would be subject to prosecution and a sizable fine. So who owns the land, me or the beavers?" He answered his own question, as he shook his head and said: "It sure seems like government favors a bunch of rodents over my family." Our conversation shifted to Wall Street’s bailout as it was clear that he was a bit agitated and wanted to change topics.

As this fellow and the others in our party discussed the Wall Street bailout, I remained focused on the surreal nature of this gentleman’s story. To be sure, it became crystal clear that government — as influenced by the Green movement — is biased against the human race while favoring plants, animals, and inanimate objects. My mind raced as I recollected other stories, from friends and acquaintances, complaining how they were not allowed to cut down trees in their own yards unless given permission by local government bureaucrats. Absurdly enough, Mother Nature may knock over trees with a strong windstorm (and this would be considered an act of nature), yet in countless locales the very same trees may not be cut down at the hand of man — as this would be a "crime" against nature.

Private property owners, assuredly, are being targeted by Green bigots (and their power-hungry bureaucratic minions) who are intolerant of those who desire to put property to its highest and best use — as determined by individual preferences and plans. If one’s plans involve mining, harvesting trees, real estate development, building a new home, or countless other beneficial undertakings, then such a property owner will be in the crosshairs of Greenies and local public officials. Unfortunately, over a period of many decades, environmentalists have succeeded in institutionalizing racism within government at the local, state, and federal levels. A contrived battle between nature (good) and man (evil) has been engaged in which private-property rights and human liberty hang in the balance.

Green racism is a pernicious concept in which the human race must be subordinated to nature with the exception of the anointed Greenies who will take charge along the lines of the former Soviet Union’s central planners. With this in mind, George Reisman pointed out in his magnificent book Capitalism: "…it should not be surprising to see hordes of former Reds, or of those who otherwise would have become Reds, turning from Marxism and becoming the Greens of the ecology movement."

Should institutionalized Green racism really be considered a threat? Has any government implemented such a radical program, on a national basis, in which humanity is subordinated to nature? The answers to these questions are found in Alston Chase’s brilliant book In a Dark Wood: The Fight Over Forests and the Rising Tyranny of Ecology. Here is a chilling excerpt:

The desire to subordinate people to organic nature led directly to racism. “The u2018scientific’ element of racialism can be traced back to Haeckel,” writes the philosopher Karl Popper. Haeckel, as Robert Jay Lifton observes, in part quoting the historian George L. Mosse, “a towering figure in German biology and an early Darwinian, was also a racist, a believer in a mystical Volk, and a strong advocate of eugenics who u2018can be claimed to be a direct ancestor’ of the Nazi u2018euthanasia’ project.” Indeed, as Daniel Gasman calls “Germany’s major prophet of political biology,” someone who contributed significantly to the development of Nazi ideology: “The writings of Haeckel and the ideas of his followers…were proto-Nazi in character, and (as) one of the most powerful forces in nineteenth and twentieth-century German intellectual history, may be fully understood as a prelude to the doctrine of National Socialism.”

“We do not need to strain at gnats to show there was a strain of ecological ideas among Nazis: the evidence is ample,” writes Bramwell. As the historian Robert A. Pois observes, National Socialism was “a religion of nature,” which called for the establishment of a utopian community, the Volksgemeinschaft, rooted in a perceived natural order.” Throughout Hitler’s political career, writes Pois, “he would continually emphasize the importance of recognizing nature’s power over man. He scoffed at the notion of humans ever having the ability to u2018control’ or u2018rule over’ nature…Hitler sounded remarkably like contemporary environmentalists who, with ample reason, proclaim that a sharp-tempered Mother Nature… will eventually avenge herself upon those who, at least since the onset of industrialization, have tried her patience.” He believed in “the sanctity of nature.”

Indeed, Nazism was based largely on biological theory. As Hitler’s confidant Rudolph Hess insisted, the movement was nothing more than “applied biology” for restoring the “vitality of the German race.” It sought “biological renewal” through building, said Heinrich Himmler’s legal aide, Werner Best, an “organically indivisible national community.” And those who opposed these goals merely revealed themselves to be “the symptom of an illness which threatens the healthy unity of the…national organism.”

Decrying man’s alienation from nature, many Nazi thinkers — among whom can be counted the philosopher Martin Heidegger — opposed what they saw as unnatural and decadent modern living. Heidegger complained that “technological domination spreads itself over the earth ever more quickly, ruthlessly, and completely…The humanness of man and the thingness of things dissolve into the calculated market value of a market which…spans the earth.” Likewise, the Nazis blamed capitalists for driving farmers off the land and into towns in an effort to obtain cheap labor, thus undermining rural culture and promoting factory farms that used poisonous synthetic chemicals. Reestablishing the connection with nature, they believed, required crushing unnatural, non-German values. Private property had to be abolished, since it promoted commercialism, consumerism, and urbanization. Forests and wildlife, symbolizing Germany’s pre-Roman past, had to be preserved.

Therefore, soon after seizing power in 1933, the Third Reich launched a ruralization program to create a new more, primitive Germany. Subdivisions and private property were declared illegal. Vivisection was banned, and Hitler’s Germany became the first European country to establish nature preserves. In 1940 hedgerow and copse protection ordinances were passed “to protect the habitat of wildlife.”

One cannot think of Nazism without correspondingly thinking of extreme racism. Millions of innocents including Jews, Gypsies, and other non-Aryans were murdered with the objective of purifying Nazi Germany so that it may be reunified with nature. Humanity, indeed, had to be subordinated to nature with the "wolves" in the Nazi party calling the shots.

Modern-day Green racists hallucinate on a grander scale than ever dreamt by the Nazis. For these racists fantasize about or advocate the death of billions of human beings. This is, undeniably, racism at a megalomaniacal level. So let the Green racists speak for themselves — be very, very frightened:

• Jacques-Yves Cousteau, environmentalist and documentary maker: “It’s terrible to have to say this. World population must be stabilized, and to do that we must eliminate 350,000 people per day. This is so horrible to contemplate that we shouldn’t even say it. But the general situation in which we are involved is lamentable.”
• John Davis, editor of Earth First! Journal: “I suspect that eradicating smallpox was wrong. It played an important part in balancing ecosystems.”
• Paul Ehrlich, Stanford University population biologist: “We’re at 6 billion people on the Earth, and that’s roughly three times what the planet should have. About 2 billion is optimal.”
• David Foreman, founder of Earth First!: “Phasing out the human race will solve every problem on earth, social and environmental.”
• David M. Graber, research biologist for the National Park Service: “It is cosmically unlikely that the developed world will choose to end its orgy of fossil-energy consumption, and the Third World its suicidal consumption of landscape. Until such time as Homo sapiens should decide to rejoin nature, some of us can only hope for the right virus to come along.”
• Alexander King, founder of the Malthusian Club of Rome: “My own doubts came when DDT was introduced. In Guyana, within two years, it had almost eliminated malaria. So my chief quarrel with DDT, in hindsight, is that it has greatly added to the population problem.”
• Merton Lambert, former spokesman for the Rockefeller Foundation: “The world has a cancer, and that cancer is man.”
• Prince Phillip, Duke of Edinburgh, leader of the World Wildlife Fund: “If I were reincarnated I would wish to be returned to earth as a killer virus to lower human population levels.”
• Maurice Strong, U.N. environmental leader: “Isn’t the only hope for the planet that the industrialized civilizations collapse? Isn’t it our responsibility to bring that about?”
• Ted Turner, CNN founder, UN supporter, and environmentalist: “A total population of 250—300 million people, a 95% decline from present levels, would be ideal.”
• Paul Watson, a founder of Greenpeace: “I got the impression that instead of going out to shoot birds, I should go out and shoot the kids who shoot birds.”

What if Prince Phillip stated: "If I were reincarnated I would wish to be returned to earth as a killer virus to lower American Indian population levels." Beyond a shadow of a doubt, he would be labeled a bigot, a racist, and an advocate of genocide. He would be crucified in the press. So why is it acceptable for the prince to fantasize about wiping out most of the human race? Of course, the answer is that it is not acceptable whatsoever. He has, in fact, revealed himself to be a bigot and a racist of the highest order.

At this point, you may wonder how can one associate the environmental movement with both Nazis and Communists? How can this be? Are they not polar opposites? One way to reconcile this matter is to understand that totalitarianism is always totalitarianism whether it be of the Green variety (Nazism) or the Red variety (Communism). The following excerpt, from The Black Book of Communism, provides an excellent explanation:

One thing is certain: Crimes against humanity are the product of an ideology that reduces people not to a universal but to a particular condition, be it biological, racial, or sociohistorical. By means of propaganda, the Communists succeeded in making people believe that their conduct had universal implications, relevant to humanity as a whole. Critics have often tried to make a distinction between Nazism and Communism by arguing that the Nazi project had a particular aim, which was nationalist and racist in extreme, whereas Lenin’s project was universal. This is entirely wrong. In both theory and practice, Lenin and his successors excluded from humanity all capitalists, the bourgeoisie, counterrevolutionaries, and others, turning them into absolute enemies in their sociological and political discourse. Kautsky noted as early as 1918 that these terms were entirely elastic, allowing those in power to exclude whomever they wanted from humanity whenever they so wished. These were the terms that led directly to crimes against humanity.

Environmentalists have learned well from the likes of Joseph Goebbels and Vladimir Lenin. Horrifyingly, the Greenies are succeeding in making people believe that their conduct has unfavorable universal implications, relevant to humanity as a whole. Global warming — now described using the weasel-words of "climate change" — is the big lie which has transformed political and sociological discourse along the lines of turning the human race into the outright enemy of Mother Nature herself. Regardless of how junky the "science" is supporting global warming, environmentalists will not let go of the lie. For it was Goebbels who stated: "If you tell a lie big enough and keep repeating it, people will eventually come to believe it." And it was Lenin who said: "A lie told often enough becomes truth." Hence, it is no surprise that Stanford professor, and eco-alarmist, Stephen Schneider encouraged fellow environmentalists to frighten humanity into submission. He stated the following in the October 1989 issue of Discover magazine:

To do this, we need to get some broad-based support, to capture the public’s imagination. That, of course, entails getting loads of media coverage. So we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we may have. This “double ethical bind” we frequently find ourselves in cannot be solved by any formula. Each of us has to decide what the right balance is between being effective and being honest.

Just as Nazis and Communists loathed capitalism, so do today’s environmentalists. Greenies hate private property, they hate human liberty, they hate prosperity, they hate modern-day industry, and they hate the free market. They will always choose beavers, trees, and rock formations over people. Environmentalists are using climate change (the big lie), wetlands legislation, the Endangered Species Act, and myriad other legal constraints to slowly choke off capitalism and supplant it with socialism. Of course, their desire is to exercise control over a much smaller population than exists today — Jacques-Yves Cousteau even stated that the ideal human population would be "…limited to 100,000 people, but educated and respectful of nature." So who decides to kill whom? When you sum all of this up, Greenies simply detest the human race. Accordingly, environmentalism is the deepest and broadest form of racism known to mankind.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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When a talking head, on CNBC, proclaims that Company X has announced a stock buyback, it is unfailingly hailed as good news for shareholders. After all, in the world of high finance, cash is trash, leverage is good, and stock buybacks can boost earnings per share and the price of the stock itself. When stock buybacks are executed judiciously, shares are purchased when management recognizes that the stock is undervalued — as it is preferable to buy while the price is low (at least that’s the theory). All of this is done, of course, under the guise of enhancing shareholder value. Hence, what is good for the shareholder (i.e., a stock buyback) must be good for the company itself. This is exactly what the charlatans, of Wall Street, want you to believe; and it is a lie.

The financial distress, besieging America’s largest financial institutions, exposes the pernicious nature of stock buybacks. Call me old fashioned and financially conservative as I have never agreed with the idea that weakening a company’s balance sheet is beneficial for the company and its shareholders — yet, it does benefit a very select group of shareholders and this will be covered below. Repurchasing shares weakens a company’s balance sheet in three key ways in that cash, working capital, and equity are diminished by the dollar amount of the shares repurchased. When a company’s stock-buyback program, over time, adds up to billions of dollars, the negative financial impact can be staggering.

The stock prices, of America’s largest banks and brokerages, have been getting hammered. Yet the declining stock prices fly in the face of the "wisdom" of buying back shares in that a scarcer number of shares should lead to higher stock prices. The following table, comprised of seven high-profile American financial institutions, neatly exposes the falsehood that stock buybacks increase shareholder value.

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Stock Price

Stock Repurchased

Company

5-Year High

Present Price

From 2001 Through 2007

Citigroup

$55.70

$19.35

$32.2 billion

J.P. Morgan

$52.54

$40.02

$17.1 billion

Lehman Brothers

$85.80

$19.11

$14.7 billion

Merrill Lynch

$95.87

$30.91

$21.0 billion

Morgan Stanley

$73.45

$38.57

$14.9 billion

Wachovia Corporation

$59.85

$12.97

$15.0 billion

Washington Mutual

$46.35

$ 5.92

$12.4 billion

From fiscal-year 2001 through fiscal year-end 2007, these seven companies have repurchased $127.3 billion of their common stock. I would argue that each company’s stock-buyback program actually intensified the downward pressure on the price of their respective common shares.

It is well known that there is a global credit crisis and that investors are nervous about which financial institutions will or will not survive through these uncertain times. Top-notch financial strength, consequently, is viewed as a virtue. Thus, it stands to reason that had each of the above-mentioned companies not engaged in such reckless stock buybacks, each company would possess a dramatically stronger balance sheet. In turn, better financial strength provides a company with a greater chance of surviving difficult economic circumstances and, accordingly, would be reflected favorably in the price of its common shares. Return, to any one of these companies, the money it squandered on stock buybacks and you’d see a company with a higher stock price than currently bestowed by the marketplace.

Let’s test, a little more, Wall Street’s "logic" with respect to share repurchases. If a stock buyback is good for a company, shouldn’t buybacks take place when times are tough? After all, during tough times, shouldn’t management do good things for a company? Moreover, if stock prices have dropped precipitously, shouldn’t management be repurchasing shares hand-over-fist? The actions, of the seven aforementioned companies, speak volumes about such questions; and exposes stock buybacks as nothing more than a Wall Street scam.

Through the first five months of 2007, these seven financial institutions bought back $14.4 billion of their common stock. Through the first five months of 2008, the same exact companies repurchased only $786 million of their shares — a reduction of nearly 95%. It is painfully clear that each company’s management team has determined now is not the time to further weaken their respective balance sheets. Corporate survival may be at stake. After all, share repurchases would further erode the balance sheet and the share price may suffer even further. So, when is it ever a good time to weaken a company’s balance sheet?

In Berkshire Hathaway’s 2005 annual report, Warren Buffett criticized executive compensation schemes in his letter to shareholders. In the following example, Mr. Buffett makes it quite clear that a company’s top executives and managers can be compensated handsomely even if the company’s performance is mediocre or poor. At the epicenter, of such a compensation scheme, is management’s control over whether or not to engage in stock repurchases. Read it and weep:

Too often, executive compensation in the U.S. is ridiculously out of line with performance. That won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay. The upshot is that a mediocre-or-worse CEO — aided by his handpicked VP of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo — all too often receives gobs of money from an ill-designed compensation arrangement.

Take, for instance, ten year, fixed-price options (and who wouldn’t?). If Fred Futile, CEO of Stagnant, Inc., receives a bundle of these — let’s say enough to give him an option on 1% of the company — his self-interest is clear: He should skip dividends entirely and instead use all of the company’s earnings to repurchase stock.

Let’s assume that under Fred’s leadership Stagnant lives up to its name. In each of the ten years after the option grant, it earns $1 billion on $10 billion of net worth, which initially comes to $10 per share on the 100 million shares then outstanding. Fred eschews dividends and regularly uses all earnings to repurchase shares. If the stock constantly sells at ten times earnings per share, it will have appreciated 158% by the end of the option period. That’s because repurchases would reduce the number of shares to 38.7 million by that time, and earnings per share would thereby increase to $25.80. Simply by withholding earnings from owners, Fred gets very rich, making a cool $158 million, despite the business itself improving not at all. Astonishingly, Fred could have made more than $100 million if Stagnant’s earnings had declined by 20% during the ten-year period.

Indeed, stock repurchases benefit a narrow group of corporate insiders. Not only can such insiders benefit while the company remains stagnant, they can financially benefit while simultaneously demolishing the company’s balance sheet. A perfect example can be found at Citigroup.

As you saw above, Citigroup was the most aggressive company when it came to repurchasing shares. Over the past three quarters, Citigroup has suffered a cumulative net loss of $17.4 billion. To be sure, these losses were "baked in the cake" ten to fourteen quarters ago when Citigroup was speculating in mortgage-backed securities, extending shaky loans, entering into risky transactions with the monoline insurers, and participating in speculative leveraged buyouts. Credit standards were set irresponsibly low so that revenues and net earnings would go sky high. And, in order to goose Citigroup’s stock price and executive compensation, Citigroup engaged in nothing short of an orgiastic stock buyback program. It worked for a while with the stock peaking at nearly $56 per share in December of 2007. Now, the chickens have come home to roost as Citigroup’s share price has collapsed by approximately 65%.

Since Vikram Pandit became Citigroup’s CEO eight months ago, he has been instrumental in raising $40 billion in new capital for Citigroup. As stated in this July 15, 2008 International Herald Tribune article, Mr. Pandit "…is trying to turn around Citigroup as the banking industry struggles through one of its most challenging periods since the Depression. His task is particularly difficult because many Citigroup bankers, paid with stock and options for years, have seen their fortunes vanish. Morale is low." I have no sympathy for these demoralized Citigroup executives and managers as their "fortunes" were built upon a financially destructive stock-buyback program pyramided upon intellectually bankrupt business and credit practices.

The next time you hear a CNBC talking head gush over a company’s stock-buyback announcement, think of Fred Futile and his self-dealing management style. To praise the weakening of a company’s financial condition reveals the vapid nature of financial reporting. More importantly, the incredible amount of stock repurchased by the seven above-mentioned financial institutions exposes the intellectual and moral rot of countless business managers and their Wall Street enablers. Not a single analyst has cried "foul" and questioned the grotesque balance sheet mismanagement of any of these financial powerhouses (or, more accurately, former powerhouses). To me, this further reinforces my core belief that Wall Street exists to redistribute wealth from the poor and the middle-class to the wealthy. To deny this is to remain comfortable dealing with liars and thieves.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Americans are feeling the pinch of stagflation. Going to the grocery store and to the gas station leaves consumers in a state of sticker-shock. Neighbors are losing their homes. Retailers, restaurants, and countless other businesses are closing their doors. Mass layoffs are being announced with alarming frequency. As inflation and joblessness spiral upward, the economy plunges to greater depths. Opinions abound as to why America’s economic ship is taking on water. Just as certainly as John McCain has personally witnessed global warming, I have ascertained the cause of America’s economic malaise. Indeed, in a moment of deep insight, I have discovered that our economy is sinking in direct proportion to the rise of the environmental movement. The greener Americans become, the further our economy falls.

Please understand that I have written this essay holding myself to the same standards as eco-alarmist Stephen Schneider. In the spirit of scaring humanity straight into the clutches of the green movement, Dr. Schneider (a Stanford University Professor) stated the following in the October 1989 issue of Discover magazine:

To do this, we need to get some broad-based support, to capture the public’s imagination. That, of course, entails getting loads of media coverage. So we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we may have. This "double ethical bind" we frequently find ourselves in cannot be solved by any formula. Each of us has to decide what the right balance is between being effective and being honest.

To say the least, the green movement is presently receiving loads of media coverage. Day after day anthropogenic global warming is mentioned on TV news, PBS documentaries, talk shows, etc. Fortune 500 companies are paying for expensive television ads declaring that they have gone green and are fighting to protect Mother Earth. We are being harangued to conserve this, recycle that, and boycott something or other. Americans have been so saturated with environmentalist gobbledygook, that green has become mainstream.

If one person epitomizes the rise of the green movement, it is Al Gore. He is the environmental movement’s self-appointed ambassador who has brought a high degree of legitimacy to the green movement. Mr. Gore has accomplished this by winning, in 2007, a Nobel Peace Prize and an Academy Award for his "documentary" An Inconvenient Truth.

Today, thanks to Al Gore, greenies are riding high. For it is they who are the anointed ones who have the answers to prevent hurricanes, tornadoes, typhoons, soil erosion, flooding, osteoporosis, indigestion, migraine headaches, and shark attacks. (Of course, their real objective is to eradicate humanity, but that is an issue I have covered previously). And, true to Stephen Schneider’s "vision", the green movement’s success has been built upon a pack of lies.

For those who want an antidote to the gibberish being spewed by greenies, I highly recommend The Politically Incorrect Guide to Global Warming and Environmentalism by Christopher C. Horner. As for attempting to understand the natural fluctuations pertaining to Earth’s climate, a terrific book to read is The Chilling Stars: A New Theory of Climate Change by Henrik Svensmark and Nigel Calder. I also recommend this article about the distinct possibility of global cooling. But I digress.

So let’s get back to the robust correlation between the rise of the green movement and the decline of the American economy. Greenies, and their political minions, are constantly bossing Americans around. Watch out for having too large of a carbon footprint. Did that bottled water come from Fiji? Recycle your paper, your plastic, your metals and don’t you dare mix any of these materials in the wrong recycling bin. Don’t water your lawn, get a low-flow toilet, and for gosh sakes replace your incandescent light bulbs with fluorescent ones. Are you driving an SUV? Shame on you. Think globally, but act locally. Blah, blah, blah.

An enormous amount of physical and mental energy is expended to make the green busybodies happy. None of this "work" is productive. Sure there are those who feel a sense of fulfillment by following these mind-numbing edicts from greenies — as one feels more connected to nature and to a worthy cause (I suppose). I have little doubt that green sympathizers are the same people who celebrate the income tax so that money can be forcibly taken from bad people and transferred to the good downtrodden proletariat. Hurray for April 15th! All in all, going green is a monumental waste of time and energy. It is, consequently, a drag on our economy and a proximate cause of economic decline.

MBAs, across the country, have been indoctrinated with the claptrap that just about anybody or anything can be a stakeholder in a business. It is passé to believe that simply treating employees well and pleasing customers are the keys to business success. No, it is now chic, and politically correct, to integrate varying degrees of environmentalism into a company’s business plan. For Mother Earth herself is a stakeholder in every business. The intrinsic value of nature must be acknowledged and celebrated in order for a business plan to be credible. By embracing such twaddle, it is no wonder once-great American companies are slipping into mediocrity or worse. MBAs, from top business schools, are part of the problem, not the solution.

Recently, some of Wall Street’s mightiest companies — such as Citigroup, Lehman Brothers, Merrill Lynch, and Wachovia Corporation — have had to go begging for money to repair damaged balance sheets. Due to blatant numbskullery, these titans of finance have lost focus and poisoned their respective corporate cultures with standards that are impossible to meet. After all, how does one perform as a stockbroker, on an environmentally-sustainable basis, so that the stockbroker may protect the global ecosystem? How does a loan officer see to it that a loan is being originated in an environmentally-friendly manner? How can a financial company, or any company for that matter, really battle climate change? Wouldn’t this entail controlling the Sun’s output? Good luck with that. Business planning, peppered with green ideology, apparently causes companywide brain damage. Thus, it is no wonder that these companies have reported staggering losses.

In each company’s own words, here are their respective declarations of greenness. Read it and weep (or laugh). I did a little of both.

Citigroup: At Citi, we believe that working to promote environmental and social sustainability is good business practice. As a global corporate citizen, we view sustainability issues from both a risk and an opportunity perspective. We analyze the potential impacts of our business activities and take action to reduce environmental risk and impact. We also look for opportunities to make sustainable investments and develop products and services with positive environmental and social impacts.

Lehman Brothers: As a global corporate citizen, Lehman Brothers is committed to addressing the challenges of climate change and other environmental issues which affect our employees, clients, and shareholders alike. It is critical that we continue to develop initiatives to focus on these challenges facing our environment now and in the future.

Merrill Lynch: At Merrill Lynch, a longstanding commitment to the fundamental principles of corporate social responsibility underpins our recognition that protecting our global ecosystem is of vital importance to us as a commercial enterprise as well as a good corporate citizen.

We are strongly committed to reducing unnecessary or wasteful exploitation of scarce nonrenewable resources. And we are committed to providing sound investment analysis, guidance and capital to enterprises dedicated to promoting environmentally responsible and sustainable economic development.

Wachovia Corporation: Wachovia is committed to being the best, most trusted and admired financial services company. We carefully consider the impact of our business activities on shareholders, customers, communities, employees, and the environment. We leverage our social, economic, and human assets to deliver business results in a way that supports fair business practices and sustainability. Our Corporate Social Responsibility (CSR) Report highlights our social responsibility commitment and values in action.

What a load of tripe. Multiply these declarations of greenness by countless companies, and it becomes obvious that American businesses have lost their way. It would be hilarious to compel corporate executives to define exactly what "sustainability" means and how they can measure their respective contributions to environmental sustainability. By diverting precious capital and human resources toward nebulous objectives such as eco-sustainable business practices, innumerable companies are damaging themselves and the economy as a whole.

As Wilfred Beckerman stated in his magnificent book A Poverty of Reason: Sustainable Development and Economic Growth:

If, therefore, the increasing popularity of the concept of sustainable development cannot be explained by its intellectual strength, its growing influence on international and national policy might perhaps be better explained by reference to sociological phenomena, such as the public’s appetite for dramatic environmental scare stories or politicians’ tendency to jump on media-supported bandwagons. Such phenomena also fit easily into what economists describe as rent-seeking behavior of various agents in society: each agent seeks to maximize its market power by means other than socially valuable methods of increasing productive efficiency and the like.

To be sure, green companies may as well rewrite their respective business plans in order to concentrate upon searching for, and capturing, griffins and unicorns.

Without a doubt, by using the green movement’s "correlation equals causation" methodology, I have proven that America’s current economic downturn is directly correlated with the meteoric rise of environmentalism and its damaging effects on business management (just as certainly as global warming brought about the destruction of New Orleans). Using this standard, set by greenies themselves, feel free to blame environmentalists for what may be unfolding as the United States’ next Great Depression. They’ve earned such opprobrium.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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As J.G. Hlsmann stated in his seminal essay The Cultural and Spiritual Legacy of Fiat Inflation: "The government’s fiat makes inflation perennial, and as a result we observe the formation of inflation-specific institutions and habits. Thus fiat inflation leaves a characteristic cultural and spiritual stain on human society." It is, therefore, crucial for people to awaken to the fact that the manipulation of money and credit, on the part of central bankers, is tantamount to manipulating the minds and hearts of human beings — a matter also covered in a jointly-written essay. Right behind owning one’s own body, the second most personal asset an individual owns is the fruit of one’s own labor — with such fruit typically taking the form of money; which is exchanged for food, clothing, transportation, shelter, etc. Accordingly, with the common yardstick here being money, a person’s self-worth, in part, can be measured by earnings power, accumulated savings, and personal net worth.

With central banks, however, continuously perpetrating the immoral and fraudulent act of fiat inflation, money perniciously loses value over time. When such an important and profoundly intimate self-measuring tool (money) loses its stability, people tend to lose their moral bearings and social decay ensues. And, correspondingly, state power increases — for a while at least — as the populace becomes evermore dependent on state bureaucrats for guidance. To be sure, this seems quite abstract. Hence, it is my objective to bring you tangible examples as to how fiat inflation, as wrought by central bankers, has had a deeply personal impact on people and is a key factor behind the gradual decivilization process engulfing humanity.

An appropriate place to begin pertains to the impulsive and adolescent financial behavior so commonly displayed by American adults. After the bursting of the NASDAQ bubble in 2000, the Federal Reserve went on a fiat-money-and-credit-creation bender. In turn, the masses imbibed this easy credit and became drunk with confidence that they were on the road to riches. Just look how effortless it had been to purchase McMansions and expensive cars in order to convey that you were in the "game" and on your way to Easy Street. After all, anyone with a brain knew that houses will only increase in value and make us all wealthy in the long run. The most seductive aspect of this game was that one did not have to delay gratification by saving. Most certainly, by such standards, saving reflected a lack of financial acumen and certainly wasn’t much fun. No. In order to reveal financial wisdom, one had to maximize the use of leverage and minimize the size of a down-payment. Consequently, before the housing bubble burst, borrowing hundreds of thousands of dollars, to purchase a dream home and two luxury automobiles, defined financial sophistication in the United States. Borrowing, indeed, had become a virtue whilst saving had become a vice.

Such reckless financial behavior, as encouraged by central banking, comes at a high price in which the social fabric frays one family at a time. As Dr. Hlsmann explains in his aforementioned essay:

The net effect of the recent surge in household debt is therefore to throw entire populations into financial dependency. The moral implications are clear. Towering debts are incompatible with financial self-reliance and thus tend to weaken self-reliance also in all other spheres. The debt-ridden individual eventually adopts the habit of turning to others for help, rather than maturing into an economic and moral anchor of his family, and of his wider community. Wishful thinking and submissiveness replace soberness and independent judgment. And what about the many cases in which families can no longer shoulder the debt load? Then the result is either despair or, on the contrary, scorn for all standards of financial sanity.

For a state to gain in power, it must shift its citizens’ chief allegiance from the family to the state. As aided by the Federal Reserve and America’s public schools, Uncle Sam is winning this power struggle for loyalty — for now. When mothers and fathers are economically and financially illiterate — thanks to public schools — then the Federal Reserve’s siren-song of easy credit becomes irresistible. Profligate parents do not serve as economic and moral anchors for the family. Instead, they reach a stage of permanent adolescence in which they are more likely to teach their children to play a video game than to teach children how to read, write, do basic math, and lead a virtuous life. As a quick sidebar, you can even detect those "adults" who have reached permanent adolescence by their driving habits — such individuals drive as if they are in a NASCAR race or playing an auto-racing video game. In a household "run" by adolescent-adults, parents redefine their roles as that of a child’s best friend. A house, additionally, is no longer a home but more of a hangout. With family bonds weakening, and state power increasing, it is no wonder that the Homeland Security Act, the Patriot Act, and NSA snooping have only received a collective shrug of the shoulders.

Would it be farfetched to say that central banking can affect sexual behavior? One could argue that in light of the aforesaid decline of family bonds (as partially brought about by the Federal Reserve), parents have left it to public schools to "educate" children about the intimate matter of sex. Without going into details, we know this has been a disaster. Nonetheless, can a more direct link be made between central banking and changes in sexual behavior?

To answer this question, all one must do is read Otto Friedrich’s engrossing book Before the Deluge: A Portrait of Berlin in the 1920s. An important aspect of this book deals with how hyperinflation, as perpetrated by Germany’s central bank, affected the German populace. To put it bluntly, yes, central banking had a direct impact on Germany’s sexual mores. The following excerpt, from Before the Deluge, will remove any doubt:

"Yes, the inflation was by far the most important event of this period," says a seventy-five-year-old journalist, a woman who still lives in Berlin. She is white-haired and rather large, and she nibbles cookies as she talks, forgetting that it is already two in the morning. "The inflation wiped out the savings of the entire middle class, but those are just words. You have to realize what that meant. There was not a single girl in the entire middle class who could get married without her father paying a dowry. Even the maids — they never spent a penny of their wages. They saved and saved so that they could get married. When the money became worthless, it destroyed the whole system for getting married, and so it destroyed the whole idea of remaining chaste until marriage."

"The rich had never lived up to their own standards, of course, and the poor had different standards anyway, but the middle class, by and large, obeyed the rules. Not every girl was a virgin when she was married, but it was generally accepted that one should be. But what happened from the inflation was that girls learned that virginity didn’t matter any more. The women were liberated." (Italics in the original)

Considering that central banking does alter sexual behavior and does weaken family bonds, should it not be surprising to see American children today dressing as prostitutes? Presently, what passes for fashion amongst girls is simply atrocious, trashy, and sexually charged. The same can be said about boys. Few people understand that the baggy-pant look, with such pants drooping below the buttocks, thus, revealing boxer shorts, is actually a "fashion" that originated in prison. When a prisoner wears pants in this drooping mode, he is advertising that he is a prostitute and is promoting his availability. Where there is smoke, there is fire. Many children may be doing more than just dressing like prostitutes. Well, at least these kids can fall back on what they learned in sex-ed class. To witness this sad state of affairs confirms the quality of parenting has depreciated in lockstep with the value of the dollar.

Few things are more personal than suicide. So if it seems unlikely that a person measures self-worth, using money as the yardstick, then please recall the high-profile suicides related to the 1929 stock market crash. To make the connection between central banking and the aforementioned stock market crash, a brilliant exposition was provided by Murray Rothbard in his masterful book America’s Great Depression. Dr. Rothbard points out that the Federal Reserve aggressively inflated the money supply during the 1920s. However:

The inflation of the 1920s was actually over by the end of 1928. The total money supply on December 31, 1928 was $73 billion. On June 29, 1929, it was $73.26 billion, a rise of only 0.7 percent per annum. Thus, the monetary inflation was virtually completed by the end of 1928. From that time onward, the money supply remained level, rising only negligibly. And therefore, from that time onward, a depression to adjust the economy was inevitable. Since few Americans were familiar with the "Austrian" theory of the trade cycle, few realized what was going to happen.

A great economy does not react instantaneously to change. Time, therefore, had to elapse before the end of the inflation could reveal the widespread malinvestments in the economy, before the capital goods industries showed themselves to be overextended, etc. The turning point occurred about July, and it was in July that the great depression began.

The stock market had been the most buoyant of all the markets — this in conformity with the theory that the boom generates particular overexpansion in the capital goods industries. For the stock market is the market in the prices of titles to capital. Riding on the wave of optimism generated by the boom and credit expansion, the stock market took several months after July to awaken to the realities of the downturn in business activity. But the awakening was inevitable, and in October the stock market crash made everyone realize that depression had truly arrived.

As certainly as central banking can drive an economy into freefall, individuals can be driven to the ultimate breaking point by the catastrophe that is an economic depression. Hence, financial ruin, suicide, and central banking can be directly linked.

Let’s examine this matter a bit further. Historian William K. Klingaman conveys in his book, 1929: The Year of the Great Crash, that — as related to the stock market crash — asphyxiation by gas was the most common method of committing suicide, yet there was considerable variety. He states:

The wife of a Long Island broker shot herself in the heart; a utilities executive in Rochester, New York, shut himself in his bathroom and opened a wall jet of illuminating gas; a St. Louis broker swallowed poison; a Philadelphia financier shot himself in his athletic club; a divorcee in Allentown, Pennsylvania, closed the doors and windows of her home and turned on a gas oven. In Milwaukee, one gentleman who took his own life left a note that read, "My body should go to science, my soul to Andrew W. Mellon, and sympathy to my creditors."

While visiting New York, at the time of the great crash, Winston Churchill saw the broken body of a man who had jumped from a building and plunged fifteen stories to his death. Later, a notable suicide took place on Friday, November 8, 1929 when J.J. Riordan, president of the County Trust Company, took a pistol from a teller’s cage at his bank, went to his home in downtown Manhattan, and shot himself.

An institution capable of hurtling an economy into depression most certainly can be directly connected to the heinous and most personal act of suicide. This is yet one more reason to properly deem the Federal Reserve as "hazardous to humankind."

Let there be no doubt that monetary mischief (i.e. inflation), as perpetrated by a central bank, can damage the human psyche. To be sure, the manipulation of money does alter a society’s view of sex (for the worse) and has lead countless poor souls to financial devastation, and sometimes, tragically, suicide. To connect the dots between sex, suicide, and central banking is, in itself, narrow yet evocative. Nevertheless, are there not broader implications?

In Before the Deluge, Otto Friedrich quotes historian Alan Bullock as to the devastating impact inflation had on society in Weimar Germany:

It had the effect, which is the unique quality of economic catastrophe, of reaching down to and touching every single member of the community in a way which no political event can. The savings of the middle classes and the working classes were wiped out at a single blow with a ruthlessness which no revolution could ever equal…The result of the inflation was to undermine the foundations of German society in a way which neither the war, nor the revolution of November, 1918, nor the Treaty of Versailles had ever done. The real revolution in Germany was the inflation.

Sadly, the German hyperinflation laid the groundwork for the Nazis to eventually take power. Shortly thereafter, Germany lay in ruin.

History, clearly, has shown that money, a human construct in and of itself, has a powerful affect on the human mind. Hence, it logically follows that the central-bank—induced depreciation of the dollar — a fiat currency — goes hand in hand with the social decay we see all around us. We must learn from the German experience. To help reverse this decivilization process, we must abolish the Federal Reserve and establish a 100% gold standard — in effect, a counterrevolution. And then perhaps, once again, we will walk amongst a people who live by the Golden Rule.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

Ambac and MBIA are world leaders in providing financial guarantees and credit enhancements for bond issuers (e.g., municipalities), asset managers, financial institutions, and insurance companies. Both companies are traded on the New York Stock Exchange. Holders of bonds and securities, "insured" by Ambac and MBIA, are provided irrevocable guarantees of timely payment of interest and principal should there be a default or other triggering event. Between the two companies, they guarantee more than $1 trillion in municipal, corporate, and mortgage debt. A critical aspect of such guarantees pertains to the fact that Ambac’s and MBIA’s triple-A credit ratings are bestowed upon the bonds and securities they are insuring. This highest credit rating, correspondingly, signals to the market that such insured bonds and securities are of the highest quality and safety. Underpinning this uppermost credit rating, enjoyed by both Ambac and MBIA, is each company’s capital strength. Consequently, it would be reasonable to assume that directors and officers, of both companies, would view financial strength as sacrosanct. The dirty-little-secret, you won’t hear from Wall Street analysts, is that Ambac’s and MBIA’s top managements were knowingly weakening their respective company’s balance sheets just as they were aggressively expanding into structured finance. It is a fundamental tenet for insurers, sureties, and financial guarantors to put the interests of policyowners, beneficiaries, and obligees (i.e., customers) before shareholders. At Ambac and MBIA, this tenet was grossly violated.

These previously obscure companies are dominating the financial headlines as their names are now forever linked to the subprime-mortgage meltdown. These once staid municipal bond insurers aggressively expanded into guaranteeing collateralized debt obligations (CDOs), which repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. For these specialists, in risk assessment, to bestow triple-A ratings on what has turned out to be toxic junk simply defies all credit-underwriting principles. When the mortgage-lending industry was openly flaunting "liars loans," low-doc loans, Alt-A loans, etc., how couldn’t it have been clear, to the executives at Ambac and MBIA, that mortgage underwriting standards had gone into the gutter? To turn around and place triple-A ratings on this financial debris is nothing short of financial alchemy; in which these two companies believed they had discovered a means of turning lead into gold. To be so cavalier indicates corporate cultures imbued with arrogance and selfishness.

Standard & Poor’s is reviewing $534 billion worth of subprime-mortgage securities and CDOs for possible ratings downgrades. This is a staggering figure. For Ambac, MBIA, and other mono-line insurers to be so wildly off the mark is mind-numbing. Of course, this begs the question as to why anyone would ever again trust a triple-A-rated security insured by Ambac or MBIA? When a financial guarantor proves to be untrustworthy, it loses its franchise and cannot remain a viable business concern.

To date, both Ambac and MBIA have experienced horrific financial results in structured finance. For fiscal-year 2007, Ambac suffered a net loss of a little over $3.2 billion while MBIA suffered a net loss of slightly over $1.9 billion. When combining enormous losses with significant stock buybacks, in fiscal-year 2007, Ambac’s net worth declined by a whopping 63% (down to $2,275,826,000) while MBIA’s declined by 49% (down to $3,649,305,000). Thus, it is no wonder that Standard & Poor’s and Moody’s are reviewing these weakened companies for possible ratings downgrades. Fitch Ratings has already dropped Ambac to double-A and may do the same to MBIA.

To be sure, there are those who will argue that the aforementioned financial losses were not foreseeable. No management team willfully makes such flagrant strategic errors. In turn, the financial losses suffered by both companies most certainly should get the attention of shareholders but should not translate to a loss of trust in the marketplace. I have little doubt that Ambac’s and MBIA’s top executives are saying just that. Perhaps there is a smidgen of legitimacy to this argument.

When it comes to a breach of trust, however, both Ambac’s and MBIA’s executives have been caught red-handed. First let’s discuss the sacrosanct nature of protecting an insurer’s/financial guarantor’s capital strength. Here is what A.M. Best Company — the world leader in providing financial-strength ratings for insurance companies — has to say about capital strength:

The company’s capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company’s policyowners in the event it develops financial problems; the policyowners’ benefits are thus protected by the insurance company’s capital. Shareholders’ interest is second to that of policyowners.

Beyond a shadow of a doubt, Ambac’s and MBIA’s executives subordinated the interests of the beneficiaries — who depend upon each respective company’s financial guarantees — to those of the shareholders. This is an outright breach of trust, a dereliction of duty, and here’s how they did it.

From fiscal-year 2001 through the third quarter of 2007, Ambac and MBIA have been engaged in what can only be described now as reckless stock-buyback programs. Over this period of time, Ambac has repurchased $1,015,036,000 worth of its common stock while MBIA has repurchased $1,843,044,000 of its common stock. Wall Street, of course, always cheers on a stock buyback because it reduces the number of shares outstanding; which analysts foolishly believe enhances shareholder value (as explained here). The opposite, in fact, is true. A stock buyback weakens a company’s balance sheet and I have never understood why a weaker financial condition is better for a company and its shareholders.

So let’s put this into context for Ambac and MBIA. When a publicly-held company buys back its stock, such transactions can be easily tracked in the company’s financial statement. The first place to look, in the financial statement, is in the statement of cash flows. There you will see it as a use of cash categorized as a purchase of treasury stock. The next place to look is in the statement of changes in shareholders’ equity. There you will see treasury stock recorded as causing a decrease in total shareholders’ equity. So, in the name of enhancing shareholder value, Ambac and MBIA respectively spent $1,015,036,000 and $1,843,044,000 worth of cash for stock buybacks (over the past seven years). But, and now you know this, such cash expenditures reduced liquidity and net worth by those exact amounts. How can this be deemed responsible behavior when both companies are expressly in the business of insuring bonds and providing financial guarantees?

To add some more fuel to the fire, let’s fantasize for a moment and assume that both companies had responsible management teams who never would engage in stock buybacks. Well, Ambac’s net worth would be fully 44% higher than it is today while MBIA’s would be fully 50% higher. Accordingly, both companies would stand a better chance, of surviving the subprime meltdown, had their top executives been prudent financial managers. Shareholders, moreover, would certainly sleep better at night had such additional financial cushions existed in order to help their companies ride out these rough times.

And now, the New York state insurance superintendent is begging money-center banks to rescue these two train-wrecked companies. In a separate article, it is stated that "A group of eight banks is already considering a plan to inject capital into Ambac, which needs at least $1bn. Several banks are also believed to be talking to MBIA, which needs at least $500m."What a mess.

Ambac and MBIA, to say the least, are sorely missing the cash they used to repurchase their own shares. Indeed, this is the blowback management didn’t foresee when they put shareholders ahead of "policyowners." Such negligent behavior most certainly has opened the door for municipalities, regulators, and shareholders to file civil lawsuits against the directors and officers of Ambac and MBIA.

Hence, we have the ultimate irony here. You can bet that Ambac’s and MBIA’s directors and officers are praying that their directors & officers liability insurance carriers have been prudently managed so as to put policyowners ahead of shareholders. What a novel idea.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Angelo Mozilo is the Chairman, President, and Chief Executive Officer of the failed Countrywide Financial Corporation. Mr. Mozilo co-founded this company, nearly 40 years ago, in 1969. To be in business for almost forty years, and to become America’s top private home-mortgage lender, are testimonies to genuine business acumen. However, success can breed arrogance, and a sense of supreme power, to the point where a corporate chieftain believes his personal will can override the free market and reshape society according to a grand vision — which, for Angelo Mozilo, entailed making America a better country by bringing home ownership within reach of all and sundry. For Countrywide Financial, unfortunately, Mr. Mozilo’s dream of social engineering demanded that sound credit-underwriting principles be abandoned. And now, Countrywide Financial Corporation’s failure stands as a monument as to how integrating egalitarianism and political correctness, into a business plan, is downright poisonous.

February 4, 2003 marks the day when Countrywide Financial’s shareholders should have dumped every last share of their stock. For on this day Angelo Mozilo made a presentation, at The Joint Center for Housing Studies of Harvard University, titled The American Dream of Homeownership: From Cliché to Mission. This is the day that Mr. Mozilo revealed to the world that political correctness had infected his mind. He openly declared that sound credit underwriting was tantamount to judgmentalism and, therefore, anti-egalitarian. How dare anyone judge anyone else — credit standards be damned. Subprime mortgages, accordingly, were going to be a blessing for America since everyone deserves a house. Oh how political correctness feels so good. He worshiped the mortgage socialism hatched in the New Deal along with every federal-housing program introduced in the succeeding decades. A true credit professional would have been horrified by this speech; which indubitably was met with approving applause by the pseudo-intellectual, limousine liberals populating Harvard University. February 4, 2003 is the day Countrywide Financial’s Board of Directors should have fired Mr. Mozilo.

Over the years, Angelo Mozilo has been handsomely rewarded by Uncle Sam’s mortgage socialism. Here’s how it works. Countrywide Financial makes a conforming home loan, sells it to Fannie Mae or Freddie Mac (both are government sponsored enterprises), and has its coffers replenished in doing so; hence, allowing Countrywide to keep churning out loans. Countrywide, in turn, remains the mortgage servicer on each loan and earns a fee for doing so. These fees most certainly add up when you are servicing $1.5 trillion in home loans (not all of which are Fannie and Freddie loans). Needless to say, Countrywide had other sources of revenues but mortgage servicing was top-shelf when it came to profitability.

Thus, it is no wonder why Mr. Mozilo waxed fondly, in his Harvard speech, regarding America’s foray into mortgage socialism. After all, it made him very wealthy. Here is an excerpt:

Our Nation took another important step in 1938 — in fact, 65 years ago this week — when Fannie Mae was created to buy those FHA loans, and as a result, the secondary mortgage market was born. We took a few more giant steps in the 1940s with the G.I. Bill in 1944 and the Housing Act of 1949, which stated the goal of "a decent home and a suitable living environment for every American family." We witnessed the Fair Housing Act in the 60s, the creation of Freddie Mac in 1970, the expansion of Fannie Mae’s activities, the Community Reinvestment Act in the 70s, the introduction of adjustable-rate mortgages in the 80s, and more recently, the National Affordable Housing Act of 1990.

We have traveled so far — thanks to a mortgage-finance system that remains the envy of the world; thanks to a constant stream of creative and innovative mortgage products, and efforts directed at encouraging the offering of loans to those who have been previously shut out; and simply put, thanks to housing being an enduring public policy objective and the lasting commitment to that objective symbolized by our partnership.

We have transformed from a Nation of renters to a Nation of homeowners. The overall U.S. homeownership rate, which was at 44 percent in 1940, hit 68 percent by the end of the third quarter of 2002.

One can only imagine Mr. Mozilo’s broad smile as he delivered these words. Between his compensation and stock sales, Angelo has made hundreds of millions of dollars. Socialism certainly can be beneficial for an elite few.

Do you remember President George W. Bush’s initiatives to increase homeownership in the United States? His administration definitely played a role in creating America’s housing bubble. When speaking about housing assistance, President Bush evoked the emotion of envy and declared that the U.S. had a "homeownership gap." Angelo Mozilo, being a kingpin of political correctness, couldn’t resist playing the envy-card to an approving Harvard audience. He stated:

It started with the New Deal, and now, we’re in a new century. But through it all, one thing has remained, more or less, constant. This constant is our challenge. And this challenge is to increase the access to affordable housing. And in order to do this, we must close the homeownership gap that still exists.

As President Bush said last October:

"Two thirds of all Americans own their homes, yet we have a problem here in America because fewer than half of the Hispanics and half of the African Americans own their home. That’s a homeownership gap. It’s a gap that we’ve got to work together to close for the good of our Country, for the sake of a more hopeful future. We’ve got to work to knock down the barriers…"

While the number of minority homeowners has advanced recently, climbing from 9.5 million in 1994 to 13.3 million in 2001 — an increase of 40 percent — the fact remains that it is still not at a level equal to that of white homeownership. And as President Bush pointed out, the homeownership rate for African Americans is 47 percent and for Hispanic Americans it is 48 percent, a stark contrast to the homeownership rate of 75 percent for white American households. That means there is currently a homeownership gap of over 25 points when comparing white households with African Americans and Hispanics. My friends, that gap is obviously far too wide. It has been far too wide for far too long. And when adding new factors into the equation — like an influx of new immigrants or continued reduction in the supply of affordable housing — it has the potential to become far worse.

Credit underwriting has nothing to do with race, creed, skin color, gender, or religion. Sound credit underwriting has everything to do with the "Five Cs" of credit — i.e., character, capacity, capital, collateral, and conditions. Under pure capitalism, a credit underwriter is not concerned about making people happy by lending money regardless of a person’s creditworthiness. An underwriter’s primary objective is to make profitable loans and this demands nothing less than effectively assessing risk on a case-by-case basis. This, undeniably, requires underwriters to exercise learned judgment. Ah, but to say this in the cradle of political correctness (Harvard) would have been met with resounding "boos."

To be sure, Mr. Mozilo did not disappoint his fellow limousine liberals. He goes on the attack and smears credit underwriters as being judgmental — the antithesis of political correctness. Considering that Countrywide had become the largest private mortgage lender in the U.S., the following words depict a man who had taken leave of his senses:

I have two issues with our industry’s current underwriting methodology. The first is that the automated underwriting systems kick far too many applicants down to the manual underwriting process, thereby implying these borrowers are not creditworthy; and the second issue is that once arriving in the hands of a manual underwriter, the applicant is subject to basic human judgment that can be influenced by the level of a borrower’s credit score.

Let’s address my first issue. I acknowledge that credit scoring uses proven statistical methods to provide lenders with the ability to quantify the risk of extending credit. And there is little question that the technique effectively and efficiently separates those with very good credit from those with questionable credit.

However, far too many borrowers are being referred to an arduous manual and cumbersome underwriting process. To me, that is clear proof that the level deemed to be an acceptable risk by our automated underwriting systems is much too high. While many of these borrowers may ultimately be approved, it is because the manual process, or human underwriter, has analyzed non-traditional factors such as the borrower’s rent and utility payment history, which should be imbedded in the automated underwriting process.

Now, let me address my second issue, and that is the manual underwriting process itself. While Countrywide’s own internal evidence supports the notion that manual underwriters are approving a good majority of the loan applications that get referred, the fact of the matter remains that a human is involved in this step of the process thereby creating the possibility that a decision is made based upon the level of the borrower’s FICO score.

Thus, the current protocol intentionally creates an environment where borrowers with lower FICO scores are subject to being disproportionately affected by the manual underwriting process. I say we need to amend these systems to do more than just approve the "cream of the crop," by creating a system that says "no" only to those deemed unwilling to make their mortgage payments.

We must understand that the credit scoring system we have built is still imperfect, and that if we are to have any chance at closing the homeownership gap, we must make a serious investment in improving its capacity and capabilities. We must do this through improved automated underwriting models that take into account more variables, and measure true indicators of risk and willingness to pay. We need an ongoing educational process, not only at the primary market level, but also in the secondary markets and with mortgage insurers to help lead this effort to recalibrate the scoring system. And finally, it must be recognized that borrowers with credit scores below what is currently defined as "creditworthy" levels can still be acceptable credit risks. Thus, the credit score bar dividing creditworthy from high-risk borrowers, must be substantially lowered by the GSEs, the secondary market in general, and with bank regulators. The GSEs have made good progress over the last few years in expanding their credit criteria, but I encourage them to become much more aggressive in this regard.

What Angelo Mozilo desires to accomplish is to replace human underwriters with computers. He never mentions the Five Cs of credit because sound credit underwriting requires human judgment; which can be aided with, yet never replaced by, technology. In Mr. Mozilo’s daffy world of credit progressivism, he may as well distill the mortgage application down to a one-page document containing a single question: Are you willing to make your mortgage payment? If the answer is "yes" then the loan is approved and if the answer is "no" then it is declined. Under such circumstances, a computer would work perfectly.

As I have asserted before, political correctness is an enfeebling infection of the mind. Mr. Mozilo’s vision of politically-correct, and "enlightened," credit underwriting was nothing short of daffy. Yet, one can only imagine how approvingly this pabulum was met by his Harvard chums.

Angelo Mozilo had no intention of disappointing his fellow travelers. There was hope as to closing the homeownership gap. It was something called the subprime mortgage. In his bizarre mind, the more subprime mortgage originations there were, the better off America would be. To wit:

Historically low interest rates along with new, creative and flexible underwriting techniques are continuing to fuel a record period of growth for our industry. According to the Federal Reserve, the amount of overall mortgage debt outstanding is nearly $6 trillion. And, increasingly, the sub-prime market is boosting that number and the industry as a whole. During the first nine months of 2002, sub-prime originations rose an estimated 26 percent over the same period in 2001 — outpacing the overall market.

Had Mr. Mozilo delivered this speech today, he would have immediately been fitted into a straightjacket and then driven to the nearest loony bin.

Countrywide Financial and many other financial institutions ended up throwing all credit standards out the window in order to package and sell as many subprime mortgage-backed securities as possible. To be sure, many did not do so sharing Mozilo’s politically-correct and egalitarian hallucination — they just wanted to make a fast buck.

An important distinction to convey here pertains to the fact that Countrywide and others were not selling all of their loans to Freddie and Fannie. The aforementioned mortgage-backed securities were purely packaged and sold under private labels. When America’s housing bubble was expanding, buyers of such subprime securities obviously felt there was no downside. Such are the delusions that materialize when central bankers flood the world with the opiates of easy money and credit.

Regrettably, by completely ignoring underwriting fundamentals, Countrywide and its ilk have set up so many borrowers for failure (as have the king and queen of mortgage socialism, Freddie Mac and Fannie Mae; both of whom, by the way, may be on the brink of their own financial meltdowns). The pain and anguish of losing a home, and having one’s family displaced, will be visited upon countless families. Of course, such borrowers must look in the mirror when the urge, to pass around the blame, emerges. Nonetheless, Angelo Mozilo’s dream has transmuted into a nightmare for millions.

My, oh my, aren’t political correctness, egalitarianism, and social engineering wonderful? You be the judge.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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When I was in college, from 1980 to 1984, I did not have a credit card or an automobile. So why didn’t I have a car? Well, a simple deal was struck between my parents and me: "Earn good grades, live within a reasonable budget, and we’ll do everything we can to pay for your college education. If your grades are poor or if you buy a car, then the deal is off." This is the same deal my father received from his father and I was okay with it. Pullman, WA was easy to traverse on foot and the exercise was good for me anyway. As for not having a credit card, I never bothered to apply for one since I was always able to live within my budget; besides I found debt to be a bit frightening. So what does this have to do with airports and bus stations? I promise; I’ll get there.

Like many college students living away from home, I grew homesick — especially during my freshman year. Spokane, my hometown, was 80 miles away and I didn’t have a car to make that 90-minute drive. This is when I became quite familiar with bus stations. A round-trip bus ticket (between Pullman and Spokane) cost under $15. Greyhound busses were always dependable and the drivers were highly competent. A minor drawback, to taking the bus, pertained to the fact that it took a little over two hours to make the trip; as Greyhound took an alternative route to pick up passengers living in small towns within Washington’s Palouse country.

Having grown up in a middle-class neighborhood, our friends and neighbors typically were solid, hard-working folks sharing similar tastes and values. We knew about people who lived "on the other side of the tracks" but rarely associated with them. To say the least, my parents didn’t want me, or my two siblings, to pick up "bad habits" from other children living in rougher families. This is why it is important to be judgmental.

My numerous trips, via Greyhound bus, certainly allowed me to become familiar with a rougher strata of society. Bus stations, most certainly, were populated with the type of people my parents wanted me to avoid. Although I’d never make the cover of GQ Magazine, it was absolutely clear that I was traveling amongst individuals who held themselves to low standards. Back then, the archetypal bus passenger looked unhealthy, dressed poorly, used crude language, and had poor manners. Nonetheless, a weekend trip to Spokane was always worth it in order to get home-cooked meals and to spend time with friends and family.

By my sophomore year, the number of bus trips dropped dramatically as the coursework became more difficult and my younger brother had enrolled at Washington State University; so staying in Pullman, on weekends, was a no-brainer.

Shortly after graduating, in June of 1984, I was fortunate enough to find a job as a surety bond underwriter — which has been my profession ever since. By August of 1985, I had moved to Boise, ID and became a field underwriter. Part of my job entailed traveling. Accordingly, I found myself flying to such places as Las Vegas, Salt Lake City, and Seattle. For a young kid straight out of college, business travel was quite the fun adventure. Meeting with clients and agents turned out to be the most enjoyable part of my job; and it sure was nice to have a generous expense account allowing me to stay at excellent hotels and to dine at fine restaurants.

With respect to flying for business purposes, as a 23-year-old businessman, I must admit that I felt privileged. What a difference there was between the bus stations I had frequented and the airports with which I had become familiar. To be sure, the most striking difference pertained to the caliber of people I encountered. Well-dressed business professionals were plentiful. Families, with children, displayed great excitement as they embarked upon a family vacation. (In retrospect, it is my educated guess that, in most cases, parents had saved the money to pay for the entire family vacation. Hence, every aspect of the trip, including flying, was treated with respect and a sense of delight). Flight attendants, ticket agents, gate agents, and others were typically engaging, courteous, and well trained. Back then, these professionals did not see passengers as adversaries. Passengers were rightly seen as customers and the objective was to deliver a highly positive flying experience. Granted, this didn’t always happen, but the intent certainly was there.

Although I can’t pinpoint the exact date I noticed this — perhaps ten to twelve years ago — it became glaringly apparent that airports had become glorified bus stations and that airplanes were merely the "Greyhound busses of the sky." Let me be perfectly clear: I do not like flying anymore.

It isn’t the dreadfully stupid security measures, enforced by the useless Transportation Security Administration, that turns me off to flying — yet the TSA is definitely a huge source of irritation. What turns me off is the majority of my fellow passengers. To see "parents" passively watch their children run around while screaming, crying, and generally being obnoxious is nothing short of hellish. Of course, the incessant cell phone conversations have proven to me that the masses have very little to say and sure love to talk about it. Additionally, it never ceases to amaze me how, today, so many people are willing to discuss intimate details, via cell phone, while dozens of people are within earshot. For many, it seems as if life has become one big "reality" television show — with central casting located in each community’s airport. For me, the topper is enduring hours of sitting next to a pierced up, tattooed, video-game-playing passenger dressed in black clothing (as if this "unique" look hasn’t been done a few million times). It is no wonder that being a flight attendant is no longer viewed as a glamorous profession; for they have become little more than babysitters on flying busses.

America’s airports have provided me with abundant evidence that the U.S. is in a state of accelerating social decay. At the epicenter of this decay, in my opinion, is democracy itself. To buttress this assertion, I refer to Hans-Hermann Hoppe’s magnificent book Democracy: The God That Failed. In this book, Dr. Hoppe describes what happens to a populace living under nanny statism. He describes how the decivilizing nature of social democracy

…has led to permanently rising taxes, debts, and public employment. It has led to the destruction of the gold standard, unparalleled paper-money inflation, and increased protectionism and migration controls. Even the most fundamental private law provisions have been perverted by an unabating flood of legislation and regulation. Simultaneously, as regards civil society, the institutions of marriage and family have been increasingly weakened, the number of children has declined, and the rates of divorce, illegitimacy, single parenthood, singledom, and abortion have increased…In comparison to the nineteenth century, the cognitive prowess of the political and intellectual elites and the quality of public education have declined. And the rates of crime, structural unemployment, welfare dependency, parasitism, negligence, recklessness, incivility, pyschopathy, and hedonism have increased.

Short of visiting America’s prisons, I can’t think of a better place, than our airports, to witness the heavy hand of government and its resulting incivility. Who really enjoys going to the airport anymore?

Flying is relatively expensive, thus it is access to credit that allows Uncle Sam’s poster children, for decivilization, to "pay" for airline tickets. Of course, that vile institution, the Federal Reserve, has seen to it that credit be readily available for one and all. In the Fed’s own words: "Community affairs programs at the Board and the twelve Federal Reserve Banks promote community development and fair and impartial access to credit." James Grant stated it more bluntly in his masterful book The Trouble with Prosperity:

In 1991, credit-card purveyors mailed 975 million solicitations; in 1995, they mailed almost three billion, the great bulk of them attempts to persuade credit-card borrowers to switch brands. Not only were commercial banks and credit-card-issuing finance companies competing, but so, too, was a new kind of finance company dedicated to serving speculative-grade people. The new, so-called subprime, lender aimed to charge an interest rate high enough to earn a profit even after a certain and (as it was hoped) predictable credit loss.

As credit standards dropped, thanks to the Fed, millions of subprime credit card users found airline travel within reach. Consequently, we have the birth of the subprime airline passenger. The timing as to when subprime credit card lending took off closely correlates with my experience as to when flying became downright unpleasant. When incivility meets easy credit, a volatile cocktail emerges…and it is "in your face" every time you fly the unfriendly skies.

A financial storm is brewing. As a surety bond underwriter, I have seen it coming. Americans are heavily in debt. America’s mortgage-debt meltdown is dominating the financial headlines. Be assured that the next shoe to fall is credit card debt — and it is already happening.

As the credit bubble implodes, Americans will lose access to credit. In turn, the number of airline-passenger miles will plummet — especially, and thankfully, affecting the aforementioned subprime airline passengers. Consequently, there will be a painful shakeout amongst the airlines; with poorly financed carriers, such as American Airlines, falling into bankruptcy. Yet, from a selfish point of view, the silver lining will be an emergence (I hope) of a more genteel flying experience similar to what I had become accustomed to over 20 years ago.

Now, if we could just get rid of the TSA; and for that, we will need a Ron Paul presidency.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Inflation is an immoral tax that leads to immoral values
~ Anonymous South American banker

Having been in the credit profession for the past 23 years, I have observed several cycles involving the loosening and then the inevitable tightening of credit-underwriting standards. Of course, the Federal Reserve stands at the epicenter of such cycles. While money and credit are flowing like beer at an Irish pub on St. Patrick’s Day, everyone ends up looking like an attractive credit risk. When it appeared that the U.S. economy was heading into a recession, after the collapse of the dot.com and telecom bubbles, the Federal Reserve opened up the taps and encouraged one and all to imbibe its tasty, low-cost credit — with the most popular "flavor" being the mortgage loan. At this point, mortgage lenders merely became bartenders serving anyone who walked in the door. To reach this nadir in mortgage-lending standards, it is inescapable that the "Five Cs" of credit were ignored regardless if a mortgage loan was deemed prime, Alt-A, or subprime. This is exactly why the home-mortgage meltdown has just begun.

One aspect of my job entails analyzing personal financial statements. Twenty years ago, without a doubt, households had much healthier financial conditions. Back then, in proportion to household net worth, savings were much higher and debt levels (especially automobile, credit card, and mortgage debts) were dramatically lower. It is alarmingly common, today, to see households with well under ten thousand dollars in savings yet half-a-million dollars in mortgage debt — not to mention thousands of dollars in credit card debt and tens-of-thousands of dollars in automobile debt. Such households are literally one or two missed paychecks away from being destitute. Yet, amazingly, the heads of such households are considered to be prime-level borrowers (as long as there is adequate income to cover monthly debt service and expenses). What has happened, in the sphere of personal-credit underwriting, is that risk parameters have been redefined with the word "prime" having been defined downwards.

Credit Socialism

America’s unfolding mortgage-debt crisis did not emerge in a vacuum. When Alan Greenspan’s Federal Reserve pounded the federal funds rate down to 1%, in June of 2003, it is crucial to understand that such a low rate materialized due to the Fed’s aggressive creation of money and credit. In other words, America’s monetary central planner "knew" that massive inflation was needed to "rescue" the economy from the above-mentioned dot.com and telecom implosions. Housing was specifically targeted by the Federal Reserve to serve as "…a key channel of monetary policy transmission." With this colossal inflation of the money supply, I would argue that a hyperreality surfaced in the housing market — with corresponding bubbles emerging in consumer electronics and automobiles. During such episodes of heavy inflation, people tend to lose their sense of value including suspending any fear of debt.

In his remarkable piece, Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics, Dr. Paul Cantor masterfully describes how central banking brings about such a destructive hyperreality:

If modernity is characterized by a loss of the sense of the real, this fact is connected to what has happened to money in the twentieth century. Everything threatens to become unreal once money ceases to be real. I said that a strong sense of counterfeit reality prevails in Disorder and Early Sorrow. That fact is ultimately to be traced to the biggest counterfeiter of them all — the government and its printing presses. Hyperinflation occurs when a government starts printing all the money it wants, that is to say, when the government becomes a counterfeiter. Inflation is that moment when as a result of government action the distinction between real money and fake money begins to dissolve. That is why inflation has such a corrosive effect on society. Money is one of the primary measures of value in any society, perhaps the primary one, the principal repository of value. As such, money is a central source of stability, continuity, and coherence in any community. Hence to tamper with the basic money supply is to tamper with a community’s sense of value. By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society.

To be sure, when the federal funds rate declined to the surreal level of 1%, lenders and borrowers behaved as if they were transacting with Monopoly money.

In addition to dealing with the psychologically corrosive affects of inflation, mortgage lenders have become interwoven into what James Grant deems "mortgage socialism." Since FDR’s New Deal, a veritable alphabet soup of governmental and quasi-governmental entities has served to intervene in America’s mortgage market to slake Uncle Sam’s thirst for putting Americans into homes regardless of creditworthiness. For example, in 2004, George W. Bush clung to the coattails of the emerging housing bubble and took credit for America’s increase in the rate of homeownership. He saw fit to take such credit as he viewed newly minted homeowners as a voting block to count on in the 2004 presidential election. Accordingly, the alphabet soup of federally sanctioned housing-market interventionists — Fannie Mae, Freddie Mac, Federal Housing Administration, Ginnie Mae, Department of Veteran Affairs, etc. — served the governing plutocracy’s political ends. What many fail to comprehend is that socialization of mortgage credit inherently means that mortgage-lending standards have been systematically watered down.

For decades, Freddie Mac and Fannie Mae have been buying mortgage loans from qualified lending institutions and then securitizing bundles of such loans into mortgage-backed securities (MBS) — which are typically sold to institutional investors. Ginnie Mae, which is backed by the full faith and credit of the U.S. Government, does not securitize mortgage loans but does guarantee investors the timely payment of principal and interest on mortgage-backed securities insured by the Federal Housing Administration or guaranteed by the Department of Veteran Affairs. Freddie and Fannie also guarantee the timely payment of principal and interest on their securities but do not have the full faith and credit of the U.S. Government backing them — although the assumption is that Uncle Sam will not allow Freddie or Fannie to fail.

As the housing bubble was expanding, the private sector aggressively jumped into the mortgage-lending fray with an eye toward profiting from securitizing and selling bundles of mortgage loans in the form of mortgage-backed securities — think of companies such as Countrywide Financial and Bear Stearns. A most important aspect of these mortgage-backed securities is that they are not backed by the full faith and credit of the U.S. Government. However, and this is critical, these private brands of mortgage-backed securities were created by bundling mortgage loans that were originated using the same low underwriting standards as prescribed by Uncle Sam’s socialized mortgage-credit hawkers. To compete in this arena, it was essential to drop lending standards down to the lowest common denominator. Yet, even if there were a few "old-school" credit managers expressing concern, top management — at the private firms producing these MBS products — didn’t heed such apprehensions because most of the mortgage loans weren’t being retained as they were being securitized and sold for a profit. Hence, shoddy credit underwriting became the problem of the MBS purchasers.

Old-school credit managers, undoubtedly, are still familiar with the Five Cs of credit — which will be covered in depth below. And when it comes to lending large sums of money related to home mortgages, each and every one of these "Cs" is important to the credit-underwriting process. Alas, such old-fashioned underwriting isn’t conducive to rapid-paced credit creation — beloved by the MBS peddlers — and most certainly goes against the egalitarian spirit of mortgage socialism.

In an April 8, 2005 speech, Alan Greenspan gushed about how technology has streamlined credit underwriting and made credit more accessible to all Americans. Here is what he stated at the Federal Reserve’s "Fourth Annual Community Affairs Research Conference":

As has every segment of our economy, the financial services sector has been dramatically transformed by technology. Technological advancements have significantly altered the delivery and processing of nearly every consumer financial transaction, from the most basic to the most complex. For example, information processing technology has enabled creditors to achieve significant efficiencies in collecting and assimilating the data necessary to evaluate risk and make corresponding decisions about credit pricing.

With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.

Like a true socialist (really, what else is a monetary central planner), Greenspan celebrated credit egalitarianism in this speech — in which he concluded:

As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have.

This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers.

Lately, Alan Greenspan certainly hasn’t been cheering about subprime mortgages. I wonder why not?

The Five Cs of Credit

In days long past, creditors actually underwrote their loans to such a standard that default was unlikely. Consequently, the Five Cs of credit were taken quite seriously by loan officers. The Five Cs of credit are character, capacity, capital, collateral, and conditions. What follows is a brief description of each of the Five Cs — as tailored to making personal and home-mortgage loans.

Character: This is the general impression you make on the lender. The prospective borrower’s educational background and professional experience will be reviewed, along with his credit score. It is important to manage one’s personal credit carefully. There is a strong correlation between past credit history and the propensity to take care of present and future debt obligations. Ultimately, the creditor is seeking to gauge the honesty and reliability of the borrower. In days past, a banker would have had a long-term business relationship with each customer and would have come to know each customer’s reputation within the community.

Capacity: Honesty alone does not pay the bills. Here again, educational background and professional experience enter the equation. A loan officer will look at a borrower’s current employment, job history, and skill-sets to discern stability, earnings power, and responsibility. Most certainly, the applicant’s current income and monthly expenses will be key factors considered in the loan-underwriting process. Nonetheless, just because a loan applicant may have adequate current income, to make the monthly mortgage payment, does not necessarily mean he is a good risk for a long-term loan. A spotty employment history, perhaps indicating instability and irresponsibility, certainly does not mesh well with granting a mortgage loan. If such a person is also looking to purchase a house for the first time, he may not even understand the personal and financial commitments associated with homeownership.

Capital: A personal financial statement provides a critical snapshot as to a loan applicant’s financial condition. Within the balance sheet, the individual will list assets and liabilities. After making underwriting adjustments (mostly to the valuation of assets), the applicant’s net worth can be derived by subtracting total liabilities from "as allowed" assets.

It is at this point that a lender will determine if the loan applicant has the financial strength to qualify for the loan. A few key questions will come to the underwriter’s mind. For example, is the applicant too leveraged to qualify for the mortgage loan — as indicated by a high debt-to-net-worth ratio? Does the applicant, moreover, have sufficient liquidity (e.g., cash and securities) to make a 20% down payment? After making the down payment, will there remain an adequate "rainy-day" fund for the mortgagor to survive several months of unemployment which entails supporting all household expenses and debt service?

Collateral: In home-mortgage lending, the house is the collateral. It is crucial to understand that a house, in most cases, is a non-income producing asset. A house, typically, is purchased for the utility it provides as a family’s primary shelter. The lender will maintain a security interest (i.e., a lien) in the house until the debt is fully repaid. Should the borrower fail to make the monthly payments, foreclosure and liquidation would ensue to help repay the loan.

Conditions: Lending decisions are partially based upon the conditions of the local, regional, and national economy. For instance, would you want to be originating long-term home loans to Detroit autoworkers? Some lenders may answer in the affirmative, while structuring the loans to factor in applicable economic risks, while others would deem such a proposition as too risky.

Another condition to consider pertains to the neighborhood in which a house is located. Some lenders may prefer to make home loans related to newer houses in more affluent neighborhoods. Thus, the value of the collateral is more likely to remain unimpaired. Should foreclosure come to pass, the lender may stand a better chance of fully recouping the value of the loan.

Conclusion

If a loan officer does not feel comfortable with the risk profile of a loan applicant, then it is his responsibility to say "no" to the prospective borrower. Although this may come as unwelcome news, the loan applicant eventually may realize that the loan officer kept him out of financial danger. Declining to make a poor loan, additionally, meshes with the objective of underwriting sound and profitable loans. The Five Cs of credit are invaluable when it comes to originating quality loans.

Regrettably, when the Federal Reserve targeted housing to reflate the U.S. economy with enormous doses of money and credit, America’s creeping credit socialism was given fertile ground to grow into a monstrous housing bubble. Mortgage lenders irresponsibly said "yes" to just about any borrower while Alan Greenspan cheered them on. It is no wonder why I have seen the most debt-laden, maladjusted personal financial statements in my entire career. In fact, the Federal Reserve’s data support my observations as domestic household debt has increased from approximately $2.5 trillion in 1986, to $7.7 trillion in 2001, to $12.9 trillion in 2006 (with 76% of the 2006 figure being mortgage debt). The toxic combination of mind-numbing inflation and credit socialism has crippled household finances from coast to coast. Therefore, do not believe the talking heads who claim that the mortgage mess is limited to the subprime stratum. As the housing bubble continues to implode, the financial fallout will result in nothing short of an international economic disaster. The Federal Reserve’s September 18, 2007 one-half percent cut in the fed funds rate will not do anything to head off America’s looming household-insolvency crisis.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Two hedge funds, managed by Bear Stearns, are on the verge of liquidation due to making highly leveraged bets on securities backed by subprime mortgages. Bear Stearns’ woes have investors worried that any negative developments in the credit markets will also drag down the stock market — which has become quite volatile since the bad news, from Bear Stearns, surfaced. To be sure, the ripple effects of the subprime-mortgage implosion will continue to roil the credit and stock markets. But is the subprime-mortgage bust truly large enough to drag down Wall Street, and its precious Dow Jones Industrial Average, with it? If the recent performance of General Motors’ stock is an indicator, the Working Group on Financial Markets (aka: the Plunge Protection Team) is answering this question with a resounding "yes."

As Karen De Coster and I asserted in our essay General Motors, Market Engineering, and "Confidence" Protection, the Working Group manipulates General Motors’ stock in order to prop up the Dow Jones Industrial Average so as to maintain investor confidence in the stock market, Wall Street, and the economy in general. Indeed, based upon our assertion, General Motors’ stock definitely has big shoes to fill. In light of GM’s stunning performance, during the exact period of Bear Stearns’ hedge fund catastrophes, the "General" is strutting up and down Wall Street as if he is Sasquatch…with members of the Plunge Protection Team peering from behind the curtain in delight.

This past quarter — April 1, 2007 to June 30, 2007 — has been a barnburner for GM’s stock. Through this period, the Dow Jones Industrial Average was up by 8.5% while GM was up by nearly 23%; talk about market leadership. During the trading week of June 25th, when Wall Street was really feeling the heat of Bear Stearns’ meltdown, General Motors’ stock closed the week up by 6.6%. This isn’t just leadership; no, the General is fearlessly spearheading the stock market’s charge upward. And it gets even better; for during this hard-charging week, GM’s stock hit a 52-week high which tallies up to nearly a 43% gain from its 52-week low. General Motors’ stock, most certainly, closed this last quarter with a magnificent performance that served to steady a jittery stock market.

Interestingly enough, this magical week began with an upgrade from a Wall Street brokerage powerhouse. On June 25th, Goldman Sachs analyst Robert Barry put out a "buy" recommendation on General Motors citing his rather dull insight that "GM can make a compelling case to UAW members that material wage and benefit cuts are needed…And we suspect members and retirees are increasingly amenable to such cuts." Although this won’t go down as an awe-inspiring recommendation, the reasoning is much less important than putting the prestige of Goldman Sachs’ name behind General Motors’ stock. And this is where, in my opinion, the heavy hand of the Plunge Protection Team has been exposed yet again.

So let’s connect a few important dots here. For openers, the four key members of the Plunge Protection Team (which reports directly to the President of the United States) are the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the Securities and Exchange Commission, and the Chairman of the Commodity Futures Trading Commission. Henry M. Paulson is the current Secretary of the Treasury. Before being sworn in as the Secretary of the Treasury last year, Mr. Paulson was the Chairman and Chief Executive Officer of — you guessed it — Goldman Sachs. Thus, Henry Paulson was once the aforementioned Robert Barry’s boss. In light of this, it is highly plausible that Goldman Sachs’ buy recommendation — regarding GM stock — was a political favor to help the Plunge Protection Team do damage control on Wall Street.

Now, let’s look a little deeper into the company whose common stock Robert Barry so uninspiringly recommended to American investors. Upon reviewing GM’s December 31, 2006 fiscal year-end audited financial statement, I certainly can see why Mr. Barry was so bland. To analyze General Motors’ 12/31/06 FYE financial statement is to understand that this once great company is likely heading towards bankruptcy. Here are the gruesome details:

• GM’s "as stated" net worth is negative $5.4 billion
• By fully discounting intangible assets, which includes deferred tax assets, GM’s net worth is arguably negative $48.5 billion (refer to Note 13 of GM’s 12/31/06 financial statement)
• GM’s as stated working capital is negative $3.7 billion
• By fully discounting current deferred tax assets, GM’s working capital drops to negative $14 billion
• General Motors’ total liabilities amount to a staggering $190.4 billion
• GM’s net loss, in 2006, was nearly $2 billion

In spite of the "General’s" ill financial health, Robert Barry proclaimed a 52-week target price of $42 per share. This target price was simply pulled out of thin air. Without earnings and without a tangible net worth, it is impossible to apply basic analytical tools — such as a price-to-earnings ratio and a price-to-book-value ratio — in order to derive a rational target price-per-share for General Motors’ common stock. Since most "investors" are financially illiterate, it is easy for Wall Street analysts to get away with making such absurd proclamations.

This is not to say that Robert Barry didn’t comprehend the gravity of GM’s financial condition. When Barry stated that "GM can make a compelling case to UAW members that material wage and benefit cuts are needed" he clearly understood the grim reality of General Motors’ financial situation. In essence, Barry’s "buy" recommendation is based upon the bizarre logic that although GM’s acute financial weakness may be a "strength" when bargaining for concessions from the UAW, that investors should ignore this extreme financial fragility — but the UAW should not — so go out and purchase GM stock today. After all, this company just may survive if its negotiations, with the UAW, go exceedingly well. And what if the UAW doesn’t give an inch? Heck, let’s not spoil the convincing case (wink, wink, nod, nod) made by Goldman Sachs’ star auto-industry analyst.

There is little doubt that Robert Barry "took one for the team"…the Plunge Protection Team that is. Typically, a "buy" recommendation is accompanied by exciting and positive developments regarding the company being analyzed. All Barry could muster was tortured logic intertwined into an insipid endorsement of a company teetering on failure. But the deed was done. Goldman Sachs’ endorsement, of GM, gave the Plunge Protection Team the cover it desired to continue pushing GM’s share price higher; thereby providing market leadership investors yearn for when instability is afoot.

As I see it, the intense manipulation of GM’s stock indicates that the Plunge Protection Team is frightfully worried about the damage subprime mortgages will inflict upon Wall Street. In the end, it is quite ironic that General Motors’ financial condition really isn’t substantially different relative to the financially-strapped individuals who are defaulting on the very mortgages that toppled Bear Stearns’ hedge funds.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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On April 8, 1974, Henry (Hank) Aaron broke Babe Ruth’s all-time home run record. For a twelve-year-old baseball junkie, watching this event on television was the highlight of a lifetime — even bigger than watching Neil Armstrong walk on the moon — after all, I was just a kid. Exactly four years later, another athlete named Henry entered my consciousness. On April 8, 1978, while running for Washington State University’s men’s track team, Henry Rono broke the world record in the 5,000 meters. In my hometown of Spokane, WA, which is 80 miles from WSU’s Pullman campus, this was exciting news. Henry Rono had become a local hero. And then, sadly, in a few short years he had completely fallen from grace. Yet, some 29 years after setting the aforementioned world record, personal redemption and triumph are at hand for Henry Rono.

Is it fair to mention Henry Rono in the same breath as Hank Aaron? In many respects, the answer is "yes." Both competed before steroids, human growth hormone, blood doping, and other unethical practices infected their respective sports. Hence, both Henrys took their natural talents to the outer limits of athletic excellence.

Although it is difficult to compare a distance runner to the man who hit 755 home runs (the ethical way), Henry Rono’s list of athletic accomplishments is nothing short of astonishing:

• Henry Rono is one of three men in history to win the NCAA Men’s Cross Country Championship three times; doing so in 1976, 1977, and 1979.
• 1977 NCAA indoor champion in the 3,000 meters
• 1978 NCAA steeplechase champion
• 1978 winner of gold medals in the 3,000-meter steeplechase and the 5,000 meters at the Commonwealth Games
• 1978 winner of gold medals in the 3,000-meter steeplechase and the 10,000 meters at the All-Africa Games
• During a span of 81 days, in 1978, Henry Rono set an astounding four world records:
• April 8, 1978: In Berkeley, CA, Rono runs the 5,000 meters in 13:08.4. This shaves fully 4.5 seconds off of the previous world record.
• May 13, 1978: In Seattle, WA, Rono runs the 3,000-meter steeplechase in 8:05.4 beating the world record by 2.6 seconds.
• June 11, 1978: In Vienna, Austria, Rono shatters the 10,000 meters world record by 8.1 seconds. His time was 27:22.5.
• June 27, 1978: In Oslo, Norway, Rono breaks the 3,000 meters world record by a full three seconds. His time was 7:32.1.
• 1979 NCAA steeplechase champion
• September 13, 1981: In Oslo, Norway, Henry Rono breaks the world record again in the 5,000 meters. His time was 13:06.2. He beats his own world record by 2.2 seconds.

As George Malley, a former American record holder in the steeplechase, stated: "Over the years we’ve all heard many athletes declare themselves to be u2018artists.’ Rono never claimed anything; he just ran. But if ever there was a u2018performance artist’ in our sport, it was Rono." Additionally, as Mark Zeigler of the San Diego Union Tribune put it: "Rono did it running alone out front, without challengers to push him, without pace-setting rabbits."

As Rono’s gaudy rsum took just a few years to build, Hank Aaron’s impressive rsum was built over 23 baseball seasons which includes most lifetime runs batted in (2297), most years with 30 or more home runs (15), 1477 extra-base hits, 6856 total bases, and most career home runs (755). Hank Aaron’s high level of consistency and durability is unparalleled.

Henry Rono’s final world record most certainly came the hard way. This world-class athlete had become an alcoholic as he struggled to handle his fame. In his own words: "I did well. I just didn’t know how to manage it. Maybe it was an African guy coming to the Western world for the first time — it’s hard to handle that life." In 1981, while spending time in Europe, Rono had difficulty entering races. Track officials saw an out-of-shape athlete and Henry had to plead his way into the competitions. Gradually, Rono raced himself back into shape. On September 12, 1981, he went on an all-night bender in Oslo, Norway. When he woke up on the morning of September 13th, Henry ran for an hour to sweat out the alcohol. He went back to the hotel, ate lunch and took a nap. That evening, he ran the 5,000 meters and broke the world record — the one he had set in 1978. No human growth hormone, no steroids, no blood doping; just pure talent, guts, determination, and some residual alcohol.

By 1984, Henry Rono was in a tailspin. Any opportunities to participate in the Olympics had come and gone. Kenya, regrettably, had boycotted the 1976 and the 1980 Olympics. Accordingly, while Henry was in his prime, he was denied the world-stage he so richly deserved. Yet none of this mattered much as compared to getting that next drink. And then, for the better part of two decades, Henry Rono — the Nandi tribesman from Kiptaragon village in Kenya’s Rift Valley — had become a lost soul in America.

Oh, how the mighty had fallen. Rono had gone from the world’s highest-paid track athlete to little more than a drifter. From 1986 to 1996 Henry moved from city to city. He had been in and out of a dozen rehab centers. He lived in homeless shelters in Washington, D.C. and Salt Lake City. Odd jobs were the order of the day — such as parking cars in Portland, OR and working as a skycap at the Albuquerque airport. Heck, he even pleaded for a job as a janitor at Nike’s headquarters in Beaverton, OR. His former sponsor turned him away. Talk about adding insult to injury.

In complete contrast, after retiring as a baseball player, Hank Aaron moved into the Atlanta Braves’ front office as an executive vice-president. There he became an advocate for minority hiring in baseball. He was elected to baseball’s Hall of Fame in 1982. His autobiography, I Had a Hammer, was published in 1990. In 1999, to celebrate the 25th anniversary of breaking Ruth’s record, Major League Baseball announced the Hank Aaron Award — given annually to the best overall hitter in each league. He was honored with the Presidential Medal of Freedom in 2002. To be sure, Henry Aaron is a role model.

Eleven years ago, in 1996, Henry Rono did settle in Albuquerque, NM. Better yet, for the past five years, he has been sober. This man, who did earn his bachelor’s degree from Washington State University, is now a teacher in Albuquerque’s Truman Middle School. Not surprisingly, he is also coaching track.

At age 55, Henry Rono is running competitively once again. One of his objectives is to break the world record, in the mile, for the 55—59 age group. The current record stands at 4:40.4. Another objective is to compete in the World Masters’ Championships, in Italy, this coming September. Rono’s sixth-place finish (for his age group), in Spokane’s 12k Lilac Bloomsday Run, shows that Rono is making great progress toward competing at the upper echelon of his age category. Notably, Bloomsday draws world-class runners from around the globe while also serving as a fun-run for the less serious — 50,000 participated in the 2007 race.

Today, just as Hank Aaron does, Henry Rono stands before the world as a role model. As Rono stated in a recent interview: "I want to teach the people that you can come back from the streets, and being homeless, and recover your life." Henry Rono does not duck from the tough questions reporters ask about his lost years…nor does he run from his past. Instead, he is running towards his future and setting a fine example not only for aspiring distance runners, but for anyone struggling with chemical dependency.

Presently, Hank Aaron is being hounded by the question as to whether or not he will attend the game in which Barry Bonds breaks his all-time home run record. Aaron has no intention of attending that game. Instead, Aaron implied that he’d rather go golfing than watch Bonds hit that 756th home run. Some accuse Hammerin’ Hank of running away from the issues surrounding Bonds. To the contrary, attending the game would be tantamount to giving a personal stamp of approval regarding Bonds’ unethical and dishonest approach to baseball. Aaron has taken a position of great principle and sends a strong message to all athletes and sports fans alike — the ends do not justify the means.

When Barry Bonds surpasses Hank Aaron’s home run record, I will harken back to the magical dates of April 8, 1974 and April 8, 1978. In my mind’s eye I will first see Henry Aaron’s home run trot, around the base paths, as he breaks Babe Ruth’s most famous record…and then I will see Henry Rono, running ferociously, as he begins his assault on track & field’s record books. Two men, of great natural ability and character, who took very different paths to becoming role models. When Bonds hits number 756, my response will simply be: "Go, Henry, go!"

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Recently, I received an e-mail from my favorite California winery. Within this e-mail was a newsletter covering many interesting wine-related topics. Then came the politically-correct message, from management, as to how this winery is "going green." Implicit in the winery’s announcement is that every person and every company can make a difference when it comes to protecting the environment. It also was implied that good/green corporate citizens typically attract enlightened customers who share similar values. Heck, I was beginning to wonder if I was worthy enough to buy wine from such a progressive company. My self-esteem, after all, isn’t high enough to regularly shop at Whole Foods Market — whose management states that it has "…a deep commitment to environmental stewardship that puts us at the forefront of the effort to make the planet whole and healthy." The few times I have been to a Whole Foods Market, I couldn’t help but notice the incredible wine and beer selections — and I found one of my favorite French wines there; thus I must find the courage to go back. That’s it, if I am going to confidently patronize these green businesses, then I must elevate my self-worth by doing my part to make Mother Earth whole and healthy once again. Accordingly, it is essential that I too "go green."

One way for me to go green is to reduce my "carbon footprint." Al Gore, keep in mind, has proven to us that manmade carbon dioxide is causing global warming; which is harming our precious planet. Since I refuse to give up my trusty SUV, I can still feel good about myself by decreasing my carbon footprint in other ways. This may be accomplished by minimizing my "secondary carbon footprint" which I have been told results from my purchasing habits. For example, if I go to the supermarket and buy foods that are out of season, it is obvious that such foods will have been either flown or shipped in from far away — all adding to my carbon footprint. Consequently, the following simple rules should be embraced in order to shrink one’s secondary carbon footprint — and I’m not making these up:

1. Reduce your consumption of meat
2. Don’t buy bottled water if your tap water is safe to drink
3. Buy local fruits and vegetables, or even try growing your own
4. Don’t buy fresh fruits and vegetables which are out of season, they may have been flown in
5. Try to buy products made closer to home (look out for and avoid items that are made in distant lands such as China and India)
6. Buy organic produce
7. Don’t buy over-packaged products
8. Recycle as much as possible
9. Think carefully about the type of activities you do in your spare time. Do any of these activities cause an increase in carbon emissions? e.g., patronizing saunas, health clubs, restaurants, pubs, and going go-karting, etc.

In looking over this list, I can’t help but conclude that my carbon footprint is still too large. After all, my SUV emits a lot of carbon dioxide. Maybe I should personally boycott some industries that are big-time polluters recklessly spewing carbon dioxide into our cherished atmosphere. Moreover, I will stay away from the retailers who sell such monstrous products.

So I look in the refrigerator and the answer is staring me in the face. Not a single beer or wine in my refrigerator (nor in my wine chiller) was crafted in Oregon. I see wines and beers from Australia, New Zealand, Argentina, Spain, France, California, and Washington. How brutish! Just think how far these delicious beverages have been transported by ship, plane, and truck. What nerve these retailers have. By selling me beers and wines from across the globe, I clearly possess the carbon footprint of a Sasquatch.

After getting over the shock of my yeti-like carbon footprint, it becomes imperative that I shrink this footprint by boycotting carbon dioxide-emitting industries. Sadly, a byproduct of fermentation is carbon dioxide. With annual worldwide beer production being about 38 billion gallons and with wine production being around 20 billion liters, it is inescapable that wineries and breweries are contributing mightily to global warming. After all, let’s not lose sight of the fact that wine and beer are produced through the fermentation process. Considering that annual production of wine and beer amounts to billions of gallons, then it is a heartbreaking truth that these industries are populated by pernicious, carbon dioxide-spewing ghouls. Yet, is a personal boycott strong enough action?

Suddenly, my self-esteem zooms to the stratosphere. It is the aforementioned winery and Whole Foods Market that are no longer worthy of me. They are profiting from the sales of products that cannot possibly be crafted without producing that most evil greenhouse gas — carbon dioxide. In a progressively-lucid moment, which would make Al Gore proud, it strikes me that we can help save Mother Earth — from global warming — by bringing back prohibition. Just think of the incredible reduction, in carbon dioxide emissions, that prohibition will beget. And for those winery, brewery, and other workers displaced by prohibition, the Bureau of Alcohol, Tobacco, Firearms, and Explosives will most certainly have job openings for all of them. It is so simple. Bring back the 18th Amendment and watch Mother Earth begin her healing.

Gosh it is so easy to "think" like a progressive. Merely ban something, by the force of law, and the intended result will emerge exactly as planned. Look at the success of America’s gun-free zones. How in the world did communism fail?

Of course, the next step will be to integrate alcohol prohibition into the Kyoto Protocol. Fight global warming with global prohibition!

For those anthropogenic global-warming believers, I have an early holiday season tip for you. When cooking your Thanksgiving turkey, make sure that you rub it with your favorite herbs and spices. Next, and this is crucial, completely ignore that you even have an oven (much like ignoring the sun as does your beloved global warming "science"). Instead, place the turkey onto your garage floor and then turn on your automobile…and have the necessary faith that a carbon dioxide buildup can actually cook your turkey. Personally, I’ll put mine in the oven as I am not foolish enough to completely ignore the heat source. To be sure, a fine chardonnay will accompany my Thanksgiving meal. Carbon footprint be damned.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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Emboldened by a United Nations report regarding global warming, Al Gore campaigns for and wins the 2008 presidential election under the banner of the Green Party. Mr. Gore’s key, to his landslide victory, was a campaign promise to amend the U.S. Constitution to protect Mother Earth from humanity’s depredations — this would be the 28th Amendment to the Constitution. After all, "science" has determined that global warming (which has a "high probability" of being human-caused) is going to decimate untold numbers of animal and plant species. Americans, accordingly, came to a strong consensus that political action, as guided by the "precautionary principle," was the only way to save the environment, let alone the entire planet. President-elect Gore’s election mandate has delivered a message to all 50 state legislatures that the Green Party’s proposed "Precautionary Principle Constitutional Amendment" must be ratified posthaste.

It is early 2009 and Al Gore has just taken the Presidential Oath of Office. President Gore’s first priority is to prod each state legislature into ratifying the 28th Amendment. He brushes aside critics who have declared that the Amendment will hollow out the Constitution. During a "Keynesian" moment of candor, President Gore quips: "The Bill of Rights really won’t matter if we are all dead." With Americans clamoring for environmental and human salvation, all 50 state legislatures ratify the 28th Amendment with the same rapidity, foresight, and studiousness as the U.S. Congress exercised when passing the Patriot Act.

Al Gore, and his Green Party, celebrate one of the most astonishing political victories in U.S. history. Now, Mother Earth herself will have a "voice" in domestic and world politics. The precautionary principle has become enshrined in the U.S. Constitution. The body of the 28th Amendment reads as follows:

Amendment XXVIII

Section 1: Congress shall take any necessary action in advance of scientific proof of evidence, that the environment may be harmed, on the grounds that any delay of action would be more costly to society and nature. Precaution is not simply the prevention of manifest or predicted risks that have been scientifically proven. Rather, the precautionary principle goes beyond the notion of prevention in the sense that it insists that Congress move to anticipate problems before they arise or before scientific proof of harm is established.

Section 2: The actions of human beings, corporations, and other entities shall be subject to examination of identifiable social and environmental gains or losses arising from any course of action.

Section 3: The precautionary principle shall be enforced so that the overall capacity of environmental systems will act as a buffer for human well-being. However, any error in risk calculation shall be to the advantage of the environment. This entails leaving a sufficiently wide natural cushion in the functional equilibria of natural systems. In effect, this means that humans must learn to widen the assimilative capacity of natural systems by deliberately holding back from unnecessary and environmentally unsustainable resource use on the grounds that exploitation may prove to be counterproductive, excessively costly or simply unfair to future generations. Nature’s assimilative capacity cannot always be taken for granted.

Section 4: As a matter of moral right, vulnerable and critical natural systems and entities, namely those close to thresholds, or whose existence is vital for natural regeneration, shall have equal standing to human beings.

Section 5: No real property shall be developed without the property owner demonstrating that no unreasonable harm will come to the land.

Section 6: All Congressional spending decisions must integrate environmental policy from certain and known concerns that occur in the present, to future and more uncertain issues.

Section 7: The international environmental treaty, known as the United Nations Framework Convention on Climate Change, its Kyoto Protocol, and all further updates, are hereby integrated into the Constitution.

Section 8: Any Constitutional interpretations, conflicting with this Amendment, shall be settled in favor of this Amendment.

Section 9: The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

During the ratification process, opponents of the 28th Amendment were quite vocal. Such critics advised that the proposed Amendment essentially voids the Constitution itself. Detractors argued that the unintended consequences, of giving the environment legal standing equal to humankind, will be economically and socially devastating. Additionally, the intentional vagueness of the precautionary principle will allow for arbitrary and tyrannical rule. It will be only a matter of time before chaos ensues.

In a stunning turn of events, with respect to the Section 3 of the 28th Amendment, pro-life advocates immediately seek to overturn Roe vs. Wade and, by default, make abortion illegal in the United States. Pro-life advocates assert that giving legal standing to future generations inherently makes abortion murder.

This thorny issue (abortion) has been haunting the U.S. Supreme Court for decades. The court immediately takes up the case and hears both sides of the argument. With breathtaking speed, the Justices rule 9-0 in favor of the pro-life advocates. In a brief summary of the unanimous decision, the Justices state: "In light of Sections 3, 4 and 8 of the 28th Amendment — the law of the land — an unborn child has full legal standing in the United States. Hence, abortion is murder."

Feminists and women’s rights groups, throughout the nation, express outrage at what the Green Party has wrought upon American women.

To add another unintended consequence into the mix, veterinarians are now refusing to euthanize terminally ill and infirmed animals. A cautious interpretation of the 28th Amendment reveals its biocentric nature — all entities, which naturally include animals, have equal standing to humans. Therefore, to euthanize an animal would be tantamount to murder. Pet owners, across the nation, are confused and exasperated.

Shall the police be called in to investigate the death of a goldfish?

Heartened by the newly found "rights" of animals, animal-rights activists press to have hunting and fishing banned in the United States. As a response, every state suspends the issuance of hunting and fishing licenses. Lawsuits begin to flood the state courts.

Being that the precautionary principle is inherently vague and broad, the anti-gun lobby leaps into action. Citing Section 1 of the 28th Amendment, anti-gunners mention how it is incumbent upon Congress to both "anticipate" and "prevent" problems.

With murder rates, in Washington D.C. and New Orleans, at alarming highs, anti-gunners declare that an outright ban of guns is the only solution to the "murder problem." As the anti-gun lobbyists argue, "…guns kill people." To add weight to their case, President Bush’s war in Iraq is cited as an example of the precautionary principle. Poor implementation of the war aside, Congress did agree to allow the Commander in Chief to militarily remove the Iraqi regime and then seek out and confiscate Iraq’s weapons of mass destruction. Congress determined such preemptive and precautionary military actions were necessary in order to prevent Iraqi WMDs from ever harming the American people. Based upon Congressional precedent (i.e. the precautionary war against Iraq), and now buttressed by the 28th Amendment, anti-gunners demand that the right to bear arms be immediately revoked for the sake of preventing further murders in the United States. The Supreme Court’s docket is starting to get full.

Animal-rights activists, not surprisingly, have expressed their solidarity with the anti-gun lobby.

And now, back to the present. With environmentalists playing the role of Mother Earth’s savior, welcome to the moral, intellectual, and legal quagmire that the green movement is attempting to thrust upon humanity.

If global warming is real, and I seriously doubt it, then let free-market solutions emerge instead of adopting the failed command and control systems advocated by environmentalists. The eminent Austrian economist, Dr. George Reisman, has written forcefully on this matter:

Whether global warming comes or not, it is certain that nature itself will sooner or later produce major changes in the climate. To deal with those changes and virtually all other changes arising from whatever cause, man absolutely requires individual freedom, science, and technology. In a word, he requires the industrial civilization constituted by capitalism.

This brings me back to the possibly truly good objectives that have been mixed in with environmentalism, such as the desire for greater cleanliness and health. If one wants to advocate such objectives without aiding the potential mass murderers in the environmental movement in achieving their goals, one must first of all accept unreservedly the values of human reason, science, technology, and industrial civilization, and never attack those values. They are the indispensable foundation for achieving greater cleanliness and better health and longer life.

If you do not believe green totalitarianism can take root in the United States, then I suggest that you take a look at what is happening in San Francisco. Under the guise of the precautionary principle, it has already begun.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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"Concern for man himself and his fate must always be the chief interest of all technical endeavors… In order that the creations of our mind shall be a blessing and not a curse to mankind. Never forget this in the midst of your diagrams and equations." ~ Albert Einstein

Bill Gates and Warren Buffett certainly enjoy basking in the headlines related to their joint philanthropic endeavors as undertaken by the Bill & Melinda Gates Foundation. An integral aspect of this foundation’s mission is to provide financial services to the poor including loans, insurance, wire transfers, and savings accounts. Along these lines, Muhammad Yunus and his Grameen Bank were jointly awarded the 2006 Nobel Peace Prize "…for their efforts to create economic and social development from below. Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means." Perhaps, someday, Messrs. Gates and Buffett will similarly find themselves to be Peace Prize laureates. However, all of the global economic development efforts of Muhammad Yunus, Bill Gates, and Warren Buffett may be for naught if Hugo Salinas Price and his Mexican Civic Association for Silver are not successful in bringing honest money back into circulation in Mexico; thereby, providing a model for the rest of the world to follow.

On the surface, Muhammad Yunus’ vision of creating a poverty-free world is a compelling one — yet, it is fundamentally flawed in that he is promoting indebtedness instead of savings. His idea is not to provide charity to the poor but too provide small loans so that such borrowers can start small businesses, become self-sufficient, and pull themselves out of poverty. Here are his exact words, pertaining to providing credit to the poor, from an interview with the Nobel Foundation:

People come out of poverty every day. So it’s right in front of us what happens and it can be done globally, it can be done more forcefully, we can organize more things to go with it, so this is something not theoretical…it’s a very real issue. People can change their own lives, provided they have the right kind of institutional support. They’re not asking for charity, charity is no solution to poverty…We didn’t do anything special; lend money to the people so — but they never lent it to the poor people — all we did was we lent it to the poor people, and that makes the trick. That makes the change.

Debt promotion aside, what a wonderful message the Norwegian Nobel Committee has delivered to the world. There is, indeed, a connection between entrepreneurship, business, and peace. Entrepreneurs know that violent and hateful behavior, towards customers, pave the road to business failure. Consequently, peaceful and mutually beneficial relationships naturally emerge between business and customers. By putting money in the hands of the poor (via micro-credit), Muhammad Yunus desires to plant the seeds for prosperity one person and, typically, one family at a time. Where prosperity takes root, peace is bound to grow as well.

With money being a powerful human construct, it is important to understand that a moral dimension is bound up within money. What immediately comes to mind is the following biblical quote: "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows." What many fail to grasp is that money, which emerged spontaneously via the self-interested actions of individuals, allows for specialization and the division of labor. Accordingly, today’s vast array of goods and services never could have become available, to the masses, without the prior emergence of money. Hence, money (i.e. gold and silver) has served humanity well and should be viewed as having a positive moral dimension.

Does Muhammad Yunus, as reflected by the actions of his Grameen Bank, truly understand the positive moral dimension of money? Or does Yunus view money as a useful, therefore coercive, social-engineering tool? Jeffrey Tucker, in his essay Will Microcredit Save The World?, provides a most troubling answer — as demonstrated by the following excerpt:

The repayment tactics of Yunus are very disturbing. He assembles peer groups to lean on delinquent borrowers, and makes political-mental reconstruction a condition of the loans, which nowadays are taken out in order to repay previous loans and so on. His "Sixteen Decisions" that must be adopted by all borrowers read like a party platform for collectivist regimentation.

• "We shall take part in all social activities collectively"
• "We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus."
• "We shall build and use pit-latrines."
• "If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline."

Regardless of Muhammad Yunus’ noble intentions, burdening the poor with debt and "collectivist regimentation", in the long run, is more likely to deepen the problem of poverty than to solve it.

Notwithstanding the considerable defects of Muhammad Yunus’ vision of stamping out poverty, there is an American institution working at cross-purposes to his efforts. This institution is the Federal Reserve. Straight away, the morality of this institution should be questioned as it has been bestowed, by the U.S. government, the monopoly power to create money out of thin air. Such a monopoly power is tantamount to legalized counterfeiting; which benefits the very wealthy at the expense of the middle class and the poor. Murray Rothbard provides an excellent explanation as to the depraved consequences of the Federal Reserve’s practices:

What will be the consequences? First, there will be a clear gain to the counterfeiters. They take the newly-created money and use it to buy goods and services. In the words of the famous New Yorker cartoon, showing a group of counterfeiters in sober contemplation of their handiwork: “Retail spending is about to get a needed shot in the arm.” Precisely. Local spending, indeed, does get a shot in the arm. The new money works its way, step by step, throughout the economic system. As the new money spreads, it bids prices up — as we have seen, new money can only dilute the effectiveness of each dollar. But this dilution takes time and is therefore uneven; in the meantime, some people gain and other people lose. In short, the counterfeiters and their local retailers have found their incomes increased before any rise in the prices of the things they buy. But, on the other hand, people in remote areas of the economy, who have not yet received the new money, find their buying prices rising before their incomes. Retailers at the other end of the country, for example, will suffer losses. The first receivers of the new money gain most, and at the expense of the latest receivers.

Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the first-comers and at the expense of the laggards in the race. And inflation is, in effect, a race — to see who can get the new money earliest. The latecomers — the ones stuck with the loss — are often called the “fixed income groups.” Ministers, teachers, people on salaries, lag notoriously behind other groups in acquiring the new money. Particular sufferers will be those depending on fixed money contracts — contracts made in the days before the inflationary rise in prices. Life insurance beneficiaries and annuitants, retired persons living off pensions, landlords with long term leases, bondholders and other creditors, those holding cash, all will bear the brunt of the inflation. They will be the ones who are “taxed.” (Italics in the original)

Here is a revealing article portraying how the Bank of England’s legalized counterfeiting, presently, is negatively impacting Britain’s middle class and its poor — unfolding exactly as Murray Rothbard elucidated above.

So, what is happening in the United States? Since the founding of the Federal Reserve in 1913, according to the Bureau of Labor Statistics, the U.S. dollar has lost over 95% of it purchasing power. Moreover, since President Nixon severed the dollar’s last tenuous link to gold on August 15, 1971, the dollar’s purchasing power has depreciated by 80%.

When one finally understands the immoral and pernicious tax that is inflation, is it any wonder that America’s rich are getting richer and the poor are getting poorer? Families in America, clearly, are struggling to make ends meet because the prices of goods and services are rising over time; directly due to the dollar’s depreciation brought on by the Federal Reserve’s inflationary policies. Using a little bit of logic here, doesn’t it stand to reason that it will be more difficult to climb out of poverty if the overall prices of goods and services are escalating continuously? This has international implications.

President Nixon’s August 15, 1971unilateral withdrawal, from the Bretton Woods Agreement, put the world on a purely fiat-money standard. Although Uncle Sam had essentially declared national bankruptcy, central banks across the world continued to use U.S. dollars as the reserve currency of choice — knowing full well that the link to gold had been obliterated. As long as the world’s central bankers maintained confidence in the full faith and credit of the United States, the international dollar-reserve system would remain in tact. And it has remained so.

With the discipline of gold, regrettably, having been expunged from the monetary system, the international dollar-reserve scheme has allowed for an explosion in the amount of fiat dollars created by the Federal Reserve. Alas, America’s leading export, as shown by the following table, is inflation itself. One must keep in mind that the classic, and proper, definition of inflation means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check.

To think that reserves at central banks have gone from $56 billion, in 1970, up to nearly $4.6 trillion by 2006, is incomprehensible. Today much of these reserves are merely account balances represented by nothing more than abstract digits in a computer.

Per Alan Greenspan’s November 14, 2005 speech — delivered to the Banco de Mexico — he confirmed that approximately 60% of foreign exchange reserves were held in the form of U.S. dollars and 25% in the form of Euros. Although Europe is having some success in having its particular brand of fiat money accepted internationally, the United States is still the kingpin of exporting inflation.

With the dollar being accepted around the world, as a medium of exchange, the Federal Reserve’s irresponsible inflation of its own brand of money (the dollar) has dire international ramifications. Frank Shostak provides an apt description of what Uncle Sam is doing on a global basis:

Consequently, by means of money, which was created out of “thin air,” …the counterfeiter can consume without any production. Note that the money here, which was created out of “thin air,” is not supported by any production of useful goods or services. Or we can also say that here we have a case where nothing useful is exchanged for money and money is exchanged for useful things — nothing is exchanged for something useful by means of money out of “thin air.”

He further states that:

It follows then that the diversion of real wealth from wealth generators to non-wealth generators by means of increases in the money supply is what inflation is all about. Or we can say that inflation is about the economic impoverishment of wealth producers, which is set in motion by means of inflating the stock of money.

Hugo Salinas Price is acutely aware that the United States is plundering the Earth’s wealth via exchanging dollars, created out of thin air, for tangible products manufactured worldwide. Mr. Salinas is one of Mexico’s leading businessmen and, over the past 55 years, has guided Grupo Elektra to become one of Mexico’s most successful business enterprises. He holds degrees from Wharton and ITESM as well as a law degree from the Universidad Nacional Autonoma de Mexico. Mr. Salinas, moreover, is a renowned monetary expert, in North America, and has spearheaded the movement to remonetize silver in Mexico. This is a man who has seen, first hand, how Uncle Sam’s profligate inflation can leave a country’s entire economy in shambles — this happened to Mexico in 1994.

Hugo Salinas Price’s essay, Why are the Americans Smiling?, cogently describes how the international dollar-reserve standard is little more than a wealth transfer scheme exploiting the poor and burgeoning middle classes the world over. He states the…

…U.S. has transferred its inflation, to the rest of the world, exporting it in the form of dollar reserves in Central Banks around the world.

When dollars arrive in foreign countries, the local Central Bank purchases the dollars in exchange for the local currency. More reserves equals more local currency. More currency means prices rise; as prices rise, cheap exports to the U.S. decline. The remedy: devaluation. Other countries must devalue their currencies in order to have the privilege of receiving papers from the U.S. Devaluation destroys local financial and productive systems, because in order to persuade local savers from exchanging their local currencies for dollars, interest rates, for instance in Mexican pesos, are raised. Mexico and Brazil are classic cases.

It is a curious fact that not one Nobel Prize winner has pointed out these extraordinary circumstances. The reason must be, that dollar reserves are such a gigantic tribute operation, that it is not convenient to point out these things. (Italics in the original)

Not only does this 1999 essay describe the economic carnage — caused by the Federal Reserve — in Mexico and Brazil, it is also applicable to other economic implosions during the 1990s. Think of Indonesia, South Korea, and Thailand.

As the 1990s melted away, more economic turmoil, caused by the dollar-reserve scheme, would welcome humanity into the new millennium. Argentina became another victim of America’s "gigantic tribute operation." Indeed, Argentina’s poor and middle classes would bear the brunt of the economic collapse and would suffer a financially devastating confiscatory deflation imposed by the very plutocrats who support a fiat-money system.

In his essay, What Really Killed Argentina?, Salinas skillfully exposes how the dollar-reserve standard gutted Argentina’s economy. To wit:

As most readers well know, the [Bretton Woods] Agreement was violated by President Nixon on August 15, 1971, when he "closed the gold window", and refused to continue redeeming dollars in the hands of foreign Central Banks, for gold, at any price.

With a dollar that did not have to be redeemed, as of 1971 the U.S. was free to expand credit out of nothing, and this expansion of credit resulted in conditions which led the American people to believe themselves superior in many ways, to the rest of the world.

As the years went on, credit — debt that is — kept expanding and this expansion of credit, led to more money in the hands of the public. The U.S. public proceeded to buy anything and everything the world had to offer, and send dollars in payment, to such an extent that today, dollars in the amount of some $400 billion a year, leave the U.S. to purchase goods and services, and even for the purchase of all sorts of assets all over the world.

The other side of this "exorbitant privilege" for the U.S., is a corresponding "exorbitant impoverishment" for the rest of the world.

It is essential to recognize that the U.S. trade deficit of $400 billion a year, is really a tax on the whole world, for the benefit of the U.S.

Imports are not really paid with dollars sent abroad. Imports are only actually paid with exports of goods and services. Since the U.S. has no intention of ever actually paying for present and past imports, with goods and services, and bringing back to the U.S. the immense amount of dollars sent abroad through its accumulated trade deficits, that yearly trade deficit amounts to a yearly tax on the rest of the world. The accumulated taxation extorted by the U.S., is huge…The measure of the taxation is the amount of Central Bank reserves — in dollars — which have built up enormously since 1971.

That is what really killed Argentina: U.S. taxation through the monetary system which prevails, and which allows the U.S. to buy things without paying for them.

The process of enriching the U.S. through this exaction of tribute — the correct word — is matched by a corresponding impoverishment of the rest of the world.

Five years after Salinas wrote this essay, Uncle Sam’s exaction of tribute has over doubled in size. For calendar year 2006, the United States’ trade deficit is expected to hit $866 billion.

Of course, this trade deficit mushroomed in conjunction with America’s housing bubble. As the housing bubble grew in size, courtesy of the Federal Reserve’s reckless creation of money and credit, millions of Americans borrowed against home equity to buy products manufactured the world over. Such Americans, in reality, grew poorer by going deeper into debt while Wall Street and the banking cartel cheered on while fostering a shallow American culture of debt addiction and mindless consumption. It is the very rich who truly benefit from the international dollar-reserve scheme; as they are the ones closest in proximity to the printing press.

Along these lines, Salinas has written poignantly as to the poverty and cultural rot fiat inflation (i.e. the printing press) has inflicted upon Mexico.

In cultural and human terms the use of simulated money has cost Mexico the disintegration of the institutions which have given shape to our nationality. The cultural and human stature of each Mexican has been severely reduced; we have all with no exceptions fallen into an endless race for survival. Simulated money is a merciless master who grants neither peace nor tranquility, and who imperiously and ceaselessly orders: "Work! Work! Work!" One hundred million Mexicans are submissive slaves of the system of simulated money.

Faced with a history of destruction of our culture, of our institutions and of the human dimensions of Mexicans, not to mention the impoverishment which has resulted from the devaluation of our currency, all attributable to the simulated Peso, the Central Bank remains supremely unconcerned; however, the consequences of abandoning real money in favor of simulated money are inevitable, not only for Mexico, but for the rest of the world as well, which is suffering the same destructive process. (Italics added)

There is an undeniable link between social decay and simulated money. Fiat inflation brings about economic instability, social unrest, chaos, and misery. In other words, fiat money creates social conditions completely antithetical to peace and widespread prosperity. Salinas, clearly, is profoundly aware of this.

Mexico is a poor country yet, paradoxically, rich in natural resources including a hard-working labor pool. Being a successful businessman, and a student of Austrian economics, Hugo Salinas Price understands that saving provides the foundation for capital accumulation and economic growth. As Ludwig von Mises stated:

The only source of the generation of additional capital goods is saving. If all the goods produced are consumed, no new capital comes into being.

Mises also said:

Capital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving.

With the Mexican peso, however, being nothing more than a derivative of the dollar, there is little incentive for Mexicans to save their ever-depreciating currency — inflation encourages spending not saving. Such inflation hinders Mexico’s organic growth of business and industry. Inflation, additionally, as exported by the U.S. to Mexico, makes it more difficult for individuals and families to rise out of poverty. As mentioned above, it stands to reason that it is much harder to climb out of poverty when the prices of goods and services continue to rise due to Uncle Sam’s profligate inflation.

After Mexico’s economy tanked, in late 1994, Salinas was determined to find a means to protect Mexicans from the ravages of the fiat-dollar reserve scheme. Such a means, correspondingly, would encourage Mexicans to save; thus, providing a foundation for capital accumulation, entrepreneurship, job growth, and, thereby, planting the seeds for long-term prosperity and peace. After much thought, the answer was clear: Mexico must remonetize silver. This is why Salinas founded the Mexican Civic Association for Silver. He shares his thoughts, on the matter of remonetizing silver, in his essay Silver’s Three Flags:

Silver turned into Mexican money, circulating in parallel with paper money, no matter how insignificant the importance of that small amount of silver in the nation’s economy, means that Mexicans will always remember that silver can actually be used as real, honest money. And that as the years pass, it will always be there, inviting us to use it in the most dangerous and dark times that may come.

Silver in circulation will serve to remind us that it is possible for a society to use silver and benefit from the use of real money, honest money.

Otherwise, it is possible that we may forget this, as has happened to many nations in the world.

When Mexico monetizes silver, it will become a lighthouse of hope for the world, a light that shows the way out of the swamp of slavery and perpetual impoverishment that comes with paper money.

Paper money, which is today the only kind of money in the world, ensures economic and therefore political control over the populations that use it. The planet’s banking caste that issues paper money and virtual, electronic money, threatens to become the sovereign power through the fictitious money it issues, and aspires to dominate all humanity.

The outcome of paper money is the dehumanization of the human race.

This is silver’s third and most important flag: the cause of humanity.

Hugo Salinas Price’s plan, to remonetize silver in Mexico, is straightforward and workable. In his own words, here are the three key elements of his proposal:

1. The one troy ounce pure silver coin minted by the Mexican Mint, which is currently an official coin with certain quite limited legal tender characteristics, and which is one of the "Libertad" series of silver coins, will be selected as the coin to circulate in parallel with paper (fiduciary) pesos. This coin has no nominal value engraved upon it. This is an essential characteristic of any coin that is to circulate in parallel with paper money.
2. The Mexican Central Bank will issue a daily quote on the full legal tender value of the one-ounce "Libertad" coin, expressed in fiduciary pesos. At its quoted legal tender value, the coin is good for all types of payments, without discount of any sort.
3. The Mexican Central Bank will not reduce any quoted value of the "Libertad" ounce in fiduciary pesos, in any future quote. Successive quotes may stipulate a higher value in fiduciary pesos; or, there may be no change in a quote for a period of time; but in any case, there will never be a lower quote for the "Libertad" ounce.

For further details about his plan, I highly recommend that you read his essay How to Introduce a Silver Coin into Circulation in Mexico: The Hybrid Coin.

Due to his tireless efforts, Salinas played the pivotal role in seeing to it that a bill be introduced to the Mexican Congress with regard to remonetizing silver in Mexico. He did not stand alone with respect to this undertaking:

• Governors from all 31 Mexican states sent a letter to the Ways and Means Committee, of the Mexican House of Representatives, to urge approval of legislation to remonetize silver.
• Nearly 200 Mexican journalists signed a declaration in support of the legislation.
• A poll, by the Mexican television network TV Azteca, found that 96 percent of viewers approved of the idea to remonetize the silver ounce.

In spite of such popular support, Mexico’s Congress has yet to pass legislation to remonetize silver. To be sure, by thwarting the endeavor to remonetize silver, it is obvious that the U.S. is not the only country where wealthy elites care nothing for the working classes. Those Mexicans, who support the current fiat regime, do so for personal gain that comes at the monumental expense of fellow citizens.

Due to the depredations of the global fiat-dollar reserve scheme, the longer the Mexican Congress delays passing legislation to remonetize silver, the poorer the vast majority of Mexicans will become. Let’s look at just one glaring example. Mexico is the second-leading silver mining country in the world while also being a major player in gold production. In 2005, Mexico exported over $1 billion worth of gold and silver. Internationally, with gold and silver being traded in terms of dollars, Mexicans are trading valuable precious metals for Uncle Sam’s worthless paper tickets. To literally give away national treasure can only serve to further impoverish Mexicans.

Enough is enough. As Jose Alberto Villasana Munguia, vice president of the Mexican Civic Association for Silver, has stated:

At this time, money is the most important subject upon which it behooves us to reflect. Our civilization has arrived at a crucial point and we must carry out a correct diagnosis. Money is like the blood of society and that is why we are paying the consequences of its corruption. When someone can lie with regard to money, he can lie with regard to anything. If the basic unit of account is only a fiction, then the whole structure is unstable, with the gravest consequences imaginable.

It is not possible to carry out a full reform of the monetary system. False, fiat money will break down under its own falsity, but not without causing enormous damage to humanity in a collapse of a magnitude never before witnessed.

In Mexico we have a lifesaver with the opportunity to preempt the coming financial collapse through the introduction of the "Libertad" silver ounce into the Mexican monetary system. This coin possesses a value in itself, it does not depend on dollar reserves to be worth something. Its precious metal content prevents its devaluation and its official quote, adjustable upward, guarantees that it will never leave circulation.

We must use silver as a bridge, over which we may move forward from the fictitious economy to the real economy, by applying a fiat characteristic to the stability and real existence of the precious metal.

The entire globe must come to grips with the socially destabilizing fiat-money scheme perpetrated by the world’s central banks. Ever since the dollar ceased being backed by gold, there has been a global explosion of fiat inflation and debt; which are saddling countries, families, and individuals on every corner of the Earth. Muhammad Yunus is simply extending humanity’s debt affliction to the poorest people alive. Indebtedness can be a cruel master and has been known to tear families apart. Debt should not be considered a keystone of global peace.

Hugo Salinas Price, on the other hand, is not fooled by the debt-hawking, mathematical-economics wizards populating central banks. Due to his deep understanding of Austrian economics, he comprehends that not a single one of these wizards actually knows what the "correct" interest rate should be and what the "correct" money supply is. To be sure, central bankers can wow us with complex mathematical equations, diagrams, and impressive sounding jargon; all to continue justifying the stealthy process of transferring wealth, via fiat inflation, from the world’s poor and middle classes to the very wealthy. Hence, the technical endeavor, of central banking, is not to bless mankind with stable money (i.e. gold and silver) but is to eternally curse humanity with the pernicious tax that is fiat inflation and with debt slavery — remember, under a fractional reserve banking system, money is loaned into existence. Thank heavens Salinas, and his Mexican Civic Association for Silver, have the courage, and staying power, to stand up to the powerful plutocracy in Mexico — which kowtows to America’s moneyed elites. And, thankfully, Salinas has provided a roadmap, paved in silver, to get Mexico out of the mess the Banco de Mexico and the Federal Reserve have jointly created.

Thirty-two years ago there was a lonely voice, similar to my friend Hugo’s, imploring economists to stop the madness that is fiat inflation. The following is the opening paragraph of Friedrich A. Hayek’s lecture to the memory of Alfred Nobel, delivered on December 11, 1974, titled The Pretence of Knowledge:

The particular occasion of this lecture, combined with the chief practical problem which economists have to face today, have made the choice of its topic almost inevitable. On the one hand the still recent establishment of the Nobel Memorial Prize in Economic Science marks a significant step in the process by which, in the opinion of the general public, economics has been conceded some of the dignity and prestige of the physical sciences. On the other hand, the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.

Friedrich A. Hayek is the only Austrian economist to have won the Nobel Prize in economics. Alas, his courageous words have been ignored considering that central bank fiat-money reserves have increased nearly 8,000% since he delivered his Prize Lecture. Mainstream mathematical economists, undeniably, have chosen power and prestige over humankind.

In light of the mind-numbing fiat inflation produced by central bankers, Salinas no longer believes the world can be extricated from this monumental fiat-money mess. In his own words:

I do not believe that the world’s monetary and financial system can be reformed; any attempt at reform would decimate the world’s economic activity instantly. There is no alternative: we have to let the world’s monetary and financial system proceed to its own destruction; we cannot "go back to gold".

What we must therefore strive for, as possible, is the reintroduction of silver or gold — or even both — to circulate in parallel, along with the fiat paper money we presently use everywhere. Eventually, the world fiat money system will destroy itself through its own inherent defects. Humanity has selected gold and silver as money. No other metals or objects have served humanity as well. The precious metals will never be supplanted by fiat money. The fiat money time we are living in, is an aberration in an instant in human history which will soon pass.

Just like Hayek, Salinas is willing to speak truth to power. His endeavor, to remonetize silver in Mexico, towers above politically-correct, "world-improving" concepts such as giving away billions of dollars (Gates and Buffett) and loaning money to the poor (Yunus). America has become the world’s "mouth" and it is consuming/destroying capital at an alarming rate. Each day the dollar-reserve scheme survives, the world grows poorer. A highly successful businessman, such as Salinas, could simply ignore this fact, enjoy the substantial fruits of his labor, give some money to charity, and turn his back on the plight of Mexicans. Instead, this man of considerable courage, intellect, and wealth has chosen to confront Mexico’s plutocracy at great personal risk. No stakes are higher. For if the inflationists win, Mexico will continue down its path to utter destitution and social chaos.

Conversely, if Salinas’ silver remonetization plan is adopted, this will be akin to building a bridge from economic darkness (wrought by modern central banking), to a place where saving, capital formation, and entrepreneurship will allow prosperity to emerge from the ashes of fiat money. Salinas is keenly aware that prosperity’s silver lining is peace itself. Hence, the Norwegian Nobel Committee should take great interest in Hugo Salinas Price’s body of work, and personal sacrifice, as there is no greater advocate for peace on this planet.

To award the Nobel Peace Prize, to Hugo Salinas Price, will enhance the stature of the prize itself while sending the world a resounding message that sound money is a fundamental underpinning of peace.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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On September 13, 2006, the Senate Committee on Banking, Housing, and Urban Affairs invited a panel of experts to testify on the topic of "The Housing Bubble and Its Implications for the Economy." With the housing market dramatically slowing down, there is angst amongst the plutocrats in Washington D.C. that a nightmare scenario will unfold in which millions of over-leveraged homeowners struggle to avoid foreclosure; with many eventually losing the battle. Accordingly, the bursting of the housing bubble may cause a financial calamity that will make the S&L crisis, of the early 1990s, pale in comparison. Not surprisingly, as the Washington Post reported, the aforementioned experts have concluded that the housing "…sector is just returning to normal and is not poised to crash…" Nothing could be further from the truth.

In reading over the testimony, prepared by each expert, it is clear that there is concern that some regions of the U.S. have experienced unsustainable real estate price escalations. As a result, there is a danger that homebuyers in such regions may have overpaid for houses and condos. Should a significant pullback occur, in these once-hot housing markets, homeowners will suffer the consequences of owing more money than their houses are worth (i.e. being upside down).

To compound this problem, mortgage lending has been reckless, with homebuyers commonly purchasing homes using exotic mortgages such as adjustable rate mortgages (ARM), interest only mortgages, and option ARMs. With over $3 trillion in ARMs set to adjust in the next 12 months, there is a degree of nervousness amongst these experts as to how well homeowners will weather the storm of higher monthly mortgage payments. The consensus, nonetheless, is that the slowdown in the housing market will not stop the juggernaut that is the United States’ economy — even if a higher rate of mortgage defaults materializes. Such a conclusion demonstrates that dream-interpretation is a key component of today’s mainstream economic analysis.

A glaring problem, with this expert-testimony, pertains to a complete lack of understanding as to how the housing boom emerged in the first place. A healthy boom must be engendered by an accumulation of savings. Considering that there is a negative savings rate in the U.S., America’s housing boom has been driven by easy credit as engineered by the Federal Reserve’s monetary central planning — this is why the housing boom is more properly deemed a bubble. And, of course, a credit-induced boom invariably leads to a bust. For true enlightenment, I would suggest that these panelists read The Austrian Theory of the Trade Cycle.

It is also interesting that the panelists focused on the matter of house-price appreciation and how certain states saw more of this phenomenon than others. Hence, it is commonly asserted that all housing booms are strictly "local." Panelists, predictably, expressed worries about the "overheated" housing markets in Arizona, California, Florida, Maryland, Nevada, and Virginia. Real estate speculators, indeed, did enter these markets looking to "flip" houses and condos in order to make a quick buck. This denotes, sure enough, that lenders were shoveling money out the door to all comers looking for a mortgage loan — be it speculators, permanent residents, or buyers of second homes.

It is ultra-easy credit that has driven home prices, in many locales, to stratospheric levels. And the national media reported breathlessly, ad nauseum, as to how so many people have made a financial killing in the housing market. Even if frothy housing markets were local, real estate captured imaginations from coast to coast. Accordingly, a "bubble-mentality" emerged, on a national scale, in which Americans sought to cash in on housing — one way or another. Using this perspective, and considering that mortgage lending standards dropped to near zero countrywide, I would argue that the housing bubble truly became a national phenomenon.

So how did Americans, not living in a rapidly-appreciating housing market, cash in on the craze? First of all, regardless of where one lived, the common mantra was "you’d better buy a home today before they become too expensive." Additionally, the talking heads on CNBC, and elsewhere, were cackling such nonsense as "housing is a can’t-miss investment for the long-run." Is it any wonder that homeownership hit a record in the United States? To be sure, this record homeownership is a manifestation of the housing-bubble mentality. Secondly, with the assistance of banks and other lending institutions, Americans became conditioned to believe that houses were really ATMs standing at the ready to disburse funds on command. Thus, nationwide, Americans have borrowed against home equity to pay for new cars, boats, flat-screen TVs, vacations, home remodels, you name it. Houses are not only homes, but appeared to be self-filling piggy banks.

Using these two points, I disagree with the assertion that all housing bubbles are strictly local. Most assuredly, there are cities in Florida and California where house-price appreciation was surreal. Where this assertion falls apart is that the housing boom was driven by easy credit and not accumulated savings — and easy credit has been available in all 50 states. Even if real estate speculators weren’t heading to Butte, MT or Detroit, MI looking to flip houses and condos, mortgage loans were still incredibly easy to come by for even the most unqualified of borrowers. Therefore, a low-wage first-time homeowner in Detroit (with a 0%-down adjustable rate mortgage) can incur a financially ruinous level of mortgage debt just as easily as a high-wage professional in Tampa can do so by going overboard when extravagantly remodeling a home — 100% funded by an adjustable rate home equity line of credit (HELOC).

Both Michigan and Florida, as a matter of fact, are in the top-ten list of states with the highest foreclosure rates in the United States. Interestingly enough, Florida ranked 2nd in the U.S. for house-price appreciation while Michigan ranked 51st — this information was compiled, for the one-year period ending June 30, 2006, by the Office of Federal Housing Enterprise Oversight and includes the District of Columbia.

Let’s juxtapose the top-ten foreclosure states with each one’s latest ranking in house-price appreciation — both rankings use figures compiled as of June 30, 2006:

State

2nd Quarter 2006
Foreclosure Ranking

Ranking for House Price Appreciation

Colorado

1st

45th

Georgia

2nd

37th

Texas

3rd

35th

Utah

4th

10th

Indiana

5th

49th

Nevada

6th

19th

Illinois

7th

31st

Michigan

8th

51st

Florida

9th

2nd

Ohio

10th

50th

In examining this table, it is evident that there is not (yet) a correlation between a high rate of foreclosures and a high rate of house-price appreciation. At the moment, the above-mentioned experts and the U.S. Senators seem obsessed with the danger that "bubbly" real estate markets are populated with homeowners who are over-leveraged and may be likely candidates for mortgage defaults and, correspondingly, foreclosure proceedings. Yet, what about the rest of the country?

Perhaps a better way to look at this table is to understand that trillions of dollars of mortgage loans have been originated during the past five years and that there is a national housing and mortgage-debt bubble. Consequently, even without living in a hot real estate market, people everywhere could mortgage themselves into financial trouble. With seven of the top-ten foreclosure rankings attached to states with house-price-appreciation rates in the bottom half of the rankings, it seems obvious that these households would become financially tapped out earlier in this housing/borrowing craze.

Had Colorado experienced California-like house-price appreciation, it most likely would not rank 1st in the foreclosure ranking. In such a scenario, Coloradoans would have had the "luxury" of being able to continue strip-mining ever-growing home equity and borrow more money to make ends meet — such as borrowing a large lump-sum in order to make future house payments, car payments, and grocery purchases while still having funds left over for an extravagant vacation. Alas, the borrowing binge ended all too soon, for many Coloradoans, and the debt hangovers have proven to be ruinous.

Be assured that there will be a rotation in the state-by-state foreclosure rankings. As the mortgage-debt binges come to an end in California, Hawaii, Maryland, and Oregon, count on Colorado being knocked from the top of foreclosure-ranking list. Soon, over-leveraged homeowners, in these once-hot states, will experience the pain of rising mortgage payments, declining home values, and no more home equity against which to borrow. It makes sense that most of the frothiest states will rise to the top of this shameful list later in the borrowing cycle — which was set in motion by Alan Greenspan’s panicky interest rate policy culminating in a 1% Fed Funds rate in June of 2003.

If members of the Senate Committee on Banking, Housing, and Urban Affairs had any clue, they would be investigating the criminal enterprise known as the Federal Reserve — a privately owned bank legally sanctioned to counterfeit money. Since the founding of the inflation-happy Federal Reserve, in 1913, the U.S. dollar has lost over 95% of its purchasing power. Heck, during the reign of Alan Greenspan, the dollar’s value depreciated by over 40%. In the context of the housing/borrowing bubble, the Senate Committee would deduce the following:

• Fiat inflation encourages consumption and debt accumulation while discouraging savings.
• In order to stave off a post-9/11 recession, the Federal Reserve targeted housing as a monetary transmission mechanism — generation-low interest rates saw to that.
• By targeting housing, the Federal Reserve succeeded in seeing to it that trillions of dollars were loaned into existence (via mortgage debt) and, not surprisingly, stimulating the "animal spirits" of Americans to borrow and consume as if there were no tomorrow.
• With trillions of dollars of mortgage debt coming into existence in a compressed time-frame (about 5 years), some housing markets became hotter than others while Americans, from coast to coast, found ways to tap into the mortgage-lending frenzy in order to participate in the real estate party.

After deducing these important points, one would hope that our Senators would seek out information in order to paint a financial picture of the average American household. Martin Weiss, of the Safe Money Report, has done so and discovered the following: “According to Federal Reserve data, the typical American family today has a balance of only $3,800 in cash in the bank, has no retirement account whatsoever, owes $90,000 on their mortgage, and owes $2,200 in credit card debt.” In other words, due to the Federal Reserve’s harebrained monetary central planning, typical Americans have virtually no savings and are heavily mortgaged. Intelligent Senators — if any exist — would then conclude that the present-day American economy is a debt-laden house of cards built upon the sands of fiat inflation.

Ultimately, the panel of experts completely missed the point in that the housing bubble is most certainly all about debt. Whether or not a local real estate market was hot, a record number of Americans took the real-estate-debt plunge. Houses supplanted dot.com and telecom stocks as the next surefire wealth-building "investment." Americans, now, are more deeply in debt than ever. With so little savings to fall back upon, countless American families are one paycheck away from foreclosure and financial ruin. Once again, just look at the horrifying financial profile of the typical American family.

Using the intellectual tools of Austrian economics, there is little doubt that the debt-fueled housing bubble will turn into an economic bust of epoch proportions. Perhaps when the bust becomes painful enough, a superior panel of experts will be summoned by the Senate advocating the abolition of the Federal Reserve…one can always dream…as we are on the cusp of an economic nightmare.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

~ Murray Rothbard

In my two decades as a surety bond underwriter, I have seen financial fads come and go. One aspect of my job entails analyzing personal financial statements, and I most certainly have seen scores of them. Along the way, I have been able to discern distinct patterns in the financial behavior of people. What is so striking to me is the herd-like behavior of human beings — many of whom seem to be easily swayed by the marketing blitzes of Wall Street brokerage houses, banks, and other financial services companies. As Ludwig von Mises stated in his magnum opus Human Action:

Common man does not speculate about the great problems. With regard to them he relies upon other people’s authority, he behaves as “every decent fellow must behave,” he is like a sheep in the herd. It is precisely this intellectual inertia that characterizes a man as a common man. Yet the common man does choose. He chooses to adopt traditional patterns or patterns adopted by other people because he is convinced that this procedure is best fitted to achieve his own welfare. And he is ready to change his ideology and consequently his mode of action whenever he becomes convinced that this would better serve his own interests.

Unfortunately, the common American does not understand he is being manipulated and impoverished by the Federal Reserve. When money is no longer real (i.e. fiat currency vs. gold and silver), then people may come to believe in the surreal, and a hyperreality emerges. In particular, during the reign of Alan Greenspan, money and credit — created out of thin air — rained upon Americans as if to assure us that crop failures and misfortune had been banished from U.S. soil. Hence, we came to live in a world of plenty where one may become wealthy by simply purchasing a house — with lots of borrowed money — and by "investing" in stocks for the long run. What a dream it is to become wealthy without effort. This mass delusion is only one step away from collectively believing that cotton candy is a cash crop. Alas, Americans will soon discover that housing values don’t grow to the sky and that heavy mortgage debt leads to a harvest of financial despair. The Austrian theory of the trade cycle will be validated yet again.

So here’s a quick trip down memory lane. Early in my underwriting career, cash and savings were king. Accordingly, this frame of mind was reflected in personal financial statements. As the 80s rolled on, Americans bought into the pop culture that is Wall Street. Without fail, I saw people cash in CDs and purchase mutual funds. Peter Lynch, indeed, popularized such "investment" vehicles for long-term wealth creation. Then John Bogle flaunted the low-expense-ratio S&P 500 Index Fund as the wisest way to build a substantial retirement nest egg. And who can forget the dot.com and telecom crazes of the late 90s? Americans envisioned themselves retiring to Easy Street based upon owning shares of Amazon.com and Global Crossing. Lastly, let’s not forget the Wall Street darling known as Enron. This company’s common stock was going to make each of its shareholders wealthy. So why aren’t Americans taking early retirement, en masse, to lives of luxury? Where is all the wealth promised by Wall Street?

To date, I can’t say that I have seen a single individual become wealthy by investing in the "products" promoted by Wall Street. From the results I have witnessed, Wall Street preys upon the economic illiteracy of Americans and does a most efficient job of transferring wealth from the masses to the bank accounts of the Wall Street — mostly Ivy League — elites. Over the years, a familiar pattern has emerged: Wall Street brokerage houses make their recommendations, the sheeple get fleeced, and I bear witness to a clustering of human financial error as reflected in the personal financial statements that I survey daily. For the most part, such financial errors have not been devastating, but were merely temporary misadventures on the part of misguided individuals.

As a quick aside, yes, I have seen some individuals become wealthy. Yet such wealth emerged by way of starting up and maintaining successful businesses. Such entrepreneurs, typically, maintain strong personal liquidity and keep debt loads at reasonable levels.

Nothing, however, could have prepared me for the horrors I have witnessed the past few years. Because of the housing bubble, as engineered by the Federal Reserve, Americans are now drowning in mortgage debt while navely believing that living in a house is the path to wealth creation via long-term capital appreciation. Thus I am just going to come out and say it: countless American homeowners are already insolvent and simply don’t know it; and many of them continue to make ends meet by borrowing against credit cards and ever-shrinking home equity.

It is commonplace for me to see married couples with mortgage-debt-to-income ratios that are wildly askew. The hyperreality conjured by the Federal Reserve’s relentless inflation of the money supply is characterized by a populace which believes that a permanent plateau of prosperity has been attained. This is the boom phase of the trade cycle. A mindset, correspondingly, arises in which people have absolutely no fear of debt. After all, the Federal Reserve has the economy under control. Debt, in fact, is embraced as a means to lever up one’s return on investment.

When the bust phase of the trade cycle materializes — and followers of Austrian economics know it will, eventually — then the real horror show will unfold. Let’s face it: highly leveraged Americans have little to no chance of ever paying back their enormous mortgage debts. All it will take is for a husband or a wife to lose a job, or for interest rates to go higher, in order for mortgage debt to become unmanageable. In the bust phase, mortgage defaults will become a deluge.

Earlier, I mentioned that the Federal Reserve "engineered" America’s housing bubble. To be sure, there are those who deny a housing bubble exists. Hence, such deniers argue there is no correlation between aggressive growth in M3 and the spectacular rise in housing prices across the United States — as if the Federal Reserve’s pounding down of interest rates occurred in a vacuum. To this I respond with a quote from page 1 of a September 2005 study sponsored by the Board of Governors of the Federal Reserve System titled House Prices and Monetary Policy: A Cross-Country Study. Here is the smoking-gun quote: "Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission."

With the bursting of the NASDAQ bubble signaling that the U.S. was heading into a recession — not to mention the shock of 9/11 — the Federal Reserve took desperate measures by goosing the money supply and driving the Fed Funds rate down to 1%. These monetary central planners knew that housing demand was very much interest rate sensitive, and they were counting upon the opiate of easy credit, at remarkably low interest rates, to stimulate the "animal spirits" of Americans in order to set the housing market ablaze. The Federal Reserve’s central plan worked. Uncle Sam’s economy was rekindled as trillions of dollars were loaned into existence via the housing market — the Fed’s monetary transmission mechanism. Therefore, America’s housing bubble did not emerge spontaneously in a bona fide manner. Rather, it is a debt-laden financial monster created by the mad doctors populating the Federal Reserve.

As surely as night follows day, a credit-induced boom is followed by a bust. Moreover, only the Austrian theory of the trade cycle provides the intellectual framework allowing one to understand the boom-bust cycle. Before delving a bit further into this theory, there are a couple of things to keep in mind. First of all, as premeditated by the Federal Reserve, the housing boom was credit-induced. Secondly, America’s savings rate is near zero, so savings-induced growth cannot explain the housing boom. What we will find, as elucidated by Roger Garrison, is that central banking is at the epicenter of the boom-bust cycle. Dr. Garrison provides the following explanation in the Mises Institute’s remarkable book The Austrian Theory of the Trade Cycle:

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy’s capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.

Assuredly, the housing boom is destined to bust just as the NASDAQ bubble did — anecdotal evidence is already pointing toward this end. When the NASDAQ bubble did burst, I saw the liquidity of many Americans diminish significantly. Yet the housing bubble is vastly different and the financial pattern is unmistakable. Trillions of dollars of mortgage debt came into existence in a very compressed timeframe — in less than five years. Consequently, over the last three years, I have never seen so many dangerously-leveraged personal financial statements in my entire underwriting career.

This mortgage-debt bubble, as engendered by the Federal Reserve, is leading millions of Americans to financial ruin. This may become the most calamitous clustering of financial error in U.S. history. If anything positive comes out of this economic mess, perhaps it will be the demise of the Federal Reserve itself. Regrettably, the Fed’s failure will have come at an enormous price, including the possibility of volatile social unrest.

A terrifying thought it is.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

Although there are many lame excuses as to why this law is still in force, anyone with half-a-brain understands that it is a make-work law forcing gas station owners to hire the barely-employable or those who are just breaking into the work force. And these pump-jockeys, as far as Oregon’s lawmakers are concerned, keep us idiot-citizens from harming ourselves, others, and mother nature herself. Indeed, you may detect a bit of an edge to this essay and I’ll explain why soon. However, my primary objective is to propose dozens of new laws — which are currently in force within various locales in the United States — that will transform the State of Oregon into a paradise for Boobus Americanus. For Oregonians, as reflected in this state’s left-wing voting pattern, yearn for assistance, guidance, and prodding from our beloved nanny-state.

In 1951, when the Oregon legislature made it illegal to pump gasoline into one’s own automobile, it was believed that foolish individuals would mishandle gasoline and cause severe accidents — at least that’s the story Oregon legislators fed to the public back then. Over the years, it has become clear that this fear was misplaced as people the world over have managed to fuel up their own automobiles without incinerating themselves or their cars — to be sure, a one-in-a-billion accident occurs now and then, but nothing in life is absolutely safe. In spite of overwhelming evidence to the contrary, Oregon’s state officials continue to back the self-serve ban for baseless reasons (shown below) that reveal the intellectual horsepower of these do-gooder fascists:

• Oregon’s Department of Environmental Quality supports the ban on self-service gasoline due to inexperienced pumpers being a significant source of groundwater and air pollution.
• Oregon’s state fire marshall supports the ban on self-service gasoline due to the possibility of having one incinerate himself, his car, and/or others.
• Law enforcement officials support the law as it prevents gasoline thefts called "drive-offs."
• In states besides Oregon and New Jersey (which also has a no-self-serve law), many gas station owners ignore the requirements outlined in the Americans with Disabilities Act (ADA) as they do not provide a full-service option for disabled drivers, nor provide those services at self-service rates. Hence, disabled drivers in Oregon benefit from the self-serve ban.

It is a wonder that airplane travel hasn’t been banned in Oregon. Just think of it, worldwide more people are killed each year in airplane crashes than in self-service gas station mishaps. When a plane crashes, a forest fire may ensue — thereby killing hundreds of innocent trees. To make things worse, a plane that crashes may leak fuel and pollute the ground water…and don’t get me started on airplane exhaust emissions with all that flying around and spreading of greenhouse gases. Additionally, when was the last time you saw a pilot in a wheelchair or with a white cane? Airplane cockpits, obviously, haven’t yet been made ADA compliant. Yes, the time has come to ban airplane travel in Oregon for it is much too dangerous and unfair to the differently-abled.

You may ask what got me started on this rant. During one of my recent trips to a gas station, the pump-jockey was a bit overwhelmed by the fact that six cars arrived at nearly the same time seeking to purchase fuel. This well-tattooed, pierced, pasty-skinned, and emaciated attendant (all the hallmarks of a meth addict) was hustling around attempting to service each car as rapidly as possible. In this man’s haste, he failed to securely close my SUV’s gas cap once my gas tank had been filled. This may not sound like a big deal, but it was.

After a few days of regular commuting, something happened that caused my heart to race, my palms to sweat, and my head to swim. As I was driving home from work, the SERVICE ENGINE SOON malfunction-indicator light flashed on and stayed on. The first thought that came to mind was to pull over and look under the hood. However, the word SOON comforted me enough to finish my commute home — where I would immediately seek information in my SUV’s owner’s manual. All the while, I am worried that a huge auto repair bill is looming in the near future. To say the least, I was not in a happy state of mind.

As I read about the aforementioned malfunction indicator, I was pleased to read the following passage: "Although your vehicle will usually be drivable and not need towing, have the system checked as soon as possible." Thus, I drove home safely. As I continued reading, unfortunately, my concern grew deeper. Then I reached the last paragraph and made a surprising discovery — this is the exact verbiage from the owner’s manual:

If the fuel tank filler tube cap is not securely closed, the light may come on. Make sure you tighten this cap every time you add fuel. (Turn the fuel tank filler tube cap clockwise until you hear clicking sounds.)

After reading this passage, I hustled over to my car and checked the gas cap. It was not securely closed! That meth-head, pump-jockey failed to complete this simple task. Without delay, I turned the gas cap until I heard clicking sounds and was confident that I had discovered and solved the problem. Indeed, after a couple days of commuting to and from work, this indicator light turned off and has stayed off ever since. Problem, brought about by an imbecilic Oregon law, solved.

Perhaps I’m being a bit hard on Oregon’s lawmakers and state officials. For if I had been wearing a blindfold while driving, I would have never seen the warning indicator that brought me so much stress…and what if there really was a serious problem? Or worse yet, what if a moose had been pushed out of an airplane and landed in front of my SUV while I was driving blindfolded? My reckless use of blindfolds might have caused me to hit a skydiving moose with my SUV. Ah, but now I would have roadkill that could be taken home to eat for dinner. Uh oh, suddenly I am hit with nagging questions as to the legality of driving blindfolded and eating roadkill. Even more importantly, what if my blindfold happened to be red? Would this make the matter more serious for me? Thankfully, we have laws (throughout the U.S.) which Oregon’s legislators can adopt in order to bring better clarity, order, and security to me and all of my fellow Oregonians. Therefore, I move that the Oregon State Legislature immediately adopt every one of the following laws — and I’m not making these up:

• Alabama — it is illegal for a driver to be blindfolded while operating a vehicle.
• Alaska — it is considered an offense to push a live moose out of a moving airplane.
• Arizona — any misdemeanor committed while wearing a red mask is considered a felony.
• Arizona — when being attacked by a criminal or burglar, you may only protect yourself with the same weapon that the other person possesses.
• Augusta, Maine — to stroll down the street playing a violin is against the law.
• Baltimore, Maryland — it is illegal to take a lion to the movies.
• Baltimore, Maryland — it is a violation of city code to sell chicks or ducklings to a minor within one week of the Easter holiday.
• Barber, North Carolina — fights between cats and dogs are prohibited.
• Bexley, Ohio — the installation and usage of slot machines in outhouses is prohibited.
• Boise, Idaho — residents may not fish from a giraffe’s back.
• Chicago, Illinois — it is forbidden to eat in a place that is on fire.
• Chico, California — detonating a nuclear device within the city limits results in a $500 fine.
• Everett, Washington — it is illegal to display a hypnotized or allegedly hypnotized person in a store window.
• Fargo, North Dakota — one may be jailed for wearing a hat while dancing, or even for wearing a hat to a function where dancing is taking place.
• Georgia — it is illegal to use profanity in front of a dead body which lies in a funeral home or in a coroner’s office.
• Klamath Falls, Oregon — it is illegal to walk down a sidewalk and knock a snakes head off with your cane.
• La Crosse, Wisconsin — you may not worry a squirrel.
• Memphis, Tennessee — it is illegal to give any pie to fellow diners. It is also illegal to take unfinished pie home. All pie must be eaten on the premises.
• Milwaukee, Wisconsin — it is against the law to play a flute and drums on the streets to attract attention.
• Minnesota — a person may not cross state lines with a duck atop his head.
• Montana — it is illegal to have a sheep in the cab of your truck without a chaperone.
• Nebraska — it is illegal for bar owners to sell beer unless they are simultaneously brewing a kettle of soup.
• New Hampshire — you cannot sell the clothes you are wearing to pay off a gambling debt.
• Oklahoma — it is illegal to have the hind legs of farm animals in your boots.
• Pennsylvania — ministers are forbidden from performing marriages when either the bride or groom is drunk.
• Rhode Island — any marriage where either of the parties is an idiot or lunatic is null and void.
• San Francisco, California — it is illegal to pile horse manure more than six feet high on a street corner.
• Seattle, Washington — you may not carry a concealed weapon that is over six feet in length.
• Tennessee — driving is not to be done while asleep.
• Trout Creek, Utah — pharmacists may not sell gunpowder to cure headaches.
• Vermont — women must obtain written permission from their husbands to wear false teeth.
• Washington — it is mandatory for a motorist with criminal intentions to stop at the city limits and telephone the chief of police as he is entering the town.
• West Virginia — roadkill may be taken home for supper.
• Wilbur, Washington — you may not ride an ugly horse.

Upon Oregon’s adoption of the Rhode Island law in which "any marriage where either of the parties is an idiot or lunatic is null and void" then every Oregon legislator’s marriage will be summarily nullified. If we do, via referendum, make it illegal for a legislator to live in sin (with the penalty of deportation), we’ll soon be rid of these busybody-buffoons. Now we’re talking paradise…

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

Palladium is predominantly mined in Canada, Russia, South Africa, and the United States (Montana). To give you an idea of how rare this metal is, about 6.8 million ounces of palladium were mined in 2004. This compares to 79.2 million ounces of gold and 620 million ounces of silver mined in the same year. Platinum is slightly rarer with 6.4 million ounces produced in 2004.

Before delving further into palladium, I would be remiss not to mention a bullish contrarian indicator as to why precious metals are in the early stages of a bull market. As a surety bond underwriter, I analyze hundreds of personal financial statements every year. Bar none, real estate is where most people are "investing" their money. Equities (i.e. publicly traded stocks) come in a distant second place. Cash and bonds, of course, commonly occupy the asset side of a personal balance sheet as well. When it comes to precious metals, however, this asset class is completely off the radar screen. Maybe one in every two hundred personal financial statements will list precious metals (mostly gold and silver) as an asset. So when you hear the talking heads say "gold and silver have had a nice run but the party is over" don’t believe it. When the common man comes to realize that the Federal Reserve is debasing the dollar at breakneck speed, he is going to jump into precious metals with a vengeance. This is when the real fireworks will begin. We’re not even close to this point yet and that’s why I’m bullish on precious metals.

Palladium’s Uses

Much like silver, palladium is a precious metal whose demand is derived chiefly from industrial users. It is a versatile metal, which is ductile and is resistant to both oxidation and high temperature corrosion. Here is a list of notable applications:

• Automobile Catalytic Converters: Palladium is used as a primary component in autocatalysts that reduce vehicle exhausts emissions of hydro-carbons, carbon monoxide, oxides of nitrogen, and particulate. Autocatalysts convert most of these emissions into less harmful carbon dioxide, nitrogen, and water vapor.

• Dentistry: Palladium-based alloys are used in dentistry for dental crowns and bridges. This noble metal is compatible with human tissue.

• Electronics: Palladium has a number of electronic applications. For example, palladium’s chemical stability and electrical conductivity make it an effective and durable alternative to gold for plating in electronic components.

• Fine Instruments: Palladium is used in the manufacturing of fine instruments such as watches and some surgical instruments.

• Jewelry: Palladium is lighter than platinum having about the same density as silver. In jewelry, it is principally used as an alloy with platinum to optimize platinum’s working characteristics and wear properties. However, due to platinum’s current high price, palladium is gaining popularity as a primary metal in jewelry — especially in China. It is also used as an alloy to make white gold.

• Manufacturing and refining: Palladium is an important part of the refining of nitric acid, and plays a significant role in the production of synthetic rubber and nylon. It is a critical catalyst in the manufacture of polyester and serves important functions in catalytic reactions that are used in various stages of petroleum refining.

• Photography: Palladium is used in an historic photographic printing process that is considered to be superior to conventional silver in tonal quality and archival longevity.

Headline-Grabbing News

On March 23, 1989, palladium became an integral part of headline news around the world. For on this date, at a news conference, Stanley Pons and Martin Fleischmann (both of the University of Utah) reported experimental results in which energy was generated via a "cold fusion" process. Thermonuclear reactions occur when temperatures are in the millions of degrees Celsius. To bring about nuclear fusion, using a simple table-top apparatus, was stunning news. Pons and Fleischmann’s apparatus essentially consisted of an electrolysis cell containing heavy water (dideuterium oxide) and a palladium cathode which rapidly absorbed the deuterium produced during electrolysis. What Pons and Fleischmann found was that the device’s energy output exceeded the energy input. In other words, they had discovered a process to bring about nuclear fusion at room temperature — or so they believed.

Palladium was the key component in this experiment. Fleischmann and Pons hypothesized that palladium may catalyze fusion due to this noble metal’s special ability to absorb large quantities of hydrogen (including its deuterium isotope). Similar experiments, conducted soon thereafter, produced disappointing results. Hence, a Department of Energy panel concluded: "Nuclear fusion at room temperature, of the type discussed in this report, would be contrary to all understanding gained of nuclear reactions in the last half century; it would require the invention of an entirely new nuclear process."

Alas, palladium had its day in the sun as a "miracle" metal that could safely bring us nuclear energy at a very low cost. For those who still believe, keep in mind that unexplained experimental results do not mean that Pons and Fleischmann’s experiment was wrong. Superconductivity, after all, was first observed in 1911 and explained theoretically decades later in 1957. There is mounting evidence that Pons and Fleischmann were on to something big.

In January of 2002, Ford Motor Company made business headlines by announcing a staggering net loss of $5.5 billion for fiscal-year 2001. What is so startling here pertains to the fact that $1 billion of this loss was related to Ford Motor Company’s panic-buying of palladium — which, as mentioned above, is used in automobile catalytic converters. Due to supply problems emanating from Russia, the price of palladium spiked to over $1,000 an ounce. Instead of switching back to using platinum as the catalyst metal, Ford stockpiled massive amounts of palladium at near-peak prices. As demand for palladium dropped and Russian supplies began coming back onto the market, the price of palladium plunged to about $400 an ounce. Ford Motor Company, consequently, had to mark down the value of its palladium inventory by the aforementioned $1 billion; thus writing another embarrassing chapter of American automotive history.

Hydrogen Fuel Cells and Palladium

A fuel cell operates very much like a battery given that it produces power in the form of electricity. Unlike a battery, it does not run down or need recharging because it produces energy as long as fuel is supplied to it. Hydrogen-rich fuels, that have been successfully utilized, include biodiesel, diesel, ethanol, kerosene, methane, methanol, natural gas, propane, and others. If fuel cell technology becomes commercially viable, then the internal combustion engine will be replaced by fuel cells and the global dependence on petroleum — as an energy source — will diminish markedly.

So how does a fuel cell work? Hydrogen fuel is fed into the anode of the fuel cell. Oxygen (or air) enters the fuel cell through the cathode. Encouraged by a catalyst, the hydrogen atom splits into a proton and an electron, which take different paths to the cathode. The proton passes through the electrolyte. The electrons create a separate current that can be utilized before they return to the cathode, to be reunited with the hydrogen and oxygen forming a molecule of water. Indeed, the main emission from the fuel cell is water vapor (which, by the way, is a greenhouse gas — this is something you won’t hear from environmentalists).

Fuel cells perform best when the hydrogen fuel is free of impurities. This is where palladium shines. Using a palladium membrane hydrogen purifier, pressurized hydrogen is diffused across the palladium membrane — keep in mind that only hydrogen possesses the ability to diffuse through palladium. As hydrogen passes through the palladium membrane, hydrogen loses its electron to the palladium structure and diffuses through the membrane as an ion (or proton). At the exit surface, the reverse process occurs. Therefore, the process can be described as follows: (1) adsorption, (2) dissociation, (3) ionization, (4) diffusion, (5) reassociation, (6) desorption. Once the hydrogen gas passes through the palladium membrane, an ultra-pure hydrogen gas may be fed into the fuel cell — thus preventing the anode catalyst, in the fuel cell, from being poisoned by trace impurities. There are fuel cell manufacturers using palladium for this exact purpose.

Another possible use for palladium, associated with hydrogen fuel cells, concerns hydrogen storage. At room temperature and atmospheric pressure, palladium can absorb up to 900 times of its own volume of hydrogen. One way to envision this is to imagine a sponge soaking up hundreds of buckets of water. From a safety standpoint, it may be more desirable to store hydrogen in a palladium bed (at room temperature and atmospheric pressure) than storing an equal volume of hydrogen in a highly pressurized tank.

Fuel cell power systems are already in use. They are being employed in hospitals, hotels, nursing homes, office buildings, schools, utility power plants, and an airport terminal — either providing primary or backup power. Likewise, they are being used as primary and backup power sources in homes. It is also quite exciting that DaimlerChrysler, Ford, General Motors, Honda, Nissan, and Toyota each have working fuel cell powered cars. Optimists claim that fuel cell powered cars might be commercially available by 2010.

Conclusion

As fuel cell technology progresses, the day may come where we are weaned off of our petroleum dependence. In turn, conceivably, a more peaceful world will emerge. And with palladium’s future intertwined with the fuel cell, maybe we can make a buck or two by purchasing a few ounces of this hard-working precious metal. At $273 an ounce, palladium may be a bargain today.

For your information, I do eat my own cooking. Here are pictures of one of my recent purchases.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

So what was the question posed, via the prescribed e-mail link, to the PBGC? First of all, I provided pertinent information such as my name, home address, and case number. Then I followed with this question: "Do I qualify for a lump-sum payout?" If the answer is "yes" then please provide details. If the answer is "no," then please explain why not. My expectation, navely, was to have an answer within a few days — not four months! More about this later.

Some Background Information

On June 11, 2001, Reliance Group Holdings declared Chapter 11 Bankruptcy. It was a poorly run holding company and was deservedly liquidated — the marketplace had spoken. Having worked at Reliance Surety Company for nine years (1984—1993), I was keenly interested as to whether or not the Pension Benefit Guaranty Corporation would take over Reliance’s employee retirement plan. Due to my years of service, I had become vested in this retirement plan and would receive a few hundred dollars per month in retirement income. Effective February 28, 2002, the PBGC assumed Reliance’s pension liabilities; and I surmised that my small, yet noteworthy, monthly income would be secure. Never fear, as I was now one of those workers whose benefits were "protected" by an act of Congress — as described in the PBGC’s own words:

The Pension Benefit Guaranty Corporation (PBGC) is mandated under Title IV of the Employment Retirement Income Security Act of 1974 (ERISA) to insure, under statutory limits, participants in covered defined benefit pension plans in the United States. As of September 30, 2005, the PBGC covered 44.1 million workers in over 30,000 active plans and was directly responsible for the future benefits of 1.3 million active and retired workers whose plans had failed. The PBGC receives no taxpayer monies and its obligations are not backed by the full faith and credit of the United States Government. (Emphasis added)

But not so fast. According to the PBGC’s 2004 Annual Report, this safety-net agency had a deficit net worth of $23 billion. Even Forbes Magazine is asking Who Will Bail Out The Bailer? Considering the financial woes at General Motors, Ford, and the major airlines, it is certain that the PBGC’s deficit position will only grow worse over time. By the PBGC’s own calculations, the retirement plans "insured" by it were under-funded by $450 billion. In my opinion, the PBGC will either be allowed to fail in its mission or it will be bailed out by America’s taxpayers. So much for the idea that my Reliance pension was made "secure" by Uncle Sam.

Back to the Maddening yet Comical Experience

In August of 2005, a friend who had also worked at Reliance Surety Company informed me that he received a lump-sum payout from the PBGC. Having researched the PBGC’s financial condition — which, as mentioned above, is terrible — and knowing that the Federal Reserve will continue to debase the dollar, I decided to contact the PBGC to find out if I qualified for a lump-sum payout as well. What follows is a summarized version of the exasperating exchange between the PBGC and me:

Me:
August 2005 e-mail to the PBGC: "Gentlemen, do I qualify for a lump-sum payout of my Straight Life Annuity?"

PBGC:
No response one month later.

Me:
September 2005 e-mail: "Gentlemen, I have not yet heard back from you as to whether or not I qualify for a lump-sum payout of my Straight Life Annuity. I look forward to your response."

PBGC:
November 8, 2005 memo stating that the attached Benefits Determination Letter will explain what my benefits are. Unfortunately, no letter was attached.

PBGC:
Letter, mysteriously dated September 24, 2004, arrives. This letter informs me that I am entitled to a monthly Straight Life Annuity of $X per month beginning 3/1/27. My simple yes-or-no question remains unanswered.

Me:
November 13, 2005 letter mailed to the PBGC — and these are my exact words: "I am writing to get clarification as to my PBGC benefits. The question I asked pertains to whether or not I can receive a lump-sum distribution (today) instead of waiting until March 1, 2027 to receive my benefits."

PBGC:
Message left on my home phone’s answering machine on December 23, 2005: "Mr. Englund, you do not qualify for a lump-sum distribution."

Good grief! It took four months to get a simple yes-or-no answer. To make this experience all the more surreal, the PBGC has the audacity to state the following in its 2004 Annual Report: "Nothing is more important to PBGC than providing the highest quality service to its customers. The Corporation has an intense focus on meeting the needs and expectations of its customers while carrying out its statutory missions." Most certainly, without the profit-and-loss test of the free market, the PBGC and all public bureaucracies will fail miserably in "customer" service let alone financial management. Could you imagine if Amazon.com took four months to send you a readily available book? It would already be out of business.

And to think I just had a conversation, at the gym, with a gentleman who advocates socialized medicine. Perhaps a run-in with the IRS, PBGC, or any other public bureaucracy would change his mind? I doubt it, as socialists believe any bureaucracy can operate swimmingly with the "right man" in charge. To be sure, this is pure fantasy. Hence, here is another dose of wisdom from Ludwig von Mises’ book Bureaucracy:

The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!

Against all this frenzy of agitation there is but one weapon available: reason. Just common sense is needed to prevent man from falling prey to illusory fantasies and empty catchwords.

Reason and common sense are nowhere to be found at the PBGC. My mistake was to have any such expectations in the first place.

Ultimately, I would like to see the PBGC and each if its bureaucratic brethren dry up and blow away. It is my responsibility to save for my own retirement. Thus, a more serious mistake would be to plan on receiving retirement income via Uncle Sam’s nutty wealth redistribution schemes — as administered by bungling bureaucracies such as the PBGC and the Social Security Administration. With the federal government’s unfunded liabilities amounting to $50 trillion (and growing), reason and common sense tell me that I had better take care of myself both physically and financially. To depend on the kindness of bureaucratic strangers would be utterly foolish.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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