The Federal Reserve Needs More Money

The Federal Reserve needs more money to continue purchasing US government debt, the aggregate amount of which is soaring because of ballooning deficits.

But the Fed has a problem.

The US government doesn’t pay its bills with ‘cash currency’, the green paper Americans carry around in their pocket. So the Fed cannot crank up the printing press like central banks did in Weimar Germany in the 1920s, or in recent years, in Zimbabwe.

The US government needs ‘deposit currency’ –Or ‘electronic’ currency, to put it into Mr. Bernanke’s terms – so that it can pay its bills by check or wire transfer.

Payment for goods and services by deposit currency are made through the banking system, and nearly all commerce in the United States is conducted in this way.

So where will the Federal Reserve get enough deposit currency to enable it to continue purchasing US government debt?

I noted in my recent article that explained the the cause of hyperinflation that “huge bank excess reserves...have funded the Fed’s purchase of US government debt, putting...the US dollar on the road to hyperinflation.”

But these huge reserves are not providing enough deposit currency, given the massive, ongoing deficits being racked-up by the US government. In short, the Federal Reserve needs more money.

So the Federal Reserve is proposing a regulatory change that would allow banks to deposit money with it and earn interest income on those deposits. These deposits will be separate and distinct from the reserves that banks leave at the Fed.

They would be time deposits, in contrast to the overnight tenor of reserves, and therefore would earn the banks a higher rate of interest. Even their name is different. They are not reserves, but a “term deposit facility”.

It has been evident for some time that the Fed would require new gimmicks to come up with the deposit currency it needs to fund its growing purchases of US government paper. This point is neatly captured by Reuters announcing this new Fed facility

“At the height of last year's financial meltdown, the Fed had been discussing going to Congress to request the authority to issue its own bills. The term deposit facility achieves a similar purpose, but can be undertaken within the Fed's existing authority and does not require congressional approval.”

Side-stepping congressional authority like this is further evidence that the Federal Reserve sees itself as unaccountable to the general public – as if not identifying who received the Federal bailout money was not enough proof of this point already. But the Fed’s devious maneuver here illustrates something much more important, namely, the reason the Federal Reserve exists.

Despite what Fed officials may declare in testimony before Congress, the Federal Reserve does not exist to fight inflation, provide full employment or achieve any of the other laudable goals attributed to it.

The Federal Reserve exists solely to provide the US government with all the dollars it wants to spend, even if it has to side-step congressional authority to do it.

There is of course a biting irony in that conclusion, given that Congress is part of the US government. And Congress is as much to blame for the government’s horrific deficits and fiscal madness as the president or anyone else in Washington.

So why would the Fed need to side-step Congress?

It is because central banks like to operate in the dark. That is why they meet behind closed doors and resist public scrutiny, as evident from their current effort to stop Ron Paul’s bill to audit the Fed.



But we shouldn’t be surprised by the Federal Reserve’s conduct. After all, I have already explained why central banks are a barbarous relic


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No Jobs for Ten Years

The decade ahead could be a brutal one for America's unemployed - and for people with jobs hoping for pay raises.

At best, it could take until the middle of the decade for the nation to generate enough jobs to drive down the unemployment rate to a normal 5 or 6 percent and keep it there.

At worst, that won't happen until much later - perhaps not until the next decade.

The deepest and most enduring recession since the 1930s has battered America's work force.

The unemployed number 15.4 million.

The jobless rate is 10 percent. More than 7 million jobs have vanished.

People out of work at least six months number a record 5.9 million.

And household income, adjusted for inflation, has shrunk in the past decade.

Most economists say it could take until at least until 2015 for the unemployment rate to drop down to a historically more normal 5.5 percent.
And with the job market likely to stay weak, some also foresee another decade of wage stagnation.

Even though the economy will likely keep growing, the pace is expected to be plodding. That will make employers reluctant to hire. Further contributing to high unemployment is the likelihood of more people competing for jobs, baby boomers delaying retirement and interest rates edging higher. All this would come after a decade that created relatively few jobs: a net total of just 464,000.

By contrast, 21.7 million new jobs were generated between 1989 and 1999. - Huffington Post

Dominant Social Theme: It's looking grim?

Free-Market Analysis:

There are a lot of statistics cited in this article but like many articles with a mainstream tone, most of them are besides-the-point or shed little illumination about what is going on.

First of all the jobless rate in America is closer to 20-30 percent, we figure, when you throw in everyone who wants to work but can't find work, even part-time work.

And second, we distrust the other unemployment figures cited in this article.

Finally, we look in vain for a reason as to why all this is happening. Can we find it somewhere else in the body of the article? Here's some more:

That's mainly because the economy's recovery, sluggish by historical standards, isn't expected to regain its vigor over the next few years. As a result, companies will be in no rush to ramp up hiring. Other analysts think the economy will recover the jobs wiped out by the recession by 2013 or 2014 but that the unemployment rate will stay high.

They note that the healing economy will cause more people to stream back into the labor force, vying for too-few jobs.

In addition, baby boomers whose retirement accounts have shrunk could put off retiring and stay in the work force longer. That would leave fewer positions available for the unemployed. Other contributing forces - businesses squeezing more work from employees they still have and relying more on part-time and overseas help - have intensified.

And record-high federal budget deficits and the threat of inflation could drive up interest rates, which could hobble growth and restrict job creation. All those factors could combine to keep unemployment high.

"It will be the mother of all jobless recoveries," predicts economic historian John Steel Gordon. On the other hand, it's possible some technological innovation not yet envisioned could generate a wave of jobs. Yet at the moment, most economists aren't betting that any such breakthroughs will rescue the labor market.

The last time the jobless rate reached double digits, in the early 1980s, it took six years to bring it down to normal levels.

Unemployment hit a post-World War II high of 10.8 percent at the end of 1982 as the country was emerging from a severe recession. The rate fell to around 5 percent in 1988. It took less than two years for the number of jobs to return to its pre-recession level. In this recovery, the economy is far more fragile.

Hard-to-get credit is exerting a drag. Wounds from the banking system's worst crisis since the Great Depression will take years to fully heal. People and companies, scarred by the crisis, are likely to restrain borrowing, spending and investing.

From our perspective this article does what all such articles do, it describes what's going on without explaining anything. You can read the whole article, and you'll never come up with a reason why 20 percent or more of America is unemployed. Is it because people are lazy? They don't want jobs even though they pretend they do?

We would write the article differently. We would start by explaining that for the past 100 years America's manufacturing might has been disintegrating even though the country has looked relatively healthy.

But the combination of the income tax and central banking, introduced in the ‘teens, has robbed the country of its industrial muscle. Many big companies have moved away rather than be subject to the income tax. And employees have given up productive trade and agricultural jobs to chase after the latest Fed-stimulated bubble.

The tech sector looked attractive in the 1990s, and the mortgage business was great during the 2000s. But neither business lasted because they weren't real. They were the chaff of central bank monetary stimulation.

The income tax and central banking have hollowed out American industrial capacity. This is the reason that jobs will not return to America - and the world - for a long time. It wasn't enough by the way that all this happened over a period of nearly 100 years now, but every time there's a cyclical bust, the West stimulates - throws good money after bad that only prolongs the agony by confusing the market signals that the economy would otherwise present to rational investors.
Conclusion:

Deprived of market signals, investors have a hard time determining what's an efficient business and what is not. They've decided, with considerable reason, that too-big-too-fail banks are probably a good investment. Well, this may be so, but it does nothing for the larger economy.

Putting good money after bad into these large fiat-money sinkholes only retards real innovation and sets the economy up for another bout of inflationary bleeding and boom-bust madness.

What's needed is a return to a private market gold-and-silver standard that will provide real feedback to those who want to purchase equity in winning entrepreneurial companies.

See, it's not hard to explain, but for some reason, the story just doesn't get told, certainly not in the mainstream press.

CAPITALISM IS CREEPING INTO THE EMERGING WORLD AND SOCIALISM IS CREEPING INTO THE DEVELOPED WORLD

BOTH ARE THE RESULT OF THE BROAD CONSTITUENCIES OF THE PUBLICS IN WHICH THEY RESIDE. LOCOMOTIVES DRIVING THEIR SOCIETIES INTO THE FUTURE, FREIGHT TRAINS WITH UNBELIEVABLE MOMENTUM BEHIND THEM THAT IS UNSTOPPABLE.

The results you can expect from them are as different as BLACK and WHITE. Both hold broad investment implications for the next several generations, understand them and thrive, misinterpret them and fall behind.

The world is evolving as everything does in nature, economies, empires, businesses and political systems;, all going through the cycles of SPRING, SUMMER, FALL and WINTER; rising and falling as everything in nature does. In nature and evolution the weak always fall to the strongest when competing for abundance -- promote strength and thrive, promote weakness and wilt. There are broad social trends at work in globalization and in the world’s sovereign economies.

The first trend is the emergence of the “SOMETHING FOR NOTHING” personality which we will cover this week, and the other is “I WILL WORK 60 HOURS A WEEK FOR A BETTER TOMORROW FOR ME AND MY FAMILY” personality which we will cover next week

Diametrically opposed personalities, one creates WINNERS the other LOSERS. One greets each day with a positive outlook as each sunrise heralds the hope and promise of a better tomorrow, the other greets each day seeing dark clouds, as misery is always spreading; they are afraid of tomorrow.

One is a guaranteed recipe for future SUCCESS and the other a guaranteed recipe for future FAILURE. For themselves and the societies in which they reside, this is predestination written across broad regions of the world.

Evolution is evident in all we can observe: nature and god bestow their gifts unequally. In order to achieve the best outcome for everyone, the political and economic systems MUST provide an equal platform for all to reach their highest potentials. Therefore each individual can go as far as his talents and work habits will take him.

By producing a society that allows these individuals to reach their maximum potential, they themselves are served to the greatest degree, as are those around them who can reward them for providing MORE FOR LESS.

In the classic “Wealth of Nations,” Adam Smith outlined that the skills, work habits and education of a country’s citizens contain present and future indications of wealth generation and prosperity. In the developed world this wealth is under attack and its potential short-circuited; in the emerging world just the opposite is occurring. Drawing the correct conclusions and investing accordingly is vitally important.

I wasn’t given the voice of a professional singer, the mathematical ability of Einstein, the surgical ability of a brain surgeon, the accounting ability of a CPA or the building ability of an engineer. I was given the ability to see things as they are and not as I wish them to be. The ability to absorb huge amounts of information and logically piece together what is transpiring and solutions to many complex issues. I was given the ability to SEE things and explain them to others.

People in the United States are a perfect example: IQ (Intelligent Quotient) can mean everything and at the same time mean nothing.

There are very smart people and very dumb people who have very different conclusions to their experiences, some rise to prominence and wealth and others descend into poverty; what decides who gets what are the INDIVIDUAL and their personal determination to succeed or not.

For government to STEP in and take from the successful person to give to the less successful is the equivalent of punishing excellence and subsidizing failure. It is slavery for nature’s hardy individuals and the producers any economy must have to thrive to those who vote for a living rather then work for one. When this happens BOTH parties fall to their demise.

If government tries to interfere with nature as it produces its bounty for everyone, we are all poorer because of it. Both individually, as we never meet our potential, and to society/others, as we are less able to serve others and be rewarded for providing MORE FOR LESS. As in nature, some plants evolve which are stronger than others; so it is with man and everything in life.

To believe that these LAWS OF NATURE, can be repealed by man is FALSE. In the Capitalist countries, such as the United States and the G7, they were able to create the wealthiest societies in the history of man through the policies of equality of opportunities, not results.

When governments try to ENFORCE equality of results the strongest in society are cut down, and the production potential they represent is NEVER realized.

Conversely, in Socialist countries, potential can never be reached as society attacks its most productive elements; to excel is to be punished for having had more success than those around you.

NO ONE reaches their maximum potential for themselves or the societies in which they reside. To produce in a socialist society is a recipe for quickly becoming the slave of those around them, as their production is taken from them for the GOOD OF ALL. Good intentions morph into a justification for enslaving the most productive elements.

Both these character traits reside in all corners of the globe, but in some societies they are on the rise and in others they are under attack. They are a product of the societies they come from. When born, humans are BLANK SLATES, canvases to be drawn upon with the additional gifts from their creator. These gifts are bestowed according to the needs of the broader eco system.

Teachers, builders, mathematicians, entrepreneurs, workers, physicians, etc. are just of few of the myriads aptitudes given to different people at birth. They make up the elements necessary for meeting the needs of the world.

The SOMETHING FOR NOTHING personality is a locust to a country’s economic harvest, present and future, eating today and attacking tomorrow’s crops before they are even planted. Gluttons never saving for the future, and eating the seed corn of tomorrow’s crops. This is an insidious character flaw dooming the their very futures and the futures of those around them. Once in the majority, it spells the slow demise for the wealth creating elements in the societies in which they reside. They are bent on punishing the remaining productive elements of their societies based on egalitarianism and envy. Constantly attacking wealth production and trying to take the food off the plates of the most successful around them as every year there is less food to eat.

In the late 1960’s Lyndon Johnson leaped forward from Roosevelt’s policies in the United States and Willy Brandt in Germany ushered in the seeds of socialism, quickly followed by Francois Mitterrand in France.

All introduced the concepts of socialism, rewards for not working and the concepts of the “something for nothing” and entitlements. The socialist/communist concepts of “you were not responsible for your own failure” were reintroduced to the populous.

Ignorant and contemptuous of the laws of nature in which they exist, these people are increasingly poorly educated in government-controlled schools, and they have no knowledge of history or what created the wealthy societies in which they now live.

Taught what to think, rather than how to think or the critical lessons of history, they believe in government as all-knowing protectors and stewards of the future. They are taught that government has produced the wealth they see around them and what they remember from their youth, when in reality that wealth was generated from the sweat and hard work of their very own fathers, mothers and grandparents.

They increasingly live in fear of the future and have been taught that they must depend on the governments under which they reside to provide for their future and protect them from their competitors for abundance in nature and the global economy.

These ignorant people believe this in a wishful way, although anyone that takes a close look can see the lie they represent. For instance, in the United States a successful government program (a program that produces more than it costs and creates wealth for everybody) is nowhere to be found. The definition of a successful government program is how much did you receive of free medical care, cash to buy a car or a home, a no-down-payment loan on a house, etc.

They are manufactured by the society in which they reside. Typically they come from a background of wealth, having more wealth provided for them by their parents and the societies around them than most others in the world. Entitlement mentalities who believe they, at BIRTH, have been guaranteed abundance in nature, and they are unwilling or unable to embrace the simplest truth that in life there is NO SUCH THING AS A FREE LUNCH, and that to thrive they must produce more than they consume.

Since they go unrewarded by the society in which they reside, and their teachers and leaders tell them that they are unrewarded because of others who conspire against them to deny them their BIRTH RIGHTS to an abundant life, they vote for public servants who will turn their anger against the most productive around them, thereby enslaving the producers of the wealth to the whims and demands of the least productive, and sacrificing the productive individuals’ futures to serve the voters (THE MOB) and society at large.

In everything we do there are winners and losers, and these are determined by nature’s gifts and an individual’s efforts.

Once this SOMETHING FOR NOTHING personality takes hold in a society it is ultimately headed to its demise.

It attacks and destroys everything in its path to quench its insatiable thirst for SOMETHING FOR NOTHING and to destroy those around them they believe RESPONSIBLE for their being subject to the “laws of nature”, which they abhor, as it is contrary to everything they believe. In nature the strongest thrive and the weakest wilt, it really is that simple.

The SOMETHING FOR NOTHING personality marches to equality of outcome rather than equality of opportunity. Robbing the most productive to subsidize the least productive. Unfortunately, life and nature doesn’t work this way, it spreads its blessing unevenly and no amount of wishful thinking or the laws of man will change this reality.

What occurs is that the most productive QUIT working hard and producing MORE FOR LESS to do so provides NO REWARD for this virtuous behavior. And of course, the least productive do just the opposite; they provide LESS FOR MORE, the price of what they create is always more than what they produce.

Just like the governments they reflect who believe they can take a dollar and create a better outcome than the private sector. Public servants saying they have the solutions to the everyday problems of man but who are unable to show one example of the truth of their claimed success.

As anyone who has any experience with government knows, they take a dollar and return a dime. This is a recipe for Socialism and bankruptcy, and societies that embrace the SOMETHING FOR NOTHING beliefs are headed toward that ultimate result.

This belief is a product of government policy and socialist education systems.

The government’s deliberate policy of inflation in the monetary system, and a dumbing down of the electorate through public schools which DO NOT teach the logic, reading and arithmetic skills necessary for problem solving.

Skill development in critical thinking and knowledge of history are also conveniently absent form the curriculum.

They are creating an atmosphere where impoverishment feeds the manipulative plans of the school systems and the public servants who control them.

These ELECTED public servants implement policies which GUARANTEE a lower standard of living of their middle class constituents, driving them in desperation to the public servants and their policies which provide the least possibility to future wealth generation.

Just as vast new middle classes are being born around the globe, some are being buried.

Buried by the people they elected to steward their economies, these public servants are more interested in their next reelection then coming up with practical solutions that meet today’s challenges while preserving the economic futures of their current constituents and future generations.

Today’s middle classes in the western world have been sold and taught a belief in two things. That you can have “something for nothing”, and that government can “protect and provide for you.” They now vote regularly for these chimeras/illusions.

The growth cycle and bull markets in these ways of thinking create a self-fulfilling, vicious circle, which will culminate in the middle classes’ demise. This broad social trend can been seen in the United States, central Europe and the G7, and is as destructive a character flaw as I have ever seen. It is an investment theme for the next ten years or more as it plays out.

It is history repeating itself.

With the REALITY of globalization confronting these beliefs, the developed world is faced with a difficult choice: get up out of their chairs and get to work, compete, SAVE MONEY AND INVEST IN THE FUTURE, work harder and smarter than our economic competitors and thrive or slide into the future and slowly sink into increasing poverty as the printing press and credit creation substitutes for wealth creation. Increasingly in America and Europe the middle classes are choosing the latter option.

The printing press has subsidized/substituted for policies of wealth generation for over thirty-five years now since Breton Woods severed the cords to sound money and we can see it in everyone’s lives.

It now takes two parents working to make ends meet: rising food, energy, housing and health care expenses are eating people and businesses alive.

Three out of four of these BASIC expenses are excluded when inflation reports are calculated.

Housing inflation is measured by looking at the increases in rents (not the increase in the price of the home or commercial property), food and energy are excluded from core calculations of the Consumer and Producer Price Indexes.

Policy makers and the media focus on the core numbers and present them as the HEADLINE numbers, virtually ignoring the actual headline numbers, which are several points higher, which are also messaged by such prestidigitation as hedonic pricing (quality improvements are used to impute lower prices). The vast majority of their constituents are unable to see past the illusionary headlines as they haven’t the SCHOOLING to do so.

Middle class People are caught like mice on spinning wheels to nowhere, fleeced on one side by rising taxes because they aren’t properly indexed for inflation, then robbed by the printing press as the government prints and borrows into existence the additional funds necessary to fund the runaway spending and government growth.

The something for nothing victims of governments and their fiat currency monetary systems are NOMINALLY taking home more every year with their paychecks, but when they go to the grocery store or gas station they come away with one less bag of groceries for the same amount spent a year ago or far less gas in the tank.

They are providing the illusions of rising incomes even if you cannot buy more REAL goods and services.

The purchasing power of their paychecks is shrinking like an ice cube in their hand.

Yesterday, I bought some gas, what used to buy a tank 4 years ago, now buys less than half, the customer who had left the pump as I pulled up bought 10 dollars of gas and left the pump with just 2.5 gallons, he obviously is on a budget and it won’t take him very far. This man is now forced to follow politicians who promise SOMETHING FOR NOTHING, as that is the only solution put forth by liberal media and public servants.

How did we get here? We elected politicians who have spent money as if it could be created out of thin air, and they have done so with abandon; now it is RECKLESS abandon, but it is only an illusion of wealth.

NO wealth is actually created. IN FACT, it is actually the spreading of poverty in an ever-increasing circle, and it is the destruction of the currencies in which these middle classes store their wealth:

Dollars, Yen, Euros, British Pounds, Aussie and Kiwi Dollars, etc.

The reason middle class resentment is rising is because their incomes and the purchasing power of their wages and savings accounts are falling, courtesy of the “out of control” printing press process and government “policy of inflation”.

They look for someone to strike at and blame for this situation, not realizing it is their very own elected leaders doing favors for their campaign contributors and their cronies in the press and BIG business doing it to them.

The reason the guys on Wall Street, private equity and in the banking industry are getting so fabulously wealthy is because they get the newly minted money and credit first, the day after it is printed and stolen out of the savings accounts of the broad citizenry. This theft is set to continue.

It is how wealth is transferred from the middle class to the ruling elites, big banks, crony capitalists and the governments they control.

Let’s look at the mechanics of the situation and the means in which it is accomplished. First let’s look at CPI (Consumer Price Index) adjusted wage growth using the official government CPI numbers in combination with the Employment Cost Index from the labor department:

As you can plainly see, since 1986 wage growth has been as reported using the “government numbers” and it is breaking even at best, falling dramatically at worst. In the brief period starting in 1997 through 2002, inflation-adjusted wage growth exceeded 1 percent. If I recall correctly, the CPI underwent a major revision in how it was calculated immediately preceding this spurt in growth (a government inspired illusion to fool us into thinking we are actually getting ahead.) Rather than promote policies of growth and interrupt their spending sprees, currency printing and vote buying they would rather lie to you.

Now let’s take a good look at how inflation used to be calculated before the government started accelerating the practice of lying with numbers. Thank you John Williams of www.shadowstats.com for this wonderful chart on his website:

If you look closely at this chart you can see this understatement is an oscillating spread between approximately 2.5% to over 3%, in the most recent early 2007 illustration (so the government “no inflation” lies are getting bigger). In calculating the next chart we used the conservative side “2.5% understatement” and showed the compounded affect this understatement has had on the purchasing power of middle-class earnings since 1987:

Even if you reduce the understatement of inflation to 2%, the additional loss of purchasing power is over 49%. This number makes sense to me when I think back to how much I paid for gas, rent, a nice entrée at a restaurant, health insurance, a ticket to a ball game or the cost of a Toyota Corolla in dollars 20 years ago.

If anything, the 50% loss understates it and the 67% loss at 2.5% takes on additional meaning. Two percent slipping through your fingers yearly is hard for individuals to grasp, but when the effects of compounding are factored in, it is enormous over a 20 year period. Take a look at this chart illustrating the loss of purchasing power from debasement (printing money out of thin air) from the Hyperinflation Special Report by John Williams of www.shadowstats.com

No wonder the citizens of the United States (and throughout the G7) are desperate, their REAL wages have DECLINED by 75% since 1982, thus they have to resort to both husband and wife working and borrowing the rest to MAINTAIN their living standards from 30 years ago.

Recipients of Social Security have seen similar reduction in benefits by this same technique. Real GDP growth after inflation takes a big hit when you recalculate using the actual numbers. Doug Noland reports:

“Total Money Market Fund Assets (from Invest. Co Inst) rose $18.2bn last week to a record $2.485tn. Money Fund Assets have increased $103bn y-t-d, an 11.2% rate, and $427bn over 52 weeks, or 20.7%.

If inflation is about 2.5%, as the treasury claims, then how can these measures be growing at these rates? This is money creation pure and simple.

This cash hoard is a prime target for theft/loss of purchasing power via printing press, and it remains under relentless attack.

So the broad middle class has been told by the government and the media that their wages and savings are growing after inflation while they are actually declining. In their guts these citizens know the truth -- it is a reality they are confronted with every time they pay their bills or buy groceries! Now we know why a politician promising “something for nothing”, and that: “the government can protect you” can find an ever-growing constituency, as these middle classes are growing poorer and sinking into poverty at the rates outlined above.

Along comes a politician saying he or she can fix it, they can absorb the added expenses, pay for HEALTHCARE, protect them from the bad guys who work for a living, who run small businesses and are the real backbone of America and the G7 .

This is a powerful SIREN song, and the longer you hear it the more seductive the message becomes as your standard of living erodes like a beach assaulted by the waves. One day at a time this loss of income eats at you.

Voters start to consider voting for any foolishness, no matter what it is as long as the going backwards in life can be halted. Little beknownst to the guy on the street, these public servants are the perpetrators.

So these middle-class voters vote more and more for the thought of something for nothing, and at this point no politician of any party in the United States or Europe can be elected without these promises.

After elected they are confronted with the will of the voters to deliver on these promises; promises that can only be delivered if one actually believes in the Tooth Fairy and Santa Claus -- wishful thinking in its worst incarnation.

Taxes rise relentlessly, new taxes, old taxes, all rising and never been reduced or repealed, always growing faster than the economy or inflation.

Politicians always seeking more and more taxes to deliver on the impossible promise of equality of results. Spending rockets higher as government never shrinks, it actually grows faster than the real rate of inflation, which is understated by 2.5% as illustrated above.

Politicians are constantly egged on to spend more by the left-leaning media which controls most of the headlines, and which is how most people now gather their news and opinions.

They paint any politician who opposes runaway government spending as unpatriotic or cruel hearted. If they don’t deliver on their spending promises one way or another, there is always a politician behind them that will make the same impossible promises of “something for nothing”, get put into the headlines for their vocal support of something for nothing, and take their seats from them in the next election.

So they pass Medicare Prescription Drug Benefits, new entitlements, and fund 10’s of thousands in earmarks and pork-barrel spending costing 100’s of billions of dollars to fund their vote buying reelection efforts.

They print cubic amounts of money to support stock, bond and currency markets through the sophisticated open market plunge protection teams to keep the illusion of wealth and growth in the headlines.

But the canary in the coalmine is pricing those same assets in gold and commodities, which reveal vicious loss of purchasing power of the currencies in which those assets are priced. So the middle class “thinks” they are actually getting what has been promised to them by these political rascals and their ruling elite puppet masters.

So savings decline as more and more of everyday wages go to just keeping your standard of living on an even keel, robbing the fractional banking systems of the fuel that makes it go causing less to be put into production, plants and equipment, business and job creation.

They are short circuiting future wealth generation activities needed by current and future generations.

If spending more of current income doesn’t stop the bleeding of the loss of standard of living, they then turn to mortgage equity withdrawal (home equity substituting for bank accounts) or credit cards to cover the ever-growing shortfalls in REAL income (income after inflation).

Little beknownst to the guy on the street, these public servants and central banks are the perpetrators of the hoax. Since the taxes NEVER cover the cost of the goodie bags of government entitlements, plunge protection teams, pork barrel, services and the ever growing, overpaid, unaccountable government departments and bureaucracies.

They then have to turn to printing presses, fiat money and credit creation to supplement the available funds for their spending plans. Since the politicians don’t really want to be seen as printing money (and because they want a firm grasp on future generations) they disguise it by issuing a government bond, but instead of selling it to the public they sell it to the Federal Reserve or the European Central Bank.

This shackles future generations of taxpayers with the debt obligations inherent in the bond issuance which are used to fund today’s political follies.

These obligations are calls on future income, the future income of the citizens of the United States or Europe, whichever the case may be.

It would actually be better for all of us if they just came out and said they are printing the money, as at least future generations would not have to deal with these future obligations.

But then the idea of fiat money would really come under the spotlight as the immoral activity it really is, and that is unthinkable to someone whose election or reelection chances hinge on the spending promises he or she makes.

It is estimated that every family in the United States has OVER $500,000 dollars of obligations for which they do not know they are on the hook.

These funded and unfunded government spending obligations now total over 70 trillion dollars, equivalent to five years of GDP, which is currently approximately 13 trillion dollars a year.

Obviously these bills are unpayable and these obligations will have to be printed away.

Robbing the beneficiaries of these obligations of their value and shackling our sons and daughters into being the debt slaves of the lenders.

With the continuing erosion of their standard of living, as outlined above, there are a constantly increasing number of people voting for this “something for nothing” activity to grow.

Something is eating at their wallets, paychecks and savings, relentlessly encouraging them to vote for anything which will cause it to stop or reverse. The only roads they are offered in today’s political environment lead to the same destruction in the future. They vote for public servants who will take it from them even as it sits in their pocketbooks and bank accounts, oblivious to the process of how they lift it from them.

Unfortunately, the recipe for getting this erosion to stop is self discipline and personal responsibility, belt tightening, saving for investment and consuming less now, less government spending and working harder and smarter. These concepts are unthinkable to the many people at the bottom of the income ladder, as they are already paddling as hard as they can. And more people are being moved to lower rungs on the ladder on a daily basis, through the very same mechanism they themselves voted for the politicians to implement.

Politicians and the elites that pay to elect them then prey upon this growing desperation so they can what else? Control the MONEY, the voters and the economy. It is a vicious circle of the most insidious sort, created by the very same character flaw which has grown in the populous as their incomes have succumbed to the compounding of the loss of purchasing power, caused by the understatement of inflation. Then it is combined with the printing presses to cover the shortfalls. A real two-edged sword, it cuts the middle classes TWICE!

Ever wonder why the GAO (Government Accounting Office) can’t really give you an accounting of the US government budget?

Why there are no accounting books to speak of for the various departments of government?

Why no one really sees the deficits as Social Security and Medicare trust funds and new money creation are used to pay for general budget expenditures?

Government agencies like the Defense Department and the Department of Health and Human Services, the GAO says it can’t give you an accurate accounting of where the money has gone and to whom, BLACK HOLES of taxpayer money. John Williams has calculated the US budget deficit according to GAAP (generally accepted accounting principles) and it is now approximately $9 TRILLION dollars a year in contrast to the politically correct but practically incorrect number given to us by the government. Take a look:

NINE TRILLION DOLLARS OF DEFICITS or PROMISES TO PAY annually EVERY YEAR in a $13 TRILLION economy, and that is BEFORE the NEW HEALTHCARE entitlement and TAX and CAP OBAMINATION. Government is growing beyond its means, pushed there by the SOMETHING FOR NOTHING constituent.

This immoral behavior of our political and financial authorities would be on plain display if these numbers were reported accurately, but since the law is whatever these people in power wish it to be, they aren’t! AIDED by the MAINSTREAM press. government accounting and accountability are oxymorons, there is no accountability.

The demise of the middle class is set to accelerate in Europe and the United States, production and wealth-generating activities are now victim of the broad populous belief taught by the public schools, reinforced in the headlines and main stream media in the belief of “something for nothing”, and that government can “protect and provide for you”.

So, more politicians are elected on an ever-increasing basis to implement it. It is a requirement to be elected in the developed world. and because taxes never cover the bills these public servants print the money, sell it to the federal reserve for collection from your children and grand children, throw the money they created into the money supply reducing the value of your paycheck and savings accounts by the equivalent amount, then spend the money on government programs giving it away for the current and future votes of the ever-growing something for nothing constituents.

Consuming tomorrow’s income today.

A vicious circle and feedback loop.

Those same constituents are paying for the government program they perceive to be FREE, with the stealth taxes they pay themselves through the printing needed to pay for the program.

Reduction of income through inflation of the money supply and the saddling of debt to future generations, ever increasing bills for everyday items, inflation written big, and endless expansion of tax bills as the improper indexing of taxes guarantees an ever-growing burden working its way lower and lower on the income scale.

The endless promises from the tooth fairy and public servants are set to continue in increasing amounts forever.

Destruction of the broad American and European middle class is in full swing and has 30 years or more of momentum built into it, and it is accelerating as the loss of purchasing power is accelerating.

It is now pathological in nature and built into the psychology of the developed world.

What we are voting for is what will do the most damage to our futures! Politicians use this empty feeling in your gut, to instill FEAR (FALSE EVIDENCE APPEARING REAL) into every part of their respective constituencies. An example of this can be seen in this poll conducted by the Financial Times and Harris Poll of 6 of the 7 members of the G7:

These people are SCARED and FEARFUL of Globalization.

They have been manipulated by the press and their leaders to MAN THE BARRIERS to the evolution of the globe, and they are unable to understand the opportunities for personal advancement and WEALTH CREATION offered to them by GLOBALIZATION and the emergence of 3 billion people into the modern world.

These emerging countries need everything the developed G7 have to offer: modern technology, engineering expertise, modern banking and financial system development, trains, planes and automobiles, just to name a few. This is an opportunity for wealth creation PAR EXCELLENCE for the G7, only the barriers must fall and the competition and capitalism must be allowed to bring out the best in all of us.

The only ones who are not served are the politicians, the media, the entrenched elite and corporatists as they LOSE CONTROL over their constituents and the sheep they have spent GENERATIONS regularly FLEECING, as THEY, themselves, are actually the ones unprepared to compete. So they prey upon their dumbed-down constituent’s FEARS (false evidence appearing real) while destroying their future prospects with schools that don’t TEACH the skills necessary to excel and thrive in life.

Today’s high school graduates do not have the knowledge to pay teachers pensions.

They then sing a SIREN song of let “mommy” take care of you and everything will be all right. When you are increasingly hungry you are always receptive to someone who says they have FREE FOOD.

Just ask 1st time homebuyers who get the tax credit or cash for clunkers car buyers, Medicare and Medicaid recipients or anyone who supports HEALTHCARE reform.

Many of these same BIG corporations have used globalization to remain competitive, as it should be.

Domestic manufacturers are falling like dominoes as the something for nothing mentality has driven PUBLIC SERVANTS to mandate thru the roof CORPORATE TAXES, regulations, wages and benefits to levels which render them uncompetitive in the new global marketplace. So one by one manufacturers are FORCED to move off shore or go OUT OF BUSINESS; it is only a question of SELF PRESERVATION, the most basic of human instincts.

Either you vote with your feet or go out of business. If a gun is put to your head do you duck or be killed. There is only one answer to this question. However, slowly but surely it is “leave or perish,” as more and more of the most productive people and businesses flee their tyranny and lack of understanding history, as socialism has ALWAYS caused the demise of the society which has attempted to practices it.

Corporate taxes in the G7 are the highest in the world, so these companies are at a huge disadvantage as suppliers to the emerging global marketplace, thereby killing G7 jobs.

Do you want more jobs? Lower corporate taxes and competition-killing mandates; higher wages and thriving DOMESTIC and EXPORT businesses will be the result.

These Public servants, their elite and big business cronies would rather have complete control over failing economies and their constituents than partial control and thriving economies.

This failure to thrive in the global marketplace directly feeds their ability to control and fleece their constituents.

They will protect their GRAVY trains no matter WHAT the cost to others.

This is driving an ever-growing part of the citizens towards Egalitarianism and envy.

Socialism is relentlessly marching into the G7 as politicians and their central banks create this something for nothing mentality.

Feeding the growth of this are the politically correct PUBLIC schools telling students everyone is a winner rather then strive for excellence and the rewards for doing so.

They teach equality as FACT, the price for people is that they aren’t prepared for the future; they are prepared to be victims of the political class and their elite masters.

The basic skills of reading, writing, arithmetic, knowledge of history and the many generations of critical thought generated over hundreds of years by the greatest minds in history are the VICTIMS of modern teaching ideas and socialist teacher’s unions and academics (the very epitome of the something for nothing personality), who don’t teach critical thinking skills, they teach memory skills.

Solving problems is not part of the curriculum for generations of emerging young men and women.

The only children that do emerge with these skills have parents that take personal responsibility for their children’s educations rather then leaving it to THE STATE which wishes to indoctrinate them.

Rampant dysfunctionality of the family becomes the norm as they are taught that personal responsibility for themselves and, by extension, their families is something they can look to government for, from the beginning of their educational journeys.

There are countless talents, both mental and physical, that humans possess.

The egalitarians prefer to imagine everyone as being born pretty much exactly alike, with any later differences due to environmental or conditioning errors or deficiencies.

Yet these folks do give ground when it comes to how fast one can run the forty, or how well one can sing. No one is gullible enough to believe that if we all just trained harder we all could sing like an opera star or run like a professional athlete.

The emphasis therefore tends toward indoctrination to the effect that everyone is mentally the same.

It is harder to prove that someone is less intellectually gifted than another, and even if an IQ test demonstrates differences, the test comes under attack. Still, people demonstrate varying levels of potential in a multitude of mental areas and I think we can agree that whatever an IQ test measures, a person with an IQ of 90 is simply not as intelligent as someone at 130.

People that have higher IQ's, are highly motivated, goal oriented and have learned to keep their skills under wraps, and to attribute the evidence of those mental and emotional gifts, i.e. money, better jobs, promotions, etc. to luck.

This is done to deflect envy; in today’s G7 society one knows better than to say 'I'm smarter than you' as the masses are taught that if someone accumulates more money than another, they probably came across it dishonorably or by greedy habits such as hard work and saving, and in general they are a 'bad' person.

The fact of the matter is this: humans have an amazing number of subtle skills and talents, each distributed along a bell curve. Those people smart enough to figure out the political game are usually sharper, on average, than other people. Yet these same people almost blindly, through conditioning, accept the line that everyone else could see things clearly if they were just better educated.

No...most people are not going to miraculously acquire more gray cells. It follows that the masses are not going to get educated enough to think like Einstein and politicians are not going to suddenly become philosopher statesmen.

As the ability to get ahead is pushed further and further away from the broad middle classes, politicians fan the flames of this desperation, creating broad and growing clamoring constituencies and empowering the politicians to DO SOMETHING. That is just what they do, they become relentless in their pursuit of money to FUND the FEAR of their something for nothing constituents.

Starting at the top of the income ladder, they must continually move lower on the income scale. THERE IS NEVER ENOUGH MONEY TO FUND SOMETHING FOR NOTHING, everything costs something.

Any economist (except ones recently trained) understands TANSTAAFL (there ain’t no such thing as a free lunch).

As these politicians relentlessly consume more and more of the wealth of their nations, their nations increasingly invest less and less into the things needed for future wealth creation.

Capital creation, savings, infrastructure, education, entrepreneurs and small businesses are sacrificed and fall victim to feed the reelection requirements of these MONSTERS’ greed, and blind ambitions for power over others and their MONEY.

They are driving the SOMETHING FOR NOTHING personality and the countries in which they are dominant into increasing poverty and economic failure. Like locusts attacking fields of grain, they eat everything right down to the roots.

Public servants then push their constituents into jealously with their populous rhetoric of equality, and they find fertile ground as G7 schools teach their students that this is so.

A jealous person thinks that someone else has something they want, they’re going to take it from you. Up until this point the jealous person can be bought off. At some point it crosses a line into ENVY.

At that point it becomes toxic as the envious person thinks you have something they can never have, so they decide they are going to destroy what you have, and they don’t want anyone to have it until they and everyone can; which is impossible, as all outcomes are unequal for everybody in life just as in nature.

These are the seeds of the far left “hate monger” as it moves itself evermore into the mainstream, and as the “something for nothing” constituency grows ever larger. They wish to destroy everything from which they don’t completely benefit, so they work very hard to tear up the roots of past and present wealth-generating activities.

Public servants are telling their constituents that their problems and falling standards of living are caused by someone else, destroying the virtue of SELF RESPONSIBILITY in the fiber of the populous at large.

Armies of lawyers are always looking to pin the tail of responsibility on anyone but the person they represent.

Personal responsibility is an oxymoron, as ever increasingly large parts of the populations refuse to practice it.

They refuse to practice it in their finances, jobs, families and education believing the government CANARD will do so, thus creating ever widening COSTS on the economies in which they operate.

The gifts of nature and God are spread unequally.

The strongest thrive and the weakest wilt.

The something for nothing mentality attacks the strongest producers in their societies and feeds the carcasses to the weakest.

As envy increases, government intervention into the economy follows, programs designed to produce more equality never do so, and at the same time substitute bureaucratic control, destroy free market profitability and the efficiencies is produces.

The relentless pursuit of equality of results is sinking their economies in regulatory burdens creating straightjackets to innovative problem solving.

Future innovation suffers a creeping death as rules destroy the ability to solve problems. Look no further than the medical industry in the United States, warped and distorted by Medicare and Medicaid and the attempt to give health care to people at the expense of the health care professionals’ income and the people who pay regularly for their health insurance.

This is creating a constant game of cat and mouse as the providers try to shift their income from one place to another to avoid the inevitable confiscation of their incomes and livelihoods by the something for nothings politicians.

The new Healthcare reform is politically correct but practically incorrect as Public servants, big union bosses and crony capitalists FEED on the private sector and their constituents, with huge new PERMANENT bureaucracies, rationing panels and a guarantee the you will get less medical care for MORE money, as you do with every BIG GOVERNMENT solution.

Doing this to SAVE and PROTECT you, a BIG lies following in the footsteps upon which Adolph Hitler, Mao and Stalin rode to power.

Increasingly employees resent their employers hoping they will fail as envy and jealously slowly burns in their hearts and work efforts.

Look no further than the United Auto Workers to see the “something for nothing” ROT within the American work force.

US automakers were and are dead men walking as it costs on average 1500 dollars more to make a car then what is collected upon sale.

Their entitlement mentalities so entrenched that they would rather have their employers GO OUT OF BUSINESS then price their work product at a level that allows domestic auto and auto parts makers be profitable and internationally competitive.

These workers are the epitome of the entitlement mentality spreading throughout the G7 work forces.

You can see this “something for nothing” mentality throughout the G7, their employers balanced on the edge of a knife as they are more and more priced OUT of the global marketplaces.

Infrastructure, refineries, power plants, new roads, road maintenance, port development, school infrastructure, capital investments in electrical distribution, energy production, etc. all suffer under the “something for nothing” mentality as EVERYTHING is redirected to entitlements to buy their votes.

Taking a dollar from a productive enterprise or person, running it through the government program and its bureaucracy, then delivering a dime’s worth of benefits for every dollar collected so a dollar turns into a dime.

This is the definition of BANKRUPTCY, moral and fiscal.

These are critical components of any growing modern economy; moving their economies closer to crisis every day through neglect and failure to plan for the future.

These things are not commonplace activities in the G7 like they were several generations ago. Shortages of all these components lie on the near horizon for the G7 and usually take a generation to plan and implement. Inflationary spike hikes lie in the near future for these countries courtesy of the “something for nothing” personalities and public servants.

Creating ever growing neglect in meeting the present and future needs of an expanding populous and economy.

The bridge collapse in Minnesota a prime example of the neglected infrastructure, that disaster is waiting in many corners of the G7s infrastructure, as the something for nothing constituent has CONSUMED the money earmarked for regular maintenance and upgrade budgets.

To fund FREE health care, welfare, subsidies for BIG business, ethanol, farm subsidies, earmarks/pork barrel, bike paths, Healthcare reform, Medicare and Medicaid, monuments to politicians (the latest budget contains 3000 earmarks aka favors for campaign contributors worth $30 billion, which is 30,000 million) etc. the amount of government handouts is uncountable and growing as each election cycle requires a whole new crop of something for nothing programs or increases in existing ones.

Leading to an ever-widening weakness within their economies, every year their businesses fall in competitiveness in the global marketplace; they are structural impediments to resumption of growing economies. Wealth creation in reverse as the businesses are forever being more and more hobbled. The longer this occurs the poorer the country becomes as the strongest producers vote with their feet. A perfect example of this is France.

A recent story from Bloomberg outlines the situation quite well:

French Anti-Rich Views Make Exiles Wary of Sarkozy Tax Cuts 2007-07-30 19:51 (New York)
By Celestine Bohlen

July 31 (Bloomberg) -- Nicolas Sarkozy is rolling out the welcome mat for thousands of rich French people who fled one of Europe's most onerous tax regimes. Few may heed his call.

In his first economic act as president, Sarkozy is pushing a tax law to lure back exiles such as rock star Johnny Hallyday, 64, and members of the Mulliez clan, who control the French retailer Groupe Auchan SA. The measure will increase exemptions on the ``fortune'' tax -- the bete noire of rich expatriates --and cap the total individual tax rate at 50 percent of income.

Sarkozy, 52, needs these wealth-creators to help rekindle an economy that's lagging behind its neighbors and to sustain future growth. One challenge may be changing a centuries-old French attitude that regards people who make money with suspicion. That view has made penalizing the rich popular in France and leaves the wealthy uneasy about whether any pro-rich policies can last.

``In France, to earn a lot of money is to be seen as a little bit criminal,'' says author Anne-Marie Mitterrand, who moved to Belgium in 1997. ``In Belgium, the mentality is

completely different. People who have a little money are not regarded as thieves.''

French suspicion of wealth runs deep. Sarkozy's Finance Minister Christine Lagarde, 51, traces it to French aristocrats who turned up their noses at people who earned their fortunes.

`Right to Laziness'

Even the revolution of 1789 didn't change that: ``The Right to Laziness,'' a 19th century book by Paul Lafargue, Karl Marx's son-in-law, advised against working more than three hours a day. And French author Honore de Balzac famously said, ``Behind every great fortune lies a crime.''

This prejudice drove French citizens to Switzerland, Belgium, the U.K. and the U.S., where at least 500,000 of them reside, either to make more or keep more of what they have.

London and the U.S. are preferred refuges for younger people. Switzerland, with about 200,000 French residents, attracts the retired and stars like Hallyday.

Angry at paying more than 72 percent of his income in taxes, he moved to the ski resort of Gstaad last December in a storm of publicity. After Sarkozy's May election, Hallyday hinted he might come back. His press attaché Catherine Battner Says he has yet to make up his mind.

Fleeing the Tax

Households fleeing the fortune tax climbed to a record 649 in 2005 from 370 in 1997, according to a study by French Senator Philippe Marini.

Another study by the Economic Analysis Council, which advises the government, says about 10,000 business directors fled in the last 15 years, taking 70 billion to 100 billion

euros ($137 billion) in capital to invest elsewhere.

Marini said the average age of the emigrants is 53, compared with 66 for the 394,000 people still in France who pay the tax. A third of those who left had started paying it only

two years earlier, suggesting they represented new and growing wealth, he said.

These ``are not people living off their interest, but entrepreneurs and investors who are needed by France's small and medium businesses,'' Marini said in his February report. Losing them means ``a loss of economic dynamism'' for France, he wrote. Francois Micheloud, a Lausanne lawyer who helps clients settle in Switzerland, says he doubts French exiles will return anytime soon because they distrust government tax policies.

Changes Aren't Forever

``The French know their country better than I do, and they have the impression that any changes made now are not necessarily there forever,'' he said.

The fortune tax was introduced in 1981 as a populist move by Socialist President Francois Mitterrand. Mitterrand's center-right Prime Minister Jacques Chirac eliminated it in 1986, a move he later said cost him the 1988 presidential election because many French people saw it as helping the rich.

The Socialists, who defeated Chirac in 1988, reinstated the tax. When Chirac won the presidency in 1995, he toughened it. In 2006, it added 3.7 billion euros to French coffers, roughly 1.3 percent of total levies.

The rate is currently 0.5 percent for people with at least 760,000 euros in assets, including real estate, and 1.8 percent for people with assets worth more than 15.8 million euros. The levy is on top of income tax, which, at a maximum of 48.1 percent, is among the highest in Europe, according to the European Commission.

Eliminate Levies

Sarkozy's law caps the total tax rate, eliminates most inheritance levies and increases fortune-tax exemptions. The lower house of Parliament approved the measure on July 16,

followed by the Senate on July 28. It could take effect as early as this year.

In Belgium, home to about 160,000 French citizens including members of the Mulliez clan -- France's second-richest family, according to the July issue of Challenges magazine – the initiative hasn't sparked much interest, says Alain Lefebvre, 60. He moved to Belgium in 2005 and started ``Juliette & Victor,'' a magazine for the French community.

``I don't know anyone who will go back on the basis of Sarkozy's promises,'' Lefebvre says. ``It is hard enough to make the move once. Once done, it is difficult to undo.'' End.

All we can say after reading this excellent description of conditions in the fatherland of the SOMETHING FOR NOTHING personality is don’t hold your breath.

As anyone knows French politicians are the law of the land and the MOB is their masters.

The “something for nothings” confiscates 70% of the wealth of the most productive and the economy in general.

All of the G7 countries are following fast in the footsteps of this “socially responsible” hellhole.

For anyone who wishes to lead a productive lifestyle and accumulate wealth for themselves and their families, it is not a destination in which you can accomplish these objectives. To live there is ultimately a recipe to slavery to the something for nothing personality.

As the G7 “something for nothing” mentality marches forward look for this to be repeated over and over again as the producers leave the Freeloaders behind.

Stalin, Mao, Gandhi, Peron, Chavez, and many other politicians in history have ridden these personalities into power, the ultimate dictatorships they became and the failed economies they produced.

Now politicians in the G7 are using the same recipe. This character flaw ALWAYS leads to socialism, collapsing economies and poverty as it is now and ultimately will in the G7

This may include information obtained from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made to ensure its accuracy or completeness. Opinions expressed are subject to change without notice.

This report is not a request to engage in any transaction involving the purchase or sale of futures contracts or options on futures.

There is a substantial risk of loss associated with trading futures, foreign exchange, and options on futures.

This letter is not intended as investment advice, and its use in any respect is entirely the responsibility of the user.

Past performance is never a guarantee of future results.

Why are we so bad at detecting the guilty and so good at collective punishment of the innocent?

Flying High
It's getting to the point where the twin news stories more or less write themselves. No sooner is the fanatical and homicidal Muslim arrested than it turns out that he (it won't be long until it is also she) has been known to the authorities for a long time.

But somehow the watch list, the tipoff, the many worried reports from colleagues and relatives, the placing of the name on a \"central repository of information\" don't prevent the suspect from boarding a plane, changing planes, or bringing whatever he cares to bring onto a plane.

This is now a tradition that stretches back to several of the murderers who boarded civilian aircraft on Sept. 11, 2001, having called attention to themselves by either a) being on watch lists already or b) weird behavior at heartland American flight schools. They didn't even bother to change their names.

So that's now more or less the routine for the guilty.

(I am not making any presumption of innocence concerning Umar Farouk Abdulmutallab.)

But flick your eye across the page, or down it, and you will instantly see a different imperative for the innocent. \"New Restrictions Quickly Added for Travelers,\" reads the inevitable headline just below the report on the notoriety of Abdulmutallab, whose own father had been sufficiently alarmed to report his son to the U.S. Embassy in Abuja, Nigeria, some time ago.

(By the way, I make a safe prediction: Nobody in that embassy or anywhere else in our national security system will lose his or her job as a consequence of this most recent disgrace.)

In my boyhood, there were signs on English buses that declared, in bold letters, "No Spitting." At a tender age, I was able to work out that most people don't need to be told this, while those who do feel a desire to expectorate on public transport will require more discouragement than a mere sign. But I'd be wasting my time pointing this out to our majestic and sleepless protectors, who now boldly propose to prevent airline passengers from getting out of their seats for the last hour of any flight.

Abdulmutallab made his bid in the last hour of his flight, after all. Yes, that ought to do it. It's also incredibly, nay, almost diabolically clever of our guardians to let it be known what the precise time limit will be. Oh, and by the way, any passenger courageous or resourceful enough to stand up and fight back will also have broken the brave new law.

For some years after 9/11, passengers were forbidden to get up and use the lavatory on the Washington-New York shuttle. Zero tolerance!

I suppose it must eventually have occurred to somebody that this ban would not deter a person who was willing to die, so the rule was scrapped.

But now the principle has been revisited for international flights. For many years after the explosion of the TWA plane over Long Island (a disaster that was later found to have nothing at all to do with international religious nihilism), you could not board an aircraft without being asked whether you had packed your own bags and had them under your control at all times.

These two questions are the very ones to which a would-be hijacker or bomber would honestly and logically have to answer "yes." But answering "yes" to both was a condition of being allowed on the plane!

Eventually, that heroic piece of stupidity was dropped as well. But now fresh idiocies are in store. Nothing in your lap during final approach.

Do you feel safer?

If you were a suicide-killer, would you feel thwarted or deterred?

Why do we fail to detect or defeat the guilty, and why do we do so well at collective punishment of the innocent?

The answer to the first question is:

Because we can't—or won't.

The answer to the second question is:

Because we can.

The fault here is not just with our endlessly incompetent security services, who give the benefit of the doubt to people who should have been arrested long ago or at least had their visas and travel rights revoked.

It is also with a public opinion that sheepishly bleats to be made to "feel safe." The demand to satisfy that sad illusion can be met with relative ease if you pay enough people to stand around and stare significantly at the citizens' toothpaste.

My impression as a frequent traveler is that intelligent Americans fail to protest at this inanity in case it is they who attract attention and end up on a no-fly list instead. Perfect.

It was reported over the weekend that in the aftermath of the Detroit fiasco, no official decision was made about whether to raise the designated "threat level" from orange. Orange!

Could this possibly be because it would be panicky and ridiculous to change it to red and really, really absurd to lower it to yellow?

But isn't it just as preposterous (and revealing), immediately after a known Muslim extremist has waltzed through every flimsy barrier, to leave it just where it was the day before?

What nobody in authority thinks us grown-up enough to be told is this:

We had better get used to being the civilians who are under a relentless and planned assault from the pledged supporters of a wicked theocratic ideology. These people will kill themselves to attack hotels, weddings, buses, subways, cinemas, and trains.

They consider Jews, Christians, Hindus, women, homosexuals, and dissident Muslims (to give only the main instances) to be divinely mandated slaughter victims. Our civil aviation is only the most psychologically frightening symbol of a plethora of potential targets.

The future murderers will generally not be from refugee camps or slums (though they are being indoctrinated every day in our prisons); they will frequently be from educated backgrounds, and they will often not be from overseas at all.

They are already in our suburbs and even in our military.

We can expect to take casualties.

The battle will go on for the rest of our lives.

Those who plan our destruction know what they want, and they are prepared to kill and die for it.

Those who don't get the point prefer to whine about "endless war," accidentally speaking the truth about something of which the attempted Christmas bombing over Michigan was only a foretaste.

While we fumble with bureaucracy and euphemism, they are flying high.


Christopher Hitchens is a columnist for Vanity Fair and the Roger S. Mertz media fellow at the Hoover Institution.

Global warming a tough sell for the human psyche

The Copenhagen talks on climate change were convened with a sense of urgency that many ordinary folks don't share.

Why is that? One big reason:

It's hard for people to get excited about a threat that seems far away in space and time, psychologists say.

"It's not in people's faces," said psychologist Robert Gifford of the University of Victoria in British Columbia.

"It is in the media, but not in their everyday experience. That's quite a different thing."

The consequences of global warming are seen as occurring in far-off places, he said:

"It's happening up in the Arctic or it's happening in Bangladesh, and it's not happening in my backyard."

And the slow changes are not as attention-grabbing as a "fast disaster" like an earthquake, he said.

As it happens, those urgent-seeming U.N. talks have bogged down over political differences.

But recent surveys suggest that Americans are not exactly consumed by concern over climate change.

In October, the Pew Research Center for the People & the Press said its poll found that only 35 percent of Americans considered global warming to be a very serious problem, a decline from April 2008. Thirty percent called it "somewhat serious."

In a poll by The Associated Press and Stanford University, published this month, more than half said they would not support a "cap-and-trade" program to reduce global warming gases if it raised their energy bills by $10 a month.

Cap-and-trade would essentially allow industries to buy and sell the right to pollute.

Some skeptics, of course, cite their own analyses to question whether greenhouse gas emissions are really an urgent problem that needs to be fixed.

And their opinions on the Internet have influenced others.

But beyond that, psychologists say, the nature of climate change itself makes it a tough sell for many people.

Janet Swim, a psychology professor at Pennsylvania State University, recalls a conversation from last month with a taxi driver in Cape Town, South Africa.

"I don't think there's climate change," the driver said. "If there was climate change and sea levels were rising, I would have seen it."

He was going by his own experience, said Swim, who studies how people feel about global warming. "People experience weather on a day-to-day basis, and that's how they think about climate change," she said.

In fact, it takes careful analysis of lots of data from lots of places to tease out the signal of global warming, she noted.

Gifford said people tend to attach less importance to future problems than more immediate concerns. That may be a holdover from early days of human evolution, when

"things far away didn't matter, things in the future didn't matter. It was whether the tiger or the enemy was just around the corner," he said.

In fact, scientists say global warming's influence is already visible and it could get worse within decades if no action is taken.

The average number of heat-wave deaths in Chicago could more than double by 2050, and killer heat waves in Europe could also increase by that time, experts say. Arctic summers may be almost free of sea ice by 2030 or sooner, they say.

Even among people who accept global warming as a serious issue, there are additional psychological barriers to getting them to take significant action against it.

Gifford, who studies pro-environmental behavior, calls them the 13 dragons.

Among them:

_ Environmental numbness: "OK, climate change. I've heard that one before. Been there, done that."

_ A feeling of powerlessness: "Anything I do is just a drop in the bucket."

_ Conflicting goals: "Yes, I should be changing my behavior, but I've got to look for a job, I've got to go to the gym, I have to take my kids to soccer practice, so I'll do it tomorrow."

_ A sense of inequality: "Why should I take the bus when my boss is driving a Cadillac?"

_ Loss of freedom: `It's a free country. I can drive a Hummer if I want to."

_ Tokenism: "I recycle, so thank you very much, I'm finished."

_ Excessive optimism: "It will work out in the end.

The scientists will figure it out, so I don't have to do anything."

And then there's just plain habit.

It's "a huge but boring force," Gifford said.

"We just tend to do today what we did yesterday."

So what can advocates do to promote concern and action about global warming?
Gifford cites steps such as convincing people they really can make a difference by taking a bus rather than driving, or by insulating their homes.

And messages that focus on taking action to become an "ecological hero" will probably work better than those that portray such actions as a sacrifice, he said.

Swim, who chaired a recent American Psychological Association task force that summarized psychological research relevant to climate change, said appeals stressing the impact of climate change on people and animals may be more effective than those that just talk about seas and temperatures rising.

(She is now investigating whether such messages are more likely to make people act).

Elke Weber of the Center for Research on Environmental Decisions at Columbia University said people might respond to projections of what global warming could do to places they care about, like their favorite ski areas or their beach homes.

It's also important for the news media to talk about climate change and what people can do, Swim said.

While the Copenhagen talks have gotten plenty of attention recently, in general "there's more in the paper about health care reform than about climate change," she said.

And individuals can talk to their friends about their own concern and actions, Swim said.

She sets aside one day a week when she makes a special effort to minimize her own carbon emissions from driving by doing such things as biking or just staying home.

"Most people don't know I have a carbon-free day," Swim said.

"I should probably tell more people about that."

Sunny, with a Chance of Relapse

Strong growth or tepid bounceback? Economists ring in 2010

At the very least, 2009 created a rare sense of unanimity among economists. With the country in its worst recession since the 1930s, and unemployment at a 26-year high, economists of all stripes agreed: the economy was a disaster.

Thankfully, 2010 should be a lot less historic. That also means the outlook for the new year is a lot less unanimous. On average, the 58 economists surveyed by Bloomberg in early December expect that the U.S. economy will muddle along at the 2.6% average annual growth rate of the past 20 years, that consumer prices will rise 2.1%, and that joblessness will remain at 10% for the year.

But these are just averages, and they obscure two distinct—and extreme—views of where the U.S. economy is headed. The first camp—let's call them the history-repeats-itself crowd—sees the economy bouncing back strongly next year, growing 3.5% or more.

After all, that's what happened in the mid-1970s and the 1980s as pent-up demand powered the economy forward after steep contractions. The second set of economists argues that this time, it's different. They foresee a restrained rebound as shell-shocked workers shy away from shopping and banks keep a tight rein on credit. The result, they say, is growth next year of about 2% or less in the wake of an economy that shrank by an estimated 2.5% in 2009.

If the history lovers are correct, stocks may continue to be a good place to put money.

If the revisionists are right, bonds may be the market to be in.

What it may come down to is a bit of both:

The economy is likely to start out strongly as production ramps up from recession levels only to fade as underlying weaknesses crimp growth. That's a view shared by Mohamed El-Erian, chief executive officer of Newport Beach (Calif.)-based bond giant Pimco. "I'm more bearish than the consensus," says El-Erian. "I think we start the year at 3% [growth] and then end up at 2%."

RAPID REBOUND

The optimists pin their hopes on something called the Zarnowitz rule.

Named after the late economist and business cycle theorist Victor Zarnowitz, it posits that deep recessions are usually followed by rapid rebounds.

"A tremendous amount of activity was put on the back burner," says Stephen Stanley, chief economist at RBS Securities in Stamford, Conn.

"We're going to have a lot of pent-up demand coming through."

Typically, companies slash stockpiles after a recession hits because they don't want to be stuck with products they can't sell. When demand starts to stabilize, they ramp production back up and rebuild inventories so as not to miss out on potential sales and profits.

That's likely to happen in spades in 2010, the history followers say.

Through mid-2009, cuts in inventory acted as a drag on the economy for six out of seven quarters—the worst record since the government began keeping score in 1947.

In the third quarter, that pattern changed. Inventory cuts waned, allowing the economy to grow. Companies may soon start to rebuild stockpiles.

"We're in a sweet spot with regard to inventories," says David Hensley, director of global economic coordination at JPMorgan Chase (JPM) in New York.

It's not just inventory that companies have cut too deeply, says Dean Maki, chief U.S. economist at Barclays Capital (BCS) in New York.

Amid warnings from doomsayers that the U.S. was headed for another Depression, business slashed spending on factories and equipment and pared payrolls more than was justified by the contraction of the economy.

Calculations based on Okun's law, which was developed by the late economist and White House aide Arthur Okun and links joblessness to output, arrive at the same conclusion—that unemployment should be lower than it is.

"As the economy starts growing, it's no longer going to be acceptable for CEOs to tell shareholders, 'we survived,'" Maki says.

"They're going to have to look for ways to expand their business and their sales."

Even housing will add to growth in coming quarters, according to the optimistic view.

Faced with a collapse of the market, homebuilders cut back on construction so much that a mild revival of demand could turn things around. Residential construction accounted for a record low 2.5% of gross domestic product in the first nine months of 2009, below the post-World War II average of 4.7%.

The rebound in housing and the economy will stoke inflation and prompt the Federal Reserve to start raising interest rates in the middle of year, Stanley says.

He sees the federal funds rate, the rate commercial banks charge each other for overnight loans, at 3% by the end of 2010, up from the Fed's current target of zero to 0.25%.

ON THE OTHER HAND...

The pessimists brush aside talk of a housing rebound and inflationary pressures.

Rather than focusing on the cyclical forces that propel recoveries, they're concentrating on structural impediments that could hold the economy back.

"This business cycle is different," says Jan Hatzius, chief U.S. economist at Goldman Sachs (GS).

"The downturn was driven by the bursting of a bubble."

The collapse of home prices, down more than 25% over the past three years, has destroyed trillions of dollars in wealth and left consumers more inclined to save than spend, naysayers argue.

While the savings rate rose to an average 4.5% near the end 2009, it's below the 7% average of the last 50 years, so the rate may rise.

"A lot of households are being more frugal," says Nariman Behravesh, chief economist at IHS Global Insight (IHS) in Lexington, Mass.

"That's good for household finances but not so good for growth in the short run."
Sky-high unemployment will also act as a brake on consumer outlays.

"The biggest job losses were in construction and manufacturing," says Bart van Ark, chief economist at the Conference Board.

"Many of those jobs are gone forever."

Permanent layoffs—layoffs of workers who don't expect to regain the same job—hit a record 55.1% of those out of work in November.

Banks are also likely to be cautious in handing out credit as they dig out from under the wreckage of the financial crisis.

"What we need to do first is clean up the overhang of toxic assets that sit in zombie-like banks," says Rajeev Dhawan, director of the economic forecasting center at Georgia State University's Robinson College of Business.

The number of "problem" banks that may have to be taken over by the government climbed to 552 at the end of the third quarter to the highest level in 16 years, according to the Federal Deposit Insurance Corp.

The agency also reported on Nov. 24 that the amount of bank loans outstanding fell 2.8% last quarter, the biggest drop since the FDIC started keeping records on bank loans in 1984. With bank credit tight, the Fed has little reason to lift interest rates, reason the pessimists.

Hatzius expects the Fed to hold rates near zero through all of 2010 and 2011.

The economy may well start out the year with a bang.

The thing to keep an eye on will be the quality and sustainability of growth.

Pimco's El-Erian notes that if the economy is being powered by temporary factors, such as companies restocking shelves, investors may want to be cautious.

If instead final demand is rising, with consumers and companies spending more, then happier days may indeed be here again.