Consider a coin minted from a commodity. The coin circulates by law at a nominal face value while the market value of its metal content fluctuates. Provided that the coin’s face value is below the market value of its metal content the coin will be readily used. As the coin is worth more to the holder in its monetary role it will circulate freely. Every time the coin is received by a merchant he will want to use it in turn as a coin rather than melt it down to use its otherwise valuable metal contents.

Now consider what would occur if the coin’s face value dropped below that of the market price of its metal content. In this case the coin would be worth more melted, or stored for a rainy day. Holders of such coins would rather hold on to them than spend them. When these coins are received by merchants they will be hoarded by them, rather than passed along in the monetary system.

Otherwise good money – those coins with valuable metal content – are forced out of the monetary system by introducing bad money. By depreciating new coins so that their face value is lower than their metal content the older metallic coins will be hoarded.

In Canada the penny has recently been decommissioned for this reason. The cost to produce the diminutive coin had fallen below the cost to produce it, and as a result the Mint suffered a loss on all pennies produced. Older pennies had already ceased to circulate as money due to the fact that they were worth more melted into raw copper than exchanged as money.

The penny had taken on a dull aura of uselessness, but it was not a self-afflicted malady. The Bank of Canada – that institution charged with guarding the value of our Canadian currency – has inflated the money supply so much over its history that the market value of the metal in the coin (something the BoC does not control) has become greater than the nominal value of the coin itself (something that the Bank does have control over). It is a signal that the BoC has failed in its primary mission, and retiring the poor coin is a way to make this a little less obvious.

This leaves the nickel next in line for the dubious distinction of early retirement.

It seems that nickels are starting to be increasingly costly for the government to distribute, leading some to advocate a similar decommissioning as befell its copper cousin. Jean-Pierre Aubry, a now-retired 30-year veteran of the Bank of Canada and a leading proponent of withdrawing the penny from circulation, is one such advocate.

According to Mr. Aubry, the nickel is today at a cross roads, and in a position where the government should retire it as it is more costly to distribute than it is worth. “It’s a sign that the coin is not well used,” he claims.

If the coin is not well used, there are two ways to look at the reasoning.

One is that consumers don’t require it for their transactions, and the government would do well to save us the tedium of using it. If this was the answer, however, one would do well to ask why the nickel is so cumbersome for the transactions it exists to facilitate. In the same story as the penny, and what will surely someday be the same story used to explain the demise of the dime, quarter, loonie and beloved toonie, the Bank of Canada’s misuse of monetary policy over the past seventy-eight years has driven the coins to extinction. By depreciating the dollar through its inflationary ways the BoC has made small denomination coins all but worthless.

Retiring the coins now is an exercise in shooting the messenger. Rather than fix the base problem of too much inflation, the BoC deems it better to gag those who can expose its deeds, such as the penny.

Alternatively, if the nickel is not being “well used”, as Mr. Aubry suggests, it could be because Gresham’s Law is taking hold. For some nickels, and particularly those older ones with higher metal nickel content, the coins are now worth more held in storage or melted for metal than they are in exchange. Naturally we should expect consumers to use the nickel less as its monetary role has been compromised.

One really has to hand it to the government, and particularly the Bank of Canada. Despite having to retire one coin already in an admission that its own policies have driven the penny to extinction, the base problem remains. There is no sign of slowing the inflationary monetary policies that have defined the BoC’s history, and as a result, we should not be surprised to hear further calls for demonetization of certain coins.

One year ago I noted that we should expect to see the emergence of advocates for relegating the nickel to the history books. David Barnabe, a spokesman for Finance Canada, recently announced that the government has no plans to eliminate the nickel. Let the Bank of Canada continue with its inflationary ways, and see what he says in a few years’ time.

David Howden is an assistant professor of economics at St. Louis University, at its Madrid Campus, and winner of the Mises Institute’s Douglas E. French Prize.

The technologies that will be used in making the car of the future were on display during DARPA’s Grand Challenges.  Funded by American taxpayers, these events awarded millions of dollars to researchers who successfully endowed their vehicles with the ability to autonomously drive down rural and urban roads.  The technologies that allowed “Stanley” and “Boss” to win the DARPA challenges are being cost-reduced and commercialized for eventual deployment into all automobiles.

Autonomous vehicles require the marriage of “drive-by-wire” and external sensor technologies.  Drive-by-wire technologies have been around for years.  With drive-by-wire, the driver’s inputs are merely recommendations and it is the on-board computer that makes the final decisions.  For example, modern anti-lock brakes can apply and release braking pressure under computer control.  The throttle pedals on most cars are now electronic – the pedals no longer connect directly to the fuel system.  Finally, the mechanical link to the steering wheel will soon be removed with the introduction of steer-by-wire, something Nissan is promising to do within the next year.

External sensor technologies allow the car computer to learn about its environment.  Sensors include radars, cameras, ultrasonic sensors and LIDAR (laser-based range detection).  These sensors, when combined with drive-by-wire and advanced computer software, will allow the car of the future to navigate without any driver input.

Consider that Lexus introduced a self-parking car way back in 2006.  Ford and other manufacturers have since followed Lexus’ lead.  In order to park, the on-board computer takes control of the steering and uses ultrasonic sensors and cameras to navigate into a parking spot.  Audi has taken it one step further with the recent demonstration of their autopilot technology that allows a car to autonomously drive through a parking garage to locate a free parking space, park itself and then turn itself off.

The 2014 Mercedes-Benz E63 packs a host of sensors including 3-D and infrared cameras, ultrasonic sensors and front and rear-facing radars.  These sensors allow the E63′s computer to detect potential collisions with pedestrians and other cars.  If a collision is likely, the computer immediately takes control of the throttle and brakes.  The system also controls steering, a feature that allows the E63 to follow other cars in front of it including steering around corners.  Acura’s “Lane Keeping Assist System” provides limited hands-free driving by nudging the steering wheel to keep the car between the lines when traveling at highway speed.  Audi’s “Traffic Jam Assist” feature completely controls a vehicle in stop-and-go traffic and allows autonomous merging into traffic while avoiding obstacles.

Hands-free, self-driving cars are coming.  In fact, Google has already deployed driverless cars in the U.S. for research and development purposes.  Some years ago, Google hired the leader of the Stanford team that won the 2005 DARPA Grand Challenge, Sebastian Thrun, to run the project.  Google’s fleet of cars has already amassed over 300,000 “autonomous-driving miles” on public roads.  Four U.S. states have permitted driverless cars and more will follow.  (Why is Google interested in self-driving cars?  Speculation is that time not spent driving is time spent clicking on their ads.)

Self-driving cars will sell.  According to Car & Driver magazine, 37% of drivers would buy an autonomous car if price was not a factor.  Over time, the price premium will become less of an issue due to economies of scale.  Ultimately, driverless cars will be the only type available on dealer lots.  In the future, the idea of “driving a car” will strike most people as dangerous and absurd.  Cars will simply get from point A to point B on their own – turning, braking and accelerating as required.  But the next phase of the driverless car is quite sinister and results from the marriage of computerized car control and wireless communications.

Wireless communications are now of great interest to car manufacturers.  Filip Brabec, Product Planning Manager at Audi, recently told Road & Track magazine that, after fuel efficiency, “The second big thing we’re going to be looking at is the connected trends.  Cars are going to be seamlessly connected to their environments.  We really see the years focusing on connecting the car to the rest of the world.  And it’s going to be a cellular connection; it’s going to be Wi-Fi; it’s going to be all the different facets that we have there.”

Consider that GM’s OnStar has offered remote engine diagnostics and GPS vehicle tracking for years.  OnStar also allows cars to be remotely shut-down on command, a feature that is theoretically reserved for cars that are reported stolen.  Furthermore, in-car microphones allow for two-way audio communication between drivers and the OnStar monitoring center.  Recently, a car magazine editor was astonished to find his privacy violated when, during an enthusiastic drive up a twisty mountain road, the OnStar center initiated a real-time conversation to determine if he needed assistance.  (In the future, the uninvited voice may very well be that of a policeman with accusations of reckless driving.)

Wireless communications will also be used to update car software.  In a recent review by Road & Track of the Tesla Model S, the car manufacturer’s headquarters “remotely spotted a problem, and pushed a software update through the Model S’ standard 3G cellular connection.”  So, the capabilities of a car today may not be the same as tomorrow and there is little doubt that upgrades will be done without the owner’s knowledge.

The marriage of computerized car control and wireless communications will lead to the creation of the Mobility Grid (in the context of cities, the catch phrase is “Smart Cities”).  The Mobility Grid will become a national, state-operated, computer network that will be used to achieve an Orwellian level of vehicular control and information sharing.  The connection of individual cars to the grid will provide opportunities to direct and manage individual movement and invade personal privacy in ways that the people at OnStar can only presently dream about.

Research and development into grid-connected cars is now underway.  For example, Car & Driver recently described a U.S. Department of Transportation (DOT) project involving 3,000 motorists in Ann Arbor, Michigan.  The motorists’ cars have been fitted with car-to-car Wi-Fi communications with the purported intent of reducing collisions.  In order to accomplish this, the cars share identification, location and speed information with one another.  Furthermore, the DOT is examining the means to allow the cars to communicate with cell phones carried by nearby pedestrians in order to avoid car-pedestrian collisions.

It is important to note that Wi-Fi and Bluetooth devices continually broadcast unique identifiers, called MAC addresses.  Using these unique MAC addresses, government-operated roadside sensors might be used to track motorists as they travel down the road.  Car & Driver reported on such a scheme proposed by the University of Maryland whereby the transmission of every portable cellphone in a car could be discovered using roadside receivers.  In the future, no car or cellphone will be allowed to hide.

The magazine claims that, depending upon the results of these efforts, automotive wireless information-sharing systems could be mandatory in U.S. cars by 2020.  The Canadian federal and provincial governments will surely follow the lead of their American counterparts.  “Still worried your Droid will be appropriated by The Man for traffic logging?”, asked the author at Car & Driver, “Write your congressional representative.”  A fine idea until one realizes that it is the politicians who will, one day, be compelled to make these technologies legally mandatory in all vehicles – for safety reasons, of course.

In the not-too-distant future, the control of every automobile on the road will be handed over to the state-run Mobility Grid.  The grid, managed as an extension to government policy and reflecting the demands of special interest groups and state-connected corporations (the “transportation-industrial complex”), will be used to not only track and control vehicle movements, but also to manage and mold the transportation choices of citizens.  Privacy will suffer as sensors both inside and outside of vehicles (namely video cameras and microphones) will make their data available for recording and inspection.

Thales, the French defence, aerospace and ground transportation conglomerate with more than 60,000 employees, is on the forefront of this nightmarish future.  It has been advancing its VivaCity initiative whereby a “seamless integrated transport policy … blurs the boundary between public and private, and which enables greater use of … car sharing, ad-hoc cycle hire and use of publicly available electric vehicles.”  What this means is that private cars will effectively become public property as compulsory car sharing is rolled-out.  The average citizen will have no recourse because the argument will be made that full occupancy is required to prevent Mother Earth from dying of man’s excessive CO2 emissions.

Thales’ vision also includes the marriage of the grid with “multi-agency crisis management and control capability, where city authorities effectively coordinate emergency services and civil security forces to efficiently manage their emergency and disaster response.”  Not only will cars be tracked and monitored, but in an emergency (real, or not) it will be possible for police to preclude cars from going into certain areas, or to force cars onto certain roads.  Also, it will be possible to remotely shut down cars en-masse should the need arise (like OnStar on steroids).  A shelter-in-place command, like that recently given to Boston, Massachusetts, residents via the television and radio, might be enforced by sending a centrally transmitted “engine off” instruction to vehicles.

Furthermore, citizens will be able to forget about driving away to escape any type of authority.  For example, police chases will become a thing of the past – the police will simply request that the doors remain locked and that the cars come to them.  In fact, during a time of crisis, cars might be remotely commandeered by authorities.  Nearby drive-by-wire cars might simply start-up and drive themselves to more deserving civil servants.

The Mobility Grid will also prevent citizens from going places for which they are not approved, such as visiting certain parks or driving to resorts hosting G20 conferences.  Individuals who are put on travel blacklists may be permanently excluded from taking their cars into certain jurisdictions or across provincial borders.  Personal trips might need to be justified relative to the CO2 emissions that are created.  For example, parents who wish to drive Junior to a baseball game in a neighbouring city might not be allowed to go at all.  After all, the car of the future will require approval even to leave a person’s driveway.  No approval – no trip.

Thales also promotes the use of data mining – the computerized filtering of massive amounts of data for the creation of “hits” useful to bureaucrats.  Their website claims, “Analysis of all the data made available by closed integration of transport and security systems allows operators and administrators to better plan, operationally and strategically, for the future development of the city. ”  The implications are ominous.  In the future, private spheres will be invaded and all movements will be tracked, cross-referenced and mined for hits for whatever purposes the central planners, security forces and special interest groups and corporations might devise.

You may want to keep your old-fashioned, drive-by-human car for as long as possible because the car of the future is a drone car.  Want a ride?

Roger Toutant has practised electrical engineering in private industry for more than 20 years and is currently working in Ontario. He can be reached at laurier.was.right@gmail.com.

Reprinted from bio-itworld.com

The controversy surrounding the $400-million Encode project’s dubious public relations claims surrounding the function of ‘junk DNA’ and the Battelle Institute’s defense of the $3-billion Human Genome Project (HGP) as economically beneficial (as cited in the recent State of the Union address) make this a good time to examine President Obama’s attempts to bring more of American science under centralized direction and control.

Well-established and politically connected scientists are salivating over the billions promised by the president for the Brain Activity Map (BAM) project—no surprise there. But young scientists not yet aboard the federal gravy train should recognize this as a threat to their future as independent researchers.

For those not following the backlash to Encode’s well-orchestrated PR campaign, Dan Graur’s article in Genome Biology and Evolution is a must-read, as is his interview on Mendel’s Pod. Defying the code of omerta that protects the interests of the Principal Investigator (PI) guild, Graur accuses project leaders of pimping their project so as to justify their enormous budgets. He also takes serious scientific issue with the way the consortium’s findings have been misrepresented in the media.

This kind of behavior is becoming increasingly common in the world of Big Science as politicians wake up to the electoral benefits of funding new groups of needy and vocal dependents. While the Encode project’s sin was to exaggerate the importance of junk DNA, a May 2011 Battelle Institute report, “Economic Impact of the Human Genome Project,” wins the prize for junk economics used to justify such largess.

Claiming that the government’s “investment” in the HGP “created” 310,000 jobs, the Battelle report leaves no stone unturned in its creative accounting totaling up the program’s direct and indirect economic impact. For example, the salaries of researchers working on the HGP were counted both as costs and benefits. And secondary or even tertiary downstream technologies, such as the commercialization of drugs whose development were related in any way to the genetic information revealed by the HGP, were counted, as though their genetic targets hadn’t already been identified, or would never have been identified if not for the HGP.

Apparently the Battelle economists also never read French economist Frédéric Bastiat’s famous essay, “What is Seen and What Is Not Seen,” which points out that all money “invested” by government had to be taken from somewhere else in the economy. Nor do they seem to have noticed that the private money invested in genomics-related projects might have been spent anyway, or directed to something else equally or more productive, had HGP not come along. Crediting all of this “economic activity” to a single act of wise government science “investing” is worthy of Cypriot bankers, not serious scientists. The problem, of course, is conflating activity and progress, or of spending and return. These are not synonymous.

An even bigger problem is the mistaken belief that this can go on forever. The supply of money is not infinite (Fed Chairman Ben Bernanke’s unrelenting attempts to prove otherwise notwithstanding). Neither is taxpayer generosity: taxpayers can only support so many basic research scientists and only for so long. Over the long run, it is reasonable to expect these publicly supported scientists to produce public benefits commensurate with the cost.

The burden of proof for proposed mega-projects should be high, because for every research team working on a billion-dollar, centrally planned National Institutes of Health program, there are hundreds of independent scientists who will go begging. This is a tragedy, as the bulk of our scientific progress—especially in the life sciences—comes not from sclerotic bureaucracies following 10-year plans, but from the genius of independent scientists challenging the status quo.

To date, only a few critics have challenged the Battelle report’s accounting fictions. Worse, the preposterous claim that, “every $1 of federal HGP investment has contributed to the generation of $141 in the economy” doesn’t even conform to the basic rules of the English language. How many dollars did Hurricane Sandy “generate” in the economy? Did all the economic “activity” and the cleanup jobs “created” make the hurricane economically beneficial? If this is the rationale we’re following, shouldn’t the destruction wrought by Sandy count as a return on our investment in global warming?!

BAM Investment

Now President Obama is parroting this 140 to 1 “return” figure as justification for spending more billions the government doesn’t have, this time buying votes from institutions that support brain scientists. And let’s not forget the Alzheimer’s and Parkinson’s advocates who buy into overheated claims that the BAM project will quickly lead to treatments—claims which a graduate student from Rockefeller University calls a “$3 billion mistake.”

Speaking of treatments, how many diseases has the HGP actually cured? This would be a bona fide “investment return” compared to abstract obfuscations like “economic activity.” We certainly hope the data produced by the HGP will one day contribute to the conquering of disease, but this remains a future prospect. The Battelle report lists Gleevec, Herceptin, Tarceva, and Avastin among the HGP’s accomplishments, but anyone familiar with the history of these drugs knows that the HGP had nothing to do with them. These drugs would have been developed had the massive program never been funded. Yes, Battelle is careful to ascribe their development to the general field of genomics and not to the HGP program itself, a subtlety easily lost on reporters who skim the report. Proving once again that successful public relations narratives rarely rely on nuance.

As for subtlety, or lack thereof, listen to the words of elder statesman and Nobel Prize winner James Watson, who recently sounded off on how profligate spending on headline-grabbing genomics programs distorts cancer research priorities to the detriment of alternative approaches. Shocking his audience, he opined that, “sequencing genes isn’t proving to be particularly useful in fighting such diseases as cancer,” and that “much of the research being done on the subject is irrelevant.”

So the BAM project marches on. We don’t yet know whether it will survive budget scrutiny, but we do know who some of the beneficiaries will be if it does. One of the project’s architects is Harvard biologist George Church, who some critics consider the carnival barker of the life science community. Church made headlines recently when he was quoted by Der Spiegel advocating the cloning of Neanderthals. This science impresario spits out untested ideas fast enough to make an infinite army of typewriter monkeys envious. Despite his relative lack of credentials as a neuroscientist, it’s perhaps not surprising to find him at the front of the line for this new government handout.

Yes, when it comes to Big Science, you get what we pay for.

I am a recovering venture capitalist, a former engineer and entrepreneur, and an aspiring writer. After 35 years on the bleeding edge of technology I am increasingly focusing on public commentary and free market advocacy, having joined the Competitive Enterprise Institute as a Technology and Entrepreneurship Fellow.

Reprinted from LewRockwell.com

The recent opening of the Ron Paul Institute for Peace and Prosperity was a watershed moment in American history. There has never been anything quite like it. Ideologically diverse, the Ron Paul Institute reaches out to all Americans, and indeed to people all over the world, who find the spectrum of foreign-policy opinion in the United States to be unreasonably narrow. Until Ron Paul and his new institute, there was no resolutely anti-interventionist foreign-policy organization to be found.

Neoconservatives have not responded warmly to the announcement of Ron’s new institute. Whatever their particular gripes, we can be absolutely certain of the real reason for their unhappiness: they have never faced systematic, organized opposition before.

The Democrats would see Lincoln pried out of his temple before supporting nonintervention abroad, so they pose no fundamental problem for the neocons. Ron Paul, on the other hand, is real opposition, and he can mobilize an army. The neocons know it. What’s Tim Pawlenty up to these days? Where are his legions of well-read young fans who seek to carry on his philosophy? You see the point.

For the first time, strict nonintervention will have a permanent voice in American life. It is another nail in the neocon coffin. The neocons know they are losing the young. Bright kids who believe in freedom aren’t rallying to Mitt Romney or David Horowitz, and, like anyone with a critical mind and a moral compass, they are not going along with the regime’s war propaganda.

At this historic moment, I thought it might be appropriate to set down some thoughts on war – a manifesto for peace, as it were.

(1) Our rulers are not a law unto themselves.

Our warmakers believe they are exempt from normal moral rules. Because they are at war, they get to suspend all decency, all the norms that govern the conduct and interaction of human beings in all other circumstances. The anodyne term “collateral damage,” along with perfunctory and meaningless words of regret, are employed when innocent civilians, including children, are maimed and butchered. A private individual behaving this way would be called a sociopath. Give him a fancy title and a nice suit, and he becomes a statesman.

Let us pursue the subversive mission of applying the same moral rules against theft, kidnapping, and murder to our rulers that we apply to everyone else.

(2) Humanize the demonized.

We must encourage all efforts to humanize the populations of countries in the crosshairs of the warmakers. The general public is whipped into a war frenzy without knowing the first thing – or hearing only propaganda – about the people who will die in that war. The establishment’s media won’t tell their story, so it is up to us to use all the resources we as individuals have, especially online, to communicate the most subversive truth of all: that the people on the other side are human beings, too. This will make it marginally more difficult for the warmakers to carry out their Two Minutes’ Hate, and can have the effect of persuading Americans with normal human sympathies to distrust the propaganda that surrounds them.

(3) If we oppose aggression, let us oppose all aggression.

If we believe in the cause of peace, putting a halt to aggressive violence between nations is not enough. We should not want to bring about peace overseas in order that our rulers may turn their guns on peaceful individuals at home. Away with all forms of aggression against peaceful people.

(4) Never use “we” when speaking of the government.

The people and the warmakers are two distinct groups. We must never say “we” when discussing the US government’s foreign policy. For one thing, the warmakers do not care about the opinions of the majority of Americans. It is silly and embarrassing for Americans to speak of “we” when discussing their government’s foreign policy, as if their input were necessary to or desired by those who make war.

But it is also wrong, not to mention mischievous. When people identify themselves so closely with their government, they perceive attacks on their government’s foreign policy as attacks on themselves. It then becomes all the more difficult to reason with them – why, you’re insulting my foreign policy!

Likewise, the use of “we” feeds into war fever. “We” have to get “them.” People root for their governments as they would for a football team. And since we know ourselves to be decent and good, “they” can only be monstrous and evil, and deserving of whatever righteous justice “we” dispense to them.

The antiwar left falls into this error just as often. They appeal to Americans with a catalogue of horrific crimes “we” have committed. But we haven’t committed those crimes. The same sociopaths who victimize Americans themselves every day, and over whom we have no real control, committed those crimes.

(5) War is not “good for the economy.”

A commitment to peace is a wonderful thing and worthy of praise, but it needs to be coupled with an understanding of economics. A well-known US senator recently deplored cuts in military spending because “when you cut military spending you lose jobs.” There is no economic silver lining to war or to preparation for war.

Those who would tell us that war brings prosperity are grossly mistaken, even in the celebrated case of World War II. The particular stimulus that war gives to certain sectors of the economy comes at the expense of civilian needs, and directs resources away from the improvement of the common man’s standard of living.

Ludwig von Mises, the great free-market economist, wrote that “war prosperity is like the prosperity that an earthquake or a plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest.”

Elsewhere, Mises described the essence of so-called war prosperity: it “enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income.”

(6) Support the free market? Then oppose war.

Ron Paul has restored the proper association of capitalism with peace and nonintervention. Leninists and other leftists, burdened by a false understanding of economics and the market system, used to claim that capitalism needed war, that alleged “overproduction” of goods forced market societies to go abroad – and often to war – in search for external markets for their excess goods.

This was always economic nonsense. It was political nonsense, too: the free market needs no parasitical institution to grease the skids for international commerce, and the same philosophy that urges nonaggression among individual human beings compels nonaggression between geographical areas.

Mises always insisted, contra the Leninists, that war and capitalism could not long coexist. “Of course, in the long run war and the preservation of the market economy are incompatible. Capitalism is essentially a scheme for peaceful nations…. The emergence of the international division of labor requires the total abolition of war…. The market economy involves peaceful cooperation. It bursts asunder when the citizens turn into warriors and, instead of exchanging commodities and services, fight one another.”

“The market economy,” Mises said simply, “means peaceful cooperation and peaceful exchange of goods and services. It cannot persist when wholesale killing is the order of the day.”

Those who believe in the free and unhampered market economy should be especially skeptical of war and military action. War, after all, is the ultimate government program. War has it all: propaganda, censorship, spying, crony contracts, money printing, skyrocketing spending, debt creation, central planning, hubris – everything we associate with the worst interventions into the economy.

“War,” Mises observed, “is harmful, not only to the conquered but to the conqueror. Society has arisen out of the works of peace; the essence of society is peacemaking. Peace and not war is the father of all things. Only economic action has created the wealth around us; labor, not the profession of arms, brings happiness. Peace builds; war destroys.”

See through the propaganda. Stop empowering and enriching the state by cheering its wars. Set aside the television talking points. Look at the world anew, without the prejudices of the past, and without favoring your own government’s version of things.

Be decent. Be human. Do not be deceived by the Joe Bidens, the John McCains, the Barack Obamas and Hillary Clintons. Reject the biggest government program of them all.

Peace builds. War destroys.

Llewellyn H. Rockwell, Jr., former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com.

1. They are vague

What does it mean to drink responsibly? How many times per day? How large should the drinks be? What should the alcohol content be? How far should my children be when I’m drinking? Should we engage in any specific rhetorical rituals before starting to drink, like explaining to others that we are about to have a drink? Are there any thought processes we should practice? If so, what kinds of thought processes?

I could keep going with these questions, but you get the picture. Even if I wanted to follow LCBO’s advice to drink responsibly, if I don’t know LCBO’s definition of responsible drinking, I will not be able to follow this advice. What if my definition of responsible drinking is completely out of line compared to the LCBO definition? Then, the poster will be completely ineffective. I think that I am already drinking responsibly. So, there is no need for me to change anything even though my drinking habits may not satisfy the desires of the LCBO’s poster-makers.

2. They are self-contradicting

The poster says that the lessons we, their parents, teach are important to our children. So far so good. I want my children to learn from me. In fact, I want them to learn from me and not from some government bureaucrat  that treats other adults like children who need others to remind them to behave responsibly. This is why, if I am to follow LCBO’s advice to provide a good role model to my children, I should NOT give any weight to the poster. If I give any weight to the LCBO poster, I am sending the message to my children that I accept being treated like a child by other individuals (i.e., the LCBO poster-makers). I certainly do not want to send this message to my children. Therefore, as a good parent, I must ignore the poster.

3. They are hypocritical

Imagine a cocaine dealer coming to his buyer and saying: “Your children look up to you, use cocaine responsibly.” You can imagine what the likely reaction to this “advice” would be. If I was a cocaine user, I would politely suggest to my dealer that he change his occupation if he is worried about the negative effects of cocaine use on the well being of my children. So, why should my alcohol provider get any other treatment? Only because his selling of alcohol is legal and the drug dealer’s selling of cocaine is not? I wouldn’t say so. We know that prohibition laws are arbitrary. Someone could decide tomorrow to ban a substance that was perfectly legal yesterday. Having this in mind, my answer to the LCBO poster-maker worrying about the well being of my children would be: If your emotional distress caused by your lack of trust in my ability to exercise responsibility is so high that you feel the need for sticking a poster in front of my face, please feel free to sell some other substance to me. I don’t know, maybe strawberries. They’re healthy and children like them too.

4. They induce emotional distress in our children

The first couple of times my daughter saw the LCBO sad child poster, she did not ask anything but became strangely silent. Then, after seeing the poster two or three more times, my daughter asked me: “Why is this girl so sad?” I didn’t have a good answer right away. I mean, I did have a good answer, but not an answer that a seven-year-old would understand. Over time, I managed to persuade her that there is no association whatsoever between that girl on the poster and her; that the girl on the poster is sad because that’s how she was supposed to look for the photo-shoot, not because her parents go to the LCBO. My daughter now understands that there are some people who feel good about themselves when they try to make others feel bad about themselves. These people made the poster.

5. They increase, rather than reduce our need for alcohol

(Warning: Any satire you might find in this point is intentional.)

After a person of normal intelligence sees the LCBO sad child poster, he or she generally goes through the mental process of realizing the above four points. This is generally followed by a feeling of frustration and mental pain, pain resulting from realizing that some people may actually think you are that dumb and not notice the arrogance and disrespect in the poster. There are different ways one can ease this pain. Some people exercise, some eat, some meditate, some talk to their friends, some use drugs, and some drink alcohol. Since you are already at the liquor store, buying some more alcohol seems to be the most convenient pain killing option at the moment. Although I don’t think other people’s alcohol consumption should be any of my concerns, and thus I would not include reason #5 into my personal list of reasons why the LCBO sad child poster should go down, we know that the LCBO poster-makers, at least on paper, care about our alcohol consumption. Thus, if their objective is to have some control over our alcohol consumption, they should seriously consider removing the sad child poster. The poster increases our need for drinking.

Predrag Rajsic is a postdoctoral fellow in the Department of Food, Agricultural, and Resource Economics at the University of Guelph in Ontario, Canada. Friend him on Facebook.

When gold speaks, all tongues are silent.

—Robert Ringer

—Italian proverb

If ever there was an area in which to do the exact opposite of that which the government and media urge you to do, that area is the purchasing of gold.

Gold never sleeps. As economic conditions change, gold appears to move upwards in price and from weak hands to stronger hands. Lately, the pace of gold’s movement has accelerated with the increased speed of economic change. Even James Rickards has expressed shock at the pace of these developments. Changes he predicted would come in three years in his book Currency Wars were already happening by the time the book went on sale in late 2011. This is partly because of the speed of computers, but mostly because once an exponential curve passes its turning point, the speed of acceleration increases dramatically.

Clearly, events of the past year have shown us that gold is moving from the weak hands of the West to the stronger hands of the East. Some attribute this to a cycle theory that shows that economic dominance moves from the East to the West and back again every five hundred years or so.Although it’s difficult to prove, this movement is occurring today.

Another truism that describes gold’s movement to China is that gold migrates to where things are manufactured. The Chinese make things. The West buys these things. We could also add that gold feels the magnetic pull of savings. The Chinese save, Westerners spend. We have discussed this difference throughout the book, but this concept is key to understanding gold’s movement in both location and price.

The United States has enjoyed the privilege of having the world’s reserve currency since the Bretton Woods Agreement in 1944, first because it owned much of the world’s gold and later through the petrodollar arrangement. This enabled the country to buy real goods with dollars created from and backed by nothing. Although this may have appeared to have positive consequences for Americans, from the perspective of real value and gold, the consequences are quite negative and hidden. Inflation caused by debasement of currencies is concealed until it finally metastasizes into runaway inflation and then hyperinflation.

Through the creation of the Federal Reserve, the United States destroyed the natural balance of inflation/recession that allows market forces to determine the economy’s health. The natural balance of lower prices through improved efficiency was replaced by an artificial mechanism of human interference. The value of the dollar remained stable, and prices actually went down for the century and a half that preceded the 1913 implementation of the Federal Reserve Act, because of improved productivity. Yet since 1913, the dollar has lost 99 percent of its value. Because foreign countries like China had to own dollars to buy oil, the full realization of this loss of purchasing power has been delayed. It can be seen in the unsustainable amounts of debt the United States has built up and in its dependency on foreign investment. Now we are starting to see the results in the movement of gold.

Of course, China realizes it is vulnerable to U.S. economic policy and has been secretly deleveraging out of U.S. Treasuries and into hard assets like property, commodities and, most importantly, gold holdings. Yet in times of war, and we are clearly in the midst of an undeclared currency war, truth is the first casualty.

We have no idea how much gold China really owns or how much it is buying. We have no idea what arrangements it has with some of the world’s top mining properties. China could be accumulating shares in mining companies through complex, seemingly unrelated offshore investment firms in a quiet bid to gain control. The Chinese are infinitely patient, and the consequences of U.S. dollar devaluation and the sub- sequent destruction of Chinese-held U.S. dollars and Treasuries may take years to understand fully. The Chinese can plan multi decade initiatives because, unlike the Americans, they do not need to worry about elections every two years.

Lately, most notably in the fall of 2011, Western central banks have sold gold to protect the U.S. dollar and the euro, and the Chinese, Indian and Russian buyers have benefited, knowing gold would once again resume its rise in price. The West uses its paper markets, the COMEX and the London Metal Exchange (LME), along with the leverage they provide, to suppress the price artificially, or in the opinion of Jim Sinclair, president of African-based Tanzanian Royalty Exploration Company, to keep the price from rising violently and upsetting the currency markets.3 Meanwhile, the Chinese and other Eastern buyers are quite happy to accept the gift. After all, they are not traders but buyers and are primarily interested in physical bullion, not paper.

We know that, officially, China bought as much as 834.5 tonnes of gold in 2012, which is 94 percent above the previous record of 431 tonnes in 2011.Yet this may be only a fraction of what was really acquired.

Some feel the United States will win the currency war because, through devaluation, it can essentially rob the rest of the world that holds its debt. This would certainly mark the end of the empire were it to play out. Others feel that China will emerge as the world’s next superpower because of its gold holdings. If China ends up holding more gold than the United States through surreptitious buying, domestic production, sovereign wealth funds and other less transparent avenues, acquisition of African mines and a second generation of the Pan Asia Gold Exchange, the yuan could be a viable contender for the world’s reserve currency.

In either case, the world will go through a painful transitional period, and in both cases the price of gold will rise exponentially.

Reprinted by permission of the publisher, John Wiley & Sons Canada, Ltd., from $10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Haven, Nick Barisheff. Copyright © 2013 by Nick Barisheff.

The e-bookis now available on Amazon.com and Chapters.Indigo.ca. The book will be in stores beginning the week of May 6, 2013.For more information about Nick Barisheff and Bullion Management Group Inc. please visit bmgbullion.com.

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a secure, cost-effective, transparent way to purchase and store physical bullion. Recognized worldwide as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends.

While attention is mainly focused on issues of academic honesty and the accuracy of published results, most people are missing the forest for the trees. There are bigger issues at stake. In particular the question of what austerity or deficit spending implies are being overlooked.

The argument for austerity is precipitated on the very basic dictum that “there is no such thing as a free lunch.” Every action has a cost associated with it, even if the cost is in the distant future and difficult to see.

Continued deficit spending does confer some very short-term gains. Few would argue otherwise, including the vast majority of so-called “austerians” – those who advocate reducing deficits (and hopefully debts) today through spending cuts. Just like your personal consumption increases when you take on more debt, so to can we extrapolate this result to the greater economy.

The cost of this debt-fueled activity is apparent in the future when the bills come due. Just as taking on a mortgage enables a short-term boost to your spending, in the future when you must repay the debt your expenditures must be decreased. Maybe one less vacation will be taken per year in your bid to pay off the interest on your mortgage.

The case that austerians build is mindful of this fact. Any debt taken on today will need to be repaid in the future. This repayment can come in one of two forms.

First, taxes can pay for the interest and principal repayments. If this is the case, either future tax-funded services will need to be cut or taxes will need to be increased. Take your pick, though I doubt that many out there look forward to less road maintenance or higher taxes in the future. (Not to mention the worst-case scenario of higher taxes and less road maintenance!)

Alternatively, the Bank of Canada could monetize this increased debt spending by printing up the money to pay it off. This seems like a free lunch at first glance as the fiat money of today is almost costless to produce. Yet monetizing the debt entails higher inflation, and this is just a tax by another name. By reducing the value of all the money outstanding every citizen that holds any cash balance is taxed to pay for today’s deficit. Inflation of 2% is equivalent to saying that you paid a 2% tax on all your cash balances.

The case for austerity recognizes that there are real costs to debt repayment. But it also goes one step further. Taking on debt can be a relatively painless activity if interest rates are low, or if economic growth is high. Likewise your mortgage of today could be a good idea if you lock in a low fixed interest rate, and also if your job prospects remain strong and your annual salary increases are decent.

Consider what happens when interest rates rise. As interest payments increase it is more difficult for you to continue paying. To do so you must decrease expenditure on other goods that you would rather enjoy, like that winter getaway that you always wanted. Getting lured into too much debt when interest rates are low, such as is the case today, can prove painful when rates rise.

Interest rates rise as your economic situation deteriorates. Notice that this is quite dependent on the amount of debt, and hence interest payments, that you already have. As you take on more debt the risk that you will not repay increases. As a consequence the interest rate to borrow more debt increases, and thus makes it more costly to borrow.

This is the future that austerians warn of. If we borrow a lot today it implies that we have to pay back a lot in the future. If we binge now and interest rates rise this will mean that we will have to repay even more in the future. If we spend more of our future tax dollars repaying interest on today’s debt it necessarily follows that we will have less money available to pay for other goods and services.

Carmen Reinhart and Kenneth Rogoff may have made some calculation errors in their study, but this doesn’t mean that the argument against austerity is any less strong. Borrowing today has a real cost in the future, and the decision to further indebt ourselves had better be mindful of a future with more money paying off interest, and less spent on the goods and services we really want.

David Howden is an assistant professor of economics at St. Louis University, at its Madrid Campus, and winner of the Mises Institute’s Douglas E. French Prize.

Reprinted from Laissez Faire Today

Some statistics cannot be understood without being set within a political framework, because they reflect politics as much as, or more than, they do reality.

The unemployment rate is an example and a cautionary tale.

According to the Bureau of Labor Statistics (BLS), the seasonally adjusted official unemployment rate for February fell to a four-year national low of 7.7%. While the White House cautiously congratulated itself, Republicans quickly pointed to what is often called the real unemployment rate; it stood at 14.3%.

The BLS looks at six categories of different data, from U-1 to U-6, to analyze employment every month. U-3 includes people who have been unemployed but who have actively looked for work during the past month; this is the official unemployment rate used by the media. U-6 contains data excluded from U-3, including part-time workers and the unemployed who have unsuccessfully looked for a job in the last year; this is the real unemployment rate.

Those politicians who want to take credit for lower unemployment thrust U-3 figures forward. Those who wish to deny them credit prefer U-6.

But matters may be even worse.

Now there is fresh reason to believe that even the 14.3% rate may be a considerable understatement.

The Disabled and the Unemployment Rate

National Public Radio recently published the results of a six-month investigation by reporter Chana Joffe-Walt: “Unfit for Work: The Startling Rise of Disability in America.” Joffe-Walt uncovered what she calls a “disability-industrial complex,” which spends more on disability payouts than on welfare and food stamps combined.

About a year ago, the New York Post reported that “more than 10.5 million individuals” received disability each month, and that the reserves will be exhausted in 2018. Joffe-Walt claims the federal government sends out approximately 14 million payments; Social Security’s disability fund is expected to run out of reserves by 2016.

On March 22, during an interview with This American Life, we learned that “since the economy began its slow, slow recovery in late 2009, we’ve been averaging about 150,000 jobs created per month. In that same period every month, almost 250,000 people have been applying for disability.”

Why do disability figures skew the unemployment rate? In the NPR article, Joffe-Walt explains that “the vast majority of people on federal disability do not work. Yet because they are not technically part of the labor force, they are not counted among the unemployed.” They become the invisible unemployed.

What Explains the Rise in Disability Payouts?

The precipitous rise in disability claims comes from the unintended consequences of political maneuvering.

“The End of Welfare as We Know It” was announced in 1996 when President Clinton signed a reform act intended to move people off welfare rolls and into jobs. Clinton “encouraged” the individual states to push for the transition by making them fund a much larger share of their welfare programs. To encourage the individual recipients, the reforms also capped the length of time a person was eligible for welfare.

The incentive worked on the states, but not in the manner intended.

Each person on welfare became a continuing cost for a state, but each person who moved onto disability saved the state money, because Social Security disability insurance is fully funded by the federal government.

In her NPR report, Joffe-Walt indicates how aggressively the states shifted welfare recipients onto disability. She writes:

“PCG [Public Consulting Group] is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability… The company has an office in eastern Washington state that’s basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities.”

A recent contract between PCG and the state of Missouri offered PCG $2,300 per person it shifted from welfare to disability.

The incentive for individuals to leave welfare also worked, but, again, not in the manner intended.

Disability is easier to qualify for than welfare and has no time limit. Moreover, those on disability qualify for Medicare and other benefits, as well as receive payments roughly equal to a minimum-wage job. According to Joffe-Walt, only 1% of those who go onto disability leave to rejoin the workforce.

Conclusion: What Is the Actual Unemployment Rate?

If neither the official (U-3) nor the real (U-6) unemployment rate can be trusted, then how can we ascertain a more reliable rate?

A huge step would be to acknowledge the invisible unemployed who are not part of the current BLS calculations. They include not merely the so-called “disabled,” but also those who have left the workforce for other reasons.

CNS News noted of the February 7.7% unemployment rate: “The number of Americans designated as ‘not in the labor force’ in February was 89,304,000, a record high… according to the Department of Labor.” The economic trend-monitoring site InvestmentWatch concluded that the actual American unemployment rate — one that includes all unemployed — is around 30%. The site reasoned that “89 million not in the labor force = 29%, give or take, assuming the U.S. population is 310,000,000 + official unemployment 7.7%.”

It is not possible to render an entirely accurate unemployment picture. For example, the population figure of 310,000,000 used by InvestmentWatch almost certainly includes people under 16 who cannot legally work. Thus, the unemployment rate may be higher. On the other hand, many “not in the labor force” could be retired or otherwise voluntarily unemployed. Not enough data are available.

It is possible, however, to reject the official unemployment rate. And it is necessary to cultivate a healthy skepticism of statistics produced by politics, as so many are.

Wendy McElroy is the author of XXX: A Woman’s Right to Pornography (St. Martin’s Press,1995), Sexual Correctness: The Gender-Feminist Attack on Women, (McFarland, 1996), The Reasonable Woman: A Guide to Intellectual Survival (Prometheus Books, 1998), and Queen Silver: The Godless Girl (Prometheus Books, 2000), and Individualist Feminism of the Nineteenth Century (McFarland, 2001). Her most recent book is a new anthology, Liberty for Women, (Ivan R. Dee, 2002). Her book on prostitution, Le Gambe Della Liberta, has just been published in Italian by the publisher Leonardo Facco

Reprinted from Sprott.com

The past few months have been difficult for the gold investor as selling pressure in the gold futures market has set a decidedly negative direction for the price of the yellow metal. As fundamental investors, we always pay special attention to the supply and demand dynamics of gold and, recently, we have found it very difficult to reconcile lower prices with continued strong demand for physical gold.

While the supply of gold has remained largely static, we have seen a steady increase in demand for the yellow metal. India and China have emerged as strong buyers, consuming over half of the mine supply in recent years. Central banks have switched from being sellers of gold to being net buyers, with their gold purchases in 2012 increasing by 17% to almost 535 tonnes. Exchange traded products (ETPs) around the world have continued to add to their gold hoards, as have institutions and private investors. Furthermore, central banks, such as South Korea and Russia, have added to their bullion reserves early in 2013, which points to sustained strength in demand. These facts are important because, over the past decade, the annual supply of gold has stayed flat at approximately 4,000 tonnes.

Much ado has been made about the recent sell-off in the yellow metal forcing certain ETPs to liquidate, adding a supply of gold into the market in the process. Our work reveals that the previous ETP sell-offs, (which occurred in January 2011, December 2011, May 2012 and July 2012) have all coincided with gold finding strong price support and rallying higher.

In our September 2012 MAAG, titled, “Do Western Central Banks Have Any Gold Left???”, we reconciled the annual change in demand for gold between 2000 and 2012 to be almost 2,300 tonnes. We went on to hypothesize that given the massive change in demand, the only suppliers large enough to fill the gap between supply and demand were the Central Banks. Now, our long search for the “smoking gun” to prove our hypothesis appears to have finally materialized.

Every month, the US Census Bureau releases the FT900 document, which outlines US International Trade Data. Going through this document, we were intrigued to see that in December 2012 the US exported over $4B worth of gold and imported around $1.5B worth of gold, representing a net export of $2.5B or almost 50 tonnes¹. This surprising number led us to look at the previous releases of US International Trade Data which go as far back as 1991 – what we found was truly shocking. Not only has the US been consistently exporting large quantities of gold on a net basis, the amount of gold the US has been exporting is above and beyond what the US should be capable of exporting.

The gold market is fairly simple to understand from a supply and demand perspective. Since you cannot fabricate gold out of thin air, supply comes from new mine production, scrap gold recycling and investor disposition of bullion. Demand comes from many sources including investment demand, electronics, dental and industrial uses to name a few. There can be short-term aberrations between supply and demand where the market can be oversupplied, or demand can outstrip supply, however, over a longer period, supply should equal demand with the price acting as the equalizer. Under this assumption, the amount of gold that the US is exporting should equate to the amount of gold that the US is not consuming over a long enough time frame.

Table 1 lays out our framework for analyzing the US gold supply and demand.

Table 1

For our analysis of supply and demand, we have very robust statistics as far as mine production, import-export data, coin sales and ETP demand from GFMS², the US Census Bureau³, the US Mint⁴ and Bloomberg⁵, respectively. We have good data on gold recycling, jewelry sales and gold use in electronics and industrial applications from the CPM Group⁶.

Table 2 lays out our analysis for 2012 using the supply and demand framework.

Table 2

We used this framework to analyze supply and demand in the US going all the way back to 1991, which is as far back as the FT900 documents go. Over the span of 22 years, the total amount of gold that the US has exported – above and beyond its supply capability – is almost 4,500 tonnes! A truly stunning figure. (See Table 3).

TABLE 3: US GOLD MARKET, CUMULATIVE SUPPLY DEMAND 1991-2012 (IN TONNES)

Admittedly there is an unknown in our analysis, that being gold bullion acquisition and disposition by private investors. However, strong demand in ETPs such as GLD and PHYS and demand for gold coins provide strong evidence that the private investor has been a net buyer over the years. The inclusion of the private investor on the demand side would in fact skew the ‘gap’ of 4,500 tonnes higher to a figure that would lie somewhere between 4,500 tonnes and 11,200 tonnes, which represents the gross exports out of the US. The only US seller that would be capable of supplying such an astonishing amount of gold is the US Government, with a reported gold holding of 8,300 tonnes. The US Government gold holdings have not been audited or verified in more than four decades. The US trade data defines the export of nonmonetary gold as a sale of gold from a private seller within the US to an official agency. In September 2012, we espoused that the Western Central Banks have been surreptitiously selling/ leasing their gold through private channels in an effort to increase the available supply and in turn suppress prices. This new analysis using official US agency numbers seems to provide the strongest validation of our hypothesis to date. It is worth noting that our data only covers two decades and that the export ‘gap’ could in fact be significantly larger if earlier numbers were included or the real private investor demand for gold was known.

We are currently in an environment where policy makers are intent on devaluing their currencies in an effort to create growth. Real rates continue to stay negative in most of the developed world. Every marginal dollar of debt that is created is producing lower and lower amounts of growth. In a world overwhelmed by mountains of debt and economic growth which is sub-par at best, precious metals and real assets can act as insurance against the stupidity of policy makers. The evidence pointing towards the suppression of the gold price is becoming increasingly apparent. Don’t be the last person to figure this out! The current sell-off in gold should be viewed not with extreme trepidation but as an unbelievable opportunity to buy the metal at an artificially low value.

Eric Sprott has more than 40 years of experience in the investment industry. After earning his designation as a chartered accountant, Eric entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada’s largest independently owned securities firms. In 2001, Eric established Sprott Asset Management Inc.

Shree Kargutkar joined Sprott Asset Management LP in May 2010 as an Analyst Intern. He supports the portfolio management team and develops long and short ideas for various Sprott funds. Shree obtained his MBA from the University of Toronto.

Reprinted from GoldMoney

Many of us are aware of Professor Laurence Kotlikoff of Boston University’s calculation that the net present value of the US Government’s future liabilities rose by $11 trillion in fiscal 2012 to $222 trillion. These are principally welfare, healthcare and social security costs.

This is admittedly a high-end estimate, dependent on variables such as longevity, demographics and the interest rate at which future liabilities are discounted. It is an escalating problem, because baby-boomer retirees suddenly stop paying income and social security taxes and instead draw down on the system. The implication is that these costs are impacting government finances at an increasing rate, potentially undermining the creditworthiness of the US Government.

According to OECD figures other countries appear to be in far worse positions, as shown in the table below, where they are ranked by cash pension costs faced by governments in 2011.

However, pensions are only part of the story, with all these countries providing healthcare and other social services, which with aging populations is a substantial and increasing cost. And while some state healthcare provisions are better than others, when healthcare is run by the state it is more likely to be better as the result of higher spending than greater efficiency. Furthermore, the OECD figures are for cash benefits, excluding benefits in kind; so in Ireland’s case, where pension benefits in kind are estimated by the OECD to be three times the cash amount, the true cost works out at closer to 15% of her GDP.

Japan’s demographic crisis has been well publicised, which is reflected in the figure of 35.5% for pensioners as a percentage of the working population, and presumably worse than that today. However, the financial press is less familiar with the enormous future commitments of European governments, which are truly alarming. And these figures do not even fully expose the difficulties for governments to deliver their welfare obligations.

Eurozone unemployment is over 10% on average. This means that 10% of tax contributors are out of the picture and become a welfare burden, so Spain and Greece where unemployment is at 26% are in immediate trouble with their welfare budgets. Another unfavourable factor is the dominance of the state.

Take France, whose general government is 57% of GDP. Her working population is 28 million out of a total population of 66 million; 3 million are unemployed, which leaves 25 million, of which 8 million are employed by government. We can disregard government employees, since they are a net government liability, not a source of revenue.

That leaves only 17 million productive taxpayers who have to pay for the welfare and pensions for 66 million in a heavily state-controlled economy. Furthermore, a significant proportion of private sector employees are working in nationalised or government-supported industries, so the true figure of real taxpayers is significantly less than 17 million.

We can draw two conclusions about the European states: their welfare, health and social service liabilities are, unless they ditch the majority of their welfare commitments, going to bankrupt them; and because their true taxpaying base to fund this largess is smaller than generally realised, taxes are going to have to rise to the point where it is not worth genuinely productive people working.

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is a Senior Fellow at the GoldMoney Foundation.

To read this article in pdf format, click here: May 5 2013

With equity valuations no longer levitating but in a different, 4^th dimension altogether, and credit spreads compressing… Which fiduciary portfolio manager can still afford to hedge? Any price to hedge seems expensive and with no demand, the price of protection falls almost daily. The CDX NA IG20 index (i.e. the investment grade credit default swap index series 20, tracking the credit risk of 125 North American investment grade companies in the credit default swap market) closed the week at 70-71bps. The index was at this level back in the spring of 2005. By the summer of 2007, any credit portfolio manager that would have wanted to cautiously hedge with this index would have seen a further compression of 75% in spreads, completely wiping him/her out.

It is in situations like these, when the crash comes, that the proverbial run for liquidity forces central banks to coordinate liquidity injections. However, something tells me that this time, the trick won’t work. In anticipation to the next and perhaps final attempt, I want to offer today an historical perspective on the favorite liquidity injection tool:  Currency swaps. These coordinated interventions are not a solution to the crashes, but their cause, within a game of chicken and egg. But I’ve just given you the conclusion. I need to back it now…

How it all began

Let me clarify: By currency swaps, I refer to a transaction carried out between two central banks. This means that currency swaps cannot be older than the central banks that extend them. On the other hand, foreign exchange swaps between corporations may date back to the late Middle Ages, when trade began to resurface in the Italian cities and the Hansastädte. Having said this, I believe that currency swaps were born in 1922, during the International Monetary Conference that took place in Geneva. This conference marked the beginning of the Gold Exchange Standard, with the goal of stabilizing exchange rates (in terms of gold) back to the pre-World War I.

According to Prof. Giovanni B. Pittaluga (Univ. di Genova), there were two key resolutions from the conference, which opened the door to currency swaps. Resolution No. 9 proposed that central banks “…centralise and coordinate the demand for gold, and so avoid those wide fluctuations in the purchasing power of gold which might otherwise result from the simultaneous and competitive efforts of a number of countries to secure metallic reserves…”

Resolution No. 9 also spelled how the cooperation among central banks would work, which “…should embody some means of economizing the use of gold maintaining reserves in the form of foreign balance, such, for example, as the gold exchange standard or an international clearing system…”

In Resolution No. 11, we learn that: “…The convention will thus be based on a gold exchange standard.” (…) “…A participating country, in addition to any gold reserve held at home, may maintain in any other participating country reserves of approved assets in the form of bank balances, bills, short-term Securities, or other suitable liquid assets…. when progress permits, certain of the participating countries will establish a free market in gold and thus become gold centers”.

Lastly, gold or foreign exchange would back no less than 40% of the monetary base of central banks. With this agreement, the stage was set to manipulate liquidity in a coordinated way to a degree the world had never witnessed before. The reserve multiplier, composed by gold and foreign exchange could be “managed” and through an international clearing system, it could be managed globally.

How adjustments worked under the Gold Standard

Before 1922, adjustments within the Gold Standard involved the free movement of gold. In the figure below, I show what an adjustment would have looked like, as the United States underwent a balance of trade deficit, for instance:

Gold would have left the United States, reducing the asset side of the balance sheet of the Federal Reserve. Matching this movement, the monetary base (i.e. US dollars) would have fallen too. The gold would have eventually entered the balance sheet of the Banque of France, which would have issue a corresponding marginal amount of French Francs.

It is worth noting that the interest rate, in gold, would have increased in the United States, providing a stabilizing/balancing mechanism, to repatriate the gold that originally left, thanks to arbitraging opportunities. As Brendan Brown (Head of Economic Research at Mitsubishi UFJ Securities International) explained (here), with free determination of interest rates and even considerable price fluctuations, agents in this system had the legitimate expectation that key relative prices would return to a “perpetual” level. This expectation provided “…the negative real interest rate which Bernanke so desperately tries to create today with hyped inflation expectations…”

There is an excellent work on the mechanics of this adjustment published by Mary Tone Rodgers and Berry K. Wilson, with regards to the Panic of 1907 (see here). The authors sustain that the gold flows that ensued from Europe into the United States provided the liquidity necessary to mitigate the panic, without the need of intervention.  This success in reducing systemic risk was due to the existence of US corporate bonds (mainly from railroads) with coupon and principal payable in gold, in bearer or registered form (at the option of the holder) that facilitated transferability, tradable jointly in the US and European exchanges, and within a payment system operating largely out of reach from banksters outside of the bank clearinghouse systems. The official story is that the system was saved by a $25MM JPM-led pool of liquidity injected to the call loan market.

How adjustments worked under the Gold Exchange Standard

During the 1920s and particularly with the stock imbalances resulting from World War I, the search for sustainable financing of reparation payments began. Complicating things, the beginning of this decade saw the hyper inflationary processes in Germany and Hungary. By 1924, England and the United States rolled out the Dawes Plan and between 1926 and 1928, the so called Poincaré Stabilization Plan in France. The former got Charles G. Dawes the Nobel Prize Peace, in 1925.

As the figure below shows, against a stable stock of gold, fiat currency would be loaned between central banks. In the case of a swap for the Banque de France, US dollars would be available/loaned, which were supposedly backed by gold. The reserve multiplier vs. gold expanded, of course:

With these transactions central banks would now be able to influence monetary (i.e. paper) interest rates. The balancing mechanism provided by gold interest rate differentials had been lost. As we saw under the Gold Standard before, an outflow of US dollars would have caused US dollar rates to rise, impacting on the purchasing power of Americans. Now, the reserve multiplier versus gold expanded and the purchasing power of the nation that provided the financing was left untouched. The US dollar would depreciate (on the margin and ceteris paribus) against the countries benefiting from these swaps. Inflation was exported therefore from the issuing nation (USA) to the receiving nations (Europe). The party lasted until 1931, when the collapse of the KreditAnstalt triggered a unanimous wave of deflation.

How the perspective changed as the US became a debtor nation

Fast forward to 1965, two decades after World War II, and currency swaps are no longer seen as a tool to temporarily “stabilize” the financing of flows, like balance of trade deficits or war reparation payments, but stocks of debt. By 1965, central bankers are already worried with the creation of reserve assets, just like they are today; with the creation of collateral (see this great post by Zerohedge on the latter).

Indeed, 48 years ago, the Group of Ten presented what was called the Ossola Report, after Rinaldo Ossola, chairman of the study group involved in its preparation and also vice-chairman of the Bank of Italy. This report was specifically concerned with the creation of reserve assets. At least back then, gold was still considered to be one of them. In an amazing confession (although the document was initially restricted), the Ossola Group explicitly declared that the problem “…arises from the considered expectation that the future flow of gold into reserves cannot be prudently relied upon to meet all needs for an expansion of reserves associated with a growing volume of world trade and payments and that the contribution of dollar holdings to the growth of reserves seems unlikely to continue as in the past…”

Currency swaps were once again considered part of the solution. Under the so called “currency assets”, the swaps were included by the Ossola Group, as a useful tool for the creation of alternative reserves. Three months, during a Hearing before the Subcommittee on National Security and International Operations, William McChesney Martin, Jr., at that time Chairman of the Board of Governors of the Federal Reserve System, acknowledged a much greater role to currency swaps, in maintaining the role of the US dollar as the global reserve currency.

In McChesney Martin’s words: “…Under the swap agreements, both the System (i.e. Federal Reserve System) and its partners make drawings only for the purpose of counteracting the effects on exchange markets and reserve positions of temporary or transitional fluctuations in payments flows. About half of the drawings ever made by the System, and most of the drawings made by foreign central banks, have been repaid within three months; nearly 90 per cent of the recent drawings made by the System and 100 per cent of the drawings made by foreign central banks have been repaid within six months. In any event, no drawing is permitted to remain outstanding for more than twelve months. This policy ensures that drawings will be made, either by the System or by a foreign central, bank, only for temporary purposes and not for the purpose of financing a persistent payments deficit. In all swap arrangements both parties are fully protected from the danger of exchange-rate fluctuations. If a foreign central bank draws dollars, its obligation to repay dollars would not be altered if in the meantime its currency were devalued. Moreover, the drawings are exchanges of currencies rather than credits. For instance, if, say, the National Bank of Belgium draws dollars, the System receives the equivalent in Belgian francs; and since the National Bank of Belgium has to make repayment in dollars, the System is at all times protected from any possibility of loss. Obviously, the same protection is given to foreign central banks whenever the System draws a foreign currency.

The interest rates for drawings are identical for both parties. Hence, until one party disburses the currency drawn, there is no net interest burden for either party. Amounts drawn and actually disbursed incur an interest cost, needless to say; the interest charge is generally close to the U.S. Treasury bill rate…”

My graph below should help visualize the mechanism:

Essentially, with these currency swaps, foreign central banks that during the war had shifted their gold to the USA, became middlemen of a product that was a first-degree derivative of the US dollar, and a second-degree derivative of gold.

On September 24^th 1965, someone called this Ponzi scheme out. In an article published by Le Monde, Jacques Rueff publicly responded to this nonsense, under the hilarious title “Des plans d’irrigation pendant le déluge” (i.e. Irrigation plans during the flood). He minced no words and wrote:

“…C’est un euphénisme inacceptable et une scandaleuse hyprocrisie que de qualifier de création de “liquidités internationales” les multiples operations, tells que (currency) swaps…” “C’est commetre une fraude de meme nature que de présenter comme la consequence d’une insuffiscance générale de liquidités l’insufficance des moyens dont disposent les Etats-Unis et l’Anglaterre pour le réglement de leur déficit exterieur”

My translation: “…It is an unacceptable euphemism and an outrageous hypocrisy to qualify as creation of “international liquidity” multiple transactions, like (currency) swaps…”…“…In the same fashion, it is a fraud to present as the consequence of a general lack of liquidity, the lack of means available to the USA and England to settle their external deficits…”

Comparing the USA and England to underdeveloped countries, Rueff added that these also lack external resources, but those that are needed cannot be provided to them but by credit operations, rather than the superstition of a monetary invention disguised as necessary and in the general interest of the public (i.e. rest of the world).

With impressive prediction, Rueff warned that the problem would present itself in all its greatness, the day these two countries decide to recover their financial independence by reimbursing with their dangerous liabilities (i.e. currencies). That day, said Rueff, international coordination would be necessary and legitimate. But such coordination would not revolve around the creation of alternative instruments of reserve, demanded by a starving-for-liquidity world.  That day would be a day of liquidation, where debtors and creditors would be equally interested and would share the common responsibility of the lightness with which they jointly accepted the monetary difficulties that are present….Sadly, Rueff’s call could not sound more familiar to the observer in 2013…

How adjustments work today, without currency swaps

Until the end of the Gold Exchange Standard, even if the reserve multiplier suppressed the value of gold (like today), gold was still the ultimate reserve and had in itself no counterparty risk. After August 15^th, 1971, when Nixon issued the Executive Order 11615 (watch announcement here), the ultimate reserve was simply cash (i.e. US dollars) or its counterpart, US Treasuries. And unlike gold, these reserve assets could be created or destroyed ex-nihilo. When they are re-hypothecated, leverage grows unlimited and when their value falls, valuations dive unstoppable. Because (and unlike in 1907) the transmission channel for these reserves today is the banking system, when they become scarce, counterparty risk morphs into systemic risk.

When Rueff discussed currency swaps, he had imbalances in mind. In the 21^st century, we no longer have time to worry about these superfluous things. Balance of trade deficits? Current account deficits? Fiscal deficits? In the 21^st century, we cannot afford to see the big picture. We can only see the “here and now”. Therefore, when we talk about currency swaps, the only thing we have in mind is counterparty risk within the financial system. The thermometer that measures such risk is the Eurodollar swap basis, shown below (source: Bloomberg). As the US dollar became the carry currency, the cost of accessing to it became the cornerstone of value for the rest of the asset spectrum, widely known as “risk”.

In the chat below, we can see two big gaps in the Eurodollar swap basis. The one in 2008 corresponds to the Lehman event. The one in 2011 corresponds to the banking crisis in the Eurozone that was contained with a reduction in the cost of USDEUR swaps and with the Long-Term Refinancing Operations done by the European Central Bank. In both events, the financial system was in danger and banks were forced to delever. How would the adjustment process have worked, had there not been currency swaps to extend?

In the figure below, I explain the adjustment process, in the absence of a currency swap. As we see in step 1, given the default risk of sovereign debt held by Eurozone banks, capital leaves the Eurozone, appreciating the US dollar. We see loan loss reserves increase (bringing the aggregate value of assets and equity down). As these banks have liabilities in US dollars and take deposits in Euros, this mismatch and the devaluation of the Euro deteriorates their risk profile

Eurozone banks are forced to sell US dollar loans, shown on step 2. As they sell them below par, the banks have to book losses. The non-Eurozone banks that purchase these loans cannot book immediate gains. We live in a fiat currency world, and banks simply let their loans amortize; there’s no mark to market. With these purchases, capital re-enters the Eurozone, depreciating the US dollar. In the end, there is no credit crunch. As long as this process is left to the market to work itself out smoothly, borrowers don’t suffer, because ownership of the loans is simply transferred. This is neutral to sovereign risk, but going forward, if the sovereigns don’t improve their risk profile, lending capacity will be constrained.

In the end, an adjustment takes place in (a) the foreign exchange market, (b) the value of the bank capital of Eurozone banks, and (c) the amount of capital being transferred from outside the Eurozone into the Eurozone.

How adjustments work today, with currency swaps

Let’s now proceed to examine the adjustment –or better said, lack thereof- in the presence of currency swaps. The adjustment is delayed. In the figure below, we can see that the Fed intervenes indirectly, lending to Eurozone banks through the ECB. Capital does not leave the US. Dollars are printed instead and the US dollar depreciates. On November 30th, of 2011, upon the Fed’s announcement at 8am, the Euro gained two cents vs. the US dollar. As no capital is transferred, no further savings are required to sustain the Eurozone and the misallocation of resources continues, because no loans are sold. This is bullish of sovereign risk. The Fed becomes a creditor of the Eurozone. If systemic risk deteriorates in the Eurozone, the Fed is forced to first keep reducing the cost of the swaps and later to roll them indefinitely, as long as there is a European Central Bank as a counterparty for the Fed, to avoid an increase in interest rates in the US dollar funding market. But if the Euro zone broke up, there would not be any “safe” counterparty –at least in the short term- for the Fed to lend US dollars to. In the presence of a European central bank, the swaps would be bullish for gold. In the absence of one, the difficulty in establishing swap lines would temporarily be very bearish for gold (and the rest of the asset spectrum).

Final words

Over almost a century, we have witnessed the slow and progressive destruction of the best global mechanism available to cooperate in the creation and allocation of resources. This process began with the loss of the ability to address flow imbalances (i.e. savings, trade). After the World Wars, it became clear that we had also lost the ability to address stock imbalances, and by 1971 we ensured that any price flexibility left to reset the system in the face of an adjustment would be wiped out too. This occurred in two steps: First at a global level, with the irredeemability of gold: The world could no longer devalue. Second, at a local and inter-temporal level, with zero interest rates: Countries can no longer produce consumption adjustments. From this moment, adjustments can only make way through a growing series of global systemic risk events with increasingly relevant consequences. Swaps, as a tool, will no longer be able to face the upcoming challenges. When this fact finally sets in, governments will be forced to resort directly to basic asset confiscation. 

Martin Sibileau

It is in situations like these, when the crash comes, that the proverbial run for liquidity forces central banks to coordinate liquidity injections. However, something tells me that this time, the trick won’t work. In anticipation to the next and perhaps final attempt, I want to offer today an historical perspective on the favorite liquidity injection tool: Currency swaps.

Martin Sibileau graduated from the Universidad de Buenos Aires in 1997, with a BA in Economics. He holds a Masters in Finance from the Centro de Estudios Macroeconomicos (Buenos Aires, Argentina) and a Masters in Business Administration from the Richard Ivey School of Business (Univ. of Western Ontario, London, ON, Canada).

Mr. Sibileau currently works as Director for the Loan Portfolio Management team of a Toronto-headquartered financial institution. In his free time, he regularly writes on global macroeconomic developments at www.sibileau.com.

Since 1997, he has held various positions in the areas of corporate finance, strategy consulting, international banking, commercial banking and risk management.

Reprinted from Mises.org

Public opinion now favors the outright legalization of marijuana with nearly three-out-of-four adults in favor of legalizing medical marijuana. These numbers should continue to grow, because the polls exhibit a type of “generation effect,” in that people are not changing their minds as they grow older. Some prominent and diverse figures, such as Joycelyn Elders (Bill Clinton’s Surgeon General) and the Reverend Pat Robertson now openly support the legalization of marijuana.

Ideally, libertarians want to end the war on all drugs, fully and immediately, but in reality that will only happen after necessary initial steps are taken. Colorado and Washington have already taken some steps by legalizing marijuana. Other states will surely follow.

Marijuana, of course, is still illegal everywhere under Federal law. Will the Feds do something about Colorado and Washington? You bet they will. They have already announced their intentions to target large-scale growers and distributors. They claim they will not go after consumers, if only due to a lack of resources. As President Obama said, “We’ve got bigger fish to fry.”

However, don’t be too sure that your president is telling you the truth. Candidate Obama said that medical marijuana was a state issue. However, under President Obama, raids committed on medical marijuana dispensaries have occurred at four times the rate as under President Bush. The government has also threatened landlords and banks that deal with medical marijuana dispensaries.

Nullification

The people of Colorado and Washington have effectively nullified US drug laws in their states, with respect to marijuana. Nullification occurs when a state, by legislation or referendum, invalidates a Federal law that it deems unconstitutional or otherwise harmful. Colorado and Washington have sent a powerful message that echoes far beyond the illegal drug market. For a complete treatment of the theory, history, and vital importance of this subject I recommend Thomas E. Woods’s book, Nullification: How to Resist Federal Tyranny in the 21st Century.

Moreover, the people of Colorado and Washington are also effectively nullifying an international treaty on drug prohibition. The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 seeks to enforce and monitor the prohibition of illegal drugs.

In effect, the voters of Colorado and Washington have placed themselves and their states on equal legal footing with both national and international governments. This is important, because, if thanks to nullification, governments have to obtain acceptance, or at least acquiescence from subsidiary governments, rather than just imposing their dictates on them, they are more likely to act in a less threatening and harmful manner.

This is why the Federal government is faced with a difficult choice. It can leave Coloradoans and Washingtonians alone and hope the nullification movement does not spread, or it can try to impose its will by marshalling the police resources necessary to start busting growers, retailers, and even consumers.

The two states are currently facing difficulties with constructing a state-regulated system for marijuana production, distribution, and sales, as well as establishing guidelines for the medical and industrial marijuana industries. This is not surprising, because by nature, governments at all levels do a poor job of organizing anything, especially if it is something new or different.

Part of the states’ difficulty is attributable to the Federal government’s unwillingness to show its hand. State Representative Matt Shea said that “The constant contradictions coming out of this (Obama) administration lead to a massive amount of uncertainties.” All this regulatory uncertainty is clearly bad for the development of legalized marijuana markets.

Sword of the State

Drug prohibition is the “sword of the state.” The state must be willing to use force against its citizens and it must occasionally demonstrate this willingness by harming, arresting, imprisoning, and even killing its citizens. Prohibition is the perfect instrument because it is typically used against distrusted minorities and poor people. Such groups have little political clout and are naturally lured into participating in illegal markets by the large amounts of money involved.

The war on drugs is literally a street war. Smugglers, drug dealers, and street gangs—who make their money selling drugs—are armed to the teeth with high-powered weapons. The police counter with machine guns, bullet-proof vests and helmets, and even tanks. The collateral damage to innocent people has been enormous.

Peter Andreas argues in Smuggler Nation: How Illicit Trade Made America (2013) that the regulation and policing of illegal markets has been a primary driving force in the creation and growth of the central state apparatus since colonial times: “So even though warfare and welfare are typically viewed as the main drivers of big government, Smuggler Nation highlights another motor: increased government size, presence, and coercive powers via the policing of smuggling” (p. 7).

The war on drugs has led to the militarization of the police, a vast increase in police power, and a prison system with over 2 million prisoners, a significant number of which are imprisoned due to prohibition and smuggling. The war has also led to a significant decrease of our constitutional rights and a substantial increase in what the police, investigators, and the court system can do to limit or infringe on our rights.

Jury Nullification

If the federal government does intervene in Colorado and Washington, then the people can also resort to jury nullification as a legal remedy. Jury nullification occurs when a jury, after hearing a court case, finds a defendant not guilty, even when they believe the defendant actually committed the crime. Jury nullification can occur either when the jury disagrees with the law in question or they believe that it should not be applied in a particular case.

Therefore, people can make a law invalid if juries routinely apply jury nullification to the prosecution of crimes based on that law. Basically, if juries know they have the right to nullify a law, and that if many juries consider the law unwanted, unjust, or unconstitutional, then the law becomes de facto repealed.

There is a great deal of debate over jury nullification. The State would like to see jury nullification prohibited, however, they have thus far been unsuccessful. Short this power, jurors are prevented from learning their rights, in most jurisdictions. The court does this by preventing defense attorneys from discussing nullification with the jury and by giving instructions to juries that only vaguely hint at the possibility of nullification. Judges often bully juries to make their decisions based on the established laws of the state, rather than on whether a true crime has been committed.

In contrast, some legal scholars note that nullification has long been a right of juries. This right is supported by common law and legal precedent. The problem has been that juries are not informed of this right. However, there have been developments that suggest that jury nullification is making a comeback in the battle against big government.

In 2012, New Hampshire passed a law that permits defense attorneys to inform juries of their rights to nullification. This is a good sign, although it is unclear how many juries have become “informed” as a result. Legal expert Timothy Lynch considers the law an improvement, but that it is too weak to be considered a full remedy for the rights of defendants and juries.

J.D. Tuccille has pointed out that there has been a sharp increase in the number of “hung jury” trials in the United States, and the evidence suggests the increase is the result of de facto jury nullification. If that is the case and people are nullifying laws in large numbers across the country—and are unaware that they have a right to do so—then that is a very good sign. It means that a large and growing number of Americans recognize that their government and certain laws are corrupt and immoral and they are willing to disregard jury instructions from a judge.

If the people of Colorado and Washington wisely use the power of jury nullification to protect otherwise law abiding consumers, growers, and distributors, the Federal government would be stripped of its power in that area. Moreover, such developments would spread the news about the power of jury nullification and we would once again reestablish a powerful antidote to big invasive government.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory.

The penny, as cumbersome as it may have seemed, was only a necessary product of the monetary system. The Canadian dollar is decimalized into 100 parts. Dollars exist for two main functions. First, they serve as the medium of exchange in the Canadian economy � the physical good (or electronic in the case of debit cards) that we trade to businesses for the goods and services we buy. Second, the dollar serves as the unit of account. This means that prices are denominated in the Canadian economy in terms of Canadian dollars.

Notice that both of these roles are solidified into law by right of their position as legal tender in Canada. By law businesses must accept Canadian dollars in payment for their goods.

The value of the Canadian dollar is determined, at least loosely, by the Bank of Canada. By changing the quantity of money, the BoC is able to decrease the value of the loonie, as it has done every year since its creation in 1935. In its role in supplying legal tender (Canadian dollars) in the Canadian economy the BoC is charged with the role of maintaining our monetary system.

By continually eroding the value of the dollar through its inflationary policies over the past 75 years, the BoC has made certain aspects of our monetary system cumbersome. The ire directed at the penny is one such example. The penny only became an inconvenience today because of policies set in motion in the past by the Bank of Canada.

As the unit of account, the penny is an instrumental part of the monetary system. The dollar subdivides into 100 cents, and prices are established in terms of these cents. The Canadian dollar functioning as the unit of account relies on the penny to accurately express values in the economy.

Unfortunately, as a medium of exchange to pay for these units of account, the penny seems to have outlived its usefulness. The situation that has arisen is that an essential part of the monetary system � the penny serving as the unit of account � is still necessary but is no longer able to be accounted for lacking a penny serving as a medium of exchange. With no medium of exchange equivalent to one one-hundreth of a dollar, there is a gap in the monetary system.

Usually this wouldn�t be cause for concern. The penny is different because of its former role as legal tender. Canadians are forced to denominate prices in terms of a decimalized monetary system, but lack the physical means to settle these transactions.

Ridding Canadians of the penny now will not fix the problem that caused it to become worthless in the first place. Inflationary policies of the Bank of Canada eroded the value to the point of worthlessness. Instead of banishing the penny to the history books, Canadians should be listening to the story it is telling us. Now it seems as though the nickel will need to take on that role, although with calls already developing for the removal of it from circulation, it is questionable how long before we�ll have to move on to the dime.

Every Canadian consumer that I know finds constantly rising prices odious. They also find using pennies to be troublesome. However, very few people are able to see the link between the two.

By inflating the money supply continually the Bank of Canada has compromised the Canadian dollar in its ability to serve as the medium of exchange to settle transactions denominated in Canadian dollars. As legal tender laws have solidified the BoC the role of supplying both these units of account and media of exchange in Canada, it is evident that the Bank is failing in its role as monopoly currency supplier.

If a business undertook a policy that made one of its key products obsolete over time one would assume it would reassess its past policies that created the obsolescence. Not so the Bank of Canada � it pushes forward as if it was business as usual. The rest of us can wait until the next coin gets removed from circulation for the same reason as the penny met its fate.

Maybe it�s true that size does not matter. The penny might by diminutive but it served an important role. Having a decimalized monetary system means that exchange media are necessary to settle these fractions of dollars of debts. Parliament may have removed the difficulties of using the penny, but it has not fixed the problem that led to its demise. Until the Bank of Canada reigns in its inflationary policies the rest of us will have to wait for another piece of Canadian monetary history being placed into the history books.

David Howden is an assistant professor of economics at St. Louis University, at its Madrid Campus, and winner of the Mises Institute’s Douglas E. French Prize.

Republished from The Telegraph

Should Michael Mann be given the electric chair for having concocted arguably the most risibly inept, misleading, cherry-picking, worthless and mendacious graph – the Hockey Stick – in the history of junk science?

Should George Monbiot be hanged by the neck for his decade or so’s hysterical promulgation of the great climate change scam and other idiocies too numerous to mention?

Should Tim Flannery be fed to the crocodiles for the role he has played in the fleecing of the Australian taxpayer and the diversion of scarce resources into pointless projects like all the eyewateringly expensive desalination plants built as a result of his doomy prognostications about water shortages caused by catastrophic anthropogenic global warming?

It ought to go without saying that my answer to all these questions is – *regretful sigh* – no. First, as anyone remotely familiar with the zillion words I write every year on this blog and elsewhere, extreme authoritarianism and capital penalties just aren’t my bag. Second, and perhaps more importantly, it would be counterproductive, ugly, excessive and deeply unsatisfying.

The last thing I would want is for Monbiot, Mann, Flannery, Jones, Hansen and the rest of the Climate rogues’ gallery to be granted the mercy of quick release. Publicly humiliated? Yes please. Having all their crappy books remaindered? Definitely. Dragged away from their taxpayer funded troughs and their cushy sinecures, to be replaced by people who actually know what they’re talking about? For sure. But hanging? Hell no. Hanging is far too good for such ineffable toerags.

This isn’t to say that there isn’t a strong case for the myriad dodgy scientists-on-the-make, green activists, posturing and ignorant politicians, rent-seeking corporatists, UN apparatchiks, EU technocrats and hopelessly out-of-their-depth environment correspondents who talked up the global warming scare to be brought to account for the vast damage they have done to the global economy, for the people they have caused to die in fuel poverty, for the needless regulations they have inflicted on us, for the landscapes they have ravaged with wind farms, and so on.

Indeed, it would be nice to think one day that there would be a Climate Nuremberg. But please note, all you slower trolls beneath the bridge, that when I say Climate Nuremberg I use the phrase metaphorically.

A metaphor, let me explain – I can because I read English at Oxford, dontcha know – is like a simile but stronger. So when, for example, a rugger team boasts in the shower room after a particularly brutal match that it “raped” the opposition, it doesn’t literally mean that it had forcible sex with the other side even though that may be – if you’re incredibly thick and literalistic and looking for offence – what it sounds like. Rather, what it means is that it destroyed the other team. But, hey, look – there we go again. Another metaphor! See how rich and inventive our language is? We can use a word like “destroyed” in a sense that doesn’t necessarily entail the complete eradication of 15 players in a rugger team. It can mean – as in this case – beaten soundly.

Anyway, I mention all this by way of reference to a piece I wrote in The Australian, the other day. It was headlined “Deluged with Flannery and covered in Viner”. It’s well worth a read if you can negotiate the paywall. For those who don’t want to, let me treat you – for free – to the final sentence.

The climate alarmist industry has some very tough questions to answer: preferably in the defendant’s dock in a court of law, before a judge wearing a black cap.

How do you hang an “industry”, I wonder. How exactly do you put a rope round a dodgy computer model? Or a £13.7 million UEA climate research grant? Or an article in Guardian Environment pages called something like “How do you break it to your six-year old child that global warming is killing our planet and by the time he hits 21 the world will be a boiling soup of lava and dead puppies like on the Bedtime Stories advert”?

Seems to me that it’s quite an impossibility. But there are others who don’t, clearly, for the day after the Australian article ran I was gobsmacked to read on Twitter that a small cabal of weapons-grade pillocks  from the further extremes of the eco loon movement had chosen to interpret this phrase as some kind of demand for “climate scientists” to be executed.

When I say “gobsmacked” I do mean “gobsmacked.”(That’ll be another metaphor, btw. I haven’t literally been smacked in the mouth).

I was gobsmacked

a) by the sheer bloody desperation. As I’ve indicated above, you really have to work hard to torture that phrase before it yields anything even a quarter-way offence-worthy

b) by the unutterable hypocrisy. It’s not people on my side of the debate who make “funny” propaganda films in which kids who don’t believe in reducing carbon emissions are – ho! ho! – obliterated in a pink mist of gore at the touch of a button by one of the enlightened true believers. It’s not people on my side of the argument who write sentences like this: “For this reason I propose that the death penalty is appropriate for influential GW deniers.” [Note absence of metaphor, there. It's a bald statement - entirely in accord with the rest of the article, rather than an afterthought]

c) by the chutzpah and cynicism. Of course, you see a lot of these Alinskyite techniques from the left these days: feigned moral outrage and tactical offence-taking are a useful way of closing down the argument before you’re forced to get into a debate which you’re bound to lose on facts. But you never quite get used to them.

I’m going to come back to this subject again because I think it’s one of the deadliest threats to freedom in our era: what I call the Liberal War on Metaphor. (I think it will make a good future You Know It Makes Sense column in The Spectator).

For the moment I want to conclude by saying this: the real menace is not the fairly small minority of hard left activists, whingeing Guardianistas, professional victims and bien-pensant ideologues who seek to silence freedom of speech by cynically creating moral equivalence between metaphorical violence and real violence. (cf also, for example, the way the US left tried to pin the blame for the Gabrielle Giffords shooting on the “inflammatory” rhetoric of people like Sarah Palin).

Rather, the real menace are their useful idiots – the ordinary, decent, reasonable people who dignify this low-down Alinskyite technique by according it a credence and mainstream respectability it simply doesn’t deserve.

Take Professor Richard Tol, a man for whom I have a degree of respect. Though he’s definitely not on my side of the argument – a man of the left who believes in carbon taxes and who isn’t a climate sceptic – he’s nevertheless sufficiently objective and intellectually independent to have realised from the start that the Stern Report was bunk. For this he deserves eternal credit.

The problem with the Tols of this world is that they are under a naive misapprehension about the climate change debate in particular and the culture wars debate generally. Being both decent, fair-minded people and determined centrists they assume that there must be equal merit and equal fault on both sides of the argument. (What I call the dog poo yogurt fallacy). This leads them to categorical errors like Tol’s on Twitter, where he decided he ought to wade into the debate by condemning that harmless concluding sentence of mine in The Australian piece. As if, somehow, there were moral and intellectual equivalence between say, Professor Richard Parncutt’s crystal-clear call for climate deniers to be executed (if they didn’t recant) and my throwaway metaphor. Which, achingly obviously to most people with even half a brain, there is not.

Sorry to have a go at poor Richard Tol. He’s a damned useful economist, I’m sure, but he’s evidently way out of his depth in areas which require seriously critical thinking. I note that warmists are often banging on about the fact that sceptics like Christopher Booker and myself “only” have arts degrees. But actually that’s our strength, not our weakness. Our intellectual training qualifies us better than any scientist – social or natural sciences – for us to understand that this is, au fond, not a scientific debate but a cultural and rhetorical one.

It’s entirely characteristic of this debate that even the most aggressively antipathetical trolls could find no factual basis whatsoever for disputing my piece in the Australian (how could they: the facts are all on the sceptics’ side); that the best they could do was a desperate cheap shot which required them deliberately to misunderstand a harmless metaphor.

Our culture deserves better than to have the terms of debate dictated by malign, politically motivated, professional offence-takers.

Let’s stop surrendering and start fighting back.

Reprinted from Mises.org

Runaway government spending is among the most important economic problems of our time. It is absolutely urgent that it be brought under control and progressively reduced until it is sufficient to provide for no more than the essential government functions of defense and justice. Only then will the citizens have the greatest possible individual freedom to decide how their earnings are spent and the greatest possible motivation to increase their earnings and improve their standard of living.

As recognition of the importance of bringing government spending under control has grown, the enemies of individual freedom have seized upon a tactic which they hope will avoid the necessity of reducing government spending, and, will allow them to go on increasing it, under a fraudulently created appearance of reduction. The tactic is described as “tax expenditure.”

More precisely, a tax expenditure is a fictional, non-existent tax accompanied by an equivalent fictional, non-existent expenditure. Although the government does not actually collect the tax, the fact that it has the power to do so is used as the basis for pretending that it does collect the tax and that it uses the proceeds to make an expenditure that goes to those from whom it has chosen not to collect the tax. In this way, the taxes that are not collected are treated as though they were collected and then used as a subsidy paid to those from whom they were not collected. In effect, the government’s not taking is alleged to be giving. Its not taxing is alleged to be spending.

Examples of tax expenditures recently provided by The New York Times are the taxation of capital gains and dividends at lower rates than ordinary income; allowance for deductions from taxable income of the payment of interest on home mortgages, the payment of property taxes, state and local income taxes, charitable contributions; and the absence of taxation on employees for health insurance and pension benefits paid for by employers on their behalf. All in all, according to The Times, “Tax expenditures cost the federal government more than $1 trillion a year in lost revenue.”

When one recalls that in World War II, there was a 90-percent bracket in the federal income tax, and that the government has it in its power to impose such a tax rate on everyone but presently chooses not to do so, then it becomes clear that by the logic of the concept, the cost of tax expenditures to the federal government is not just $1 trillion, but many, many trillions. It is, in fact, everyone’s entire income and wealth.

The philosophical principle underlying the concept of tax expenditure is that we are all serfs or slaves in the power of our Lord and Master the Almighty Government. It owns us and all of our income and wealth. All that we earn and possess, we do so by virtue of its largess, by virtue of its giving to us what we may have believed was ours to begin with.

The concept of tax expenditure is as hostile to the principles on which the United States was founded as any concept can be. It flies in the face of the fact that here, in this country, government is supposed to be the servant, not the master; that it is the people who support the government, not the government that supports the people; and, above all, that what the people have earned and saved, they hold by right, not subject to any arbitrary appropriation by the government.

What the government does not take, even though it may have the power to take it, is not something that the government gives. It is the property of the individual citizens who earned it. They do not receive any of it from the government by virtue of the government’s decision not to take it from them.

To claim that government spending will somehow be reduced by reducing tax expenditures is a moral outrage. Its only possible meaning is increasing taxes, which will allow government spending to continue on without reduction, indeed, with possible increase.

When, for example, the government taxes capital gains and dividends at a lower rate than ordinary income, it is not giving anything to the people who pay the capital gains and dividend taxes. On the contrary, they are giving money to the government; they are giving the taxes they pay. The fact that they are giving the government less money than it would like to receive and has the power to take, does not change that fact. If the tax rate on these incomes were increased, there would be absolutely no reduction in government spending. But the government would be in possession of additional funds with which to continue its spending and possibly increase it.

To reduce government spending means to reduce the money the government pays out, not to reduce the money it has chosen not to take in. The first is a reduction in government spending; the second is an increase in taxes. Confusing the two is of benefit only to con men who worship an omnipotent state.

George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics. He is Pepperdine University Professor Emeritus of Economics. His web site is www.capitalism.net. His blog is at www.georgereisman.com/blog/.