Reagan's Homeboy: His Legacy Stinks

I really enjoyed writing this article. Here's an excerpt:

The former budget director under President Ronald Reagan said something you don’t hear often from people who have worked under Reagan or from conservative politicians.  That is, that the conservative idol and oft-referred to leader of a bygone era left a “horrible legacy.”

“The thing that came out of the Reagan era, which really was a horrible legacy, was the notion that deficits didn’t matter and the rationalization that we were only trying to starve the beast and if the deficit got big enough or persistent enough or extended far enough in time, surely they would wake up and shrink the government,” said David Stockman, former Director of the Office of Management and Budget from 1981-1985, at the Cato Institute Wednesday.

 Read More: Former Reagan Official: "Reagan Era Was A Horrible Legacy" || Politic365

The chief and most original insight is his analysis of Reagan's defense build up and its connection to the Iraq war of the 1990s. I never heard anything like it before this lecture. It's pure gold. Read it for yourself.

Murray Rothbard on the FED's Own Propaganda

"There is, however, one and only one aspect of the common legend that is indeed correct: that the overwhelmingly dominant cause of the virus of chronic price inflation is inflation, or expansion, of the supply of money. Just as an increase in the production or supply of cotton will cause that crop to be cheaper on the market; so will the creation of more money make its unit of money, each franc or dollar, cheaper and worth less in purchasing power of goods on the market."

Murray N. Rothbard, The Case Against the Fed

Video: Why Not Print More Money?

Ron Paul vindicated on the real rate of inflation

(GoinsReport.com) -- A recent report by CBS vindicates what Rep. Ron Paul (R-Texas) said yesterday during an exchange with Federal Reserve chairman Ben Bernanke during a House Financial Services meeting--namely, that the inflation rate is much higher than what government statistics suggest.

While Paul was likely referring to the Congressional Budget Office's Consumer Price Index (CPI) or Bureau of Labor Statistics Data, the CBS article refers to the American Institute for Economic Research's everyday price index which says that prices are up 8 percent over a year--just one percent short of what Paul said during the hearing yesterday.

During the exchange yesterday, Paul told Bernanke: "Ok, so you’re aware of the prices, but you know this argument that the prices are going up about 2 percent, nobody believes it."

He continued: "You know in the old CPI says prices are going up about 9 percent so they believe this," he continued.

"People on fixed incomes – they’re really hurting, the middle class is really hurting because their inflation rate is very much higher than the government tries to tell them and that’s why they lose trust in government," Paul said.

Read the rest of the CBS article by clicking the link below.

Inflation: Not as low as you think || CBS News

Video: Ron Paul Speaking @ Cato's 29th Annual Monetary Policy Conference

I was there.

For an exclusive story I wrote on this go here.

The lead is below:

Washington (GoinsReport.com) – When asked whether he agreed with GOP presidential candidate Herman Cain on his suggestion that Federal Reserve should go back to a single mandate focusing on price stability, GOP Presidential Candidate Ron Paul said that he “hardly” agrees.

Price stability refers to the concept that prices levels are constant enough that people won’t take into account price inflation when making decisions as a consumer – not that the value of the dollar will remain the same.

On numerous occasions this year, including at the CNN-Tea Party Republican debate in September and during a press conference with reporters at TeaCon 2011, Herman Cain said that he did not want to end the FED but return it to a single mandate where the central bank allegedly only focused on price stability.

Consumers Paid More for Food in 2011, CPI Data Show | CNSnews.com

This trend will favor Ron Paul in 2012.

The latest data from the Bureau of Labor Statistic (BLS) show that despite some decreases in the price of certain types of food, U.S. consumers paid more to eat overall in 2011.

Consumers Paid More for Food in 2011, CPI Data Show | CNSnews.com

Ron Paul “Hardly” agrees with Herman Cain on Federal Reserve

Watch video here

Washington (GoinsReport.com) – When asked whether he agreed with GOP presidential candidate Herman Cain on his suggestion that Federal Reserve should go back to a single mandate focusing on price stability, GOP Presidential Candidate Ron Paul said that he “hardly” agrees.

Price stability refers to the concept that prices levels are constant enough that people won’t take into account price inflation when making decisions as a consumer – not that the value of the dollar will remain the same.

On numerous occasions this year, including at the CNN-Tea Party Republican debate in September and during a press conference with reporters at TeaCon 2011, Herman Cain said that he did not want to end the FED but return it to a single mandate where the central bank allegedly only focused on price stability.

During the CNN Tea Party debate in September, Cain said “For many, many decades the FED did its job when it was singularly focused on sound money.”

At TeaCon 2011 he said, “it [the FED] really needs to just focus on monetary price stability the way it did from 1913 all the way up to the year 2000. It got off track when the federal national debt hit 14 trillion dollars and when foreign countries cooled off on buying our debt.”

After reading the quotes from Herman Cain, GoinsReport.com asked Rep. Ron Paul (R-Texas) “Do you agree with that analysis and do you agree with his history?”

Paul said: “Well, hardly. He’s part of the Federal Reserve System and I want to get rid of it. So he’s trying to patch it up. No, I wouldn’t agree with it.”

The Texas congressman made his remarks Wednesday morning (Nov. 16) after the 29th Annual Monetary Policy conference in Washington, DC.

In his speech Paul was skeptical of the idea moving the FED’s dual mandate of using monetary policy to maximize employment and achieving price stability to a single mandate focusing on price stability alone.

“Since I don’t like the Fed, I’m not interested in worrying about what the mandate should be because they’re not going to do it anyway,” Paul said.

“They’re mandate is that they’re supposed to have full employment. They’re failing there. They’re supposed to have stable prices. They’re failing there. So why do we have any trust whatsoever in what they do,” he continued.

He added that “deep down in their hearts” their real goal is to accomplish the liquidation of debt with inflation.

“That’s not too hard to understand that if they can get 50 percent inflation rate in a year or two that takes our $15 trillion debt and cuts it in half,” Paul said.

In his speech, Paul said that he would not end the Federal Reserve in one day because it will “eventually shut itself down” when it destroys the currency. Rather he will work to break the FED’s monopoly on issuing currency by legalizing sound money including gold and silver and repealing legal tender laws.

“My idea is sort of a copy of what Hayek’s had talked about,” he said. “Why don’t we denationalize money, legalize competition, allow free markets to work, allow free market banking to work?”

He added that we should repeal taxes on gold and silver and even allow private mints to issue gold.

GoinsReport.com also asked Mark Calabria, a Cato Institute policy scholar in attendance, to give his opinion about Herman Cain’s statements about the Federal Reserve.

Calabria answered in two parts.

On Herman Cain’s timing of when the Federal Reserve abandoned a policy of price stability he said, “I would disagree somewhat in that particularly during the 60s and 70s we where seeing double-digit inflation. We certainly weren’t seeing a very good track record from the Federal Reserve.”

He added that because of the FED’s involvement in the Great Depression, which is still debated by economists today, “it would probably be generous to say that the FED has been a success even half the time it’s been around.”

In support of that, he highlighted the FED’s role in contributing to the real estate bubble and stock market bubble in the 1920s. He also said that problems the FED got into in 60s and 70s were a result of abandoning price stability as their primary goal.

Additionally, he said that he agreed with Cain’s comments that if the FED focused on price stability alone then they would do a better job.

Calabria said the FED got off track “long before” the U.S. national debt hit $14 trillion, a point it hit in late 2010, and when foreign countries slowed their purchases of U.S. debt. He added that when the debt started to skyrocket “they got even more off track.”

For him, the Phillips curve framework where “they believe that a little more inflation gets them a little less unemployment” took the FED off track. As an example, he cited the Federal Reserve cutting interests rates after the dot-com bubble and again after Sept.11 out of concern for reducing unemployment.

Calabria recently testified in October before the House Subcommittee on Domestic Monetary Policy and Technology Committee on Financial Services which Paul serves as chairman.

At the TeaCon 2011 press conference, Cain also said that the Federal Reserve System is not unconstitutional – a point in which Congressman Paul would sharply disagree with as well.

Rick Santorum has also said that he would, like Herman Cain, focus on bringing the Federal Reserve to a single mandate.

Mises on Government Lust for Inflation and Credit Expansion

"It is a fable that governments interfered with banking in order to restrict the issue of fiduciary media and to prevent credit expansion. The idea that guided governments was, on the contrary, the lust for inflation and credit expansion. They privileged banks because they wanted to widen the limits that the unhampered market draws to credit expansion or because they were eager to open the treasury a source of revenue. For the most part both of these considerations motivated the authorities. . . . The establishment of free banking was never seriously considered because it would have been too efficient in restricting credit expansion" (p. 441).

Ludwig Von Mises, Quoted in Mises on Money

On the Brink of Inflationary Disaster - Robert P. Murphy - Mises Daily

On the Brink of Inflationary Disaster - Robert P. Murphy - Mises Daily

Consumer prices rise the most since spring - The Hill's On The Money

Consumer prices rise the most since spring - The Hill's On The Money

Lindsay Lohan on the Federal Reserve

Monday on Twitter:


Click here to re-tweet.

Free Download: Food Shock

Preparing for the worst is exactly what this 33-page book is about. The book is not shy to say so. On page four we read the following:

At some point in the very near future, home gardening may no longer be just a hobby; for millions of Americans, it could become a necessity.

Excerpts:

Darfur for the Simple, China for the Prepared

“Hunger today is not people starving in the streets, but it’s people choosing between food and rent. It’s parents going without food to feed their children. If safety net programs are further eviscerated, we are going to see Depression style hunger, Darfur style hunger, Calcutta style hunger happening here in New York.”

Estrangement from the land

“Never before in history have so many people been divorced from the production of their own food. Our estrangement from the land could prove to be our undoing … unless we take action now and reclaim that relationship.”

Plugging our ears when we hear "personal responsibility"

“Most people don’t want to hear about taking greater personal responsibility, or becoming more self-reliant. It’s no secret that many Americans, in general, have a sense of entitlement. A huge segment of the population expects that somehow, the government will come to the rescue.”

Hundreds, Thousands Earned on Food

A home garden can save at least $600 in food costs. Many gardeners save much more.

Housing Taking Away Farm Land

We lose, on average, one acre of U.S. farmland every minute. Most of this loss is due to the conversion of farms to industrial and residential uses. Between 2002 and 2007, 4,080,300 acres of farmland were converted for development. This is roughly the area of Massachusetts. This is just part of a long-term trend.

Prepare for the Worst; Download this Book

“In our just-in-time economy, we aren’t used to planning ahead. We think food will always be available, 24/7, whenever we need it. In most parts of the world, that’s simply not the case. Someday soon, that could be the case here in America as well.
Gardening isn’t hard, but it takes time … and timing.”

The book is available for download here and here.

If you don't want to go the Food Shock route (like me), or can't, then you can go the Alpha Strategy way. For those who just want to stock up, and learn how to do so effectively, download the Alpha Strategy here.

The Flight into Real Values

I cannot stress how important it is that you understand this concept. It is something that is bound to happen in an increasingly inflationary environment.

According to the Mises Made Easier Glossary, The Flight into Real Values, or the Crack-Up Boom, is:

The frantic rush to spend all monetary savings and other available cash, buying goods, whether needed or not, in order to avoid holding, even for a short time, any rapidly depreciating monetary units. This occurs at that point in the development of inflation when the public is convinced that prices will continue to rise endlessly and at an accelerated pace. The flight into goods or real values is also known as a "Crack-up boom" (q.v.) and marks the complete breakdown of a monetary system.

It goes like this:

(1) People will begin to realize that the prices of all goods and services in the economy are rising.***

(2) People will realize that prices are continually going up.

(3) They will therefore buy now while prices are “low” rather than wait until prices go up again.

***Usually, economists mention that the reason the prices are going up and people are “unloading the currency” so quickly is because the purchasing power of the currency is weakening at a speedy rate.

Simple right? Let’s add some numbers to the mix.

Let’s say the price of peanut butter is $5 for a 1 lb on Monday. But on Tuesday the price increased to $7.50 which is a 50% increase from Monday. If this is the case, and if the consumer that wants peanut butter knows this will happen, what then is the rational thing to do? Buy Monday while the prices are low.

Without going into much detail, think about the micro-situation we as Americans are going through with gas.

Last Monday, prices were on average around $3.07 (roughly – I could be wrong. I am going by memory). This Monday, prices are on average $3.37 (again, roughly – I could be wrong. I am going by memory.) What is a person who wants gas to do?

Buy before the price goes up. (And for anyone who is wondering, the price of gas is expected to go up again)

To look at the problem in a slightly different way, let’s say the same thing happens in the automobile industry.

What if a new sports car is $50,000 one month, and then twelve months later it is $1,000,000? What then does it mean to be a millionaire? To extend the question, what then does it mean to be a millionaire if you can only buy one sports car with all of your money?

Not much.

So when will we see this kind of behavior?

The answer: during a hyperinflation.

During hyperinflation – defined as an increase in CPI at 50 percent per month – a scenario like the one above is the norm. Since I am more learned in economics than when I first started blogging in winter 2009, I no longer believe hyperinflation is a certainty, although I do still believe that high inflation is a mathematical certainty. (For those who wonder why, read Michael Pollaro’s recent article called “America, Poised for a Hyperinflation?")

So we have seen that the phenomena leading to the flight of real values not only hurts the poor, it also hurts the “rich” as well. The only way to avoid this flight—as much as you can—is to buy what you need early. And as I’ve mentioned before in other blog posts, some things you just can’t buy in advance. (Like a doctor’s visit or gas [at least in a state-approved storage unit])

For inflation to be reversed, the supply of money must be contracted (the Federal Reserve must raise the Federal Funds Rate). Unfortunately, this correction will cause a further depression which is why it is better the government doesn’t get in the business of inflating the money supply in the first place.

Also check out the videos I’ve posted on the site during the last two weeks. I’m sure there is something to pique your interest. (At least I hope so)

Timely reading
“The Mirage Of Inflation” Chapter 22, Economics in One Lesson by Henry Hazlitt

Gary North on our Impending Fiscal Disaster

I agree with this statement:

In this report, I am making a point: the country is headed for a fiscal disaster, and there is no broad-based political movement inside the country to put on the brakes. The train is headed for the collapsed trestle, and it is speeding up. The President as the engineer is talking about slowing the train a little, but he has not yet put on the brakes.

No one will put on the brakes.

Read the rest here.

Coming to a store near you: Increases in Prices

In his 1946 classic book on economics, the late Henry Hazlitt, who is one of my favorite journalists and economists, wrote that once inflation settles in the firms in the higher orders of production will eventually have to push costs onto consumers.

That time has come.

The New York Times recently published an article on this exact idea. It explains that consumer prices are expected to rise 15, 20, and 30 percent in some areas by the end of this year and many big name companies like Kraft, Hanes, and Polo Ralph Lauren are being open about it.

The pressure to raise prices is just that great.

It works like this:

Retailers, while trying to maintain profits, will keep prices the same or raise them slightly. But the time will come when the costs increases can no longer profitably be absorbed by retailers, so the cost will be pushed on to consumers instead.

Who gets hurt in all of this? The NYT gets it right:

People at the bottom of the income scale struggle more as these prices rise, of course, because a larger share of their spending is on such essentials.

To raise prices or not to raise prices:

These companies are constantly walking a tightrope on how far do I go,” said Jack Russo, a consumer goods analyst at Edward Jones. “Do I offset with price or other cost cuts, or do I just take it and have it eat into my profit margins?”

Well, I think cutting into profit margins is the last thing that should be done. Profits are a necessary function for a free-economy. They help market participants/firms to gauge whether or not they are providing good service to customers or using their resources in the best way that benefits other market participants. Profits aren't units that people wantonly hoard and accumulate to keep for themselves; they are gauges for success. Inflation makes that function even harder.

Inflation tends to have another effect that the NYT rightly points out.

It means lower quality:

Restaurants, which resisted raising prices to keep customers coming through the doors last year, are also fretting. They may take other steps too, like lowering thermostats, shrinking packaging or reducing portion sizes to minimize the sticker shock.

Here’s a thought:

This year, “you’re going to have to raise prices to stay in business,” said Len M. Steiner, owner of the Steiner Consulting Group, which works with restaurant companies on ingredient purchasing.

And the reason is that companies operate on profit margins. Even when under inflationary pressures, business can’t cut even. They can't help the consumer by keeping prices low and cutting into their own profits. If they do, they will have less money for capital investment, wage increases, the expansion of goods and services and employment.

Read chapters 21 and 22 of Henry Hazlitt's Economics in One Lesson to Understand in depth. It's free.

Video: Jim Rogers on Commodities, Inflation, and more

If Gas Prices Go to $5 Per Gallon

(This post was written with Egypt's current political atmosphere in mind.)

Photo Courtesy of the Associated Press.

The Alpha Strategy gives simple advice on how to protect your wallet against inflation. Download it here.

But if you haven't downloaded that book yet (or haven't read it) I will briefly mention what you can do to prepare for an increase in gas prices.

Unfortunately, there is very little, especially if the price of gas jumps overnight. This is because gas is unlike other things you can buy in advance (like food) before the price goes up. Simply put, you can store a lot of food in a pantry. You can't store a lot of gas anywhere unless you have a storage unit away from the house. This rules out people who live in apartments and condos. Only homeowners can do this.

Option 1: Stocking up on gas is the best you can do. It is also the hardest to do. And it also the most dangerous. There are a lot of drawbacks to this. There are a lot of Federal rules and permits that you need to do this. Most people won't or can't do this. I can't. Perhaps the rich can or someone with tons of free storage room. Turn to page 78 of the Alpha Strategy to read about this in detail.

Option 2: Buying a motorcycle or scooter (like Vespa) can help reduce travel costs. Certain scooters have 2.5 gallon tanks that travel 70 miles per gallon. They are also very stylish. I would get one. I think they are pretty stylish. The upside to getting one of these is that even if gas goes to $5 per gallon, you're only paying $12.50 for a fill. Whereas your SUV-driving counterparts would be paying $70 dollars easy. The downside is that the fastest ones only go about 50-mph, which make it good for city streets, but bad for highways. Then again, if less people are driving, highways will be less crowded. Oh, and of course, it is only a one-seat deal. Sorry kids.

Additionally, if the price of scooters or motorcycles increases, you can buy either one early and lock in a good rate. So even if there is interest, say on a $1,999 scooter, it is still less than interest on a $3,999 or $9,999 or $19,999 if the price doubles, triples, or whatever due to inflation.

Motorcycles are also a way to hedge against inflation. Read about this here ("A Two-Wheeled Hedge Against Inflation).

For a list of the MPG for motorcycles visit the following links

Top 50 Best MPG Motocycles
Total Motorcycle Fuel Economy Guide

For a list of the MPG for Scooters visit the following links
MPG Guide: The Fuel Economy Of 250 Top Selling Scooters
Motor Scooter Muse

For Vespa, the international scooter company, go here.
For Honda click here. (Youtube is handy to see how they ride)

Option 3: This option is a continuation of the second. You can store gas cans for motor cycles and scooters in a garage. Perhaps buying a few cans in advance wouldn't hurt. Oh and the Alpha Strategy mentions that chemicals in gas break down over time, so read up on that before you store anything. Then consult a professional.

Option 4: Buy a bike...better than the one you had in middle school. It is the last resort...it also signifies a lower quality of living. No one wants to resort to this. I don't want to do this. I like the motorcycle option the most.

Once again, if you haven't done so before, download The Alpha Strategy and flip to page 78.

On a side note, I believe that more people will buy motorcycles and scooters as market pressures force gas prices to rise. I'm not saying the following scenario is realistic, but imagine if we let GM and Chrysler to fail, and a foreign company came in and re-figured their factories to sell something Americans, and perhaps the world, needs.

The Chinese rode bikes a lot before they became an economic power. I'm sure Americans can ride gasoline-powered motorcycles, especially if a squeeze on their wallets force them to.

Now that I think about it, the small tanks that they hold are very conservative of gas. Perhaps a shift in more people using these would be an example of how the free-market conserves gas, instead of a legislation used to shift everyone to "green energy."

On another note, I think if the prices increases dramatically, more companies will shift to telecommuting.

Michael S. Rozeff on Monetizing the Debt

A few reasons to buy gold and silver:

As the Federal Reserve keeps buying more and more government debt, with no prospect of reducing its holdings unless and until the government gets its house in order, bond yields are likely to rise, despite Fed buying, because yields also reflect inflation premiums. The prospect of inflation will rise as the Fed monetizes the debt. We would then see yields rising accompanied by firm prices of commodities and metals.

The inflationary participation by the Fed, which postpones the inevitable fiscal decisions of the government, harms all holders of fixed-dollar assets and all those whose receipts of dollars are fixed and lag behind the Fed’s production of new dollars. In addition and more importantly, the inflation sets in motion another boom-bust cycle.

M. Rozeff, Geithner Says U.S. Insolvent

Video: Schiff Report: Chinese inflation is getting worse!

That spells "b-a-d-n-e-w-s" for Americans, because the Chinese will have to stop expanding their money supply and start contracting it to stifle inflation in their own country.

This means reducing exports to the United States and keeping more of their own goods.

As Peter Schiff notes, that's when U.S. inflation will speed up because they may stop hoarding our dollars - and lots of em - and may stop sending us their goods.

Gary North was right: Ben Bernanke is a juggler of digits. But China is juggling, too. It has a decision it has to make about its currency: The RMB.

It has to let its currency rise. The purchasing power of the RMB must go up in order for the 5.1 percent inflation to drop.

Ding! Ding! Ding! It may be time to invest in the RMB, while its still low.

Video: Surviving Without Money

What does a society that experienced hyperinflation and now is in its post-hyperinflation stages look like? Well, a lot like Argentina in the video below.

Watch and see how they survive.

Barter is one among other things. Seeing that they are still living and breathing and didn't kill each other off actually gives me hope among all the "societal collapse" prognosticators that the U.S. can bounce back, slowly and somehow.



In January 1988, a writer at The Freeman visited various South American countries and described the experience:

How would you like to live in an economy without memory, where you don’t know the price of anything day to day or the value of the wage you are paid? That’s what it’s like under hyperinflation, in Argentina, supermarket prices are increased twice daily. During the two weeks we were in Brazil recently, interest rates rose 100% from 330% to 430%. Bolivia’s demand for money is so great that its third largest import is currency.

Read the rest here.