Here’s a great post I found by way of The Daily Paul.

For the past few days, I’ve received loads of emails urging me to get active regarding the healthcare vote – most of which had a subject line similar to: “Last Chance to Stop National Healthcare!”

Well, if you believe the only way to protect your rights is by begging federal politicians to do what you want, then these emails are certainly right. The vote went as expected, and so will the next.

So if you think marching on D.C. or calling your Representatives, or threating to “throw the bums out” in 2010 or 2012 or 20-whatever, is going to further the cause of the Constitution and your liberty – you might as well get your shackles on now. Your last chance has come and gone.

But, those of you who visit this site regularly already know that the Senate’s health care vote is far from the end of things – and you also know that even when it goes into effect (which I assume some version will), it’s still not the end of the road for your freedom.

The real way to resist DC is not by begging politicians and judges in Washington to allow us to exercise our rights…it’s to exercise our rights whether they want to give us “permission” to or not.

Nullification – state-level resistance to unconstitutional federal laws – is the way forward.

When a state ‘nullifies’ a federal law, it is proclaiming that the law in question is void and inoperative, or ‘non-effective,’ within the boundaries of that state; or, in other words, not a law as far as that state is concerned.

It’s peaceful, effective, and has a long history in the American tradition. It’s been invoked in support of free speech, in opposition to war and fugitive slave laws, and more. Read more on this history here.

Regarding nullification and health care, there’s already a growing movement right now. Led by Arizona, voters in a number of states may get a chance to approve State Constitutional Amendments in 2010 that would effectively ban national health care in their states. Our sources here at the Tenth Amendment Center indicate to us that we should expect to see 20-25 states consider such legislation in 2010.

20 States resisting DC can do what calling, marching, yelling, faxing, and emailing has almost never done. Stop the feds dead in their tracks.

For example, 13 states are already defying federal marijuana prohibition, and the federal government is having such a hard time dealing with it that the Obama administration recently announced that they would no longer prioritize enforcement in states that have medical marijuana laws.

Better yet, in the last 2+ years more than 20 states have been able to effectively prevent the Real ID Act of 2005 from being implemented. How did they do that? They passed laws and resolutions refusing to comply with it. And today, it’s effectively null and void without ever being repealed by Congress or challenged in court.

While the Obama administration would like to revive it under a different name, the reality is still there – with massive state-level resistance, the federal government can be pushed back inside its constitutional box. Issue by issue, law by law, the best way to change the federal government is by resisting it on a state level.

That’s nullification at work.

Over the years, wise men and women warned us that the Constitution would never enforce itself. The time is long overdue for people to start recognizing this fact, and bring that enforcement closer to home.

The bottom line? If you want to make real change; if you want to really do something for liberty and for the Constitution…focus on local activism and your state governments.

Thomas Jefferson would be proud!

via Health Care Nullification: Things have just gotten underway | Tenth Amendment Center.

In the Wall Street Journal today, Alan Blinder, talks up the economy and show’s his optimism (naivete) of things to come.

By ALAN S. BLINDER

The U.S. economy is digging itself out of a deep hole. You have probably heard a lot of doom and gloom lately, including talk of a jobless recovery, an L-shaped recovery (which means no recovery at all), or even a W—the feared double-dip recession. The Scrooges have a point: There are serious dangers to the nascent recovery. But you’ve heard all that many times. Let me offer instead, in deliberately one-sided fashion, the case for optimism. It is, after all, the holiday season.

The case begins with the “slingshot effect” I wrote about on this page last summer (“The Economy Has Hit Bottom,” July 24, 2009). When the growth rate of any component of GDP rises, it gives overall GDP growth a boost. And going from sharply negative growth to zero is a notable rise. In July, the slingshot scenario was hypothetical—though likely. In today’s economy, it’s a real phenomenon.

During the first half of this year, the investment component of GDP declined at a stunning 38% annual rate. Since the investment share of GDP was then about 14%, this implosion accounted for minus 5.4 percentage points of GDP growth. But since overall GDP declined “only” 3.6% in those two quarters, the rest of GDP (the 86%) actually rose. It was a small but real reason for optimism in a stormy sea.

Then came the third quarter. Like a woozy prizefighter lifting himself off the canvas, the battered investment component of GDP managed to rise (at an 11% annual rate), which added 1.3 points to GDP growth rather than subtracting 5.4 points. That 6.7 point swing was the start of the slingshot effect, which is not yet over.

Investment has three components: business investment, inventory stocking, and homebuilding. Inventory stocks were still declining at near-record rates in the third quarter; they simply must level off within a few quarters because sales are rising and firms will not want to deplete their stocks indefinitely. Business investment remains 20% below its 2008 peak; its likely course is up, not down, because plants and equipment wear out. And housing? Well, you know. Homebuilding is still in the doldrums—limping along at less than half the level of 1960. The only way to go is up.

This is where Keynesians think they have things right by using their assumptions to prove their assumptions. Blinder says while investment decreased, the other GPD components picked up the slack, so GPD didn’t decline as much as it would have otherwise. The problem is the slack was government spending. This is how they reinforce their own assumptions. They believe the government can boost the economy with stimulus, printing money, etc. Then they create a GDP calculation that includes government spending as one of it’s components. Then to increase GDP, they use that component to minupulate the calculation. The problem is that component does nothing to create wealth for our economy. It does not create real economic value. Gross Domestic Product is about production, but the government produces nothing. If this was the way to economic growth, why don’t we just focus on that component of GDP? Why not just quadruple the government spending? GDP would skyrocket!

Of course, the investment slingshot won’t last forever. Sometime in 2010, consumer spending must take over. And this is where the pessimists go into full throttle. Burdened by huge losses of both wealth and jobs, American households will start saving like mad, we are told. Sounds plausible, but it hasn’t really happened. True, the average personal saving rate has risen to 4.5% of disposable income so far this year from 2.7% in 2008. That’s higher, but a long way from the 8%-10% saving rates the doomsayers have foreseen. A saving rate near 5% is consistent with 3%-4% GDP growth in 2010.

Let’s hope consumers don’t listen to Blinder. Our country is badly in the need for savings. Savings are used for investment, which is what creates real economic growth. Yes, ultimately consumers need to spend, because we need to buy much of what we produce. If we don’t, it won’t be produced. The problem is when that consumption is heavily leveraged as it has been. I’m sure the Fed will eventually trick the public into going more in debt as things start to get back to normal.

The second major source of optimism is the amazing performance of productivity during the recession. To be sure, that performance had a downside: While real GDP was falling 3.7%, payroll employment dropped 5%, devastating many American families. But by definition, that discrepancy means that productivity—output per hour of work—rose substantially during the recession, which is pretty unusual.

The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.

I have been pointing this out for months, but until the last employment report, it was a hypothesis supported by no evidence. Not anymore. While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away. We’ll see.

Here again, the problem is Blinder is counting the government as if all jobs are created equal. Jobs do the economy no good if they aren’t producing value to the economy, and government jobs do not produce value. The latest jobs report showed increases in government jobs and temporary employment. All other jobs, the ones we want, were down. More government jobs, used to distort the jobs report, is not a good thing.

There is more to the case for optimism. For one thing, less than 30% of February’s $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package (“Please don’t call it a stimulus!”) looks to be in the works.

Back to increasing the government component of GDP. See why government spending should be taken out of GDP?

Then there is the Federal Reserve’s stupendously expansionary monetary policy. It is well known that interest rates work on the economy with long lags. But the Fed’s last rate cut came a year ago. So isn’t the monetary policy pipeline empty? The answer is no, for at least three reasons. First, history suggests that the time lag is closer to two years than to one. So even the normal policy lags are not over.

But second, and more important, the lags are likely to be abnormally long this time around. As long as the economy’s credit-granting arteries were blocked, they could not carry the Fed’s lower-interest-rate medicine into the economy’s bloodstream. Sadly, some of these arteries remain blocked today—such as for small business lending. But the Fed, Treasury, FDIC and others have created a bewildering variety of stents and bypasses to get credit flowing again. The credit markets are now healing, though slower than we would like. Hence there is still monetary stimulus in the pipeline.

And third, the Fed continues to inject more medicine. Not by cutting interest rates, of course. Zero is as low as you can go, and the Fed arrived there a year ago. But “quantitative easing” is still in play. One example is the mortgage-backed securities (MBS) purchase program, which is adding MBS to the Fed’s balance sheet and providing vital support to the mortgage market. Yes, the Fed has begun to think about its exit strategy. But that is for the future, not for now.

The Fed’s “stupendously expansionary monetary policy” is what we should fear the most. The author may be right on the lag, and that would be the most devasting blow to the economy. Many are predicting massive inflation as the Fed’s stimulus finally leaves the reserves and enters the economy. I wouldn’t call that a case for optimism. As I highlighted in a previous blog, even the best case inflation scenario is not too comforting. If not severely contracted, we’ll have massive inflation. If severely contracted, we could be looking at a serious contraction in the economy. Pick your poison.

I warned at the outset that I would present a deliberately biased case. So let me admit, once again, that serious downside risks remain. The investment slingshot and the fiscal stimulus will both peter out in 2010. Consumer finances and confidence are shaky. Banks are still failing and commercial real estate is a mess. We cannot count on exports to pull us out of this slump. All true. And all reasons not to expect the kind of exuberant boom that typically follows a deep recession—such as the 7.7% growth spurt in the six quarters following the 1981-82 slump. No one expects that.

So my optimism is guarded. The 3%-4% growth rate that I anticipate for the rest of this year and for 2010 is a lot worse than 7.7%, to be sure. But compared to what we’ve been through, it will feel a whole lot better.

Mr. Blinder, a professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve Board.

via Alan S. Blinder: The Case for Optimism on the Economy – WSJ.com.

Blinder doesn’t even consider the effects of the health care takeover, national debt, etc. Then again why would he? Keynesians think government spending is as valuable as business investment. Why? Because GDP says so.

I can’t remember how I found this video, but if you have the time, it’s a much watch. You want to know why we are heading for disaster? It’s because the government is filled with David Epsteins, when we need more Peter Schiffs. Hopefully, Schiff will defeat Dodd next year, and we’ll at least have one. Add Rand Paul into the equation, and we are heading into the right direction.

Bob Murphy has a article on The American Conservative basically outlining how he sees our currency being destroyed and possibly ushering in the Amero. While the entire article is pretty scary, the part about the current bank reserves really popped out at me.

Monetary Catastrophe

Since the start of the present financial crisis, the Federal Reserve has implemented extraordinary programs to rescue large institutions from the horrible investments they made during the bubble years. Because of these programs, the Fed’s balance sheet more than doubled from September 2008 to the end of the year, as Bernanke acquired more than a trillion dollars in new holdings in just a few months.

If Bernanke has been so aggressive in creating new money, why haven’t prices skyrocketed at the grocery store? The answer is that banks have chosen to let their reserves with the Fed grow well above the legal minimum. In other words, banks have the legal ability to make new loans to customers, but for various reasons they are choosing not to do so. This chart from the Federal Reserve shows these “excess reserves” in their historical context.

U.S. depository institutions have typically lent out their excess reserves in order to earn interest from their customers. Yet currently the banks are sitting on some $850 billion in excess reserves, because (a) the Fed began paying interest on reserves in October 2008, and (b) the economic outlook is so uncertain that financial institutions wish to remain extremely liquid.

The chart explains why Faber and others are warning about massive price inflation. If and when the banks begin lending out their excess reserves, they will have the legal ability to create up to $8.5 trillion in new money. To understand how significant that number is, consider that right now the monetary aggregate M1—which includes physical currency, traveler’s checks, checking accounts, and other very liquid assets—is a mere $1.7 trillion.

What does all this mean? Quite simply, it means that if Bernanke sits back and does nothing more, he has already injected enough reserves into the financial system to quintuple the money supply held by the public. Even if Bernanke does the politically difficult thing, jacking up interest rates and sucking out half of the excess reserves, there would still be enough slack in the system to triple the money supply.

via The American Conservative » Killing the Currency.

If the currency doubled over night and the goods and services of the country did not grow, prices would quickly double as well.  While this is a drastic example, it will not work much different if it happened over a longer period of time. It just wouldn’t be as obvious. The problem here as Bob points out is even if Bernanke manages to pull out half the reserves, you’d have the money supply possibly tripling in a short period of time. Obviously, our goods and services would not triple in a short period of time, so you would have inflation that no living American has ever experienced.

What happens in situations like that? Well, look at the Argentina.

It never ceases to amaze me the arrogance we have been programmed to believe. America is a great country, but it cannot defy history just because it’s America. I’ve heard countless pundits just over the past couple weeks pooh, pooh all the “crazy talk” about the economy by saying “We’re Americans. We’ll figure our way out of this.” Why do we believe being American has anything to do with our odds? If we do the same things that were done historically, we will get the same results. It’s as simple as that. This very arrogance is even manifest in the history of decline civilizations. Do you think Rome didn’t believe they were special and could keep going as they were? How about the Soviet Union? We spent all the money in the 80s to bankrupt the Soviet Union, because Reagan knew that was the best and easiest way to destroy it. Here we are 20 years later following the same path of destruction that led to the collapse of the Soviet Union. Are we that stupid and arrogant to think because we are Americans, it will be different?

Found this on The Daily Paul. It provided much entertainment for me this evening.Even my 9 year old was laughing at how stupid these people are.

It looks like some of the Fed’s insiders aren’t joining Bernanke’s suicide pack.

Yesterday it was Philly Fed’s Plossner, today it is Richmond Fed’s Jeff Lacker who joins the chorus demanding an end to Bernanke’s insane monetary policy of drowning the market with unprecedented liquidity which is not getting to consumers but merely propping Amazon stock at a bubblelicious 100x P/E.

In a speech before the Charlotte Chamber of Commerce, Lacker stated: “The perception of inflation risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves that has occurred, and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion… If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. In assessing when we will need to begin taking monetary stimulus out, I will be looking for the time at which economic growth is strong enough and well-enough established, even if it is not yet especially vigorous. Although it is hard to predict when that will occur, I can confidently predict that monetary policy will remain particularly challenging for some time to come.” Then again, the stock market does not seem to share Mr. Lacker’s concerns.

via Uh-Oh: One By One, The Fed’s Inflation Hawks Are Speaking Up.

Remember what I said about the S&P? When the Fed prints money, it flows somewhere. We may not have seen inflation yet, but that could be because regular consumers haven’t seen the money yet. On the other hand, it sure seems like there is inflation in stock and gold prices.

Typically, the money flows into some investment vehicle, most recently real estate and tech stocks before that, and then it all comes crashing down. I sold my S&P holdings (not that I owned much), and I’ve held off on the gold surge. I have a feeling both are going to come crashing down as the  next bubble bursts. Then again, what the hell do I know.  I’m just an IT guy, who loves the free market.

FYI, here’s a chart going back to the civil war for gold prices from Businessinsider.com. Again, I think there is a bubble about to burst.

Bernanke appears to be on the ropes. He’s fighting back in the Washington Post.

These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.

To start, Bernanke says he’s concerned congress will significantly reduce the capacity of the Fed to perform it’s core functions. Are we supposed to say “oh boy, wouldn’t want that”? It’s core function is to trick businesses and consumers into spending money and then pulling the carpet out from under them when inflation seems to be getting out of control. It’s core functions caused the mortgage meltdown, the tech bubble, skyrocketing oil prices, and skyrocketing food prices. I sure wouldn’t want those functions being impeded.

The government’s actions to avoid financial collapse last fall — as distasteful and unfair as some undoubtedly were — were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity, with profound consequences for our economy and society. (I know something about this, having spent my career prior to public service studying these issues.)

Bernanke, in his infinite wisdom, has mastered all there is to know about economics. After all, he’s spent his career studying it. What can be more disastrous than a man who doesn’t recognize there are things he doesn’t even know that he doesn’t know. History abounds with disasters from men who thought they had it all figured out and didn’t realize they were living within their own assumptions.  Can someone have Bernanke study the weather? I’d like someone to control the weather, so it’s a constant 75 degrees.

Moreover, looking to the future, we strongly support measures — including the development of a special bankruptcy regime for financial firms whose disorderly failure would threaten the integrity of the financial system — to ensure that ad hoc interventions of the type we were forced to use last fall never happen again.

via Ben Bernanke – The right fix for the Fed – washingtonpost.com.

While Bernanke says he doesn’t want the Fed politicized, he sure is a politician. They cause the problem and then ask you to look to them to be the ones who solve it. We are supposed to believe if we just give them more power, they swear they’ll protect us. This will never, ever, ever happen again. Oh, don’t read history books, you ignorant common man. Just because the Fed was established almost 100 years ago to make sure these things never, ever happened again, doesn’t mean they don’t mean it this time.

Anyone who takes the time to analyze how the mortgage crisis started quickly realizes it was the result of the Fed printing money (the flood) and the congress passing affordable housing regulation to promote home ownership (steering the flood into real estate). What we ended up getting was an overvalued real estate market and a bubble that eventually popped and caused supposedly the worst crisis since the Great Depression. I would argue Obama is making this the worst crisis since the Great Depression, but none the less. So what does the government do? More of the same with their home buyer tax credits and cheap printed money from the Fed.

The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit. And, as we’ve seen in the recent housing crisis, buyers with no skin in the game are more likely than others to default on their mortgages when the value of their home falls below their mortgage balance.

Here’s how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis.

After closing, the couple can quickly obtain the $8,000 refundable tax credit to pay off their temporary loan (or replenish their savings). In effect, they will have bought a home without putting any of their own money at risk. Owners who don’t sink their own money into a house are much more likely to default on the mortgage.

The FHA already is facing a rising number of serious problems on its insured mortgages. Last week the agency reported that its cash reserves dropped to 0.53% of the $685 billion of total loans it insurers. This is well below the 2% federal law requires the FHA to have in reserves.

via Homebuyer Tax Credits Threaten the FHA – WSJ.com.

I won’t even get into the moral issue of what the government is doing by tricking people into buying homes they otherwise would not and forcing others to give up their earnings at a point of a gun so they can give it to home buyers. If the government would stay out of real estate, it would stabilize itself, and people would know the real value of their properties. Instead they are doing more of the same and inflating the value of real estate, creating more demand than there otherwise would be, and ultimately setting up another bubble in real estate. More than likely it won’t be as big of a bubble compared to the one we are recovering from, but none the less, it’s a bubble. Those who are buying under these programs are going to be in for a shock when the programs go away and values eventually move towards their market value. Then again, the Fed printed so much money that inflation may just increase the value of the homes. The problem is the rest of the economy will suffer.

In a seperate article the Journal talks about the disaster the rest of the housing market is in, so I’m sure they’ll keep tinkering.

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market.

via 1 in 4 Borrowers Under Water – WSJ.com.

Did you read my post a couple weeks ago about the S&P?

Signs of wariness are appearing in financial markets as investors worry that the end of the year could bring challenging trading conditions.

Last week saw a steep drop off in stock-market trading volume and a surge in demand for short-term government debt, indications that investors and financial institutions are growing cautious and retreating from riskier bets.

via Investors Dial Back Risk as Year-End Nears – WSJ.com.

I sold S&P fund the day I wrote that post. I also sold my other individual stocks, because they were up a lot, and I’m sure they will get hammered when this all comes crashing down. Keep watching! Eventually the Fed will have to turn the spigot off, and it’s going to get ugly.

This sure doesn’t sound good, and I’m sure the heath care bill only makes the chances of collapse more likely.

In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.

via Société Générale tells clients how to prepare for ‘global collapse’ – Telegraph.