Hardly anyone would contest that the State does not exert some level of influence over the lives of every one in its given territory.  Only a few would even claim that the State has never overstepped its bounds and trampled the lives and rights of various individuals from time to time.  It is always a matter of conjecture, however, when trying to ascertain whether or not the State has acted unfairly or criminally towards the individual that lashes out.  It is also not worth contemplating, for the individual who lashes out violently in reaction to the State is wrong.  There is only one justification for using violent means against the State: in self defense.  In other words, only when the State is using violent aggression against your life or the lives of your family is it ethically acceptable to retaliate.  Perceiving that your life and well being are in danger is not enough. You can run. You can escape. You can live, breathe, write, speak, and educate. You may not be completely free, but neither are the oligarchs of the State. Call it even and work on the ideas of freedom as you work on gaining your own freedom.

Over the last month, two events have shaken the Libertarian crowd.  Joe Stack, an enterprising engineer, flew a small plane into the IRS office in Austin, Texas after apparently suffering 25+ years of tax troubles.  John Patrick Bedell, an outspoken critic of the government and 9/11 truth advocate, opened fire at an entrance to the Pentagon.  Both Bedell and Stack left behind testimony that indicates a trail of State abuse, some real and some imagined.  Both acted criminally.  That Bedell was a registered Democrat does not ease my concerns.  That people of all ideologies have committed similar crimes and are equally likely to lash out at any time makes me no less outraged.  That the State engages in murder on a daily basis, cloaked in the veneer of democratic multinational interventionism, makes me no less ashamed.

Both outbursts of violence should be roundly condemned by the Libertarian community, yet I have seen no such condemnation.  Perhaps I missed it.  In lieu of such response from a well known writer, I offer you mine. 

Naked aggression against the lives of others, no matter who they work for, is a violation of the Non Aggression Principle.  It serves no purpose except to exercise the immature outrages of a frustrated person and can bring about no permanent change in society.  Ideas make society and not the other way around.  If your ideas allow for the drawing of blood, or worse explicitly, call for blood to purge various evils you think are confronting you, then a society of blood thirsty revolutionaries will be your tribute.  This lesson has been learned the hard way by Reds and Libertarians, though it is still lost on those who think Democracy can be spread by the sword.

Tu ne cede malis sed contra audentior ito.

One way to proceed boldly against evil is to fight in the battlefield of ideas. You can not expect, nor should you desire, to make the world all over again by yourself.  That is a popular delusion often used to inspire hope while shielding the con artist’s true intentions from the public.  If you only help one person to understand the beauty of liberty, the idea has survived for another day, another life.  That is all you can expect of this world.  Today, we can accomplish so much thanks to the democratization of ideas over the Internet, and we are winning victories in the minds of Americans every day.  If people will not listen, perhaps it is you that is the problem.  Perhaps you are just not very good at explaining those ideas which you intuitively grasp. Perhaps, like the natural division of labor in society, there are other specializations in which you excel.  Educating others is just one of an infinite number of ways to make the world better.

Never forget that liberty is not the only thing which makes this world great.  Even under the yoke of authoritarianism people can love their families, work together, and share joy.  Even in the worst of circumstances, people can still make the world tolerable.

Naked aggression, however, does not make our world better.

David Burns

Unbeknownst to Peter, his plan would have been perfectly legitimate if he were the Chairman of the Federal Reserve rather than a lowly programmer, working long weekends under Bill Lumberg’s micromanaging eye.

The Peter Gibbons School of Economics has a simple premise: 

- There is money available for the public good. 
- That money is being hoarded by an evil entity, the capitalist class. 
- Taking that money, if done in very small amounts spread acoss a large number of transactions, has no negative impact on the public good.
- On the contrary, by placing that money in the hands of spenders, the money will flow through the economy, stimulating more demand and employment.

Sounds familiar, doesn’t it?

In case you are still fuzzy on how this all works, Peter explains the concept brilliantly to his skeptical girlfriend (I apologize that I don’t have the exact lines, but I’ve seen the movie enough times that my memory is pretty close):

Peter: It’s like the tray at the store with all the pennies.
Joanna:  You mean the cripple tray?
Peter:  No, I mean the Take-A-Penny Leave-A-Penny tray.  That’s all we’re doing.  And it’s just a fraction of penny, only we’re doing it from hundreds of trays, thousands of times a day.
Joanna:  And how is that not stealing?
Peter: It’s not stealing.

Replace Peter with either Alan Greenspan or Ben Bernanke and replace Joanna with Ron Paul and you have the crux of every debate they’ve had over the last 20 years.

An Interesting Read

Outside of Garet Garrett, my favorite libertarian writer might be Henry Hazlitt. Even though his time covered the New Deal and the post WWII reconstruction, his insights into the workings of modern political economy ring true today.  His observations are brilliant and his logical analysis of the various government schemes for economic planning are devastating.  Unfortunately, those familiar with his work know that no one in government has ever paid any attention to Mr. Hazlitt.  They repeat the same fallacies over and over and over again. 

The Illusions of Point Four (pdf) is a lengthy essay (48 pages) cutting through the fantastical promises of foreign economic aid.  Specifically concering a plan by Harry Truman called the Point Four Program, Hazlitt’s analysis applies to all American efforts to improve the well being of foreign peoples through government aid.  He exposes economic fallacy after fallacy that make up the core of the aid program and also brings to light the Communist origins of foreign aid programs in general.

One of the best passages concerns the idea of privatizing profits for American investors while socializing losses for American taxpayers. Ha!  Where have you heard that before?

Private enterprise is to be “encouraged.” How? By authorizing the Export-Import Bank to “guarantee United States private capital against the risks peculiar to those [foreign] investments Some investments may require only a guarantee against the danger of inconvertibility, others may need protection against the danger of expropriation and other dangers as well.”

What is the President here proposing? He is proposing that in order to induce American private investors to risk their funds abroad, we are to allow these private investors to keep the profits of their investment, but to force the American taxpayers to assume the losses. - Hazlitt, The Illusions of Point Four, page 31.

I am reminded of Jorg Hulsmann’s opening remarks at Mises University this past summer:

I love you….. and I hate government. 

Have a great week!

David Burns

The other day on DeLong’s blog, Brad was reviewing an article summarizing the struggles currently facing our economy.  Among the author’s conclusion was that if wages were allowed to fall, the economy would be in much better shape going forward.  DeLong, like every good scientific socialist, is a champion of shedding crocodile tears for the working man.  He rejected that idea.  What solution does he propose instead?  If you guessed “bigger deficits,” you get a star.  In typical Keynesian fashion he reasons that running larger deficits would boost employment and aggregate demand without the nasty trade-off of reducing “real wages.”

Stop right there.

Before we can understand why DeLong is misguided it’s important to understand the Keynesian view of The Great Depression.  So as not to take apart a strawman, feel free to add a correction if needed in the comment section.  In the typical Keynesian view, Hoover was a laissez faire “do nothing” President.  Often, you will hear DeLong call him a “liquidationist,” a supposedly derogatory term that means he wanted to liquidate the bad assets.  According to Keynesians, the market could not self correct because wage earners did not or could not find work at lower wages (”sticky wages.”)  Along comes FDR, he solves the sticky wages problem by running a huge federal deficit, employing millions in public works programs, and the economy starts to turn around by 1937.  Then FDR makes the mistake of reducing the deficit, caving to the “nihilists” that were worried about spending, and the economy tanks again.  Only the massive federal spending of the war brought America out of Depression.

That’s pretty much the story. So what’s wrong with this picture?

1. The idea that Hoover was a liquidationist comes not from Hoover, but from Hoover’s aides, many of whom urged Hoover to allow the market to self-correct.  In his memoirs, Hoover brags about how he ignored them and ran up the deficit anyway.  Hacks like DeLong and Krugman like to quote the people around Hoover to imply that Hoover acted the same way.  Hoover was a proud Progressive, a hyperinterventionist, and at every level of government service he attempted to meddle in the economy.  Hoover ran the largest deficit in American history up to that point.  FDR actually campaigned against Hoover’s deficits, claiming that Hoover’s administration was out of control. 

Here are 21 Hoover interventions that helped turn the depression of 1929-1930 into The Great Depression.  I urge you to click the link in the previous sentence if you are under the impression that Hoover was a do-nothing President.

2. The second sticking point in the Keynesian story is that the economy was turning around by 1937.  This might be true. It might not be true.  But is that really a great story?  Compare that with the Depression of 1920-1921.  In 1920, the economy contracted at a sharper rate than in late 1929-1930.  President Harding slashed federal spending and the economy fully recovered in less than two years. That doesn’t fit very well with the Keynesian story.  How did America avoid a Great Depression in 1920 without increasing the deficit, if the The Great Depression was caused by not increasing the deficit?  That doesn’t make a whole lot of sense.  Bad economics does not make sense.

3.  I’m too bored to discuss the ridiculous idea that human slaughter is good for an economy.  You are taking the Broken Window Fallacy and extrapolating it into the Broken Country Fallacy to believe such nonsense.  Like I said, bad economics does not make sense.

4.  That brings us to “sticky wages.”  If I take money from Paul to pay Peter to dig a ditch, Peter no longer has a sticky wage problem.  But what happened to Paul?  And what happens to the value of all wages when you engage in public works projects?  All wages, in the long run, will lose their purchasing power as the value of the dollar plummets.  This is why FDR had to take America off the gold standard, by confiscating private gold holdings in 1933, and then resetting the standard at $35.  (That’s right, an American President stole his citizens’ private gold holdings and yet historians hail him as a hero. Strange.) Everyone’s standard of living went down.  That’s what hapens when you rob Paul to employ Peter. Say it again, bad economics does not make sense. 

Can you tell that Keynesianism bores me?  It’s like studying witch craft.  It’s exciting for the first few minutes, but then you realize the whole thing is kinda silly and the witch doctor takes his practice a little too seriously.  It stops being cute.

Which brings us back full circle.  Do you understand now why Keynesians like DeLong believe we should be running huge deficits, that Obama is not doing enough, and why they hate the current Republican obstructionism?  Do you get why Ron Paul and libertarians, particularly free market supporters like our friends at Mises and Cafe Hayek, consistently draw their most hateful venom?

I get it. I’ve had enough of Keynesianism.

David Burns

In 1866, shortly after the Pennsylvania discovery, the U.S. Revenue Commission told that nation that once oil production ended in America, as it expected, there would be no need to worry about the availability of “synthetics.”

In 1909, the U.S. Geological Survey (USGS) warned that if the U.S. petroleum industry continued “the present rate of increase in production, the supply would be exhausted by about 1935.”

In 1922, the same agency forecast that oil supplies would dry up by 1942 at the latest.

In 1885, the USGS said there was little or no chance of finding oil in California.

In 1891, the USGS said there was little or no chance of finding oil in Texas.

In 1908, the USGS forecast the maximum future oil supply as 22.5 billion barrels.

In 1914, the U.S. Bureau of Mines warned that there were only 5.7 billion barrels of oil left.

In 1939, the U.S. Department of the Interior predicted that the United States would run out of oil by 1952.

In 1949, the Secretary of the Interior warned that the “end of U.S. oil supplies is in sight.”

In 1951, the U.S. Department of the Interior revised their prediction that oil supplies would run out by 1964.

In 1947, the Department of State warned that “sufficient oil cannot be found in the U.S.”

Is Peak Oil a valid theory?

Probably not, and if you are basing your Peak Oil scenario on a government forecast, be very, very careful. No human, government employee or not, can predict the future with significant accuracy. However, when it comes to government forecasters, being wrong has no impact on their future income. In the private sector, being wrong can cost you. (That is, unless the government comes in and bails you out with stolen taxpayer money.)

Can the Government Do Anything About Peak Oil?

What if I’m wrong? What if Peak Oil is a reality and the U.S. finds itself in another energy crisis like the 1970s? Should we look to the government to regulate our energy production? Can the government do anything to solve the problem of Peak Oil?

Let’s ask William E. Simon, the first energy czar. The Federal Department of Energy was created in 1977 and quickly set upon itself the task of employing every single economic fallacy in an attempt to stop the gas shortages. It was an orgy of arrogant, bureaucratic, conceit. According to Simon, calling it a tragedy would be kind:

“As for the centralized allocation process itself, the kindest thing I can say about it is that it was a disaster. Even with a stack of sensible-sounding plans for even-handed allocation all over the country, the system kept falling apart, and chunks of the populace suddenly found themselves wihtout gas. There was no logic to the pattern of failures. In Palm Beach suddenly there was no gas, while 10 miles away gas was plentiful. Parts of New Jersey suddenly went dry, while other parts of New Jersey were well suplied. Every day, in different parts of the country, people waited in line for gasoline for two, three, and four hours. The normal market distribution system is so complex, yet so smooth that no government mechanism could simulate it.”

The interesting thing here is that the U.S. attempted to institute a Soviet style planning regime (the DOE) in just one industry, and yet it was a total failure. Of course, with all government intervention there were unintended consequences. More from Simon:

“As the shortages became more erratic and unpredictable, people began to “top off” their tanks. Instead of waiting, as is customary, to refill the tank when it is about one quarter full, all over the country people started buying 50 cents’ worth of gas, a dollar’s worth of gas, using every opportunity to keep their tanks full at all times. And that fiercely compounded the shortages and expanded the queues. The psychology of hysteria took over. Essentially the allocation plan had failed because there had been a ludicrous reliance on a little legion of government lawyers, who drafted regulations in indecipherable language, and bureaucratic technocrats, who imaged that they could simulate the complex free-market processes by pushing computer buttons. In fact, they couldn’t.”

So what is a technocrat?

My Merriam-Webster dictionary defines a technocrat as “a technical expert; especially : one exercising managerial authority.” Well, that didn’t tell us much. What about technocracy? Again, according to Merriam, it’s “government by technicians; specifically : management of society by technical experts.”

Now that’s more like it. Technocracy is the antithesis of free market individualism. It’s a fallacy that has been very popular throughout history, particularly in the early days of the Nation-State. Technocrats are the modern day, scientific-looking ancestors of the Chinese mandarins, the intellectual guardians of the State’s thirst for plunder. And they have always been abject failures.

So What?

So know your enemy, that’s all. Technocracy is scientific soclialism in real life and it fails as spectacularly in real life as Bohm-Bawerk predicted it would when he wrote History and Critique of Interest Theories (1884.)

The Federal Reserve is a haven for technocrats, as are the various departments of the federal government. Do you know how many technocrats are currently wasting taxpayer money, churing out models and formulas that have absolutely no bearing on economic reality?

Why do they do it? They don’t care about consumers, workers or producers. In fact, they don’t care too much about freedom either. They loathe economic freedom. They want high taxation and high budgets. They want to do God’s work. They are your enemy. Oh, lest I forget… they also want your money. It sure beats working for a living.

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The world champion athletes at the Winter Olympics receive gold, silver, and bronze medals that contain roughly the same amounts of metal as the last Summer Olympics.

• A gold medal contains 550 grams of silver and is layered with just 6 grams of gold.
• A silver medal has 509 grams of silver and about 41 grams of copper.
• The bronze medals likely contain about 450 grams of copper and 50 grams of mostly tin and zinc.

At current market prices, a gold medal is exchangeable for about $494, a silver for about $260, and a bronze for just $3. If the gold medal was solid gold with the same mass, it would be exchangeable for almost $20,000.

While the Vancouver athletes are receiving the same amount of gold and silver as the Beijing Summer Olympics, world central banks – like the Federal Reserve – have been devaluing their currencies steadily for the past century or so to pay for the wild growth of government, non-stop warfare that have killed well over 170 million civilians, and the redistribution of wealth from those who worked for it to special interest groups. Sound money has been considered such a serious threat to the primacy of the state that virtually all dictators – Hitler, Mussolini, Stalin, and Mao top the list – have banned it so government spending cannot be checked.

FDR, during the midst of the Great Depression caused by the printing presses of the FED, outlawed all gold coins in the United States from 1933 until 1975. Americans still used silver in their coins up until 1970 when the silver became more valuable than its face value and the coins all disappeared from circulation. A 1964 half dollar can now be exchanged for nearly $6.

Unbeknown to most of the American public, the world’s gold market has over $20 TRILLION in annual turnover, a sum much larger than the $15 trillion figure bandied about for US GDP, which is the theoretical sum of all the goods and services exchanged by American firms and individuals.

Unnoticed to most of the American public, while the S&P 500 has actually fallen in dollar terms over the past decade, the price of gold has steadily risen each and every year by an average of 17%. Unfortunately, a rising price of gold does not indicate an asset bubble – like housing – in my opinion. It is the whistling before the kettle blows its lid. It is the silencing of the canary chirping in the coal mine from noxious fumes.  So, back to the question, what is an Olympic gold medal worth?

While one cannot deny the sentimental value* attributed by some athletes to winning a gold medal at these Winter Olympics in Vancouver, Voltaire’s comment will remain as true in the coming years as when he first said it. All one must do is study the ruin of France under John Law, the debasing of the currency of imperial Rome, George Washington’s “worthless-as-a-Continental” script money failure after the Revolutionary War, post-WWI’s Weimar Germany’s hyperinflation – among many other European countries, the 1990 Argentine hyperinflation, and the Zimbabwe fiasco that is finally subsiding.

The gold and silver medals are money. Governments should take a lesson from the last couple Olympics and not devalue their currencies so carelessly.

History doesn’t repeat, but it does rhyme, and it’s best not be trampled when it decides to stampede.

[* Nor, in truth, deny the subjective value of anything.]

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

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I’m going to discuss 5 topics today so let’s dive right in.

1  Why Deflationists are always wrong.
2. Why deflation, in normal circumstances, is a great thing.
3. Why the CPI is a useless statistic
4. A realistic assessment of current price levels
5. Why the Federal Reserve wants you to worry your poor little head about a 0.1% drop in price.

Why Deflationists are always wrong

According to deflationists, falling prices are right around the corner.  The inflationists, on the other hand, predict rising prices but often say that the rise may not come for some time.  You won’t hear a deflationist predicting prices falling by massive amounts.  They can’t tell you how long it will last or how severe it will be.  You never hear the term “mass deflation.”

Inflation is persistent rising prices.  Deflation is persistent falling prices.  The key word is “persistent.”  A temporary 0.1% drop in the core CPI (if that even mattered) doesn’t qualify as deflation.

Don’t think this is a new debate.  It is a very old one.  The deflationists have been wrong every year since 1955.  The rise of central banking around the globe effectively destroyed deflation (persistent falling prices.)  This is bad for consumers and workers but great for big governments and big businesses.  The Left often bemoans the rise of big business but never sees the connection between inflation and their growth.  They are fools.  The Right often bemoans the rise of big government but can’t see the connection between inflation and their growth.  They are also fools.

Courtesy of Austrian School economist/investor Gary North, here are 10 questions to ask any Deflationist.  Check the answers you get and decide for yourself.   A good idea would be to bookmark this article for future reference the next time a government official, hack economist, or blogger tries to warn you about deflation.

Why deflation, in normal circumstances, is a great thing.

America suffered from persistent falling prices from the late 1700’s until 1914 when the Federal Reserve opened for business.  These falling prices were only temporarily interrupted when the government or the Bank of the United States created new money, usually to pay for war. The result was always inflation.  Once fiscal sanity resumed, a recession followed.  They were all brief.  Speculation during these inflationary periods resulted in a boom that led to a bust. The markets were allowed to correct themsleves and they always did, quickly.  Anyone who tells you otherwise hasn’t read a history book.  Case in point, most Leftists and mercantilist Republicans believe the 1870s was a “Long Depression.”  They believe this because economically ignorant history teachers point to persistent price deflation during the decade.  However, price deflation caused by an increase in prodution is a good thing and it turns out the 1870s are among the longest and largest periods of persistent economic growth in American history.

Capitalism works best when left alone.  An increase in capital investment leads to a higher productivity of labor.  More machines means more production.  More production means more goods made. More goods chasing a stable amount of dollars means persistent falling prices. This is good.  Your dollar now buys more stuff.  Your standard of living has gone up.  This is how America became the most powerful nation on Earth.  Mild deflation is a wonderful thing.

Even panic stricken mass deflation caused by the popping of an inflationary bubble is bad only for those who have leveraged themselves too much during the boom.  The quick fall in prices clears out the fools that stretched themselves too thin.  In their place, people like me, those who saved and avoided taking on debt like Twilight fans avoid sunlight, prosper. We can buy assets cheap and put those economic fools in their rightful places, i.e. working for a living.

But since those fools have friends in high places, the same places where the money machine is being worked over like Martin Brodeur in last night’s USA vs. Canada hockey game, they get bailed out.  If the fools who prospered during the boom fail, the big boys on Capitol Hill fail as well.  They are mutually invested.  This is why no one goes to jail despite the obvious fraud and theft.

Deflation, indeed, is liberty.

Why the CPI is a useless statistic

The original intent of the CPI was just fine.  They wanted to measure price changes on a year to year basis.  A steak in 2010 should be measured against a steak in 2009.   But then, as always, a good idea in the hands of government bureaucrats and economists becomes a political tool.

Why measure a steak versus a steak, says the crank, when we can measure a hamburger this year against a steak last year?

Huh?

Well, let me explain, simple minded fool, as you are not familiar with my algorithms and fancy graphs.  If prices rise, a subsitution effect will take place.  The man who could buy the steak in 2009 can’t afford it anymore. What use is it to study those costs today?  Let’s assume he buys a hamburger instead and measure the difference.

Why not do this?  To begin with, it ruins the whole point of the CPI.  The point was to measure price changes of useful goods demanded by society not to speculate about what they might purchase instead.  Second, sure he might buy a hamburger, but he might also restrict himself to peanut butter and jelly.  This tells us nothing except that you are a crackpot.

As bad as this idea was, excluding items where prices are going up was even worse.  The crackpot economist says, “housing, energy, and food costs are always seem to be rising. It’s not fair. It makes us look bad. Let’s just take them out.”  They are always rising for a reason, mainly because those are the areas where people spend the most of your inflated money.

The CPI is worthless.  Arguing over the significance of CPI numbers is somewhat amusing, mostly tragic.

A realistic assessment of current price levels

What if you knew the truth?  What if you found out that inflation is currently running at about 9.8%?  Would you believe it?  I guess that depends on whether or not you go to the grocery store very much.  If you do, then you know the government economists are full of baloney.  If you are single and surviving on take out food, you probably believe the CPI.

John Williams started Shadow Stats about 30 years.  He was asked by businessmen to look beyond the faulty government statistics and give a realistic assessment of the macroeconomic picture.  The government economists do not like John Williams.  He uses a few different measurements, including the original CPI before the crackpots started tinkering with it plus a couple of experimental measurements.  He estimates that inflation is running  at about 9.8%, not negative 0.1%.

“Adjusted to pre-Clinton (1990) methodology, annual CPI eased to roughly 6.0% growth in January from to 6.1% in December, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, rose to about 9.8% (9.76% for those using the extra digit) in January, versus 9.7% in December.”

Why the Federal Reserve wants you to worry your poor little head about a 0.1% drop in price.

It’s not enough for the Fed and its buddies to convince you that we are in a deflationary period.  They know that falling prices are good for consumers.  No one is going to revolt if the price of milk goes down.  They need to do more than that.  They need to scare the crap out of you.  They need to worry you about deflation.  That way, they can justify another round of Quantitative Easing (read: theft), more inflation, a bigger government and bigger big business.  That want you to welcome this.  That is their goal.

“The increasing use of scientific jargon has permitted the State’s intellectuals to weave obscurantist apologia for State rule that would have only met with derision by the populace of a simpler age. A robber who justified his theft by saying that he really helped his victims, by his spending giving a boost to retail trade, would find few converts; but when this theory is clothed in Keynesian equations and impressive references to the “multiplier effect,” it unfortunately carries more conviction. And so the assault on common sense proceeds, each age performing the task in its own ways.” - Murray Rothbard, Egalitarianism As a Revolt Against Nature, Essay: Anatomy of the State

You are being duped.

“You can chain me, you can torture me, you can even destroy this body, but you will never imprison my mind.” – Gandhi

These are just two of the many lessons it appears that Joseph Stack, aged 53, never learned. For those unaware, Mr. Stack set fire to his family’s home and crashed a private plane into the IRS Austin branch during the workday, killing one other person, injuring 13, and two of the injured are in critical condition. While full details surrounding this incident are still unclear, the FBI believes that his suicide note is genuine. Accounts from Stack’s friends indicate his acts were completely unexpected.

If Stack’s note proves genuine, it is clear that this was not only premeditated murder but also an act of political terrorism, eerily similar to the hijacked airliners of 9/11. After reading his note, it is plainly obvious that this man was adversely affected and bitterly unsatisfied with the over-taxation practices of the IRS and Congress (a theme of the Taxed Enough Already, aka TEA party movement) and government-sponsored crony capitalism (a theme commonly associated by the media with the political left). In his note:

“It has always been a myth that people have stopped dying for their freedom in this country… I also know that by not adding my body to the count, I insure nothing will change… I can only hope that the numbers quickly get too big to be white washed and ignored that the American zombies wake up and revolt; it will take nothing less. I would only hope that by striking a nerve that stimulates the inevitable double standard, knee-jerk government reaction that results in more stupid draconian restrictions people wake up and begin to see the pompous political thugs and their mindless minions for what they are.”

Truth is often a bitter pill, but the terrorists who died while murdering 2,973 civilians on 9/11 also had a similar goal; to create a “knee-jerk government reaction.” Congress and recent Presidents from both parties have bled our nation of the blood of our bravest by instigating the Afghanistan and Iraq Wars, ruined our economy with bailouts and rampant unemployment, created “draconian restrictions” like the PATRIOT Act which stripped Americans of their civil liberties, enabling warrantless wiretapping of American citizens, revoking habeas corpus, and leading to the torture of defenseless captives. Congress foolishly rushed headlong into this trap of epic proportions, assisted by unwitting saps like my district’s Congressman Charlie Dent, who approved the banker bailouts, accelerated the deficit spending, reauthorized the PATRIOT Act, and voted to increase insane levels of military spending at every opportunity.

I condemn Stack’s cowardly act of murder and political terrorism. While one of my campaign’s planks is the abolition of the Marxian federal income tax and the IRS, the route I have taken – placing my engineering career on hold for 18 months to run for office – is peaceful and logical. As Gandhi taught, messengers for the truth are almost always best served by acting in a non-violent manner.

By erecting a prison in his own mind where Stack’s only recourse became violence and self-destruction, Stack has just created a way for Establishment shills to defame the liberty movement as hailing this terrorist as a “hero” as ABC’s Lee Ferran has done.

Where Stack murdered, many others, myself included, argue the moral case that the government simply should never have any claim whatsoever on the fruit of an individual’s labor.

Where Stack raged about a vague clause in the IRS code that plundered him, I have pointed out that not only is the federal income tax immoral, but fiscally it is completely UNNECESSARY.

Where Stack rants about the injustices of a hopelessly corrupt political process, I have calmly pointed out America’s greatest political secret – that a determined minority can ultimately destroy the ability of Republocrat apparatchiks to control which candidates are selected, especially in party primaries like the Republican party in Pennsylvania just did, which truly does make a mockery of the democratic voting process.

LOOK ACROSS THE LAND! Listen to your families and friends! Plenty of people grumble about politics and say they could do the job better, but many do not have the financial means, drive, or knowledge to mount legit challenges to the Republican and Democrat machines that are destroying our nation. This is despite the fact that nationwide the numbers of independents and third parties are LARGER THAN EITHER MAJOR PARTY.

When I made the decision to run as an independent under no political party in May 2009, I was fully aware of the challenges ahead.  However, my race is certainly winnable – I am already at 8% in a January poll run by a Republocrat opponent, and the vast majority (about 92%) have not even heard the message yet.

Liberty may once again teeter on a knife’s edge in the months and years to come. Whether America eats the bitter, evil apple of socialism, and falls to war, poverty and endless debt for our children is a choice now left to US.

Americans need to hear the truth – a message of prosperity, liberty, love and peace.  The Republocrats can only offer more lies, tyranny, hate and war. This choice is OURS. My choice is to rally at the breach, to defend freedom and restore the rule of law and our constitutional republic.

I have faith that the truth will prove sharper than any sword.

Jake Towne

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

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Fight the Power,

Nicholas (aka Dare)

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Consider the planet Pandora, where the “savage” Na’vi tribes have made their residence for generations. Their planet is their property. When a human corporation backed by hired mercenaries (hardly a constitutional military used for national defense) establishes itself on the planet to further the exploration and mining of a valuable mineral called Unobtanium, they face severe blowback from the tribes. One of the first scenes in the movie shows a massive vehicle returning to base with several arrows stuck in the tires. The tribes understandably felt threatened and saw the human tactics as an invasion of their property. Is this really an attack on the principles of peaceful exchange common in a free market?

The Omiticaya tribe that is prominent in the film does not need anything the humans offer in return for the mineral whether it be roads, education, medicine, etc. Is this really unreasonable? Does an owner of a product not have the right to negotiate the terms of a transaction? The Na’vi are not being selfish, the humans simply do not have a product or service that is more valuable than the land itself is already worth to the Na’vi. It is the same as if someone was offering $10 for a family heirloom that you will never give up. Just because you refuse their offer doesn’t mean they can take that item by force, as the mercenaries in Avatar did.  Once again, this reinforces peaceful and voluntary exchange in a free market.

Many libertarians who have written about the movie do not especially appreciate how the Na’vi tribes operate through a cooperative community structure. They debate if the property rights displayed in Avatar are individual or collective. Either way, it does not hurt the message of freedom and voluntary interaction. All people, this planet or not, have the right to live as they please so long as they don’t intrude on the rights of others. In other words, if I really felt compelled to I can walk around butt naked in my house but that doesn’t mean I can jump into your house displaying myself whenever I choose. Just the same, if people want to live in a voluntary community structure as the tribes on Pandora do, they absolutely have that right. They can’t force people into that structure, but on the flip side a person or collective group such as the human mercenaries can’t prevent them from living peacefully in such a structure either.

Libertarians also seem to be greatly distressed by Ewya, the “spirit in all living things” that essentially is the deity or God of the Na’vi tribe. I have even read a comment that suggested this was a “totalitarian” approach that destroys individual liberties. Is this really any different than the very libertarian concept that all individuals are from God, our Creator, and all individuals are born free? Many libertarians strongly believe that God is in all living things (all people, anyway), and this principle strengthens individual liberty, it does not reduce it. Is it inconceivable that God is in all living things on Earth as well, not just humans? Regardless, the spirituality of the Na’vi can hardly be called anti-libertarian.

I have come to disagree with many libertarians’ view of communities. I was born, raised, and currently live in an intentional spiritual cooperative community that was founded more than forty years ago. The people in the community live simply, have similar goals spiritually, but they hardly have given up their rights and abilities as individuals. Voluntary cooperative communities strengthen individual liberties and happiness by providing an environment that allows you to live with people of common goals and work together to further those goals. Cooperative communities are certainly not enemies of freedom. In fact, I believe communities will start popping up worldwide as the economy and current government structure weakens and people recognize that living and working together has its benefits on both a mental and physical level. Since I myself have lived in a cooperative community my entire life, the cooperation of the Omiticaya tribe in Avatar does not present itself as a structure that is anti-capitalist or far-fetched. Cooperative communities can and do indeed work, and libertarians should recognize this sooner rather than later.

Lastly, there are those who call Avatar something along the lines of a “typical Hollywoodized, Green crazed, environmental spew package.” Okay, maybe not that bad. I read an article that discussed this from a more liberal perspective, and the author made an excellent point: how is being pro-environment a bad thing? Those who work to protect the environment and demonstrate the beauty of nature can hardly be called crazy, anti-American, or anti-capitalist. Sure, there are many disagreements between the ideologies on the role of the environment and how to protect it. Personally, I think the environment is best protected through individual property rights (out of which can stem collective rights through individuals voluntarily joining cooperative communities) and local initiative. The Na’vi tribes demonstrate these principles perfectly. They understand, see, and interact with nature on a daily basis, thus they work their hardest to protect it from foreign intruders who do not have the same values (the human mercenaries). When libertarian-minded individuals write off environmentalists as wackjobs, it weakens the freedom movement. No one can argue against clean air, water, and land, and it should be through discussion of all ideologies that we come to a common understanding and implement strong solutions with regards to the environment. Bickering and attacking other ideologies won’t strengthen principles.

Certainly others came away from Avatar with a different feeling or message than I did. Regardless, it was easy for me to see the underlying principles of libertarianism in the film. It is not anti-military: it strikes at the principles of preemptive attack, aggressive war, lawless corporate mercenaries, and invasion of private property. It is not anti-capitalist: rather, it clearly demonstrates the right of an individual or group to maintain their property as they see fit and decline an offer that isn’t to their liking. And is it pro-Green? Certainly. But I do not call myself anti-Green, and I don’t think other libertarians do at heart either. We don’t want a dirty environment and a complete disregard for nature, do we? It is time that we productively show, through honest discussion and analysis, that we can work together with people of all beliefs and demonstrate to our best abilities the benefits of freedom. It might be crazy, but I see Avatar as a grand display of freedom’s benefits, not as its enemy.

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The first chart is from the FED’s latest Purposes and Functions from 2005 on page 51 of 146.

As can be seen, “net transaction accounts” have a 10% reserve requirement when over $45 million at a depository institution. Net transaction accounts are checking accounts, demand deposit accounts, NOW (negotiable order of withdrawal) accounts, or credit union share draft accounts (p. 135/146)

“Nonpersonal time deposits” are defined (p 129/146) as a “time deposit held by a depositor other than an individual” such as certificates of deposits, or CDs. These have no reserve requirement.

Now what about savings accounts and certificates of deposits? These are termed “nontransaction accounts” by the FED since they do not meet the requirements of a transaction account (CFR 204.2). See our next chart, taken from page 21/21 in this 1993 article from the Federal Reserve Board’s Division of Monetary Affairs. Personal savings accounts, CDs, or money market accounts are NOT reservable liabilities since December 1990 as stated directly by the FED in 1993 and indirectly by their non-inclusion here. So, there are NO reserve requirements for personal savings accounts and CDs.

The above leave us only with checking/NOW (or “net transaction”) accounts. Here’s the text for the “two sub-accounts” trick done for “accounting purposes” by Citibank.

“For accounting purposes, all Citibank consumer checking accounts (Regular Checking, Citigold Interest Checking, Interest Checking and Basic Banking Account) consist of two sub-accounts; a transaction sub-account to which all financial transactions are posted; and a holding sub-account into which available balances above a pre-set level are transferred daily. Funds will be transferred to your transaction sub-account to meet your transactional needs. For Regular Checking and Basic Banking Account, both sub-accounts are non-interest bearing. For Citigold Interest Checking and Interest Checking, both sub-accounts pay the same interest rate. Transfers can occur on any business day. Transfers to the holding sub-account will be made whenever available balances in the transaction sub-account exceed a preset level. Transfers from the holding subaccount to the transaction sub-account will be made whenever transaction sub-account balances fall below a predetermined level. Because banking regulations limit the number of transfers between these types of subaccounts, all balances in the holding sub-account will be transferred to the transaction sub-account in the sixth transfer in any calendar month. Both sub-accounts are treated as a single account for purposes of the client’s deposits and withdrawals, access and information, tax reporting, fees, etc.” (Citibank Client Manual p. 19-20/33)

First, note that the account holders have no idea these sub-accounts exist unless they read this fine print. I encourage you to check your checking account’s fine print – all of the major banks I have checked use “two sub-accounts,” and several nearby local banks in my area have it too.

Second, note that the holding sub-accounts may fluctuate daily, and there are no rules whatsoever limiting how much of the currency can be diverted to this holding sub-account.

Obviously, the reason for the “two sub-accounts” accounting trick, more politely termed “Deposit Reclassification” by the banking industry (see page 9-10/31 of this agreement from Camden National Bank), is to have the holding sub-account deemed a nontransaction account and no longer subject to reserve requirements. In Eric deCarbonnel’s article “Deposit Reclassification Used To Eliminate All Reserve Requirements,” he refers to additional sources including this easy-to-follow piece from Romney & Associates where the author outlines the benefits and profits from deposit reclassification – by changing reserve requirements at their whims, banks can loan out even more – which is naïve insanity of course in the event of a bank run.

Speaking of bank runs, let’s take a look at the FED monetary base, reserves, and vault cash. Per the latest H3 report from the FED, we have the below data (in millions of USD). Note the massive swings in nonborrowed reserves and the monetary base which took place roughly a year ago.

In the next chart, I took the reported deposits of FDIC depository institutions – which is an approximation I have made of the U.S. banking system from June 30, 2008 (p. 16/21) and the latest March 31, 2009 (p. 18/27) report – and listed the July 2008 and July 2009 results from the H3 report. Provided my calculation of dividing the Total Reserves by the FDIC-reported Domestic Deposits is reasonable (I haven’t been able to find suitable FED numbers, hence my usage of FDIC data), the “Towne reserve ratio” was just a shocking 0.6% in July 2008. While the current “Towne reserve ratio” is 10.6% now, this is likely due to the monetary base change below. While I will be the first to note these percentages are just rough numbers, isn’t it funny how the math is now close to 10%?

Note that in July 2008, the banking system’s vault cash EXCEEDED both required and total reserves. [Vault cash is the physical banknotes that banks keep on hand to meet withdrawals; the vast majority of dollars exists in the form of electrons, and only a tiny sliver is metal coinage.] Now, in July 2009, the required reserves and vault cash have been relatively unchanged.

Over the same period, the monetary base has almost doubled from $847 billion to $1,681 billion while reserves grew by about the same amount, from a scant $45 billion to $803 billion. Where did this money come from? It is likely just FED “liquidity” or newly created currency. We would need to audit the FED to really be sure, but the timing and amount coincides with the Banker Bailout of October 2008. At any rate, the intention of this money is likely just to paper over the collapse of the banking system last year.

CONCLUSION

In plain english, the U.S. banking system is using a sneaky accounting trick listed the fine print of checking account agreements to escape the gravity pull of reserve requirements. The system likely already crashed last year, but the FED pumped in liquidity last year at the same time as the Banker Bailout to avoid the collapse of this Ponzi scheme.

This brings me to an interesting conclusion – at this point in history, our monetary system is really no more than paper ticket printing and excited electrons. [Although technically speaking, dollars are linen with mercury, arsenic, cyanide, titanium dioxide, formaldehyde, lithium, valium, zinc imbedded as I wrote here "The Federal Reserve - A Good Company to Work For?".]

Although our central bank, the FED, can technically NEVER go bankrupt since it has the power to create as many paper tickets as needed, risks over the long-term include psychological events like hyperinflation where the demand to store money goes to zero, and the purchasing power of the currency approaches zero as well.  However, the true responsibility lies with U.S. Congress, which “delegated” its control over the currency to the FED in 1913.

As F.A. Hayek wrote in The Road to Serfdom, delegated autonomy from the legislative body of a socialist state is usually done to escape blame and responsibility for the inevitable mistakes of central planning.  Understand that the next time you see your Congressman or -woman, unless he happens to be Dr. Ron Paul, they ARE responsible for quite literally stealing purchasing power from your pocket as I related in further detail here “Unlocking the Money Matrix – The Real Interest Rate (PART 12/15)“.

The solution? The money power must be returned to We the People. The FED must be abolished, by populating the U.S. House with representatives who will end the FED. I’ve outlined the steps I recommend in slides 26-47 of this presentation, but this certainly requires a national debate.

One last bit of math. $49 Billion in vault cash divided by 307 million Americans works out to a whopping $160 per person. Maybe Bernanke over at the FED should fire up the printing presses!

Note: Thanks to Eric deCarbonnel whose article “US Banks Operating Without Reserve Requirements” clued me in to the above facts. Interested readers are also recommended to read my last update on the banking system from April “Off a Cliff with No Airbags” as the situation has only worsened, and the conclusion section is still quite relevant. Please ask any questions below and I will do my best to answer them clearly.

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”