Friday, December 4, 2009

How a Three Digit Credit Score Reflects Consumerism and not Financial Independence.

Americans carry $900 billion in credit card debt. Approximately 75 percent of all those eligible for credit, those that are 18 years or older, have a credit rating score at any given time. This mysterious three digit score named a FICO Score is the basis for loans, interest rates, and should reflect your ability to manage debt. Yet this is one of those confusing public relation developed ideas that tries to water down the fact that going into debt is somehow good for average Americans. Not only is going into debt good, you now have a credit score that is supposed to be some kind of financial report card.

Like the rating agencies labeling crap mortgage backed securities as “AAA” and turning out to be more like “FFF” people need to examine the entire system from the ground up. The credit card industry is gouging the living daylights out of consumers as the unemployment and underemployment rate hits 17.5 percent. You would think that the banking sector that owes its life to the American taxpayer for bailing it out would have some sympathy. Instead, the new Wall Street oligarchy is running the show and we have new feudal lords running this country. The credit card is merely your key into the kingdom of serfdom.

The credit card industry with the mysterious FICO score would like you to believe that there is some enormous world of credit cards out in the market. In reality, it is simply rebranding. 5 issuers make up over 60 percent of all credit card debt:


FICO stands for Fair Isaac Corporation and provides services to the world’s 10 largest banks. No shocker there. The FICO score is based on multiple factors and ranges from 300 to 850:


Source: PBS

Fair Isaac Corporation doesn’t store the credit scores but provides the big three credit reporting agencies with the algorithm to compute the score. It is a very tiny and selective world. You would think that something as important as a credit score would be open to the public but it isn’t. In our current market with bail outs and hidden agendas on Wall Street, transparency is of paramount importance. But of course why would they give up the algorithm since so much money is based on this score?

Looking at the chart above, there are flaws in the way the system is based. This is what we are told on the surface regarding the credit scoring model. I’ll give you a personal experience where my score dropped a few points for an otherwise financially wise move. The bottom feeders of the credit card industry have taken it upon their shoulders to now put clamps around good paying customers. Since they can’t squeeze any more blood out of 27 million unemployed or underemployed Americans, many who were recruited from companies like Providian, credit card companies are now going after “good FICO score” customers. On one card I had a line of $7,000. I rarely used the card but it had a “fixed” rate of 8.99%. Not bad for emergencies. But during this crisis as they were sucking the taxpayer dry and uncle Ben has opened up the Fed for banks to borrow at practically zero percent, these kind criminals decided to hike my rate up to 19.99 percent. No late payments. A few years of history. Since they were experiencing “unusual” changes in the economy (like screwing it up to being with) they had to raise my rate. So I called them up and canceled the card. What use is it raging against someone in India (I did ask my representative his location) when the true criminals are sitting on Wall Street? He stated that the only option was accepting the 19.99 percent rate or closing my account. I wonder if bailed out banks got ultimatums like that?

A few months later I noticed my overall FICO had dropped by 15 points. Not a big deal but what kind of logic is this? Is this the algorithm that is super top secret? This is like penalizing a gymnast for landing too many perfect dismounts. According to the system, the overall debt ratio increased because that $7,000 line is now vanished in thin air. Yet any person heading on the path of financial independence realizes that less credit card debt is good. The financial industry is fleecing the American public in so many ways they don’t even bother being careful about it anymore.

The Department of Justice did an interesting report a few years ago looking at Chapter 7 bankruptcy cases. As you would expect, as people got older the debt simply spiraled out of control:


The chart above simply shows the damage being done over years. Credit card debt is merely one factor in many bankruptcy cases. So you might say “well stay away from any form of credit then!” The problem is, even if you are looking to rent a home many people will simply run your credit score. Looking for a decent mortgage? Getting a good rate is largely based on your credit worthiness (at least now it is). Even some employers (the two that are hiring) will run your credit report. To function in our society the financial sector has largely forced people to comply like sheep. Think of overdraft fees. Why doesn’t the banking sector simply setup an opt-in policy instead of having everyone by default taking overdraft charges of $39 for a $5 cup of coffee? Because they make billions from this:

“Nov. 24 (Bloomberg) — U.S. limits on overdraft fees may cost banks more than $15 billion in revenue and prompt lenders to impose charges to close the gap, said the head of consulting firm Oliver Wyman’s North American financial-services business.

“We’re talking about $15 billion of revenue that basically falls right to the bottom line, so to take that out of the banking system then that’s $15 billion of capital that is not being created,” Michael Poulos said in an interview yesterday. “For some of our clients, this is a very big deal and it’s not clear that regulators have thought everything through.”

You notice how they call this revenue? PBS had a special on Frontline showing a banking industry lobby front man saying that the public wants overdraft access. Really? Show us the data. I wonder how much the public can take from this industry. It is literally bank robbery. They hide behind phony data and a structure that traps many Americans. Now that they can’t trap the poor, they are going after middle class Americans that are merely trying to make ends meet.

Of course, recent legislation is merely a token gesture. It has been gutted and practically written by the industry. The system is flawed. Wall Street and the banking industry have become invalid just like the FICO credit score. In California, we are seeing thousands of people default on mortgages strategically that had “excellent” credit scores. Why? Many don’t want to be paying for decades on an asset that has collapsed by 30, 40, or even 50 percent.

Until we reign in the financial sector, the average American is going to see their financial future sucked into the Wall Street vortex. Wall Street wags their finger and says, “keep up your credit score you little consumer” while they gamble like ADHD maniacs funded by the U.S. taxpayer on the most speculative products on the planet. Do as I say, not as I do.

Our Annual Predictions for 2010. Good News and Bad News.

Will 2010 be a 1930 or, comparable to 1937? Is it different this time? When one nation state of a formerly high productive stature destroys itself with inflation, the untouched others can soften the blow and in time bail out the fallen one. This was Germany’s fate in the 1920’s. In our current instance, most all of the world’s economies are on their knees with some hurting worse than others. Who can help with recovery this time? There is no one. It will not be China as some suppose as China shall suffer the same systemic collapse as the U.S, and all of Europe, Russia, and South America. China’s neighbors Japan, Taiwan, Korea, India, Indonesia and others will join the fallen.

The interwoven complexities of international trade and finance have caught them in all in a spider’s web of systemic collapse. Those who can shall attempt a massive inflationary rescue. While it might appear to work for a few months, eventually all implodes. Please note the following from John Pugsley’s “Common Sense Viewpoint” as printed in “Golden Insights” by James U. Blanchard III 1997.

“Inflation will destroy debt. The end answer to all argument (inflation versus deflation) rests in the Federal Reserve and government. Both are absolutely committed to preventing a financial collapse or deflation. As long as they are willing to print dollars to support any failing creditors, the cycle will go on. What most deflationists fail to consider is that inflation destroys debt.”

“Creditors win through inflation and lenders lose. The deflationists do not see that if inflation of the money supply continues, which it will, there needs to be a deflation. All the debt in the world can be wiped out just by creating purchasing power…and that’s exactly what is happening…the debt problems will be resolved, but they will not be resolved by debt liquidation through bankruptcy and collapse. They will be resolved through debt liquidation via the creation of money. We are in for the greatest wave of inflation in the history of the world. You had better not be on the wrong side of the dollar.” -John Pugsley “Common Sense Viewpoint.”

We agree with Mr. Pugsley but, this was written years ago. We would suggest that this time with most formerly productive nations becoming victims of both inflation-hyperinflation and systemic collapse; the ending could be much worse than supposed. We forecast inflation first then hyper-inflation some time down the road.

What happens between here and there? While in our view, our forecast episodic adventure takes at least 2-3 years but, no one knows for certain. We forecast 2010 to be one of the very worst years of Greater Depression II; the year 2010being the second cycle of several depressionary phases. The fall of Lehman and a surrounding crash was only Phase One. Before Phase Two terrorizes global markets, we suggest a short recovery arrives first.

Debts both public and private have not been paid down to any great extent. To make matters worse, new debts continue to plague central banks, nation’s banks, consumers and commerce. In order to find a basing bottom and enable a recovery, these debts must be paid, repudiated or inflated away. For now all of these solutions are in play but as fast as old problems are resolved even more continue to pile-on aggravating the troubles.

While global governments are busy attempting to inflate away debts through monetization; i.e., printing piles of un-backed dollars, notes and bonds, the load is simply unsustainable on the math. Manipulators have gone past the point of no return. There will be no recovery until after a smashing correction arrives. This smash is the quick and dirty answer to final de-leveraging of all those debts. We think it comes in phases and in fits and spurts.

Japan is in the worst shape with public debt versus GDP now standing at 270%. With an aging population and not nearly enough young workers entering their workplace, deflation arrived again and the Nikkei Stock Market is taking big hits. The U.S. and Europe except for the U.K have 125% of debt versus GDP with the U.K’s at 105%. (Source for percentages Societe Generale).

The U. S. Dollar plays a very important role in these problems. With the Dollar being 85% of the entire world’s reserve currency; as the dollar goes, so goes the global system. Unfortunately, the dollar has much further to fall and for this month of December, 2009, the dollar can sink to an index low of 70.00-72.50 from today’s prices. Look for the dollar’s final support as a minimum low sometime during the next three years ranging from 40-46.

Stocks are peaky and will shorter term correct. We think the nearby correction will be mild and new buying can return in January, 2010 continuing through spring, 2010. The Dow could easily find an 8850 base and then return to a new rally. The S&P’s might base at 950. Meanwhile, we could experience an 11-12% Dow and S&P haircut.

The blow-off top for primary stock markets could be later May through July, 2010. On this cycle, five extremely negative events hit world economies and markets simultaneously.

These are:

(1) $40-$50 billion in U.S. credit card failures are reported;

(2) Housing sales both new and used for the first half of 2010 fail so badly, this market is literally in free-fall. There will be 7-10 million new mortgage defaults with most of those in the prime paying (not sub-prime) category caused by job losses;

(3) First half auto sales are reported. They will be so poor more car-makers file bankruptcy;

(4) Commercial real estate loans bankrupt many developers and their projects among those existing, under construction, and planned.

(5) Insurance companies are holding so much failing commercial real estate paper, they are in danger of defaulting with some running for government bailouts in TARP II. At one time years ago, the 20 top insurance companies could literally control the United States economy. They are huge asset holders of property and cash investments.

Housing valuations will fall on the average, nationwide in the U.S., another -30%. We figured about one year ago that 1980’s prices would be the bottom. Now we potentially see a bottom at 1970’s prices. More homes were foreclosed in the last 12 months than in an entire decade in the first Great Depression of the 1930’s.

On the Monday morning of 11-23-09, news reported used housing sales were up 10.1%. This is nothing but giveaways prodded by seller financing, government freebie down payment credits, and crash and burn pricing taken by bottom feeders. Housing remains in international collapse. The last great creditor, FHA is hurting badly.

Inflation is now an unreported at 7% and rising. By May, 2010, it begins to bite very hard first on the lower 1/3rd of U.S. wage earners and the jobless. Most of their income is spent on food and energy. They top the inflation pain lists.

Consumers with newer bought and leased autos will do “jingle mail.” They will return newer unexpired leased cars and trucks back to dealers’ lots, give them the keys and quit paying. We saw this with houses over the past 1-2 years. Auto lots will overflow with new-used cars and trucks. Values will plummet. Many of these “returns” will be from the “Cash for Clunkers” program by those who got stuck with unaffordable car and truck payments.

Auto-maker GM projected total U.S. industry sales for 2010 of 11mm with a new recovery. There will be no recovery and sales could skid for the whole industry group down to 7mm or less in 2010. In 2011 it gets even worse.

Auto layoffs will escalate and unions will scream for help to president Obama. He will financially band-aid a dying industry. Consumers have no buying power, credit or cash to make any difference. Those with cash will save it and hunker down and wait out the troubles. Auto union membership declines rapidly. Most vehicle lending dries-up to a trickle.

The crude oil and energy sector has fundamentals pulling in both directions. Today we see oil price resistance at $80 with a trading range slightly lower in the $70’s. Fundamentals show an over-supply on recession-depression lower demands. On the other hand, inflation of prices is rising on a weaker dollar and will escalate. Look for crude oil to visit the $50’s and then turn-around on inflation rising to $100. Gasoline will follow as some refineries are closing on operating losses and no new ones are being built. Inflation ultimately wins on price escalation. Eventually, scarcity of product returns.

Depressions normally and historically last ten years. It could take consumers that long to pay down all of their debts before a return to normal conditions. Savings rates are up but with so much debt and few or zero salary raises in the face of new and rabid inflation, consumers will be economically slaughtered.

Credit and banks go through the wringer again. There are few bank ideas left to earn lender income except for trading. While Goldman Sachs makes millions weekly doing this, most banks are not set-up for it and there are only so many good traders available for the work. Since Obama’s compensation guy is rankling big traders with income limits this makes things worse as these people leave for unrestricted pay in overseas trading positions.

The bond market is so huge it takes time for it to roll over and slide off a cliff. Asia and the U.S Federal Reserve have been our larger paper buyers. While they still buy some to keep markets glued together they are: (1) exiting the longer term paper for shorter terms and, (2) buying less of it turning to other ideas in the commodity markets.

With the higher Yen, Japan is increasingly engaged in hard asset shopping trips as is South Korea. They are both looking for grain, gold, oil, natural gas and other commodities they lack internally.

Junk bonds could lose 1/3rd of today’s value just next year. Treasury bond and note buying continues until “full faith and credit” is repudiated on distrust. Eventually they crash but in slow-motion over years due to the magnitude of these markets. We think no bond is a safe bond. Municipal bonds are viewed as some of the safest. What happens when cities, towns, counties and states are so broke they cannot pay the interest? Their tax revenue is going off a cliff. Some are safer than others for awhile but for how long? Who can finger a top? It can’t be done as it’s too political.

Various states within the United States have or, will be failing financially. Someone reported 1/3rd of the TARP money spent so far was used to bail-out bankrupt states. This will escalate as federal TARP money cannot help them fast enough and in large enough amounts to keep it all glued together. Watch for fire and police employment to get as thin as too be very dangerous in various communities. Ten states are going financially critical and 47 are on the watch lists.

New York, New Jersey, Connecticut, Michigan, Ohio, Florida, Arizona, Nevada and California are among the financially worst, hurting from falling tax revenue on broken businesses and consumers. Watch California as they could go out of control first within this group. They continue to contrive new taxes and not work on spending reduction. When some states face total collapse it will get very ugly very quickly. Michigan is among the worst of the worst. Most all of the states are spending themselves into the ground. They refuse to cut back as its political suicide. They will spend until there is nothing left to spend and then scream for help to the Federal Government.

China is in very serious trouble as the U.S. consumers have stopped buying their stuff. Their TARP for early this year exceeded that of the United States in both amount and rapidity of spending. It is estimated they spent in four months from January, 2009 to May, roughly $600 Billion with most of it going into projects now at over-capacity. The U.S.’ lack of buying cut China’s entire year of exports by -25%. Also, note the Chinese economy is 1/4th the size of the United States’ economy.

There are hundreds of idle Chinese factories and millions of laid-off workers with no new factory employment and not much work of any kind. Further, millions sold subsistence farms to work in the city. Now that work is gone and so are the farms that would have fed them. Watch for a slow motion or, faster collapse of China with a descent into riots and other social problems in 2010. China need 24mm new jobs each year just to stay even and are remain far behind that job generation power curve; never mind new job growth gains.

If the worry of China not buying our treasury paper suddenly became real, the U.S. government could stop most all Chinese exports into the U.S with crushing tariffs. China would then have skyrocketing joblessness, goods piled-up with no sales and be stuck with a trillion dollars in crappy U. S. bond and currency paper having little or no value and no way to sell it. They would take a $1 U.S. Trillion paper hit and be stuck with mountains of un-saleable merchandise. The social fallout would be catastrophic. China shall continue to buy U.S. Bonds to keep exports moving; albeit at a reduced level.

Should Chinese imports cease, American workers might find some lower paying employment in re-opened U.S. factories with the return of manufacturing to the states from Asia. After all, where would Wal-mart get all their goods to sell in U. S. stores?

We hope for the best and would prefer China keep it all glued together and endure only a mild recession. With global financials and markets so fragile and wrecked we give them a one in five of pulling it off. Rather, in a Chinese communist command economy, forthcoming dislocations could be legendary.

Ambrose-Evan Pritchard, the esteemed writer for The London Telegraph says, “The world economy is still skating on thin ice. The west is sated with debt, the East with (too much) plant. The crisis has been contained (masked) by zero rates and a fiscal (credit) blast, trashing sovereign balance sheets. But the core problem remains. The Anglo-sphere and Club Med are tightening belts, yet Asia is not adding enough (internal) demand to compensate. It is adding supply.” (Editor: organic Chinese demand is barely beginning).

“My view is that the markets are still in denial about structural wreckage of the credit bubble. There are two more boils to lance. China’s investment bubble; and Europe’s banking cover-up. I fear that only then can we clear the rubble and, very slowly, start a fresh cycle.”

We agree with Mr. Pritchard but contend China has other bubbles in autos, real estate, their stock market and major water shortages and pollution as well. If these bubbles pop one at a time, it goes easier. But, we might see multiple bubble-popping instead. In that instance, China might take-down the entire global system. Note the effects of the recent scare from Dubai on their $80mm default.

Education, particularly among colleges and universities, has hit the money wall as students now debate if a $40,000 to $80,000 expenditure is worth it in this economy. Newly graduated kids with good degrees but no experience go to the end of the line for jobs.

Experienced people get what few jobs remain as employers have a wider range of choices and can be super picky. Further, employers have no time or money for training. Many kids are schooling on the internet and with on-the-job training while taking menial work for any kind of a pay check.

Public school teachers with longer years of experience, working in grades K-12 are being thinned out for some cheaper new grads. Foreign language teachers along with those in math and science are still preferred over the others. Watch for an increase in home schooling as laid-off teachers with their own children work at home and take in other peoples’ kids for instruction-pay. The big public school systems are in trouble. They can no longer be afforded. Since the U.S. Government layered on piles of bureaurat red tape some years ago, fully 1/3rd of public school budgets must be devoted to stupid, expensive politically correct type work. It’s all a big waste as students and teachers must suffer for it.

Watch for more traffic accidents due to postponed road work and repairs. Bridges can fall and broken paving causes more wrecks. Higher tax communities will be abandoned especially by seniors with educated kids out of the house. New York City has lost over $6 Billion in income taxes from those fleeing the city and the state.

This trend goes even faster. We see retired folks selling out as local real estate taxes are unaffordable. They are migrating to lower tax states and smaller communities offering fewer services. Much of the big city service stuff is not required and consumers cannot pay for it. Think of Detroit’s city wasteland on steroids.

Gold And Silver Trading Is The Place To Be

Fund managers and traders are not married to markets and move to ideas that produce. Gold and silver shares can top and correct in the near term but then take-off in new 2010 rallies. Bigger funds have invested in long-only commodities baskets including gold, silver, grain, copper, platinum and others. They regularly buy the whole cycle from Labor Day to May, endure the dips and trade on 50 and 200 day averages. With a falling dollar these managers forecast stronger gains in these markets. December gold futures were trading near $1,200 this morning of December 1. We see a near-term mild correction followed by more buying.

Administration’s Politics Mostly Fail

The Obama left wing liberal agenda designed to transfer wealth is not working. The president’s popularity is sinking along with his agenda. The primary problem is the administrations inability to claw out of the employment depression. Instead, they will continue to keep digging while installing the wrong ideas, creating more and deeper messes. This advances the desirability of precious metals, and other hard assets of all kinds. Joblessness is the primary economic problem.

Dollar is the key to several markets. For December, dollar sinks lower.

Never mind the angled line support. Look at the lower box momentum.

Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert. –Traderrog.

Examining Obama’s Rationale for Escalating the War in Afghanistan

President Barack Obama invoked the terrorist attacks of 9/11 as a justification for his announced troop increase for the war in Afghanistan.

President Barack Obama invoked the terrorist attacks of 9/11 as a justification for his announced troop increase for the war in Afghanistan.

Outlining his rationale for the decision to send yet more troops to Afghanistan, President Barack Obama on Tuesday began with a familiar refrain: “We did not ask for this fight. On September 11, 2001, 19 men hijacked four airplanes and used them to murder nearly 3,000 people.”

“Al Qaeda’s base of operations”, he said, “was in Afghanistan, where they were harbored by the Taliban”, who “refused to turn over Osama bin Laden”.

In fact, the Taliban offered to either try bin Laden in their court system or hand him over to a third country if the U.S. provided evidence of his involvement in the 9/11 attacks. The evidence, however, was not forthcoming, and so the Taliban did indeed refuse on that basis.

There’s another half-truth in this remark, which suggests that the reason we went into Afghanistan was to get bin Laden. This is belied by the fact that there were plans to overthrow the Taliban that predated 9/11.

The consideration then had mostly to do with U.S. interests in seeing oil and gas pipelines constructed in transit through the country. It cannot have been coincidence that President Bush’s special envoy to Afghanistan following the overthrow of the Taliban was Zalmay Khalilzad, who had previously conducted risk analysis for Unocal, the company trying to woo the Taliban and heading the consortium to establish a pipeline across Afghanistan until 1998, when company Vice President John J. Maresca testified to the House Committee on International Relations that unless there was a change in regime, no such pipelines could be built.

Unocal was later bought by Chevron, then National Security Advisor Condoleezza Rice’s former company, which is heavily invested in the region. Then Vice President Dick Cheney was also very personally involved in the region. He served, for example, as a member of Kazakhstan’s Oil Advisory Board. The list goes on.

So far, the proposed TAPI and other pipelines haven’t quite panned out as desired, but the plans are still on the table. TAPI, for example, the main proposal presently backed by the U.S. (which is opposed to an alternative route through Iran), which evolved from the Unocal consortium, is to be financed by the Asian Development Bank, of which the U.S. and Japan are the major shareholders with significantly more voting power than the rest of its members, thus rendering the ADB a useful instrument of U.S. foreign policy.

Obama’s suggestion that the war was about getting bin Laden is also belied by the fact that both General Tommy Franks – then commander of U.S. Central Command who oversaw the U.S. military action against the Taliban regime in Afghanistan – and Richard Myers – then Chairman of the Joint Chiefs of Staff – denied that getting bin Laden was ever a goal of the U.S.-led war. These denials were no doubt self-serving, in light of the failure to capture or kill bin Laden; but that does not mean they were not also honest admissions.

Obama’s remarks also suggest the 9/11 attacks were planned and executed from Afghanistan. He added further into his speech, “it is from here that we were attacked on 9/11, and it is from here that new attacks are being plotted as I speak.”

The latter part of this statement is simply the politics of fear and nothing more, akin to the statements from government officials prior to the invasion of Iraq that the “smoking gun” of Iraqi WMD and ties to al Qaeda “could come in the form of a mushroom cloud” – a claim those making it knew was absolute nonsense. This is not to say there aren’t terrorists plotting against the U.S. But they hardly need to be confined to the Afghanistan-Pakistan border, and it’s our policies, including the continuing war in Afghanistan, that serve as the catalyst for such extremism in the first place.

The former part of this remark, needless to say, is just false. 9/11 was neither planned in nor executed from Afghanistan. The attacks were planned in places like Hamburg, Germany and Venice, Florida — or Malaysia, where the CIA had tracked two of the would-be hijackers, both known al Qaeda associates. (Despite being on the terrorist watch-list, and despite the agency having known that they had visas to enter the U.S., the CIA still chose not to notify the State Department, the Department of Immigration, or the FBI). They were executed from American soil.

Continuing, Obama attempted again to associate the Afghan insurgency with al Qaeda, saying “the Taliban has maintained common cause with al Qaeda, as both seek an overthrow of the Afghan government”.

9/11. Al Qaeda. Taliban.

Similarly deceptive rhetoric was employed to convince Americans the U.S. had to invade Iraq:

9/11. Al Qaeda. WMD. Saddam Hussein.

Obama certainly must know of the public opinion surveys showing that most Afghans are opposed to the Taliban. He must certainly know those same polls also reveal that most Afghans want foreign forces out of their country. He must also certainly have been advised of the fact that most Afghans who join the insurgency do so not out of allegiance to the Taliban or al Qaeda, but because they oppose the presence of foreign troops on Afghan soil, or because they are fed up with the corruption and ineffectual rule of the U.S.-backed Afghan government.

In other words, the insurgency has nothing at all to do with Al Qaeda. The only connection between most insurgents and Al Qaeda is a common goal to rid the country of foreign troops and/or replace the U.S. puppet regime. It’s instructive that Obama noted the overthrow of the Afghan government as a goal, but not the ousting of foreign forces from their soil. It’s no insignificant omission, given that the policy just announced will predictably serve to fuel the insurgency, following the trend of strengthened insurgency as the number of troops has increased over the years.

As an elementary observation, the increase in troop numbers has nothing to do, therefore, with quelling the insurgency – any more than invading Iraq was about ridding the world of WMD.

The insurgency having nothing to do with Al Qaeda, therefore the U.S. counterinsurgency strategy in Afghanistan has nothing to do with fighting Al Qaeda. That’s equally elementary, despite Obama’s claim that “Our overarching goal remains the same: to disrupt dismantle, and defeat al Qaeda”.

But Obama couldn’t very well tell the truth to the American people and still expect to garner their support for yet another escalation of troops to Afghanistan. Much better to use the old Bush formula: We need to send more troops because we were attacked on 9/11. If we don’t escalate the war there, al Qaeda will attack us on our own soil.

And so on.

On the matter of Afghanistan’s corrupt government, Obama had this to say: “although it was marred by fraud”, Afghanistan’s recent election “produced a government that is consistent with Afghanistan’s laws and constitution.” How a government maintained through fraudulent elections could possibly be “consistent with” the law and constitution Obama chose not to bother explaining. We’re just supposed to take his word for it that two plus two equals five.

Another omission in Obama’s speech was the rationale for the 9/11 attacks to begin with: principally, the fact that it was a response to U.S. foreign policy, including U.S. support for Israeli war crimes against the Palestinian people and other violations of international humanitarian law.

It would be difficult to argue that our wars in Iraq and Afghanistan haven’t similarly increased the threat of terrorism against the U.S. for the same reasons we were attacked on 9/11 in the first place and the legitimate grievances that served as the rationale behind the unjustifiable attacks.

One obvious corollary is that fighting terrorism simply isn’t high on the list of priorities for U.S. foreign policy, rhetoric to the contrary aside. Much as with democracy and the principle of self-determination, it isn’t that U.S. policy is opposed to the idea; it’s fine, just so long as the goal doesn’t interfere with the actual policy considerations, which don’t actually have anything to do with democracy (or fighting terrorism, etc.).

This contempt for democracy is illustrated by Obama’s decision on escalating the war, opposed by many, if not most, Americans, and also opposed by most Afghanis, according to surveys. It is also illustrated by the necessity of government officials to lie in order to justify war.

Obama’s decision to wait to announce the troop increase until after the Afghanistan election and its immediate aftermath was perhaps in part a result of deliberations over whether or not to do so. But it’s equally likely that the decision was made before the election even took place, and the delay was simply necessary to give the administration time to engage in a public relations campaign to preempt criticism that the U.S. was backing a corrupt regime.

The principle means of doing so was for the administration officials to make tough statements about the need for Afghan President Hamid Karzai to act against corruption – statements difficult to take seriously for anyone familiar with the situation there who is not inclined to take such rhetoric at face value.

Take, for instance, Abdul Rashid Dostum, whose name was bandied about as a prime example of the kind of guy Karzai should not include in his government. This is the same General Dostum whom the CIA handed suitcases of cash to as a Northern Alliance ally in the initial effort to overthrow the Taliban, who is among the same group of warlords the U.S. itself dealt with and helped to empower. The lectures to Karzai about the need to rid his government of corruption ring hollow in light of the U.S. role in empowering warlords such as Dostum in the first place, people whom the U.S. obviously has no qualms about dealing with itself.

But the admonitions served the purpose of preemptively fending off criticism that the war effort simply serve to prop up a corrupt regime before the announcement of a troop increase was actually made – the predictable outcome since General Stanley McChrystal first made his request for additional forces. Thus, Obama included in his speech the statement that “We’ll support Afghan ministries, governors, and local leaders that combat corruption and deliver for the people. We expect those who are ineffective or corrupt to be held accountable.”

Just how serious his administration is about that is reflected in the anti-opium policy announced this summer. Under the new policy, drug lords associated with the insurgency – and only those with connections to the Taliban or other insurgent groups – are to be targeted. In other words, the drug lords responsible for the vast majority of Afghanistan’s drug trade – including individuals within or allied to the Karzai government or occupying forces (the president’s brother Ahmed Wali Karzai himself is reportedly a leading drug lord, as well as a CIA asset, according to the New York Times) – are specifically excluded from the scope of the U.S. “anti-drug” policy in Afghanistan.

Or, to put it yet another way, the U.S. policy serves to help the biggest drug lords consolidate their control over the opium and heroin trade. The mainstream media, meanwhile, follows the government’s lead in focusing instead on the Taliban’s relatively meager profits from its indirect role in the drug trade, such as by ushr, a tax on all agriculture, including poppy cultivation.

Obama’s only arguments against a withdrawal from Afghanistan were far from convincing. His first was that, “Unlike Vietnam”, in Afghanistan, the U.S. has “a broad coalition” that “recognizes the legitimacy of our action”. The central fallacy here is the assumption that because a deed has international complicity, it is therefore “legitimate”.

His second argument against withdrawal consisted of a simple denial that the U.S. is “facing a broad-based popular insurgency.” Well, if the U.S. isn’t facing a broad-based popular insurgency, then why does Obama feel it necessary to send more troops in the first place? What is all the talk about counterinsurgency (“COIN”) and the need to win hearts and minds, if the insurgency is not broad-based and popular in many parts of the country? This argument is false on its face, another case of two-plus-two-equals-five.

Obama’s only other argument withdrawal was a repetition that “unlike Vietnam”, we’re there because “the American people were viciously attacked from Afghanistan, and remain a target for those same extremists who are plotting along its border”, an argument for which the central fallacy has already been addressed.

These arguments against withdrawal, like his arguments in favor of escalation, are as ridiculous as Obama’s assertion that, “unlike the great powers of old”, the U.S. has “not sought world domination.” The sane, rational people of the world must surely remain unconvinced, in light of the actual facts of history and current U.S. foreign policy – Obama’s announcement of an increase in troop numbers being no exception.

Freedom Rider: The Peace Prize War

The American information bubble prevents the populace from recognizing the world around it. Iran's leader, constantly demonized in the “bubble,” “is not a pariah everywhere on earth, no matter how much American press and politicians fume and fuss.” It becomes increasingly clear that the United States is fooling no one but its own citizens, who are victimized by their ignorance. “Military prowess seems to be the only power the United States has left. It apparently has no ability to help its own people.”
Freedom Rider: The Peace Prize War
by BAR editor and senior columnist Margaret Kimberley
It is now official. War is peace if you market it well enough.”
As Barack Obama prepares to accept the Nobel Prize for Peace, he is also preparing to escalate war. He and the system he so loyally represents have little else to offer Americans or the rest of the world. Just in case there is anyone who didn’t get the memo, the announcement came straight from West Point. Obama is outdoing his predecessor George W. Bush by using soldiers and military installations as photo opportunity backdrops. The message is clear. There is no commitment to do anything else but keep the war machine humming.
While most Americans focus on the latest marketing extravaganza executed by team Obama, nations in the rest of the world do as much as they can to fight imperialism. The useless corporate media inspire handwringing over Iran’s decision to build more nuclear enrichment facilities, but the more important news about Iran is ignored. Iranian President Mahmoud Ahmadinejad made official visits to Brazil, Bolivia and Venezuela to strengthen trade agreements with those nations, and to talk about ending the supremacy of the dollar.
Barack Obama didn’t like it very much, but no one in these countries seemed to care about the Nobel laureate’s two cents worth of opinion. He sent a letter to Brazilian president Lula, admonishing him for welcoming Ahmadinejad. In case Obama didn’t get this memo, Ahmadinejad is not a pariah everywhere on earth, no matter how much American press and politicians fume and fuss. No one cared about what the president wanted and Ahmadinejad’s itinerary remained unchanged.
In case Obama didn’t get this memo, Ahmadinejad is not a pariah everywhere on earth.”
These nations that are seldom noticed are playing a larger role in world affairs than the average America could possibly imagine. Venezuela, Brazil and Bolivia are not sticking their fingers in America’s eye merely out of spite. They want to be free of “dollar hegemony” and they are backing up their words with action. They have in fact begun using their own currency in an effort to escape American control of their destinies.
While Americans giddily applaud the latest Team Obama marketing extravaganza, the world takes its cues less and less from Uncle Sam. We in the U.S. are left in a state of disinformation so complete that we rarely know what the rest of the world is doing. Americans fail to understand that when most other nations think about our country, it is about ways to escape from its clutches.
Military prowess seems to be the only power the United States has left. It apparently has no ability to help its own people. One in four homeowners are “underwater” on their mortgages, owing more to the bank than their homes are worth. The Obama administration has done nothing about this human and economic catastrophe. One in eight Americans receive food stamps, a staggering 49 million people in need of some assistance to keep food on the table. The record number of bank failures, the precarious state of the Federal Deposit Insurance Corporation and the lack of health care for millions are likewise left unaddressed. War is always on the table and is never rejected.
When most other nations think about our country, it is about ways to escape from its clutches.”
Obama is George W. Bush with a higher IQ and a better vocabulary. He knows just what words to use in order to get away with murder. The war effort will not be open ended: we are fighting terrorism, we will help the Afghan people and so on. Just a few thousand more civilian deaths and then Johnny can come marching home again.
It is easier to like the imperialist who speaks well. Obama has snob appeal and that is enough reason for millions of people who should know better to give him a pass, even as he asserts the right to keep killing human beings.
If Barack Obama is not greeted by protesters in Oslo then the world is indeed in a very bad place. It is now official. War is peace if you market it well enough. The marketing creation that is Obama can get away with murder or just about anything else.
The peace prize committee should stick to honoring dissidents living under house arrest. It is difficult to fathom how the man in charge of a military budget larger than that of the rest of the world combined can get a prize for peace making. Perhaps the committee can take the prize back. It would be a controversial and difficult thing to do, but no worse than sullying their formerly good names with a bizarre and shameful decision they will surely regret.

Margaret Kimberley's Freedom Rider column appears weekly in BAR. Ms. Kimberley lives in New York City, and can be reached via e-Mail at Margaret.Kimberley(at)

The cost of Copenhagen may not hit your pocket

Tackling climate change may not cost the Earth, claims a study that shows that while plane travel will more than double in price, everyday household bills should remain stable.

Cars like the hybrid Toyota Prius will cost more to buy but over their life time will cost less as they are more economical

Researchers using economic computer models have calculated that the cost of food, alcohol, clothing and household goods will rise by less than a per cent under the Copenhagen climate conference proposals.

Even power and heating bills and car travel will see relatively modest rises by 2050, claims the research.

Only air travel will be massively affected, rocketing by 140 per cent in the same period.

“These results show that the global project to fight climate change is do-able,” said Alex Bowen, a climate policy expert at the London School of Economics.

“It’s not such a big ask as people are making out.”

The research was carried out by Cambridge Econometrics, a consultancy known for its modelling of the European economy, for the journal New Scientist.

The firm used historic economic data to predict the impact of emission reductions on prices in over 40 categories of goods and services.

It compared the impact of 80 per cent cut in carbon emissions by 2050 as proposed by the Copenhagen climate change conference with the predicted effects of the government taking no action.

They found that the average food bill of a UK household, which currently averages £50, would increase by less than £1 or one per cent.

Tobacco and alcohol are likely to rise by two per cent – the equivalent in today's money of 10 pence on a packet of cigarettes and six pence on a pint of beer.

Cars like the hybrid Toyota Prius will cost more to buy but over their life time will cost less as they are more economical, the researchers found. Overall the cost of motoring will rise by one per cent.

Clothing is likely to rise by one per cent adding £5 to a £500 suit and household goods such as washing machines will rise by two per cent.

Heating and power – which the model assumes will be switched to electricity – will increase by 15 per cent adding roughly £60 to the average current £400 bill.

Travel is likely to be the major exception. Airlines do not currently have a low-carbon alternative to jet fuel, the researchers said. Unless one is found, they will bear the full burden of higher fuel costs and carbon taxes, and average fares will rise by at least 140 per cent – raising the cost of a typical London to New York return trip from around £350 to £840.

“Even cutting emissions by 80 per cent over four decades has a very small effect on consumers in most areas,” Manik Roy of the Pew Center on Global Climate Change in Washington DC.

“The challenge is now to convince consumers and policy-makers that this is the case.”

The Intergovernmental Panel on Climate Change recommends that wealthy nations cut their emissions to between 80 and 95 per cent below 1990 levels by 2050 in order to avoid the worst effects of climate change.

The UK government aims to reduce its contribution by 80 per cent and leaders of the other G8 nations have discussed following suit if an agreement can be reached at Copenhagen.

To meet this goal, industries will have to slash fossil fuel consumption, and low-carbon power sources will have to massively expand.

Companies will have to pay increasingly higher prices for the right to emit greenhouse gases.

The Cambridge Econometrics figures - 2050 increases in today's prices

1% on clothing: A £500 men's suit will become £5 more expensive

2% on electronics: A £1,000 laptop would cost £20 more

1% on food: The average UK household spends £50 a week on food. This increases by less than £1

15% on electricity: A typical UK household spends £400 a year on electricity. This will jump by roughly £60

0% on communications: UK phone bills will be essentially unaffected

140% on air travel: A return flight from London to New York would jump from £350 to around £840

2% on tobacco: Barring new taxes, the cost of a pack of 20 cigarettes will rise by roughly 10 pence

2% on alcohol: The cost of a pint of beer will rise by about 6 pence by 2050

1% on cars: A new Toyota Prius, currently about £20,000, will cost £240 more in a low-carbon 2050

2% on household goods: The price of a washing machine will rise by a few pounds

Fiat Currency Money Printing Leading to Decentralization and Operational Secession

"To see what is in front of one's nose needs a constant struggle." ~ George Orwell

We are seeing the beginning of a social revolution. This revolution will spread to politics. It is happening under our noses.

A revolution involves five crucial elements: (1) a new view of sovereignty; (2) a new view of authority; (3) a new view of law; (4) a new view of sanctions; (5) a new view of the future. Any revolution that does not involve all five is more of a coup than a revolution: a substitution of new rulers for old, not a change in the system.

The battles for the hearts and minds of men are being fought today in all five areas. Points three through five are still up for grabs. These are intensely ethical issues. They are intensely religious. They will not be decided by technology. There is no group and no worldview that has a clear advantage in these three areas. But the outcome of the battle over points one and two is going to be decided in terms of digits: the digits of the Internet and the digits known as money. In both areas, the existing Establishments of the world are under attack. I am convinced they are going to lose.

National governments have controlled the flow of information and the money supply for centuries. But with the advent of digits, the cost of maintaining this control keeps getting higher. The cost of communications keeps falling. Therefore, the cost of maintaining control increases. This is the battle over legitimacy.

The battle over autho222rity is funded on both sides – rulers and ruled – in terms of money. The world's central banks are keeping the banking system going by inflating the money supply. This is now creating a crisis of authority. I think there are two men who represent this battle in the United States: Ron Paul and Ben Bernanke. Obama is a minor character. If McCain had won, he would be a minor character. If the governments lose this battle, this will create a crisis of legitimacy.

Political Revolutions as Capture

Historically, political revolutions have involved a capture of the existing political order. The more centralized the national government was before the revolution, the easier it is to capture power. The classic examples are the French Revolution and the Russian Revolution. France in 1789 was the most centralized nation in Europe. It was the richest country. Its government was bankrupt. It was the hotbed of propaganda and secret societies favoring democracy. Russia in 1917 was involved in a losing war. Its treasury was empty. Its ruler was distant. It was a massive bureaucracy. There was a growing ideological movement for democracy and socialism.

At the heart of every political revolution is an argument for the illegitimacy of the existing civil government. Without this, it's just another movement by another special-interest group – a fringe group too weak to get into the inner circle.

The crucial social revolution in Western history was the result of Christianity. It produced a non-violent political revolution. The church did not call for violence. It simply taught that the emperors were not divine. That was an assault on the Roman Empire's legitimacy. That was why some emperors oversaw the persecution of Christians. But the Christians were correct. The emperors were not divine. Then came proof: Rome went steadily bankrupt, destroying its currency, and was replaced by a new system of faith. The best book on this is Ethelbert Stauffer's Christ and the Caesars (1955).

Philosophy was involved in this social revolution. Law and ethics were involved. Theology was involved. Public ritual was involved. You can read about this in Charles Norris Cochrane's great book, Christianity and Classical Culture (1944). But, at bottom, it was a shift in legitimacy that caused the political revolution. That revolution was successful. Why? Because it was preceded by a social revolution that took three centuries.

No one could see in A.D. 33 that over the next 300 years, the Roman Empire would be replaced. There were revolutionary groups in Palestine and elsewhere. Of what importance was a dead ex-carpenter whose crazy followers said had risen from the dead and ascended into the sky? The correct answer was this: enormous.

Great oaks grow from acorns. Cumulative change eventually breaks the system. Jesus taught this: "And no man putteth new wine into old bottles; else the new wine will burst the bottles, and be spilled, and the bottles shall perish" (Luke 5:37).

We are experiencing a taste of new wine.

Jesus taught through the use of pocketbook parables: money. People understand money – not in theory, but in practice. I shall begin my discussion of the revolution with a discussion of money and alternative money: gold.

The Price of Gold

With gold above $1,100, a lot of public attention is now focused on the dollar. The price of gold has always been considered a vote of confidence or no confidence in the dollar. But it is not just the dollar that has depreciated against gold; almost all other currencies have done so over the last six months.

From the day Nixon ceased allowing the Treasury Department to deliver gold on demand by foreign governments and central banks, a rising price of gold has been regarded by government officials as a vote of no confidence against those officials and their policies. There has always been official hostility to gold, precisely because governments resent the fact that citizens are allowed to issue a vote of no confidence in their policies by purchasing gold. Americans could not legally buy gold bullion until January 1, 1975.

For decades, central bankers have systematically sold gold into the market in order to lower its price. They do not care about the price of any other commodity; they care only about gold. Gordon Brown a decade ago, when he was Chancellor of the Exchequer, sold half of Britain's gold reserves at less than $300 an ounce. By all standards, this was an act of economic stupidity. But Brown has never been criticized effectively in public for what he did. There was no public outrage. The man is now Prime Minister of Great Britain, despite the fact that he cost the British government something in the range of $10 billion.

The war between central bankers and gold is an old war. I have written about this in my ebook, The Gold Wars. It has to do with public perception. Gold's price is not rising because millions of people are attempting to take back control over the banking system. There is no thought by most investors that gold is going to be money anytime soon, or ever. It is merely a commodity which is expected to appreciate in relation to money. Its rising price is a vote of no-confidence in fiat money; it is not a mandate for restructuring the world's markets to function on a gold coin standard. I wish it were.

People who have been in the gold bug camp for several decades are tempted to believe that their ideological position is about to be justified. They want to believe that the public is finally coming to its senses. They want to believe that people who buy gold are implicit gold bugs, who are ready to pressure the government to set up a gold standard. Unfortunately, there is almost no awareness by the general public about what a gold standard would look like. At best, they imagine that it would be some kind of restraint on the expansion of government currency.

The reality is this: central banks run the economies in every nation, and have for almost a century. Central bankers are not about to surrender sovereignty over money just because a relative handful of investors accumulate gold as an investment. In the case of India, fathers purchase gold jewelry for their daughters' dowries. That constitutes no threat to the existing fiat money order.

Nevertheless, central bankers and politicians resent the fact that the public has the legal right to go into the marketplace and buy a commodity that is traditionally purchased as a way to protect people against the debasement of the nation's currency. Politicians and central bankers understand that when gold rises above traditional levels, the public is made aware of the fact that something is fundamentally wrong with the monetary system. If the monetary system were being managed properly, gold would bump along at a traditional price. But when it leaps upward, the public is alerted to the fact that something has changed in monetary policy. Gold may not be a very good inflation hedge in the near term, but over centuries, it has served as the most reliable single hedge against the debasement of currencies.

We are now seeing a change of perspective on the part of central bankers. When India this month purchased half of the proposed gold sale of the International Monetary Fund, it sent a message to central bankers in the West. India's finance minister actually told the press that he thought Western currencies are bankrupt.

In India, it is politically acceptable for the central bank to accumulate gold, even though gold pays no rate of interest. The fact of the matter is, the U.S. Treasury today pays virtually no interest on 90-day T-bills. So, the Indian central bank had a choice: buy a commodity that is appreciating versus a commodity that is depreciating, neither of which pays any interest. It did not take a rocket scientist to make the correct decision. It is a politically popular decision in India, and the central bank was admitting in full public view that the leaders of the country no longer fully trust the value of the dollar and the other Western currencies.

This was a major event. It was a major event because it was an open acknowledgment by a central bank that now has over quarter of trillion dollars of reserves in foreign currencies that it is no longer going to play the fall guy for the Treasury Departments and central banks of the West. It was an open admission by an Asian central bank against the United States, the European Central Bank, and the Bank of Japan. It was unlikely that the Indian central bank was going to buy Chinese currency under the circumstances. So, in order to announce their doubts about the future purchasing power of Western currencies, the decision-makers in India's central bank decided to make a symbolic public act of defiance. It bought the traditional money which has always been popular in the history of India. It bought $6.7 billion worth of gold. This is chump change for India's central bank.

I grew up in a world in which India was poverty-stricken. The thought of India as a significant player in international markets was unthinkable. India was a basket case. Western foreign aid poured in India just to feed millions of Indians, in addition to far more millions of rats, who consumed at least half of the grain sent to India. The rats lived in the grain warehouses. India's economy was a joke. Yet here we are, a decade after India began to repeal the regulatory nightmare that had been the Indian economy, and is now sitting on top of a quarter trillion dollars worth of foreign debt certificates. The turnabout took place so fast that nobody noticed. The growth of the Chinese economy got all the headlines, but the growth of the Indian economy was also spectacular. In the history of economic affairs, India is second only to China in terms of the speed of economic growth of a large country.

Asia is beginning to break away from the Western alliance. Asian politicians have begun to smell blood in the West. The enormous deficits that the Western industrial nations are running have sent a warning signal to Asian politicians and central bankers. The message is clear: the West is beyond the point of no return. There is no way that Western governments are going to reverse these massive deficits, and there is no way that they're going to be able to pay off these deficits with anything except fiat money.

If the deficits are paid off through inflation, Western buyers will no longer be the source of profitability for exporters in China and India. On the other hand, if Western governments cease to sell their debt to their own central banks, or to foreign central banks, then there is going to be a dramatic rise in interest rates in the West. That is going to create a depression. Again, there is no particular advantage for large Asian nations to build up an export-based economy if the Western economies are going to be facing either mass inflation or else a depression, in which demand for imports from Asia will fall like a stone.

Asian central bankers now have to face reality. If they cling to the old mercantilism, exporting for Western currencies that can be used mainly to buy Western debt issued by Western governments, what is the point? What good does it do to export your country's wealth and exchange for promises that cannot be repaid by the governments that issued the promises?

The decision of the Indian central bank to buy half of the IMF's gold was a public announcement that Asian politicians and central bankers have begun to see the end of the road. They have begun to see that Western buyers of Asian products are not good credit risks any longer. The Indian decision-makers are beginning to sense that they are sitting on top of a pile of IOUs that are not going to be repaid. They have accepted hundreds of billions of dollars worth of IOUs, and these IOUs are payable in the domestic currencies of the nations issued the IOUs. This extension of credit is a loser's game. It has taken Asian politicians and central bankers two decades to figure this out. Now that they are beginning to come to their senses, people who want to hedge against the decline of their own nation's currencies are finding that they might as well get in to the deal. Why leave gold for central bankers to hoard? Why not buy it now, and take advantage of any future price increases?

The governments can break the gold market easily. All they have to do is cease inflating. Or, if this is not enough, they can begin to deflate. They can begin to sell debt certificates that serve as the monetary base. They can let private citizens hold these IOUs. The money paid to the central bank to purchase the government IOUs is then not put back into circulation. The fractional reserve process begins to contract, interest rates begin to go up, the economy moves back to recession and then plummets into depression. This is the price of breaking the gold market. The politicians and central bankers do not want to pay this price.

Central bankers have another way of driving down the price of gold. They can sell any gold reserves held by the central bank. The problem is, India's decision to purchase half of the offering made by the IMF indicates that the beneficiaries of such sales will be foreign central banks. The gold will not enter private markets, so the price of gold will not go down. All that the central bankers of the West will accomplish is to transfer the only really valuable long-term asset that Western central banks hold. This will not accomplish the goal of the Western central banks, namely, to drive down the price of gold in private markets. On the contrary, the decision of the IMF to sell half its gold to India's government drove up the price of gold. It sent a signal to gold investors, namely, that Asian central banks are willing and able to buy gold sold by Western central banks. That put a seeming floor under the price of gold.

I don't think that there is any magical number below which gold cannot and will not fall. But the decision of India's central bank to purchase all that gold did send a message: the bank may buy more gold if it falls below a price in the range of $1,000 an ounce. It may even buy gold at $1,100 an ounce. This has given a sense of confidence to gold investors around the world.

We now see a kind of mini-gold rush around the world. Most people still own no gold. Most hedge funds own no gold. Certainly the major mutual funds do not hold gold. Gold is still considered politically incorrect. As a result, conventional investors and conventional managers of publicly traded and publicly held funds avoid gold. But, at some point, if the price continues upward, these fund managers are going to have to face the threat of withdrawals of money from their funds if they do not compete and offer gold investments of some kind.

Conventional opinion is hostile to gold, but conventional fund managers are willing to buy some gold, if that is what it takes to keep investors in their funds from departing. The average investor does not know about gold coins, or ETFs for gold, or the commodity futures market. He doesn't yet know how to buy gold. He is going to find out when gold continues upward. I think gold is going to continue to move upward.

If bankers begin to lend even 25% of the money they hold as excess reserves with the Federal Reserve, the expansion of M1 is going to create serious inflationary effects. When those effects become obvious to people, they are going to go down to the local pawn shop, or local coin store, and by some coins.

Because of the thinness of the market for gold, a large-scale infusion of funds would drive up its price. Private investors are now competing against Asian central bankers to purchase IMF gold. The IMF will get a good price, which ought to be the IMF's only goal. We are going to see an increasing demand for gold by the general public until such time as it becomes clear that Asian central banks are not going to buy any of the gold that Western central banks or government-supported enterprises will offer on the market.

End the FED

Simultaneously, there is growing political awareness among the far Right fringe, meaning us, that the Federal Reserve for the first time in over 90 years is vulnerable to public criticism.

The resistance of the Federal Reserve to the House's proposed law to mandate an independent audit of the Federal Reserve has sent a message to those people who listened to Ron Paul a year ago, and who have now figured out that the Federal Reserve System is the enemy. The Federal Reserve System has always had enemies, but these enemies were confined to the extreme Right and the extreme Left, and therefore had no political clout. The Federal Reserve System is now front-page news. Its enemies, whether from the right or left, are now in a position to embarrass the FED, calling attention to all sorts of indiscretions, manipulations, and outright chicanery. Federal Reserve officials have never faced this before. This is altogether for the good.

As criticism of the Federal Reserve increases, which it will, Federal Reserve officials will have to justify their policies before Congress and before the public. It's not that Congress is going to set up some sort of independent Treasury that will take over the functions of the Federal Reserve System. That was done in the Jackson administration and Van Buren's administration. We are not going to return to that era. What we are going to see is attention being paid to the specific manipulations by the Federal Reserve System. The FED is going to come under the equivalent of Sherlock Holmes' magnifying glass.

The Federal Reserve System is not prepared to answer questions raised by the public. It has never had to answer these questions in the past, and so it grew arrogant. There is little likelihood that the public is sufficiently well-organized to dismantle the Federal Reserve, but The FED is being embarrassed continually. Bureaucrats resent this. They are poor at deflecting criticism. The FED hired a public relations firm for the first time a year ago. This indicates how much trouble the FED is having with criticism.

For the first time in my lifetime, the Federal Reserve has to defend itself in public. Never before has there been a well-informed audience willing to listen to detailed criticisms of the operations of the Federal Reserve. Ron Paul's candidacy in the 2008 and his new book, End the Fed, have combined with the technology of the Internet to create a growing audience of skeptics regarding the Federal Reserve. This is a tiny movement, and it is not organized in any sense, but it is capable of sending out e-mails with links to articles criticizing the Federal Reserve.

The spread of information is inexpensive today, and the power of YouTube videos is great. The Federal Reserve is not yet in a position to defend itself effectively. I have never seen a video produced by the Federal Reserve System that plausibly explains why the crisis happened in 2008, and that the crisis was not the fault of the Federal Reserve. In fact, I have seen no videos produced by the Federal Reserve. The public relations team is apparently unfamiliar with YouTube. In contrast, there are dozens of effective criticisms of the Federal Reserve that you can get on YouTube and other video sites.

Criticism of the central bank is criticism of the heart of the Establishment's control. Why? Because no other powerful institution has equal autonomy. No other institution controls the central economic lever in society: money. No other institution has been able to escape public observation, criticism, and reform for as long as the Federal Reserve has. In the last 18 months, an articulate critic of the Federal Reserve, Ron Paul, has been able to attract what appears to be millions of listeners who are aware of the fact that the Federal Reserve System is the enemy of sound money. This is a classic example of what Albert J. Nock referred to as the Remnant. The Internet has provided the Remnant with the ability to find information that had always been blocked in the past. Google and other search engines are enabling them to narrow their focus down to topics that were previously so obscure that almost nobody knew about them. Combine this with e-mail, Facebook, MySpace, and Twitter, and you have the mobilization of the ants against the elephant.

Controlling the Media

Before we can have a political transformation, the public has to think about why the transformation is mandatory. Usually, the elitists are the effective promoters of political transformation. They have controlled the media in the past. They have hired the writers, producers, and the technicians to get across their idea of why a particular reform needs to be implemented. Today, however, low-cost communications technology, especially free videos, has placed in the hands of creative individuals the ability to create public relations havoc for the Establishment. The Establishment does not know what to do about this.

The fact that NBC television is about to be purchased by a cable company is indicative of the transformation. The broadcasting organizations have relied on Federal regulation and Federal laws against rival networks. The Federal Communications Commission has been central for over 80 years in controlling what gets broadcast to the general public on the airwaves. Now the Internet has launched a successful end run around the Federal Communications Commission. Furthermore, satellite radio and television have spread anti-Establishment information. The cable networks have eroded market share of the networks to such a degree that a major network is about to be swallowed up by a cable company. This indicates that the levers of ideological control that the Establishment has relied on for over a century no longer serve as levers. There are too many levers out there today.

For successful political reform to take place, there has to be an articulate leader or group of leaders criticizing the existing system. There also has to be an informed minority, even a small minority, of citizens who have decided that it is time to change the system. What is needed at this point is a crisis.

President Obama's chief administrator, Rahm Emanuel, has said that he doesn't think a government should waste a crisis. Like most Left-wing politicians, he thinks that a crisis offers an opportunity for politicians to centralize control over the public. In the past, this has been the case. But a crisis in the Federal budget, coupled with a rise in unemployment, has created a special kind of national crisis. This crisis enables critics of the government to spread doubts about the wisdom, competence, and morality of the politicians doing the centralizing. This crisis has called into question the entire political system. There is a growing group of citizens who are convinced that the system cannot be reformed, that it must be shut down, and that any further compromise with it will work against them. This is a very small group, but it is growing.

In the past, critics have not been able to communicate with each other on a cost-effective basis. This has kept them from sharing information, and it has kept them from mobilization. This is no longer the case today. We are seeing the development of an unorganized yet connected network of well-informed critics of the existing political and economic system. Half a century ago, F. A. Hayek called this the spontaneous order. We are now seeing the advent of an orderly yet unorganized network of critics of the existing political system.

This undermines the legitimacy of the system. Above all other factors in political life, legitimacy is the central factor. If a social order loses legitimacy in the eyes of those who participate in it, it is only a matter of time until that social order is transformed. It may be transformed from the top by an elite, or it may be transformed by a plague, or it may be transformed by a lost war, or it may be transformed by an economic collapse, but it will be transformed.

The existing American political establishment is facing a crisis of legitimacy. This has not happened in the United States since 1865. The expansion of Federal power that has taken place since the outbreak of the Civil War has been relentless. There has not been a single period in which this process has reversed. In every era, the expansion of Federal power over the economy and over social institutions has been like a ratchet. For a brief period it may not move forward, but it never moves back. This is why we are facing a Federal debt (off-budget and on-budget) in the range of $80 trillion. This is why the Federal deficit is increasing by a trillion dollars a year, meaning the on-budget deficit. The off-budget deficit is probably increasing in the range of seven trillion dollars a year. This is the unfunded Social Security and Medicare budget.

The system is going to break. The ability of Washington to send out checks to everybody to whom it promised checks is going to fail. The checks will not be sent out, or else they will not be for money that will buy much. The Federal government is going to default in some form. I believe that it is likely to default by raising taxes on existing workers and simultaneously cutting benefits to beneficiaries. This may be cuts in the income of existing beneficiaries, of whom I am an obvious case, or it may be a delay of the advent of the benefits to those who been promised the benefits. The retirement age for Social Security may be raised, or perhaps there will be some system of means-testing for Medicare recipients. But, in some form, there is going to be a default.

The Climate of Revolution

The classic situation that precedes a political revolution is when a government has promised benefits to large numbers of people, and then it reneges on the benefits.

For years, things seem to be getting better. The government takes credit for things getting better. Then things then get unprecedentedly worse. This happened immediately before the French Revolution. It happened immediately before the Russian Revolution. It happened a decade before the American Revolution. We forget about this.

The American Revolution began in response to relatively mild increases of taxation that were required to pay for British troops in the United States. The French and Indian War (1757–63) had eliminated the threat of the French, so the Americans assumed that they would be the beneficiaries. The British government decided that Americans should pay for the quartering of troops in the colonies, in order to defend the new western borders against any future incursions by the French. The Americans had thought it was going to be no taxes and lots of new land. The British imposed new taxes and restrictions on the westward movement of the population. Then came the Stamp Act of 1765. That was all it took for the beginning of the end of the British Empire in North America. It began to erode the legitimacy of the British Empire in the eyes of North American British citizens. As the legitimacy of the regime declined, the opportunity for Sam Adams, Patrick Henry, and other anti-imperialists made possible the American Revolution.

Revolutions in the past have been through the centralization of power. The one exception to this was the American Revolution, but that exception only lasted for five years: 1783–1788. The Constitution centralized power enormously in comparison to the Articles of Confederation. After 1788, the process of centralization increased relentlessly. There is not a single period in American history from 1789 until this year in which there was any serious reduction of Federal power.

The French Revolution and the Russian Revolution centralized existing hierarchical systems that were already more centralized than other countries in the West.

A political revolution aimed at capturing power in Washington is inherently self-defeating. It will simply add to the existing process of centralization that has gone on since 1789.

A political revolution has to involve the transformation of the legal order. Without a transformation of the legal order, there is no revolution. There is only a coup. It does not pay to run a coup. A revolution favoring freedom must involve something like a return to what existed in the days of the Articles of Confederation. If this is not the direction of the revolution, then it will simply be business as usual.

It is not good enough to reform the Federal Reserve System. The Federal Reserve System must be abolished. This is the proper approach of thinking about the revolution. Ron Paul has written a book called The Revolution. He has also written a book called End the Fed. This is the correct approach. We must not try to strengthen the system, or reform the system, or make the system more efficient. We must abolish the system, agency by agency.

Ultimately, this could mean secession. At the very least, it means decentralization back in the direction of what the Articles of Confederation provided. It is no accident that no high school history textbook or college history textbook has ever devoted much space to the Articles of Confederation. There is virtually no discussion of the details of that document. Almost no one, including people who have Ph.D.'s in early American history, has ever sat down and read the Articles of Confederation, let alone a volume of analysis of the articles. This is because the victors write the history books. The anti-Federalists did not win the state ratifying conventions in 1788. The Federalists won, and they and their heirs have written the history textbooks.

Because globalization has decentralized authority over production and distribution, it has led to a way of unifying individuals across nations. The international division of labor is a result of the development of globalization. With the spread of the free market, we have the possibility of reducing the power of national governments without causing an economic crisis at the local level. The difficulty is this: to reduce the power of the national governments in a period in which the Establishment is attempting to create an international government reduces the ability of locals to resist. So, for any long-term political transformation to be effective, there has got to be a reduction of sovereignty and legitimacy for both the national government and the international government. There has to be a realization that anything that concentrates power at the top is a threat to liberty.

This strategy is not yet understood in conservative circles. It is especially not understood among those traditional conservatives and all neoconservatives who believe the United States government has a moral responsibility to police the world by means of its military. Every time this nation extends the power of the military, it extends the power of the State Department. Anybody who thinks that the United States military should be funded to police the world ought to have a picture on his desk. It would be a picture of Hillary Clinton in a general's uniform. That is what the expansion of military power means. It means a transfer of authority to the State Department. We need images to remind us of this, and I think an image of Hillary Clinton with the general's uniform is just about right. It was bad enough when her husband was Commander-in-Chief.

Ron Paul is the first politician to get a national audience in favor of limited government since Grover Cleveland. Paul is the first politician to offer a systematic, integrated, Constitutional case for shrinking the Federal government. In the 1950s, Sen. Robert A. Taft and Congressman Howard Buffett of Omaha were articulate defenders of a government somewhat like that which is defended by Ron Paul. But Buffett was unknown, and Taft was a compromiser. Taft's voting record always testified against his ideological defense of freedom. Ron Paul's voting record is consistent with his ideology. That was also true of Howard Buffett, but nobody knew who Howard Buffett was. They know who Ron Paul is.

Compared to where Ron Paul was when I worked for him in 1976, this is a whole new ball game. It is a new ball game because of the Internet. Ron Paul and Matt Drudge are the supreme representatives of the threat posed by the Internet to every Establishment on earth. Matt Drudge was able to get a President impeached. Ron Paul was able to get the slogan "End the Fed" in front of hundreds of thousands and maybe millions of Americans. This could not have been possible without the Internet.

In my view, this is the greatest single irony in the history of big government. The Internet was developed by the U.S. Army in order to decentralize communications because of the threat of an atomic attack. It was the expansion of the military that made possible the development of the technological infrastructure which, more than any other invention in the history of man, now poses a threat to every Establishment in the world. This development has enabled the members of hard-core fringe groups to communicate with each other, and to get out the message that they most love: the incompetence and malevolence of the Establishment. It doesn't matter which Establishment we are talking about; every Establishment now has an unorganized but orderly audience dedicated to its overthrow.

Price Competition

Anyone who thinks we have not entered a new era is naïve. The central economic phenomenon today is price competition. Whenever any technological development undercuts the existing cost basis of any established sector of the economy, it poses a threat to that sector. Peter Drucker's rule is this: when a new technology sells for 10% of the old technology, the old technology is doomed. Think "handmade Swiss watches." There is nothing that the defenders of that technology can do to stop the destruction of their industry.

This is taking place daily in the field of communications. The newspapers are dying. The TV networks are dying. All of this is taking place because of the cost reductions involved in telecommunications by the Internet. There is nothing that the Establishment can do about this. It can try to regulate it. If the FCC does, Congress will get a firestorm of opposition. The ability of members of the Internet to get out communications to other participants about a looming Federal regulation is so great that the opponents can shut down Congress. They can organize call-in campaigns that literally will make it impossible for anyone else to phone Congress. They can flood Congress with e-mails. They can terrorize Congress.

There is no possible way today for any bureaucracy in Washington to fundamentally reverse the development of the Internet. Politically, it would be suicidal for any politician to take a stand against the expansion of influence of the Internet. Joe Lewis was right: they can run, but they can't hide.

There are very few areas left in American society today in which the Left is dominant in a field which has not been subject to tremendous competitive pressure by the Internet. One of these is higher education. The Left still controls the universities. Another is the production of movies. The barriers to entry here are very great. There are financial barriers. There are barriers associated with particular skills of production. There are barriers to distribution. But all these barriers will fall.

The enormous effect of price competition on technology is going to enable outsiders to do an end run around Hollywood and the theater system. This is already being done by DVDs. With the rise of YouTube and similar organization such as Netflix, the movie theaters are going to be limited to date night for teenagers. The movie theaters will not be crucial to the distribution of profitable movies.

We are on the cusp of a political transformation. The technology is on our side. The communications system is on our side. Articulate and even inarticulate critics of the existing political system have the ability to spread their message of discontent as never before in the history of man. The fundamental political fact of our era is an escalating crisis in legitimacy for the Establishment.

As the crisis of the economy becomes more obvious to more people, and as it becomes obvious that the government and the central bank are unable to reverse the effects of the previous Keynesian policies, the public is going to withdraw legitimacy from the central government.

There will be two competing strains of opinion, as there always are. One group will call for centralization. It will appeal to the fears of the general public about the immediate economic crisis. The public will respond to these fears. But, at the same time, there will be discontent with these proposed solutions by a growing minority of citizens who do not respond as citizens traditionally have responded, namely, to call for even more centralization. This is the great conflict politically in our time. This conflict is going to increase.

There is going to be a push for centralization nationally, as the crisis unfolds, and there will be resistance as never before. We are seeing already an attempt by the elite to expand their program, inaugurated no later than 1919, to create a one-world government. The failure of national governments to foresee the crisis in the economy in 2007 is being used as justification for the expansion of international power over the economy.

This appeal is beginning to lose steam. Even if there is additional power granted to these government agencies on an international level, the ability of these agencies to impose negative sanctions against countries that refuse to cooperate is limited. There is no method for imposing sanctions at the international level which will enable the internationalists to complete the centralization of the world economy. They waited too long. The new economy has developed without them. The growth of trade, the free flow of capital, and above all, the free flow of information have all combined to create a system of political defense that will not tolerate interference by unelected bureaucrats 5,000 miles away. The bureaucrats may think they can get away with this, but they will not get away with it. They do not have the level of control over communications comparable to what they had in 1945. They are never going to get it back.

If we take seriously the Austrian theory of the trade cycle, we know what lies ahead. There will be escalating monetary inflation, followed by escalating price inflation leading to hyperinflation, or else there will be a stabilization of money. If there is a stabilization of money, interest rates will rise, the Federal government will become essentially bankrupt, and the economy will fall into a depression.

In either case, whether hyperinflation or depression and a bankrupt Federal government, the division of labor is going to shrink. Our net worth is going to fall. Our productivity is going to fall. Our income is going to fall. But all of this is the price that must be paid for what is really important, namely, the removal of legitimacy from national governments around the world. What is required for anything resembling decentralization or even secession is a crisis that is beyond the ability of the central governments of the world to overcome. The crisis has got to be painful enough to remind the general population that the central government cannot be trusted to fix anything. The central government has got to lose its ability to influence the economy. This is what is going to happen. It is already happening. What happened in the second half of 2008 is indicative of just how close the central government came to losing control over the entire banking system and the economy.

The Plan

No one has a comprehensive plan to reform the system. This is a good thing. The system is too complex. The whole idea of Hayek's spontaneous order is that no central-planning agency can assemble the information necessary to plan. No system of sanctions could enforce it anyway.

Who would be able to impose such a liberating plan without coercion? Let me give you an example I have used in the past. In the early 1970s, the man who was the Superintendent of Public Instruction for the state of Arizona was able to get a course in the free market made mandatory in all public high schools. He was a friend of Leonard Read, who headed the Foundation for Economic Education. He called Read to tell them about the good news about the new course. Immediately, Read responded: "I see. You have implemented a compulsory course in freedom." That was all he had to say. That was all anybody has to say. We do not need a compulsory course in freedom in America's public schools. What we need is the complete de-funding of America's public schools.

We need to do what Andrew Jackson did with the Second Bank of the United States. He simply refused to recharter it. He pulled the government's money out of it. He let it compete in a free market. Within a few years, it was bankrupt. This is what we need to do with Federal Reserve System. This is what we need to do with the Department of Energy, the Department of Education, the Department of Health and Human Services, and about everything else in Washington. We do not need to reform them; we need to stop funding them. We need to pull the plug.

What can we do? This: vote no on every local bond issue. I can legally do this, and I always do. I always have. That is the attitude we must have with every budget in Washington. People want to know what my plan would accomplish. My plan is for everybody to keep a larger percentage of his income than he does today. It may not be a very sophisticated plan, but given the spontaneous order of the free market, it is sufficient to enable individuals to regain their freedom.

I do not think all conservative organizations could or should get together to hammer out a plan, even if they wanted to. I don't think they should want to. Let each group focus on its most hated boondoggle in Washington, and then persuade as many people as possible for the boondoggle to be shut down. I believe in the division of labor. I believe in the specialization of the means of production. Let each group target a boondoggle and do everything it can to get the funding cut. That's my program for reform.

To do this, we have to begin to develop alternatives that can be used to substitute for the shutdown of each government boondoggle. We can't expect to beat something with nothing. Our job is to criticize existing system, but it is also to encourage the development of privately funded alternatives.

I believe we should shut down the public schools. I also believe that we should have competing curriculum materials on the Internet, some of them offered free of charge, to enable parents to teach their children enough, so that the children, by about the age of eight, can teach themselves what they need all the way through university. I really do believe in the division of labor. I really do believe in decentralization. I really do believe that maturity involves self-government. I therefore believe that the best high school and college curriculum that can be designed would be a Web-based curriculum adopted by individual students who teach themselves. This is coming, and there is nothing the public schools can do about it.

States are now beginning to offer homeschool courses to parents. There is a required curriculum, but the curriculum is delivered for free in the mail. The parents are not required to send their kids into the prison systems known as the public schools. This is an admission by the teachers' union and by the state's Department of Education that parents are capable of teaching their children, just so long as they use a state-sanctioned curriculum.

This is a surrender of monumental proportions. This is the exact opposite of what the public school bureaucracy has taught since the 1830s. Always before, the public school bureaucrats said it is mandatory that students be instructed by a tax-funded bureaucrat who has gone through a particular curriculum in a monopolistic, government-licensed institution of higher learning. Now states have begun to abandon this. In principle the old position is gone. They are now saying that if the parent is willing to use the curriculum materials approved by the state, the parent can legally keep the children at home. The parent can legally keep the children out of the environment of the public school system.

This is the beginning of the end for the public schools. All we need now is for better curriculum materials offered free of charge that parents can see lead to better results than the bureaucratic, state-approved materials that are being used in the public schools. It will be easy to beat something with something much better. If we use price competition, which means offering materials free of charge by way of the Web, we can tailor curriculum materials to whatever audience we are interested in persuading. Dozens and dozens of groups, even hundreds of groups, will be able to develop curriculum materials and offer them free of charge, or close to it, to parents around the country and around the world.

If the child is not required to go into the building that the bureaucrats have controlled since the 1830s, then the education game is all but over. The change in the rules has permanently tilted the game in favor of Web-based education. All the hoopla about the benefits of being taught by state-trained, state-approved, salaried bureaucrats is in principle over. The charter school system, now being extended into households, is an admission of defeat by the public school Establishment. This surrender may look innocuous to some of them, but it is the biggest defeat that I have seen for the public schools in my lifetime. It is a self-inflicted wound.

The Two Crises

We are seeing the crisis of legitimacy at exactly the time that we are seeing a crisis of the economic system. The main justification for the expansion of government power has not been the spread of democracy, or the spread of the American way of life, but rather the predictable expansion of the economy year after year. Economic growth has been the holy grail of every Keynesian government in the world. It has also been the holy grail of every socialist government in the world. This goal is now being called into question by the fiscal and monetary policies that the Keynesians have imposed on the public, all in the name of higher per capita income. The unemployment rate keeps going up. This is the soft underbelly of every incumbent government.

We do not know what is going to come out on the far side of this crisis. We only know the crisis is going to accelerate. Central government planning is going to be called into question. The legitimacy of the central economic institution of modern America, the Federal Reserve System, is being called into question publicly now by millions of people. This is a symbol of how far down the road we are to the breakdown of the existing political order. It will not be pleasant. There will be costs borne by all. It would be nice to believe that the breakdown will be as bloodless as the overthrow of the communist regime in Russia in 1991. But the Russians had lived through a rotten economy for 70 years. We have not.

If we look at the things that really matter to us, we need to look at how we spend our time. Most of the time that we spend is in our families or at work. Our entertainment is delivered to us digitally into our homes. It is essentially free. It costs us time, but it does not cost is very much money. Digits are cheap and getting cheaper. Digits are consuming more and more of our time.

That which is most important to us in our lives is getting less expensive. If we can shrink the government, thereby recovering the confiscated wealth that has been taken away from us, we will be able to lead more productive lives. We don't need to get rich; we need governments to get poorer. As this realization begins to spread over the next 20 or 30 years, the legitimacy of central governments will be called into question as never before.

Consider education. This takes lots of time when we are young. It should take time all our lives. Our educational materials are now delivered for free or close to it. Books, videos, workbooks, and every other kind of educational material are available at very low prices are even free on the Web. So, this constitutes another two or three hours a day of our lives.

Food has fallen as a percentage of expenditures in our budgets since about 1800. I think food costs are going to go up, but I don't think they're going to be anything like 50% of our budgets.

We have transportation costs, but these are fairly minimal in the United States. In any case, as we become more digital in our communications and production system, the need for transportation will be restricted, except for trucks on the highways, and except for trains. When Warren Buffett purchased the entire railroad, he pointed to the future. General Motors went bankrupt. Buffett did not buy General Motors.

When we think about how we spend our lives, most of our expenditures are fairly low, except for shelter. Even here, housing prices have been dropping. Rents have been dropping. This is as it should be.

This is why we are going to see the decline of the state. Jacques Barzun is correct in his book, From Dawn to Decadence (2000). Martin van Creveld is correct in his book, The Rise and Decline of the State (1999). The central governments of the world have overpromised on what they can deliver. As those promises fail to materialize, we will see the rise of a revolutionary situation. The thwarting of the revolution of rising political expectations is going to create a political revolution. My hope is that it will not create a revolution of central government reform. My goal is not to reform the FED; my goal is to end the FED.

To withhold legitimacy from the central government means extending legitimacy to local governments. Yet, in terms of the amount of time we spend studying local government, we care little about local government. Yet local government must keep order. This is especially true of local law enforcement. How can we fund it if Washington goes belly-up? Simple. If we can convince parents to shut down the public schools, we can fund everything we need at the local government level. In fact, we can all get tax reductions.

The great enemies of our liberty are the Federal Reserve System, the Internal Revenue Service, and above all, the local public school system. Nothing else is a greater threat to our liberty today than the local public school system, because the local public school system uses textbooks produced by the New York City liberal Establishment. It always has. My goal is not to reform the public school system. My goal is to de-fund the public school system. We don't need the reform of the major institutions of this country. We simply need to quit paying for them. This is the message that we must do our best to communicate to anyone we think is going to be receptive.

Years ago, my friend Robert Thoburn, the entrepreneur who developed Fairfax Christian School, was standing in line at the Post Office at Christmas time. The line was very long. He turned somebody next to him and said it would sure be better if the system were run by the government. He got an incredulous look; then that person smiled. Thirty years ago, that seemed like a fruitless observation. Yet, as it has turned out, we could lose the Post Office tomorrow and barely feel it. We don't use first-class mail to communicate any longer. We use the Internet. We use Federal Express and UPS and other delivery systems to deliver anything really important that we have to send. The Post Office in effect has gone senile.

We don't sense that it's gone. Yet the reality is this: we have replaced something with things that are better. Therefore, at some point, we will see the Post Office either go out of business or become simply a forgotten memory. Yet the Post Office is part of the Constitutional system. The Post Office has always been a way for the government to control the flow of information. As Robert Nisbet said in an autobiographical essay, in the year he was born, 1913, the only contact that the average American had with the Federal government was the Post Office. How much contact do you have with the Postal Service today? It delivers mostly junk mail to you. We ought to think of the U.S. Postal Service not as snail mail but as junk mail. It is the junk mail service for the junk mail industry. Even this is subsidized. It gets cheaper rates.

We have seen the demise of the Post Office operationally over the last ten years, yet we have paid almost no attention to this. There has not been a revolution in our thinking about the Post Office. There has simply been a kind of forgetfulness. We haven't paid much attention to the fact that we don't need it anymore. This has not taken any kind of an organized political movement.

The Post Office is sacrosanct. It is untouchable. But now it is simply ignored. This is the best way to have a revolution. Create a free-market alternative to a particular government institution, and then refuse to use the boondoggle anymore. At some point, we can simply vote to de-fund it. We can privatize it. Nobody will care, because hardly anybody is using the system any longer.

Here is my slogan for political reform: Replacement, not capture; then de-funding.

Let us take this slogan and begin to apply it to all the government institutions that we deal with on a regular basis. Apply it especially to the Federal government.

We are seeing the creation of a new economy in which we really do not need the Federal government, except for welfare services for the aged. It is going to go bust because of these welfare services. So, the primary objective that we ought to have is to create alternatives to the welfare system. We don't need to call for the shutting down of a particular government agency tomorrow, although in principle that would be the best way. But that would be an overnight political revolution, and I really don't believe in overnight political revolutions.

Overnight political revolutions always centralize power. That is what Frederick Engels taught, and that is what I believe. What I believe is best for the country is a quiet social revolution, which is marked by a shift of reliance away from all government money toward free-market and charitable funding. We will simply walk away from the system. When enough people walk away from the system, and the rest of them lose their shirts when the system goes belly-up, we will be in a position to have a real revolution, one in favor of freedom.

This revolution will be one of decentralization and some form of operational secession. I don't think states are actually going to break away from the union. I believe that the governors and mayors are not going to bother to get Federal grants, because the money is either not available or won't buy anything. When we get to that stage, we will be prepared for a new period of liberty. That day is coming. The government has shot his wad, and the Federal Reserve, in shooting whatever wad it has left, is going to debase the currency.

The transformation is taking place right under our noses. As George Orwell said, it is a constant struggle to see what is happening under our noses.

By: Gary_North