Obama’s Special Purpose

Robert Scheer has written a nice commentary on Obama, “Hope Burning.”  In it he identifies Obama’s complicity and extension of many of the most abhorrent policies of the Bush Administration.  Obama has gone even further, ordering drone strikes of U.S. citizens abroad, with no trial, judge, or jury required:

So now we have Rambo Obama, a steely warrior who, according to a lengthy leaked insider account in The New York Times, hurls death-dealing drones at anyone who threatens the good old USA. Including children.

Obama as the cool triggerman is an image useful to White House operatives as they buff the president’s persona for the coming election. But what it reveals is the mindset of a political cynic whose seductive words cloak the moral indifference of a methodical executioner. Forget Harry Truman, who obliterated the civilian populations of Hiroshima and Nagasaki, or Lyndon Johnson, who carpet-bombed millions in Vietnam. The Democrats have got themselves another killer, one whose techniques are as devastatingly effective, but brilliantly refined.

[Quoting the N.Y. Times] Without showing his hand, Mr. Obama had preserved three major policies—rendition, military commissions and indefinite detention—that have been targets of human rights groups since the 2001 terrorist attacks.

I have earlier speculated why Obama was brought seemingly out of nowhere to win the 2008 election.  Why Obama, when either Clinton or McCain would serve quite well those in power?  Why was it necessary to rush Obama out years before his time, when Clinton was primed for this role, and would certainly have won?  My thoughts are contained here.

From my earlier post:

As only Nixon could go to China, it seems to me only Obama could do what was desired: Only Obama had the track record (or lack thereof) to defy the democratic base and continue the wars. Only Obama could extend the Patriot Act and sign NDAA into law. Yes, Clinton too is a democrat, but had nowhere near the anti-war / pro-civil liberty credibility that Obama had. Clinton had too much baggage – even with the democratic base – to carry into office. Clinton was a known entity, and already came with very strong negatives. She was not trusted by many, including some on her own side.

Returning to the piece by Scheer, he identifies this betrayal of the left; Obama as the bait-and-switch candidate (not unlike FDR):

This is clearly not the Obama whom many voted for in the hope that he would stick by his word, including the pledge he made on his second day in office to ban brutal interrogation and close the prison at Guantanamo Bay in Cuba.

Scheer goes on to identify the N.Y. Times as complicit in this act, behaving as the government’s public relations arm, reporting administrations statements uncritically, removing the “alleged” before the executed “terrorist”, etc.

And how does the Obama Administration justify this policy?  The 21^st century version of due-process in America:

The Obama answer to those human rights groups is the same as that offered by George W. Bush: Get the Justice Department to say that anything goes.

Finally, Scheer quotes Michael Hayden, a director of the CIA under Bush and now an adviser to presumptive GOP nominee Mitt Romney:

This program rests on the personal legitimacy of the president, and that’s not sustainable. I have lived the life of someone taking action on the basis of secret O.L.C. memos, and it ain’t a good life.

Want to bet that if Romney wins, Michael Hayden will have no problem aiding Romney in enjoying the same life?

Scheer concludes with the recognition that such is not the behavior of political leaders in a democracy – democracies do not make war this way:

But imperial plutocracies do.

Jim Rickards and a Gold Audit

Jim Rickards has written a column about the benefits (and lack thereof) of performing an audit of the U.S. gold reserves.  I will begin with one of his conclusions:

Gold remains the 8,000 ton gorilla in the room; the thing that is too big to ignore but that no one wants to discuss. The international monetary system and the role of the dollar are in dire straits even if all of the gold is where it is supposed to be. It is not necessary to fantasize about phantom gold in order to see that a monetary crisis is imminent.

I agree with this.  Whether or not the United States has possession (both physically and contractually) of the gold it claims to have is somewhat irrelevant to the economic mess that the elite have driven the world into.  With or without this gold, there is continued difficulty ahead, and no lasting recovery without first a settling of the debt bubbles that have been created globally.  But this is somewhat beside the point, and Rickards throws out several strawman arguments and irrelevant points to convince the reader that there is no point to an audit.

Rickards points out that the critics of the Fed and U.S. Treasury use as evidence that the gold isn’t there the fact that these entities do not perform an audit.  What is there to fear of an audit if the gold is where it is supposed to be and legal documents support public claims.

He compares an audit of gold to the audit of acorns in the U.S. National Parks:

Gold was officially demonetized by the International Monetary Fund in 1973 not long after President Nixon ended the convertibility of dollars into gold in 1971. Since then gold has been continually disparaged as a monetary asset, most recently in the remarks of Federal Reserve Chairman Ben Bernanke that the possession of gold by the United States was a mere "tradition." If that were so, why would the United States audit something so unimportant? An audit suggests that gold is somehow meaningful and deserving of respect. The official position is that gold is a legacy asset of no particular importance. In this context, refusing an audit makes sense. An audit would give gold too much credit and start to erode the official propaganda that gold is not a monetary asset. After all, no one audits the number of acorns in the national parks--they are too unimportant.

In other words, auditing the gold would give gold “credibility,” and as we all know the money elite want the common people to believe that  gold is not credible as an asset – as Bernanke says, held merely for tradition.

This does not hold, and it does not hold based on Rickards’ own words.  He identifies the locations where the gold is stored:

Officially the U.S. Treasury is in possession of 8,133 metric tons of gold stored mostly in two large depositories--Ft. Knox, Ky. and West Point, N.Y.--with smaller amounts on deposit at the Denver Mint and the Federal Reserve Bank of New York.

The two main locations are military installations – seemingly a proper location to store such a valuable asset.  Not a proper location for storing acorns.  Someone in power must feel gold is a valuable thing to store.

He gives a second reason not to conduct an audit:

Another reason has to do with not calling attention to a host of ancillary questions. Assume the audit were conducted and everything was in good order, that the United States had the right number of ingots of 99.99 percent purity and everything was numbered and in its place. This would immediately lead to other questions. Is the gold leased? To whom? On what terms?

Again, this doesn’t hold water.  Aren’t these questions part and parcel to conduct an audit of ownership of assets?  Individuals conduct title searches when buying a home – it is not enough that the home exists at the claimed address; title must also be understood.

Some naively assume that if the gold is leased to commercial banks such as J.P. Morgan that the leasing bank backs up a truck and takes it away. That is not true. The gold can be leased in paper transactions without ever leaving Ft. Knox or West Point. The leased gold can then be rehypothecated by J.P. Morgan to other banks and so on until multiple parties all claim some title to the same physical gold. That gold goes on to support an even larger inverted pyramid of "paper gold" transactions in futures, options, forwards, swaps, and so-called unallocated storage. One reason not to do an audit is to avoid all of the awkward legal title questions that would arise once the physical existence issue was settled. The Treasury would rather ignore gold than open Pandora's Box.

What Rickards is describing here, almost in passing, is fraction reserve gold backed by the power of the Federal Reserve and U.S. Treasury.  The same system that has caused an unstable financial system is possibly being used with gold.  And this is treated almost as a non-event.

I have not heard anyone “naively assume” that J.P. Morgan backed up a truck and took away the gold.  If people “naively assume” this, why would they ever ask the question of conducting a title search on the ownership of the bars?

Of course, the Treasury wouldn’t want to open a Pandora’s box – but this suggests there is a Pandora’s box to open.  It is precisely for those nagging “awkward legal title questions” that one audits not just the physical asset, but also the paper trail.

Rickards’ final conclusion is also off the mark:

The Fed and Treasury refusal to audit gold is part of their painstaking effort to deny that gold is still at the heart of the system. No more elaborate explanation is required.

But even Rickards has made a more elaborate explanation – his concern that an audit would lead to questions about title – and that this nuisance would be too much bother for the Treasury.

Rickards has some purpose in writing this editorial.  He has gained some credibility in the gold crowd and the conspiracy theory crowd.  He regularly appears on King World News, alongside advocates for gold and sound money, and critics of the current monetary schemes.  Perhaps one of his roles is to move the dialogue of these groups in a certain manner.   I believe all he will achieve is losing the credibility he has built with these groups.

However, I revert to the first part of Rickards’ conclusion, cited above.  Whether the gold is there or not is somewhat secondary.  The world generally and the U.S. specifically is in deep trouble economically.  That the gold is or isn’t physically and legally where the Treasury says it is will not change this fact. 

Where Rickards’ is wrong is that he doesn’t look beyond this.  Rickards himself claims that the replacement for the current dollar-based global monetary standard will include some component of gold.  To the extent he believes this, it would be beneficial if the gold was where the Treasury said it was.  Then again, as long as the gold is physically at Fort Knox and West Point…well, possession is nine-tenths, and all that.

It would be far more beneficial if the gold was in the pockets of average Americans, but I am quite certain that J.P. Morgan didn’t pull up their truck full of U.S. Government gold into my driveway.

George Soros: An Austrian by Any Other Name

Excerpts are taken from the text of the speech given by George Soros at the Festival of Economics, Trento Italy:

http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/ 

I have, for some time, believed that many of the most successful investors believe and understand Austrian economics – specifically Austrian Business Cycle Theory and the Austrian view of central banking.  I believe they understand these and utilize the concepts in their investing strategy; however they do not say that they do, do not explain it as such, and often use the knowledge from this school of economics in order to advocate state actions that exacerbate the business cycle – in order to take better advantage of the economic and financial dislocations.  Further, I believe that it is likely that some of these investors utilize these concepts without fully knowing that these are Austrian – Austrian free-market concepts are based on common-sense; you know, like wealth doesn’t come from a printing press.  It is possible to fall into this camp and not realize that there is a label that goes with the ideas.

That long-winded introduction was for the purpose of introducing this speech by George Soros.  I believe he is one who understands Austrian economics and I suspect he even knows that what he understands is Austrian.  I believe he uses this knowledge in his investing approach, and certainly he advocates policies that exaggerate the market inefficiencies that enable even larger out-sized returns.  The added advantage is that, in supporting such interventionist policies, he is seen as fully supportive of the interventionists – therefore his comments cause him no powerful enemies (I think he learned the negative side of making enemies after helping to take down the pound.)  In fact, it enables him to make friends with some in the innermost circles.

Which leads me to this speech. Soros discusses concepts that are rather Austrian:

I believe that the failure [of modern economic theory] is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore.

Social events, by contrast, have thinking participants who have a will of their own.  They are not detached observers but engaged decision makers whose decisions greatly influence the course of events…. [A participant’s] lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics.

I am not an Austrian scholar; however it strikes me that these words could have been written by Ludwig von Mises himself.

Instead, I should like to put before you a radically different approach to financial markets.

Could it be that Soros is ready to spill the beans?  Before he kicks the bucket, perhaps he wants to clear his conscience?  “I am Austrian, and Hayek was my friend,” he is ready to shout from the rooftops!

It was inspired by Karl Popper who taught me that people’s interpretation of reality never quite corresponds to reality itself.

I have not heard of Karl Popper as a founding light of Austrian economics.  Let’s find out what Karl Popper has in common with Ludwig von Mises:  according to Wikipedia, both were born to Jewish parents, both attended the University of Vienna, both left Vienna in the mid-1930s.  The similarities seem to end there.  It would seem that Soros picked the wrong Austrian. Instead of explaining the Austrian Business Cycle Theory and the boom-bust cycle brought on by central banks and fractional reserves, Soros is explaining a different theory, based on Popper:

I found a two-way connection between the participants’ thinking and the situations in which they participate. On the one hand people seek to understand the situation; that is the cognitive function. On the other, they seek to make an impact on the situation; I call that the causative or manipulative function. The two functions connect the thinking agents and the situations in which they participate in opposite directions. In the cognitive function the situation is supposed to determine the participants’ views; in the causative function the participants’ views are supposed to determine the outcome. When both functions are at work at the same time they interfere with each other. The two functions form a circular relationship or feedback loop. I call that feedback loop reflexivity. In a reflexive situation the participants’ views cannot correspond to reality because reality is not something independently given; it is contingent on the participants’ views and decisions. The decisions, in turn, cannot be based on knowledge alone; they must contain some bias or guess work about the future because the future is contingent on the participants’ decisions.

This seems very complex, and a round-about way to explain what should be simple (and where it seemed Soros might be headed): central banking, as a form of central planning, has enabled infinite ability to create credit, and we are now suffering the consequences of this philosophy.  Maybe this is what Soros is saying, but if he is about to break free, why not just come out and say it?  It is possible (to the extent these words are understandable) to still get to Austrian economics while taking this path, I suppose.

Among other things, I developed a model of a boom-bust process or bubble which is endogenous to financial markets, not the result of external shocks. According to my theory, financial bubbles are not a purely psychological phenomenon.  They have two components: a trend that prevails in reality and a misinterpretation of that trend. A bubble can develop when the feedback is initially positive in the sense that both the trend and its biased interpretation are mutually reinforced. Eventually the gap between the trend and its biased interpretation grows so wide that it becomes unsustainable. After a twilight period both the bias and the trend are reversed and reinforce each other in the opposite direction. Bubbles are usually asymmetric in shape: booms develop slowly but the bust tends to be sudden and devastating. That is due to the use of leverage: price declines precipitate the forced liquidation of leveraged positions.

Wait a minute - George is describing a mental bubble.  But why would all market participants share the same trend misinterpretation at the same time?  To what market signals are they reacting?  In other famous words, who is standing at the punch bowl and serving the punch?  Maybe the answers to these questions are forthcoming.

Well, not directly.  Soros goes on to a discussion of the Euro crisis.  Perhaps it is here that he will apply in detail his conclusions based on this “Road to Mises” that he is on (is that a Bob Hope movie?).  Now we will have answers.  Saints be praised, Soros is coming out of the closet! 

He begins by explaining the history of the European Union – step by step, drip by drip, with the faith that each step would always lead to the next on the road to complete centralization: from the Coal and Steel Community to the Maastricht Treaty and the introduction of the euro.

The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.

But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. In retrospect it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank their rights to create fiat money.

The source of the trouble is the inability for each country to create fiat money on its own authority?  This doesn’t sound like Mises. 

He goes on to explain in some technical detail why the structure of the Maastricht Treaty and the Euro would inevitably lead to the crisis that Europe now finds itself in.  On one level, his explanations may very well be accurate – in an environment of fiat money and further centralization, where the duration possible for deficit gain without economic pain is extended due to the subsidized borrowing rates afforded to periphery countries based on the perceived strength of the union, it is difficult to succeed if state freedom in creating fiat money is curtailed.

He further explains that, due to the lack of complete knowledge in the European technocrats charged with solving this dilemma, many policy mistakes are now being made, and in fact the problems are being exacerbated.

This is right on point with Hayek’s Pretense of Knowledge – and completely consistent with the analysis Soros used to begin this speech – no actor has complete knowledge, and the knowledge each actor has is imperfect and flawed based on the expectations and experience of the actor himself.  If it is true for the individual actor, acting on his own behalf, it is infinitely more true for an actor pulling the levers of super-centralized bureaucracies.  Perhaps there is hope that he will yet return to expose himself as the Austrian he really is (in the economic sense, of course).

Financial institutions are increasingly reordering their European exposure along national lines just in case the region splits apart. Banks give preference to shedding assets outside their national borders and risk managers try to match assets and liabilities within national borders rather than within the eurozone as a whole.

I have long felt that the step described here by Soros would be one step on the path to the inevitable breakup.  Banks would reduce exposure to the sovereign debt of countries not their own.  They would do this passively at first, by buying less debt from others (Deutsche Bank would replace maturing Spanish debt it held with new German debt, and Santander would do the opposite), but eventually this would become an active policy:  Santander and Deutsche Bank will swap government bonds of like duration – Santander will swap out of its German bonds, and Deutsche Bank will swap out of its Spanish bonds.  There is certainly a question of pricing, and to make this transition happen more smoothly, Germany may agree to the swap at market price.  Spain certainly would!

With this step, escape from the Euro will be much easier, and bank nationalization will follow.  Each sovereign will then be free to deal with their own national banks.  I see this as a great step – anything that leads to further political decentralization can only be good for freedom – first the Soviet Union, then Yugoslavia and Czechoslovakia, today the European Union and perhaps one day the end of American Empire.  Maybe this is also the way Soros sees it.

The indirect effect of this asset-liability matching is to reinforce the deleveraging process and to reduce the availability of credit, particularly to the small and medium enterprises which are the main source of employment.

Or maybe not.  I don’t think Soros would bring up “deleveraging” and the reduction of available credit in this way if he thought this path was a good solution.  Further, just as politicians use “the children” as the excuse to pass any myriad of new controls, Soros here invokes the small and medium enterprises as the victims of this deleveraging process (just as Americans were “sold” on the financial bailouts as necessary for small businesses to meet payroll), as if small businesses have ever benefited from any government program.

Correcting the mistakes and reversing the trend would require some extraordinary policy measures to bring conditions back closer to normal, and bring relief to the financial markets and the banking system.

Extraordinary policy measures?  Back to normal?  Whoa there, I am pretty well convinced this train is on a different track.

Banks need a European deposit insurance scheme in order to stem the capital flight. They also need direct financing by the European Stability Mechanism (ESM) which has to go hand-in-hand with eurozone-wide supervision and regulation. The heavily indebted countries need relief on their financing costs. There are various ways to provide it but they all need the active support of the Bundesbank and the German government.

Soros is clearly advocating for further centralization, further government interference in the markets – this is certainly not Misesian.

As mentioned before, the gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years’ time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself.

Ah, I see now – he is only trying to buy time.  It is necessary to further centralize in order to come to an orderly decentralization.  In fact, he believes a chaotic decentralization would result in the destruction of the best aspects of the European experiment – open borders for people and goods.  Soros wants to destroy national sovereignty in order to save it, and reduce individual freedom in order to protect it!

He then lays it on the Germans: the Germans must carry this load, because a breakup of the Euro and the EU – especially a disorderly breakup – would harm Germany more than it would harm the periphery countries. 

We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.

I am not sure when the European Union ever “used to be” a “fantastic object,” but that is a side issue.  Germany must die so that others may live – and then Germany will raise itself from the dead, apparently.  Sadly, only one person ever told that story and made it believable by living it – and that person wasn’t George Soros.

Unfortunately I must conclude that Soros is not on the road to repentance.  He has not found Mises and the Austrians – well, he has found AN Austrian, but…well, never mind.  I am starting to confuse myself.

After rightly explaining that the timing of the bust cannot be predicted, Soros goes on to claim that European leaders have three months to resolve this before the markets take control.  How would he know?  This three month pronouncement was the headline from this speech in the mainstream accounts, and it was certainly placed for effect – to light a match under the policy makers. 

In this speech, Soros explains well that no man has perfect knowledge, but acting as if he does is what gets man in trouble.  He then goes on to suggest that what is impossible for one man acting on his own account is possible for a few men acting on everyone else’s account.

Soros is not this blind.  Without writing again my introduction in full, it will suffice to say that Soros knows Austrian economics, advocates for policies acceptable to the oligarchs that also (surprise, surprise, surprise), build even greater market inefficiencies for him to exploit.  And he won’t yet admit to any of it.

Gary Johnson, Libertarian?

http://www.lewrockwell.com/politicaltheatre/2012/06/how-libertarian-is-gary-johnson/ 

Lew Rockwell has posted this interview that Bob Wenzel has conducted with Libertarian Candidate Gary Johnson.  To summarize: I know libertarians, and Gary Johnson is no libertarian.

It is too bad that the Libertarian Party has moved so far from a party of ideas.  Ron Paul has demonstrated how far a platform of libertarian ideas can go – from fringe thinking to where he regularly polls as equal to Obama in national elections.

He has set the table for others to build upon.    The Libertarian Party could carry this torch, but failed to do so in 2008 and now also in 2012.  In Gary Johnson, the Libertarian Party has a candidate that speaks better on social, military, and economic issues than do those with mainstream Republican (Romney) and Democrat (Obama) positions.

But they do not have a libertarian, one with an understanding of liberty deep enough that he can teach.  From the interview, while it is clear Johnson has not read Mises, Rothbard, or Hazlitt, it is not so clear that he has even heard of these men. 

He cites Milton Friedman as his major influence of libertarian thinking – for example, Friedman’s (apparent) position on people being allowed to keep their gross pay and then writing a check to the government – thus seeing first-hand the direct economic bite that government costs the individual.  Bob Wenzel properly points out that it was Friedman that developed the entire mechanism of payroll tax withholding. 

Johnson goes on to cite Cato and Reason as sources of his libertarian education.  In the case of Cato, they are only libertarian in the context of dialogue acceptable to the oligarchy – attempts at influencing policy towards a government that doesn’t grow as fast in all the places government is growing today.  In the case of Reason, as I have mentioned before, 30 years ago I found much in Reason that helped move me along in my libertarian journey.  As time advanced, i found Reason to be more libertine than libertarian.  In any case, the magazine’s attacks in the past of Ron Paul were sufficient for me to count them out.

The Libertarian Party has once again succeeded in nominating a candidate not only certain to lose the election (however, given the state of ballot access laws that significantly penalize third parties of all stripes, this is almost a certainty no matter the candidate) but also one that cannot help lead the movement forward – Gary Johnson cannot do this because he has no knowledge or education on the true foundations of freedom and liberty.

The lessor of three evils, while perhaps significantly better than the lessor of two evils…well, it isn’t good enough.  And it won’t do anything to advance the cause.

But perhaps that is the point of nominating individuals like Bob Barr in 2008, and now Gary Johnson today.