Bill Black is the best financial regulator in recent history, and a voice of sanity in regard to the current banking fiasco.  He was instrumental in resolving the S&L crisis in the '80s and directly responsible for some of the perpetrators of that fraud going to jail.  In a sane world, he would be a lauded figure in the financial industry and his opinions would be sought by the media and politicians.  In the real world, he's been marginalized.

As opposed to the clowns teaching economics at Ivy League schools, Black teaches at the University of Missouri - Kansas City.  Unlike the crooks that advise the President and run the Treasury and the Fed, he has no political influence.  Instead of being sought out by MSM outlets on the very serious and very topical issue of financial fraud, he's writing at the fucking Huffington Post, of all places.  And yes, as dirty as it makes me feel, that's actually a link to the Huffington Post -- it's Black's most recent article there.

While it would be easy to go on a long rant about the government and academia in regard to Black's status among the elite, it would make only a trivial and tired point.  Honest people aren't welcome among politicians, bankers, the MSM, and top educators. Surprise, surprise, yadda yadda yadda.

To me, a much more important point is that Black's status is a clear indictment of the conservative alternate media.  His work should be featured prominently by conservative blogs.  He should be writing articles for National Review (no link, they fucking suck, I'd just as soon read Sullivan).  To their credit, Reason has lots of references to Black, but they're hardly conservative, and Matt Welch is laughingly an Editor in Chief there.  On balance, they're about as good a media outlet as the HuffPo.

Conservatives had best get their heads out of their asses and start taking the financial situation in this country seriously.  While sucking each others cocks over the coming election landslide for the GOP might seem fun, conservatives are setting themselves up to be even more reviled in 2012 than the Dems are now.  If conservatives want to hold power for more than 2 years, if they wish to actually help the USA rather than just play politics, they need to start paying attention to people like Bill Black.

Posted by: Hermit Dave at 10:25 AM | No Comments | Add Comment
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It turns out that the Fed has been soliciting opinions on QE directly from the supposedly independent, private sector primary dealers.  This Bloomberg article explains what's been going on behind the scenes.

This Zero Hedge piece explains why this is, quite clearly, treason.  It also dovetails very nicely with the piece that I wrote earlier today on QE.  Still think your vote in the upcoming election actually makes a damn bit of difference?  Unless the new Congress gets serious about tackling the Fed/Banking oligarchy (and right away), your vote is meaningless.

The time for dicking around with social policy and other side issues is over.  You can demand that your representatives get off their pork-filled asses and deal with the real problems or you can kiss the USA goodbye.

Posted by: Hermit Dave at 09:54 PM | No Comments | Add Comment
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While most are focused on the elections next Tuesday, there is an even more important event on Wednesday.  This is when the Fed will announce its policy in regard to further Quantitative Easing.  It would be nice if the elections were the more important event -- they certainly should be -- but as almost nobody in the political space is even talking about Fed policies, it gives Bernanke free rein to continue down the ruinous path on which he has set the country.

What will the Fed do?  To try to figure that out, one has to ask what Bernanke's goals are.  His primary goals seem to be:  (1) Save the current banking system, (2) Promote general inflation without causing a dollar crisis, and (3) Keep the stock market levitating.  Now, I completely disagree that these should be his goals, but Bernanke is a fucking criminal and I'm not (at least as far as I'm willing to admit).  A discussion of what his goals should be is a different topic -- this post is examining what he might do.

The problem Bernanke has is that he's largely cornered.  If QE is too small, the banking system will collapse.  They've already pulled every trick in the book to try to save the system.  Interest rates are already at zero, the banks are already allowed to lie about their balance sheets, and the QE done to date is being overwhelmed by mortgage fraud.  Bernanke has to print a good bit of money just to keep the banks swimming in place.

If QE is too large, the US Dollar will collapse.  This will cause the continuation of the current commodity explosion (in dollars), along with all sorts of terrible international consequences (trade wars, etc.).  These effects will put the last spike into the heart of the average American, as prices will explode while wages largely remain stagnant.  In the worst case, we get hyperinflation (which is really a currency crisis) and society starts to unravel.

So, Bernanke's challenge is to find just the right amount of QE to keep things slowly chugging along without blowing it all up.  The problem is, he can't really have any fucking idea whatsoever what that amount might be.  Estimates by 'experts' range from $200 billion to $4 trillion -- a spread wide enough through which to sail the Death Star with room left over for a few dozen Borg Cubes.  And, in the miraculous event that he gets it right?  The reward is the Japanese experience -- years and years of economic malaise while the zombie banks and the public sector suck up every last available dollar from producers and savers.

Clearly, Bernanke needs to go, but that would require an electorate that is focused on what really ails us as a nation, rather than gay marriage and whether or not Christine O'Donnell is a witch.  In the absence of the political will to tackle the truly serious issues, the Fed's announcement on Wednesday is a good bit more important than the election on Tuesday.  Which brings us back to the question:  What will Bernanke do?

Fuck if I know, but I'm stocking up on lube.

Posted by: Hermit Dave at 01:16 PM | No Comments | Add Comment
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A lot has been written recently about the percentage of Americans that pay taxes to the Federal Government.  These articles, however, are all nearly worthless, as they only examine direct taxation.  The truth of the matter is that, even if the Federal income tax were completely abolished, it would do little, in and of itself, to change the size of government.

A government that has direct currency control has no need for any explicit taxation.  The government can simply print enough money to pay for itself.  The government effectively goes from a direct tax to an indirect one by taxing through deflation of the currency.  This course of action is, in fact, recommended by extreme monetarists.

While I think that this type of extreme monetarism is a terrible idea for a lot of reasons, one must be aware that it is, to a certain extent, actually occurring in today's world.  While the US Government doesn't have direct currency control, as the Fed is 'independent' (cough, bullshit, cough), we have a lot of indirect taxation through Federal debt, which is subsidized by the Fed's balance sheet.  In short, we have the worst of both worlds, as we have direct taxation and indirect taxation, both of which hit producers and savers the hardest.

If I were to try to examine the effects of extreme monetarism, it would take a very long (and terribly boring to most people) series of blog posts.  The purpose of this post is to simply point out that the issue of direct taxation, and the percentage of society that pays direct taxes, is only part of the picture.  I'll leave the consideration of the effects of indirect taxation as an exercise for the reader (all zero of you).

Posted by: Hermit Dave at 10:09 AM | Comments (2) | Add Comment
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I just realized that I didn't include guns (or other weapons) anywhere in the previous post.  This is a serious oversight, as gun valuation and gold valuation are linked in many ways, yet ultimately completely uncorrelated.

Gun valuation is extremely interesting.  In a perfectly stable society, they're only worth whatever recreational value people might place on them.  This is similar to gold: in a society with a stable fiat currency, gold only has industrial and ornamentation value.

In a more realistic society, guns have the additional value of self-defense.  This won't increase the worth of guns much, as crime is relatively low and military needs are limited, but it adds some value.  This added value is extremely important however, as when one needs a gun, one is likely to really really need a gun.  Again, this is similar to gold, in that it's a form of insurance.  Just as I believe one should always have some gold, one should also have some guns.

As we get further away from a stable society, however, guns become increasingly more important.  The value of gold will spike into a fiat devaluation event, but at the far margin (the Mad Max / Zombie Apocalypse scenario) it becomes completely worthless.  A gun, however, is at its highest value on the far margin.

The gold to gun valuation relationship is at a very odd point right now.  Essentially, the current valuations are telling us that, while a fiat currency breakdown is increasingly likely, a major societal disruption is still highly unlikely.  I think these events are much more correlated than the market is currently assuming.  On a relative basis, guns are unbelievably inexpensive.  Go buy one.

Addendum:  Veeshir's comment made me think a bit more.  The rise in gun prices may be slowing down if the market for them is becoming saturated.  One can't use more than a few at a time.  Therefore ammo is really the factor to consider when looking at the pricing of gold vs. weapons.  As Veeshir notes, ammo prices have gone up a lot more than gun prices in the last few years.  I don't know if the relationship is at a sensible level though, as it's hard to find historical data on ammo prices.

Posted by: Hermit Dave at 11:31 AM | Comments (2) | Add Comment
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Gold is a subject of much contention in the financial world.  There are the 'gold bugs' who worship the stuff; there are haters, who think it's nearly worthless; there are those who view it as just another commodity; and, of course, there are those who think we should go back to a 'gold standard' for the US Dollar.  How should a rational person view gold?

First, contrary to much of what one hears as common wisdom, gold is not a good inflation hedge.  Yes, it can act as an inflation hedge at times, but it is extremely unreliable in this regard.  Real estate is a much better hedge against broad-based, moderate inflation.

What gold is best for, and the reason why it is soaring at this time, is as a potential alternative currency.  With the Fed trashing the US Dollar on an ongoing basis, and with the market assuming that they will continue to do so in an ever-increasing fashion, one must look for a different store of value for one's savings.  While large-scale dollar devaluation is wonderful for eliminating old debts, it destroys the value of all capital that is denominated in US Dollars.  Hence, producers and savers must look for a way to retain the value of their holdings.

There are many potential assets into which one can convert his increasingly-worthless dollars, but there are issues with most of them:  illiquidity (real estate), spoilage (food), valuation difficulties (diamonds), potential devaluation (other fiat currencies), etc.  What is needed is an alternative currency, something which can maintain its value and is at the same time easily tradable.  Gold and other precious metals work very well in this regard.

To see why gold, as opposed to other assets, can be a successful currency, let's examine the characteristics of a currency.  A currency must be:

• Durable -- it must not degrade over time.
• Non-consumable -- even if used for other purposes, it must be recoverable
• Relatively rare -- it can't be something so common as to be worthless
• Relatively common -- there must be enough of it to circulate
• Difficult to produce -- it can't be something everyone can get or make in quantity
• Easy to verify -- counterfeiting must be avoided
• Easy to value -- it must be completely consistent and measurable
• Agreed upon -- most people must be willing to accept it as a means of trade

Gold passes all these tests.  So does silver.  One doesn't hear about 'silver bugs' simply because silver is more common than gold, but it would make an excellent smaller-denomination currency.

If one looks at the history of gold pricing (especially the period since restrictions on valuation and private ownership were lifted in the 1970s), gold has risen when the value of the US Dollar was in doubt.  When people had faith in the US Dollar as a store of value, gold drifted lower towards its base industrial and jewelry value.  Today, gold is soaring as the value of the US Dollar (and other fiat currencies) is being questioned more strongly than ever.

What should today's saver / investor do about gold?  That largely depends on how one believes the Fed will act.  If one believes the Fed will continue to destroy the value of the dollar, one should buy gold and other good alternative stores of value.  If one believes the the Fed will get its act together and stop the current insanity, it would be a terrible time to buy gold.

I believe that one should always have some gold, for the simple reason that a central bank (or treasury -- whatever government function controls the currency) can always decide to devalue a fiat currency.  However, I also believe in diversification.  To the extent one can afford them and/or has space to store them, one's 'portfolio' should include real estate, silver, hand tools, a generator, food, fuel, a high-quality water filter, whiskey, etc.  Essentially, one should have things that hold value, are tradable, and/or are used to produce trade and survival goods.

Best of luck to all in these uncertain times.

Posted by: Hermit Dave at 09:25 AM | Comments (2) | Add Comment
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