Fiatch

Who was Charles Ponzi?
Who’s really running Ponzi schemes?

Please read this piece, follow its links, and then forward it to friends.

The Austrians get it.

You probably thought that payments such as unemployment benefits were provided via some sort of trust fund, right?  After all, the government commands under the muzzle of a gun that you contribute to this program, and government officials are so bright, capable, and selfless, correct?

Think again.

Florida has borrowed $45 million to pay the unemployed and officials estimate that it will borrow $1.2 billion by the end of the year for such payments.

Florida is the 19th state to borrow money to keep unemployment benefits flowing after the trust fund ran dry.

There is no trust.  There is no fund.  It’s just more theft present (taxes) and theft future (debt and/or inflation).

It’s often hard for the victim to admit to being conned.  Think again.

HT Robert Wenzel

[photo source]

Nevada 1, California 0.

HT Robert Wenzel.

The Market Ticker writes:

At 5% of non-performing loans a bank is at risk of being insolvent.

But the entire banking system in the United States had its non-performing loan ratio increase from 5.58% in the first quarter to 6.49% in the second, a record, and higher than the 5% level at which the survival of a bank(ing system) is threatened with collapse.

Hmmmm….  So should we take from this that the entire US Banking System is about to collapse?

This much we know for certain - you’re being screwed - systematically - to cover the sins of these banksters who made loans to people who they had no reason to believe could pay…

This is the problem with allowing the blatant and outrageous fraud in our system to continue: Those who are prudent, who have done only good and not bad things, get reamed repeatedly and are forced, at gunpoint, to pay for the sins of those who committed that fraud.

Yet we, as Americans, permit this…

Folks, wake the hell up.

Read the whole thing.

Emmanuel Goldstein captured the dynamic well.  What happens if “Don’t Tread on Me” becomes “Come and Take It?”  What happens if it doesn’t?  Federal power apparently knows no other bound.

What builds trust?  What destroys it?  What store of value is safe?  What if the ideas of the Austrian economists are correct?

Life Imitating Atlas continues.

Robert Murphy cites “US Pay Czar Says He Can ‘Claw Back’ Exec Pay:”

Asked by Reuters if he could use that ability to target a firm like Goldman Sachs which paid back $10 billion in bailout money, [Pay Czar Kenneth] Feinberg said: “Anything is possible under the law.”

He also writes:

Now pretend for the moment that you are a really talented financial executive, the kind of person that could actually turn AIG or Citi around. Just how insane would you have to be, to sign a contract with them? Chances are, the firm will sink, and on the off-chance that it doesn’t, you will have Chuck Schumer reading your home address during Congressional hearings so that ACORN knows which house to paintball.

Anything is possible.  Under the law.

Who is John Galt?

[photo source]

These clips span more than four years.  I ask again: Was the Fed Chairman lying or just totally wrong?

In either case, should we make the financial system yet more fragile and inflexible by adding to the immense power held by this position?

Btw, if you have friends who would like to follow intelligent market analysis and economic insight, refer them to SpongeBob SquarePants before you direct them to CNBC.  Ugh.

The value of CNBC derives from two sources:

1. Seeing what smokescreens and con games are currently in play; and
2. Catching the occasional appearance by Jim Rogers, Marc Faber, Peter Schiff, Dr. Ron Paul, James Grant, et al.

Reportedly, The Federal Reserve has already begun monetizing the US Treasury’s debt:

“The speed of the shell game is accelerating.”

Chris Martenson (via Karl Denninger and Robert Murphy)

What’s the term for making promises you know you cannot keep?  These days, it’s apparently about 7 years at 3 1/4%.

[photo source]

According to Robert Wenzel, life is now imitating Atlas into its later, more perilous chapters.  What happens next?

“I expect there will be some failures” of smaller banks. “Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”

Federal Reserve Chairman Ben Bernanke, February 2008

Was the Fed Chairman lying or just totally wrong?  In either case, should we make the financial system yet more fragile and inflexible by adding to the immense power held by this position?

Btw, have you noticed how often commentators mention that Bernanke is an “expert” on the Great Depression?  If I had a dollar for every time I’ve heard that bit, I’d exchange all that paper for gold.

Do we not con ourselves with such talk?  It is naturally somehow comforting to believe that our problems will lessen or disappear because some single expert can devise the solution to save us.  As with all myths, though, reality differs from the tale.

While it is of course important that officials represent the best and the brightest, it is folly to believe that any central planners can be so smart as to know how to allocate scarce resources better than markets.

Hayek’s concept of “the fatal conceit” nails it:

The belief that one person or group, no matter how smart, can know how best to allocate resources is a classic example of what the Nobel Laureate economist F. A. Hayek called “the fatal conceit.”

In Hayek’s view, what enables businesspeople to make good decisions about the allocation of resources is not that they are smarter than other people. Instead, two other factors are key.

First, businesspeople have very detailed knowledge of their particular corners of the world. They know where resources are, where their customers are and what they want, and have the experience of knowing how to deliver it. This is not about being “smarter,” but about having local and contextual knowledge that others don’t have.

Second, entrepreneurs develop this knowledge by making use of the signals provided by prices, profits, and losses. Prices guide entrepreneurial decision-making by enabling them to formulate budgets and estimate the profitability of the various choices they might make.

Profits and losses provide information after the fact about how well they chose. Profits signal them to continue, while losses tell them that resources need to be reallocated. By acting on the basis of that information, each entrepreneur contributes to the overall improved allocation of resources.

The lesson from Hayek is that when the rules are right, markets are collectively much smarter than any individual or group within them. This is the lesson that the Obama administration has utterly missed.

Let us have new financial regulation.  Let us have heath-care reform.  With both, let us empower markets and reduce the role of command-and-control central authority.

[Chairman Bernanke photo and quote source]

Read “Paulson’s Calls to Goldman Tested Ethics During Crisis” in the NYT.

Let markets allocate.  Centralizing this level of authority is a bad plan.

Reuters reports:

U.S. Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October.

“It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations,” Geithner said in a letter to Senate Majority Leader Harry Reid that was obtained by Reuters.

Robert Murphy posted a decent question in response:

When somebody owes you money, do you feel reassured when they say, “It’s fine, I’ll pay you back. I just got a new credit card?”

What builds trust?  What destroys it?  What store of value is safe?

Why do we still pretend?

HT Robert Wenzel

Robert Murphy linked to this nugget:

Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors’ federal class action claims the state is trying to balance its budget on their backs.

Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California “paid” her with an IOU that two banks refused to accept - yet she had to pay California sales tax on the so-called “sale” of the uniforms.

California, well past flat broke, squeezes its productive citizens even more.  As the walls come tumbling down, why do we still pretend?

When the walls come tumbling…

Cities and counties are tumbling to states for funds.  States are tumbling to the federal government.  Seemingly without reservation, The Feds are running the presses as fast as they can.

For now, “It’s good to be the [reserve currency].”

See Mish’s”Pension Crisis Hits Critical Mass in West Virginia.”