Neal Boortz Returns To Libertarianism

Talk radio's Neal Boortz, who introduced me to libertarianism more than a decade ago, was once a nearly-ideologically-pure libertarian. Unfortunately, during the Bush years, Boortz adopted neoconservatism and even changed his voter registration from Libertarian to Republican. Now, finally, after witnessing years of GOP bungling and advocacy for Big Government, the Talkmaster appears to have returned to his libertarian roots. He published an epic rant about the GOP's social conservatism following this year's Republican electoral embarrassment, and, yesterday, he posted the following on this Facebook fan page:

And...

Neal recently retired from talk radio, but the GOP, with its military interventionism and social conservatism, has been as much a party of Big Government as the Democrat Party for as long as I can remember. Has the Talkmaster truly had a change of heart, or, now that he's no longer contractually bound to Cox Enterprises, is he saying what he's always believed but couldn't say?

Also, notice the number of "likes" Neal's comments have generated in less than 24 hours.

Congress Could Double Milk Prices Jan. 1

Considering that the optimal outcome of the fiscal cliff negotiations is no deal and automatic cuts, and, according to some, there's a high probability of no deal being reached, I'm much more concerned about the possibility of Congress failing to act by December 31 on a 1949 farm law that would require the federal government to purchase milk in bulk at wildly inflated prices. Without action, the cost of "bovine juice" could double Jan. 1, reports the New York Times via CNBC:

Forget the fiscal crisis and the automatic budget cuts. Come Jan. 1, there is a threat that milk prices could rise to $6 to $8 a gallon if Congress does not pass a new farm bill that amends farm policy dating back to the Truman presidency.

Lost in the political standoff between the Obama administration and Congressional Republicans over the budget is a virtually forgotten impasse over a farm bill that covers billions of dollars in agriculture programs. Without last-minute Congressional action, the government would have to follow an antiquated 1949 farm law that would force Washington to buy milk at wildly inflated prices, creating higher prices in the dairy case. Milk now costs an average of $3.65 a gallon.

Higher prices would be based on what dairy farm production costs were in 1949, when milk production was almost all done by hand. Because of adjustments for inflation and other technical formulas, the government would be forced by law to buy milk at roughly twice the current market prices to maintain a stable milk market.

But the market would be anything but stable. Farmers, at first, would experience a financial windfall as they rushed to sell dairy products to the government at higher prices than those they would get on the commercial market. Then the prices customers pay at the supermarket would surge as shortages developed and fewer gallons of milk were available for consumers and for manufacturers of products like cheese and butter.

For dairy farmers like Dean Norton in upstate New York, who are struggling with high feed costs caused by this summer’s drought, a jump in prices would be welcomed.

“But it would be short-term euphoria followed by a long hangover that would be difficult for us to recover from,” said Mr. Norton, who is president of the New York Farm Bureau. “I don’t think customers and food processors are going to pay double what they are paying now for dairy products.”

The Senate passed a farm bill in July. A House version of the bill made it out of committee, but House leaders have yet to bring its version to the floor.
Under the current program, the government sets a minimum price to cover dairy farmers’ production costs. If the market price drops below that, the government buys dairy products from farmers to buoy prices and increase demand. Since milk prices have remained above that minimum price in recent years, dairy farmers usually do better by selling their products commercially rather than to the government.

But if 1949 rules go into effect, the government would be required to buy dairy products at around $40 per hundredweight — roughly twice the current market price — to drive up the price of milk to cover dairy producers’ cost.

“It would be bad for consumer demand in the long run,” said Chris Galen, a spokesman for the National Milk Producers Federation, which represents more than 32,000 dairy farmers.
Mr. Galen and others in the dairy industry said reverting to 1949 policies could probably force the makers of butter, cheese, yogurt and other dairy products to look for cheaper alternatives, like imported milk from countries like New Zealand.

Most dairy companies declined to discuss plans to buy dairy supplies from abroad if they are forced to pay higher prices for milk.

But Land O’ Lakes, a dairy company based in Arden Hills, Minn., said the 1949 law could be potentially disruptive for dairy industry operations.

“Congress needs to pass a comprehensive farm bill that helps farmers continue to feed the world, keeps food prices affordable and provides farmers some financial stability in the very unpredictable profession of farming,” said Rebecca Lentz, a company spokeswoman.

In a conference call with reporters on Thursday, Tom Vilsack, the agriculture secretary, said the department was exploring all its options to deal with the possibility of the 1949 law going into effect.

“We will do whatever we are legally obligated to do,” said Mr. Vilsack, who declined to say what specific steps the department would take to prepare for what dairy lobbyists and industry officials are calling the “milk cliff.”

Among the options: the agriculture secretary could drag his heels on the milk purchases until Congress passes a new farm bill or an extension of the 2008 one that expired in September, said Vincent Smith, a professor of agriculture at Montana State University in Bozeman.

“This is a totally antiquated law that has nothing to do with farming conditions today,” Professor Smith said. “It was put as a poison pill to get Congress to pass a farm bill by scaring lawmakers with the prospect of higher support prices for milk and other agriculture products. Letting it go into effect for even a few months would be particularly disastrous for consumers and food processors.

75% Chance Of Going Over Fiscal Cliff

With Boehner's "Plan B" plan likely DOA in the Senate, the probability of the country going over the so-called "fiscal cliff" grows each day. (Remember, we want that.) Fortunately, financial blogger and Wall Street Journal contributor Stan Collender said last week that there's a 75% chance of that happening:

With 17 days as the crow flies before it happens, it's time for me to do something I've been resisting for a week or so: formally increase my odds that we'll go over rather than avoid the fiscal cliff.

Back in September I said it was better than 50-50 that no deal would be in place by January 1. I raised that to 60 percent immediately after the election. Today, I'm raising my predicted likelihood of no deal before January 1 to 75 percent, and I may still be overstating the possibility that an agreement will be reached and put in place before the tax cuts and spending increases go into effect.

I really hope I'm wrong, and will gladly and publicly say that if a last-minute deal materializes. But here's why I don't think I am:

1. The Politics Have Become Worse, Not Better. The House GOP is digging in its heals even further in spite of the fact that the polls all show public opinion -- including among Republicans -- being firmly against it. Meanwhile, the White House, no doubt strongly encouraged by the president's high job approval rating and the polls showing that it's position on taxes is very popular, apparently -- and understandably -- sees no reason to compromise.

2. The GOP Has Little To Lose At This Point By Letting The Cliff Happen. With their polling numbers already in the tank, it's hard to see what Republicans will gain politically by voting to increase taxes in incomes above $250,000 a year other than the lasting enmity of the most anti-tax members of their base and Grover Norquist.

3. Boehner Really Can't Cut A Deal With The White House Before January 3. My  prediction that this would happen was scoffed at by some when I made it months ago, but it's now become a mainstream story. The fiscal cliff hits January 1 and  Boehner's formal election as speaker is January 3. Any deal with the White House and especially a deal that includes the tax increases the White House wants, could cause Boehner to lose enough votes at least on the first ballot on January 3 to prevent him from being speaker. Even if he subsequently wins on a later ballot, he will be seriously weakened. Note: The fact that Boehner has been openly asked this week if he's concerned about being reelected is a sign that the possibility has become more real than anyone but me previously was willing to consider.

4. It's Still Not Clear That A Boehner-Obama Deal Would Be Agreed To Before January 1. Very simple: The political work needed to get the votes in the Democratic and Republican caucuses in the House and Senate hasn't yet occurred and that makes the vote count very dicey. A tax cut that's acceptable to Boehner may not be to his caucus, and larger-than-expected changes in Medicare and Medicaid that's acceptable to the White House may not be acceptable to Senate Democrats. In addition, it's not clear how many of the lame duck members of Congress will even show up to vote a week before their term is over
It's certainly possible that Obama and Boehner have been performing at Oscar-worthy levels in recent days to make their respective caucuses think they are both pushing the other very hard. I doubt it. Not only are neither of them that good an actor -- My Beautiful and Talented Wife (The BTW) is an outstanding professional actor so and know what that is -- it's hard to imagine how a conspiracy like that could stay a secret in Washington given how many people would have to be involved in it.

As a result, I've come to the conclusion that there's only a one in four chance that a deal to avoid the fiscal cliff will be enacted before January 1. It's far more likely we'll go over the cliff and then fix it retroactively in January than that it can be avoided completely.

College Questionable Investment

As part of its series on income inequality in America, Reuters recently published an in-depth look at Massachusetts, one of the nation's most educated states, where incomes have been declining since 1989 for most college degree holders except those in the highest quintile.

The article included this damning graph:

As you can clearly see from the graph, the percentage of Bay State residents holding college degrees has gone through the roof, but the return on investment for higher education has eroded for nearly everyone except the wealthy. But, in Massachusetts, as in the rest of the country, students are borrowing their futures away for the questionable investment of higher education:

 

Of course, the continued popularity of this questionable investment will crash the economy sooner than later. The student debt bubble is the next bubble to burst, and it could be bursting now:

Left/Right Paradigm Must End

Considering America's roots as a "land of the free", the Left/Right political paradigm we have in this country makes no sense. Both the American Left and Right advocate for Big Government--the antithesis of freedom--for a number of social causes, two of which grow government more than any other: wealth redistribution from the Left, military interventionism from the Right. Both for a "greater good". Both to "help". Unfortunately, both the Left's and Right's versions of Big Government are harmful.

The Left's largest contribution to Big Government, wealth redistribution, badly hurts those it's supposed to help. Despite the government currently spending an average $60K on "poor" households, there has been zero reduction in the poverty rate since LBJ's "Great Society", but there has been the creation an entire class of Americans who are dependent on the government for nearly every aspect of their survival. I say that last part without hyperbole. There are now literally millions of Americans who receive from the government direct cash payments, food stamps, cell phones, health care, subsidized housing, unemployment benefits, disability benefits, transportation subsidies, education (free K-12 education and scholarships and grants for college), mental health counseling, and legal assistance. Many of these people would be incapable of providing for themselves if just a small fraction of that lengthy list of assistance were taken away. Take a look at the population of Detroit, which receives a much higher than average amount of government assistance per household. Nearly half of adult Detroiters are illiterate and 1/4 lack a high school education. A large percentage of Detroiters have zero marketable skills, and, as a consequence, lack the ability to take care of themselves. These peoples' mere survival, therefore, depends on Uncle Sam. Sorry, liberals, but that's the opposite of empowerment.

Ironically, the Right's largest contribution to Big Government, military interventionism, pales in comparison to the Left's largest contribution on a fiscal level (approximately $500 billion annually as compared to nearly $2 trillion), but is far more damaging than the Left's. The Left's enabling of the poor may perpetuate poverty, but the Right's warmongering begets destruction and death. Despite having lost tens of thousands of active-duty troops in combat since WWII, the United States cannot claim a major military victory since the "Greatest Generation" fought the Axis Powers. It can claim, however, the decimation of nations, the creation oppressive regimes, and the exacerbation of anti-American sentiment throughout the world.

Hopefully, the Right is learning from its recent electoral defeats and is jettisoning its advocacy for military interventionism along with its advocacy for social conservatism. Hopefully, it's positioning itself as an advocate for true fiscal conservatism. Because, right now, the American electorate can only choose between the Left's and Right's version of deleterious Big Government.

Big Government Decimating Middle Class

Big Government, in partnership with Big Central Banking, is decimating the middle class for the benefit off the poor and the rich. Indeed, Reuters has published a must-read series on the matter from which this chart was taken:

As is reflected in the chart, the majority of jobs created in this depression have been part-time low-wage positions, and Benanke's Fed, which even China has labeled a "murderer of the middle class", has been enabling historic opportunities in crony capitalism.

 ZeroHedge said it best:

This is nothing but the inevitable outcome of a co-opted, conflicted and controlled marionette government, which does the bidding of the wealthiest lobby powers (read corporate shareholders and Wall Street), partitioning the bulk of the wealth to the richest, while sending the scraps to the poorest in order to keep itself in power due to the power of the ever poorer, democratic majority.

Notable Investment Strategist: We're In Recession

I've been saying for some time that we're heading into a double-dip recession, but Societe Generale's Albert Edwards makes the case that the economy is already contracting. From ZeroHedge:

“Something bad happened in November”……

...I have spotted the excellent Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) doing the rounds reiterating his call that the US economy is already in a recession. He seems to be getting a bit of stick recently, but as I am fully aware, bearers of bad news are usually derided. I think he is doing an excellent job of explaining his stance patiently and clearly in the face of some very hostile interviewers. His recent 7 December analysis on the ECRI website of why a recession is likely to have started around four months ago is well worth an uncomfortable read - link (see also the related video link).

Certainly if the US has already slipped into recession, this would help explain why our preferred measure of whole economy profits declined, albeit marginally, in Q3. We have always monitored pre-tax, domestic, non-financial, whole economy profits particularly closely because this measure of the underlying profitability of the business sector is probably the best leading indicator of domestic business investment, and that has also been weak recently.

Many have attributed the weakness in investment to uncertainty about the fiscal cliff. But if underlying profits are under pressure, then so too will be investment. So although much of the S&P eps downgrading by analysts is being attributed to severe weakness abroad, what the latest whole economy profits data show is that the domestic business situation is also weak. The ECRI recession call should be listened to more closely.

Certainly the latest National Federation of Independent Business (NFIB) survey in November was entirely consistent with an economy already firmly back in outright recession. The headline optimism series plunged 5.6 points in November to 87.5, which the NFIB itself says is one of the lowest optimism readings in the survey's long 30 year history.

“Something bad happened in November…and it wasn’t merely Hurricane Sandy”, the NFIB chief economist Bill Dunkelberg is quoted as saying - see chart below and link. Even scarier than the decline in the headline measure was the 37% slump to an all-time low in those firms who believe economic conditions will improve over the next six months. That 37% drop is twice the previous record 18% decline, which occurred in the immediate aftermath of the Lehman’s collapse (see chart below). For those who might immediately retort that this is a sentiment indicator that should be used as a contrary indicator - you are wrong. It is a good leading or at worst coincident indicator. I would say this datum is more than consistent with the recession that Lakshman Achuthan of the ECRI has been warning of, wouldn't you?

Rifles Rarely Used In Murders

The following table from the FBI shows the method in which homicides were committed in the United States in the years 2006-2010. There are a number of takeaways from this table: 1) Rifles were used in a very small percentage of murders. 2) Firearms weren't used at all in approximately 1/3 of murders. 2) The total number of homicides steadily decreased during the 5 year period. 4) Approximately twice as many murders were committed using hands, fists, and feet than using rifles. (We need fist control NOW!)

Here Comes QE4 And Subsequent Disaster

Inflation has been on the rise, and the current inversion of the shadow banking system will put even more inflationary pressures on the economy. But, if the inflationary effects of QEs 1-3 aren't painful enough for you (and remember, the pain has only begun to be felt and won't peak until 2014 or 2015), the Fed is planning yet another round of money printing with which to devalue our currency. The kicker: this one may be the largest yet! What do we have to look forward to as a result of all of this monkeying with the monetary system? Disaster. From Chris Martenson of Peak Prosperity:

QE 4: Folks, This Ain't Normal
What you need to know about the Fed's latest move



Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.

To borrow a phrase from Joel Salatin: Folks, this ain't normal.  To this I will add ...and it will end badly.

If you had stopped me on the street a few years ago and asked me what I thought would have happened in the stock, bond, foreign currency, and commodity markets on the day the Fed announced an $85 billion per month thin-air money printing program directed at government bonds, I never would have predicted what has actually come to pass.

I would have predicted soaring stock prices on the expectation that all this money would have to end up in the stock market eventually.  I would have predicted the dollar to fall because who in their right mind would want to hold the currency of a country that is borrowing 46 cents (!) out of every dollar that it is spending while its central bank monetizes 100% of that craziness?

Further, I would have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons.  With little product for sale and lots of bids by various players, one of which – the Fed – has a magic printing press and is not just price insensitive but actually seeking to drive prices higher (and yields lower), that's a recipe for rising prices.

Then I would have called for sharply rising commodity markets because nothing correlates quite so well with thin-air money printing as commodities.

That's what should have happened.  But it's not what we're seeing.

Instead, stocks initially climbed but then closed red.  Gold was mysteriously sold in the thinly-traded overnight markets and again right after the announcement in large, rapid HFT blocks that swamped the bids. U.S. Treasury bonds actually sold off on the news.  The dollar hardly budged. Commodities were mixed across the board but more or less flat on the day, with the exception of the metals, and especially the precious metals, which were sold vigorously.

The markets are now well and truly broken.  Not because they don't conform to my predictions, but because they are no longer sending useful price signals.  Instead, my hypothesis here is that the markets are now just a giant and rigged casino, where a relative handful of big firms and other tightly coupled players are gaming their orders to take advantage of this flood of money.

When your central bank badly misprices money and then bids up everything related to bonds, nothing can be reasonably priced.  Risk is mispriced; the few remaining investors (as distinct from speculators, which are now the majority) are forced to accept both poor yields and higher risk – so we know the price of everything, but the value of nothing.

QE4

So what exactly is this new thin-air money printing program all about?  Well, unlike any prior Quantitative Easing (QE) announcement, this one was tied to a fuzzy and quirky government statistic: the unemployment rate.

QE4 is Just-In-Time Fed Policy to Avoid Calamity

Dec 13, 2012

We got the most thunderous Just-In-Time monetary policy today that is a substitute for the absence of any degree of stimulative fiscal policy.

You might say that QE4 is now going to act as both monetary and fiscal stimulus– another $85 billion worth of Fed accumulations of Treasury bonds and mortgages- that is meant to keep stock prices moving higher and residential home sales climbing briskly.

The goal is to drive economic activity, especially residential home building, so that unemployment drops from 7.7% to 6.5%. The surprise move is meant to signal the Fed’s awareness of the softening economy; it sees the gritty numbers before we do.

Getting unemployment down to 6.5% without inflation rising to a level higher than 2.5% is not expected to happen until 2014 at the earliest. And it could go longer if there is no deal and we go over the cliff.

But, you should know that the only reason unemployment is 7.7% is because hundreds of thousands of males have dropped out of the search for regular work. A very depressing tale.

The key point here is that the Fed is now actively running both monetary and fiscal policy because it will now be in the business of funding nearly 100% of all the new government deficit spending in 2013.  And it is pumping a bit more than $1 trillion of hot, thin-air money into the economy as it does so.

The odd thing here is that by tying their policy to the unemployment rate, we could be in for a very long wait for the stimulus to end.  The reason is that the unemployment rate has a couple of moving pieces, one being the number of people who are unemployed, and the second consisting of people who have given up looking for work, which is tracked in something called the 'participation rate.'

As more people leave the labor force and the participation rate goes down, the unemployment rate goes down, too.  Somewhat confusingly, as more jobs are created, the unemployment rate goes down, too.  As you can see, these numbers work in opposition to each other because as more jobs become available, more people re-enter the work force.

Before the crisis struck, the participation rate was around 66.5%. But now it sits at just 63.6%, meaning that, at roughly 1.4 million jobs for each percent, a bit more than 4 million jobs would have to be created just to absorb the folks who left the labor force but presumably would like to work again. As those 4 million folks come back to work, the unemployment rate will not budge at all.

It will require two full years of 150,000 jobs per month just to absorb the 4 million missing workers, which means that this QE effort will be with us for a very long time.  Three to four years is my best guess, and that's only if the economy magically recovers.  And I have very strong doubts about that.

This means that the Fed is most likely on track to increase its balance sheet by another $3-4 trillion.  Ugh.  That's 300% to 400% more money created in the next year than was created than during the entire 200 years following the signing of the Declaration of Independence.

The other part of this new QE policy is that they will continue this as long as inflation remains below 2.5%.  Again, this is a very fuzzy government statistic subject compared to the usual massaging and political biases, but it has top billing as the one that is most likely to force an early termination of the thin-air money printing efforts.

However, I remain convinced that the Fed will change any rules and move any goalposts it needs to in order to continue its mad money printing experiment.  Because there really isn't any other alternative at this point.

Secretly in the Open

Once upon a time, it would have been considered in bad taste to suggest that the world was being centrally managed in secret by a small-ish cabal of bankers whose actions served to either prop up the excessive spending habits of the very governments that conferred upon them the power to print money, or to bolster the health and profits of the banks they mainly serve.

That was then. Today you can just read about it in the Wall Street Journal:

Inside the Risky Bets of Central Banks Dec 12, 2012

BASEL, Switzerland—Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world's biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world's economic output.

Of late, these secret talks have focused on global economic troubles and the aggressive measures by central banks to manage their national economies. Since 2007, central banks have flooded the world financial system with more than $11 trillion. Faced with weak recoveries and Europe's churning economic problems, the effort has accelerated. The biggest central banks plan to pump billions more into government bonds, mortgages and business loans.

Their monetary strategy isn't found in standard textbooks. The central bankers are, in effect, conducting a high-stakes experiment, drawing in part on academic work by some of the men who studied and taught at the Massachusetts Institute of Technology in the 1970s and 1980s.

While many national governments, including the U.S., have failed to agree on fiscal policy—how best to balance tax revenues with spending during slow growth—the central bankers have forged their own path, independent of voters and politicians, bound by frequent conversations and relationships stretching back to university days.

If the central bankers are correct, they will help the world economy avoid prolonged stagnation and a repeat of central banking mistakes in the 1930s. If they are wrong, they could kindle inflation or sow the seeds of another financial crisis.

If it feels like you are part of a very grand, high-stakes experiment, congratulations!  You're exactly right. We are all collectively prisoner to whatever outcomes are in store.

The rather politely ignored truth right now, at least by most news outlets and politicians, is that the world's central banks have wandered very far off the reservation and are running an experiment that really has only two possible outcomes.  One is a return to what we all might call 'normal and stable' economic growth.  The second is the complete collapse of the fiat money and their attendant financial systems and markets.

While it is technically possible to achieve some other middling outcome, that possibility has been receding to ever more remote territory with every passing month and new round of money printing.

The basic predicament here is that more and more money is being printed while the world economy, predictably for those who follow the net energy story, has been entirely stagnant and constantly threatening to slip back into economic retreat. Of course, more money + the same amount of (or even less) hard assets = the perfect recipe for inflation.

So the rise of inflation will signal the beginning of the end of this slow-motion tragedy.  I use the term 'tragedy' here because it doesn't have to end this way.  We have other options; we could make other choices and use our time and resources to try and do something other than maintain a broken financial system that desperately needs to be changed.

In Part II: It's Better to Be a Year Early Than a Day Late, I explain the facts behind why I am more convinced than ever that this all ends in one of the most disruptive financial and currency events ever seen on this planet.  And while the repercussions will be felt by all, taking prudent action while there is still time can greatly improve our individual odds of weathering them safely.

The Best Anti-Gun Control Arguments

I'm a firm believer in Occam's razor, the philosophy that the simplest explanation is usually the correct one. Occam's razor can be well-applied to the "right to bear arms" argument.

Yesterday, I came across this simple, brilliant tweet in my Twitter feed (article continues after photo):

In 140 characters or less, the author of this tweet reminded the most vociferous gun control advocates that they, too, depend on private gun ownership for protection. Brilliant!

My succinct arguments, presented using hypothetical situations:

1) A felon has broken into your house and intends to rape and kill you. You dial 911, but the police are 5 minutes away. Would you rather spend those 5 minutes unarmed, risking being raped and killed? Or, would you rather have the ability to eliminate the threat before you are harmed?

2) The economy further deteriorates, history repeats itself, and society collapses. There are riots in the streets, and the government becomes tyrannical. In this scenario, would you rather your defenses be limited to handguns, or would you rather have assault weapons at your disposal?

Think about it, libs.