Protests Heat Up in Mexico Over Murdered Missing Students, Idiot Politicians, and the Narco-State Their Drug War is Facilitating

Kermit meme from MexicoIn late September police in Iguala, Mexico,
apparently abducted 43 college students, now believed to have been
handed over to a drug cartel and murdered. The mayor of Iguala and
his wife are among those arrested in relation to the mass
murder—the mayor ordered police to attack the students, who were
raising money in the area, because he thought they would disrupt a
speech his wife was making.

The horrifying incident, another signpost on Mexico’s road to
narco state status, also galvanized much of the Mexican population,
leading to weeks of protests against corrupt politicians and their
links to drug cartels.  Earlier today demonstrators set fire
to several vehicles outside the office of the governor of Guerrero
state, which includes Iguala.

The renewed protests were fueled in part by a comment made by
Mexico’s attorney general, Jesus Murillo Karam, at the end of a
press conference about the missing students.  CBS News


After an hour of speaking, Murillo Karam abruptly signaled for
an end to questions by turning away from reporters and saying, “Ya
me canse” — a phrase meaning “Enough, I’m tired.”

Mexico mayor, wife detained in case of 43 missing students

Mexico police searching for missing students make discovery

Cartels, corruption, and the case of 43 missing Mexican

Within hours, the phrase became a hashtag linking messages on
Twitter and other social networks. It continued to trend globally
Saturday and began to emerge in graffiti, in political cartoons and
in video messages posted to YouTube.

Many turned the phrase on the attorney general: “Enough, I’m
tired of Murillo Karam,” says one. Another asks: “If you’re tired,
why don’t you resign?”

Other people used it to vent their frustrations with messages
such as “Enough, I’m tired of living in a narco state” or “Enough,
I’m tired of corrupt politicians.”

As U.S. drug policies continue to destabilize Mexico even while
multiple U.S. states move toward legalizing marijuana, the
posturing of American drug warriors from the safety of their homes
and offices will look increasingly idiotic, dangerous, and

from Hit & Run

Gold & Economic Freedom

…by Alan Greenspan

Published in Ayn Rand’s “Objectivist” newsletter in 1966, and reprinted in her book, Capitalism: The Unknown Ideal, in 1967.

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

*  *  *

Somewhat explains his recent commentary…


Source: Jim Quinn's Burning Platform blog

via Zero Hedge Tyler Durden

The Detailed US Shale Oil Cost Curve: Where Is The Line In The Sand?

On an almost daily basis, investors are reassured that a falling oil price is "unequivocally good" for the US economy. The "It's like a tax cut for the consumer"-meme dominates financial media while the impact on the Shale (or tight) oil industry is shrugged off blindly with "well breakevens are low, right?" As Barclays shows in the chart below, the breakeven price for oil to shut-in tight-oil supply varies by region (and corporation) adding that at $80/b WTI, most producers will sweat it out. But, they warn, if prices remain at these levels through 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016 (with a 17-25% plunge in earnings which would drastically reduce capex… and thus The US Economy).


As Barclays notes,

As oil prices continue to fall, we review the likely supply response of tight oil supplies. Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices remain at these levelsthrough 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016.


As we stated in the most recent Blue Drum, we expect a rebound in prices in 2H15. But, if prices do remain lower and fall to $70 for all of 2015, half of proven and probable (2P) remaining US tight oil reserves would be challenged. The near-term (6-month) effect would be marginal, but fewer new volumes would be added in 2H15 and in 2016. On a net basis, that implies a reduction to growth of about 100 kb/d for 2015 as a whole. A growth impact of 100 kb/d is a drop in the bucket in the context of total non-OPEC growth of around 1.5 mb/d. Thus, we expect downward price pressure to mount unless OPEC supplies less or demand rebounds.

At $70/bbl, 80% of the 2.8 mb/d of new tight oil volumes by 2017 (not including declines) would be produced (meaning 800 kb/d from new drilling, a reduction of 200 kb/d over the next three years), according to WoodMackenzie.

There are three reasons to be cautious with how cost curves are used.

First, WoodMac’s ‘half-cycle’ cost curve (above) represents new production only at a well, rather than at a project, level. Companies use ‘full-cycle’ economics (which include other expenses) to assess the economic viability of new drilling projects.


Second, cost curves do not address how existing production might react. For this, we turn to EIA’s Annual Energy Outlook. EIA scenarios which imply that if prices reach and stay at $70/bbl, annual growth of 630 kb/d by 2017 would be cut by 180 kb/d each year, net of declines.


Third, expected improvement in service costs will be another important determinant for the breakeven price of tight oil supplies. Oilfield services sector cost inflation has plateaued and stands to improve further in the coming years. This means that the cost curve in a year is likely to be up to $5/b lower on average. Permian D&C costs have declined from $9-10mn in 2012 to $5-7mn today.

OPEC producers have low production costs (in Saudi Arabia, even as low as $4/bbl), but will feel the heat fiscally. Still, tight oil producers are likely to be first affected in a low price environment.



Companies are likely to react very differently regarding their market capitalization, hedge ratio, and ‘oiliness’ of output. We estimate that small and mid-cap E&Ps(accounting for 880 kb/d oil and NGLs) would see earnings cut by 17% in 2015 at $80 and by 25% at $70/b, which would likely lead to a cut to capex and drilling plans in 2015. Adding production from infill drilling, drilling in new areas, and enhancing recovery rates from existing wells would add output but require different levels of capex. Wells already online would not be affected, in our view.

*  *  *

Be careful whatr you wish for…

via Zero Hedge Tyler Durden

Paul Krugman May Be The Most Dangerous Man In America (To Our Remaining Wealth & Liberties)

Submitted by Ron Holland via The Daily Bell,

Paul Krugman's 'Triumph of the Wrong' Column Is Dead Wrong

"Politics determines who has the power, not who has the truth." – Paul Krugman

What leads me to conclude Paul Krugman's latest column is dead wrong? First of all, I agree with him on one thing. Krugman offers a summary of supposed conservative, free-market solutions and claims the Republicans have been wrong about everything. We agree only because the GOP really hasn't offered any free-market solutions, only talking points opposing the socialism and centralized police state created by both political parties. This doctrinaire enemy of freedom and liberty makes the case that only Socialist Party 1 and Socialist Party 2 are allowed to offer legitimate and approved solutions to top-down Washington incompetence and mismanagement.

Focusing on the GOP election victory, Krugman's editorial "Triumph of the Wrong" is a typical sour grapes whine from the leading economic apologist for socialism in the US. Even his title reminds me of an earlier socialist movement's propaganda masterpiece, Leni Riefenstahl's 1935 film "Triumph of the Will" about the Nazi Party Rally in Nuremberg. It is the most effective propaganda film of all time with no comparison to the drivel put out by this latter-day apologist for socialism and the centralized state.

Although choosing a column title column similar to the most well known Nazi film of Hitler's Third Reich might grab attention from Internet search engines, I believe it is in poor taste and reminds readers of the all too many similarities between the Third Reich and the Washington government championed by Krugman today, both at home and abroad.

But then again, Krugman has a history of this. His 2007 book, The Conscience of a Liberal, is another self-aggrandizing title knockoff of one of the most important political books of the 20th century, Barry Goldwater's 1960 book classic, The Conscience of a Conservative. Goldwater's book of conservative and free-market ideas heralded the takeover of the GOP by true conservatives and restored the Republican Party to prominence with Reagan's election.

Yes, the ideas of the book today are incessantly slandered and abused, not just by Krugman and the Democrats but also by the GOP establishment. Incessantly, that is, except at election time when limited-government solutions are paraded for a few days to excite the voter base only to then be quickly hidden under lock and key until the next election.

All who love freedom and liberty should repudiate this man and his statist views. My name is Ron Holland and I have zero use for Socialist Party 1 or Socialist Party 2. I consider the recent GOP election victory as just more of the same political bread and circuses to keep the electorate from looking at real free-market solutions to the tyranny of Washington.

Still, the Krugman quote at the top of this editorial is correct: "Politics determines who has the power, not who has the truth." With 54 years gone by since the Goldwater book classic was published, we should understand by now that always the Democrats and Republicans have had the power while the truth of free-market solutions has been kept hidden from discussions and implementation.

I believe Paul Krugman is the most dangerous man in America to your remaining liberties and wealth in the US because he is not only a consummate self-promoter but also has the entire establishment media behind him. There have been other great promoters in history who championed messages that have ended in devastation for millions. Likewise, I fear Krugman's message and believe this will not end well unless you look outside the US and controlled two-party democracy to defend your rights and the wealth that should remain for your posterity.

"Think of the press as a great keyboard on which the government can play."  – Joseph Goebbels

via Zero Hedge Tyler Durden

The Ugly Reality Of US Earnings In 3 Simple Charts

Does this look like the earnings picture painted by a thousand talking heads on financial news networks?

As Goldman reports,

The positive 3Q earnings surprise is in stark contrast to negative revisions to consensus 4Q 2014 and 2015 earnings forecasts.


Consensus 2015 EPS estimates for the Energy sector fell 3% in the last week alone.

Forecasts for most other sectors are also falling but the magnitude of revision is smaller.


So apart from that – yeah, earnings look great!!

*  *  *

But then what do fundamentals matter anyway, when we have “Mr. Bullard” to reassure the market…


Which is odd, because bonds and credit seem to be ‘understanding’ the fundamentals…


*  *  *

Trade accordingly

Charts: Goldman Sachs and Bloomberg

via Zero Hedge Tyler Durden

RX For Modern Monetary Madness: Mises Explained Sound Money 80 Years Ago

Authored by Richard Ebeling of The Ludwig von Mises Institute (via Contra Corner blog),

Eighty years ago, in the autumn of 1934, Ludwig von Mises’s The Theory of Money and Credit first appeared in English. It remains one of the most important books on money and inflation penned in the twentieth century, and even eight decades later, it still offers the clearest analysis and understanding of booms and busts, inflations, and depressions.

Mises insisted that the economic rollercoaster of the business cycle was not caused by any inherent weaknesses or contradictions within the free market capitalist system. Rather, inflationary booms followed by the bust of economic depression or recession had its origin in the control and mismanagement by governments of the monetary and banking system.

Money Emerges from Markets, Not Government

Building on Carl Menger's earlier work, Mises demonstrated that money is not the creature or the creation of the State. Money is a market-based and market-generated social institution that spontaneously emerges out of the interactions of people attempting to overcome the hindrances and difficulties of direct barter exchange.

People discover that certain commodities possess combinations of useful qualities and characteristics that make them more marketable than others, and therefore more easily traded away for various goods that someone might wish to acquire in exchange with potential trading partners.

Historically, gold and silver were found through time to have those attributes most desirable for use as a medium of exchange to facilitate the ever-growing network of complex market transactions that enabled the development of an ever-more productive system of division of labor.

Money and the Savings-Investment Process

Money not only facilitates the exchange of goods and services in the present — currently-available apples for currently-available bananas — but also makes easier and possible the exchange and transfer of goods and their uses over and across time.

Willing investors can borrow from willing savers sums of money set aside out of earned income to then use to purchase and hire various quantities of productive resources — including capital equipment, workers for hire, and useful resources and raw materials — to employ them in production activities that will finally result in potentially marketable and profitable finished consumer goods at some point in the future.

Out of earned revenues from such sales, the investor pays back the borrowed savings with any agreed-upon interest payment, which reflects the time preference of the savers for having been willing to defer the use of a part of their own income for the period of time covered by the loan.

Under a commodity monetary system such as a market-based gold standard, there is a fairly close and closed connection between income earned and consumer spending, and savings set aside and savings borrowed for investment purposes.

Suppose that $1,000 represents the money income earned by people during a given period of time. And suppose that these income earners decide to spend $750 on desired consumer goods and to save the remaining $250 of their earned income.

That $250 of saved income can be lent out at interest to those wishing to undertake future-oriented investment projects. The real resources — capital, labor services, raw materials — that the $250 of purchasing power represents are transferred from the savers to the investors. The remaining real resources of the society represented by the $750 of buying power that income earners choose to spend in the present are directed to the manufacture and marketing of more immediately available consumer goods.

Thus, the scarce and valuable resources of the society are effectively coordinated between their two general uses — producing goods closer to the present (such as a currently existing oven being combined with labor and raw materials to bake the daily bread that people wish to consume), or being used to manufacture goods that will be available and of use at some point later in time (such as the production of new ovens to replace the existing ones that eventually wear out or to add to the number of existing ovens so bread production can be increased in the future).

Like all other prices on the market, the rates of interest on loans coordinate the choices of savers with the decisions of borrowers so to keep supplies in balance with demands for either consumer goods or future-oriented investment goods.

In principle, there is nothing to suggest that within the free market economy itself, there are forces likely to bring about imbalance or discoordination between the choices and decisions of those trading in the marketplace. This remains true either for consumer goods in the present, or for savings in the present in exchange for more and better goods in the future through informed and successful investment by profit-oriented entrepreneurs.

Central Banks as the Cause of the Business Cycle

But what Ludwig von Mises showed in The Theory of Money and Credit and then in even greater detail in his master work, Human Action, was how the harmony and coordination of the competitive, free market can be thrown out of balance through the monetary central planning of governments and central banks.

First under a weakened gold standard and then under systems of purely government-controlled paper monies, central banks have the ability to create the illusion that there is more savings available in the economy to sustain investment-oriented uses of scarce resources in the society than is actually the case.

For example, in the United States, the Federal Reserve has the authority and power to buy up government securities and other “assets” such as mortgaged-backed securities, and pay for them by creating money “out of thin air” that then adds to the loanable funds available to the banking system for lending purposes.

People may be still consuming and saving in the same proportions out of their earned income as they have in the past, but now financial institutions have artificially created bank credit to offer to potential borrowers, and at below what would otherwise be market-generated rates of interest to make investment borrowing more attractive to undertake.

To use our previous example, suppose that people are still spending $750 of their $1,000 of earn income on desired consumer goods and saving the remaining $250. But suppose that the central bank has increased available loanable funds in the banking system by an additional $250.

Investment borrowers, attracted by the lower rates of interest, borrow a total of $500 from banks — $250 of “real savings” and $250 of artificially created credit. They attempt to draw $500 worth of the society’s scarce and real resources into future-oriented investment activities that would not increase output in the economy until sometime later.

But income earners are still spending $750 of their originally earned income on desired consumer goods. This results in the limited and scarce capital, labor and raw materials in the society being “pulled” in two incompatible directions at once — into the manufacture of $750 worth of consumer goods and $500 worth of investment goods, when to begin with there were only $1,000 worth of such real and scarce means of production.

Price Inflation and Misdirection of Resources

This will inevitably tend to push up prices in general in the economy above where they would otherwise have been if not for the central bank’s expansion of the money supply in the initial form of new bank credit, as consumers and investors bid against each other to attract into their direction the goods and services they, respectively, are attempting to buy. Thus, such monetary manipulation always carries the seed of future price inflation within it.

At the same time, Mises argued, the fact that the newly created money first enters the economy through the banking system through investment loans brings about a malinvestment of capital and misallocation of labor and other resources as investment borrowers attempt to employ (as in our example) the equivalent of 50 percent of the society’s resources into future-oriented investment activities ($500), while income earners wish only to save the equivalent of 25 percent of their income ($250).

Even though price inflation will push up the dollar amount of money income earned, the unsustainable imbalance between savings and investment brought about by central bank monetary policy will be reflected in any discoordination between the percentage amount of income (and the real resources they represent) that people wish to set aside for purposes of savings and the amount of money investment borrowers attempt to undertake as a percentage of the real resources available in the society, due to central bank money creation.

Recession Correction Follows the Inflationary Misdirection

This misdirection of capital, labor and raw materials away from that allocation and use consistent with people’s actual decisions to consume and to save, means that every monetary-induced inflationary boom carries within it the seeds of an eventual and inescapable economic downturn.

Why? Because once the monetary expansion either slows down or is ended, interest rates will begin to more correctly reflect real available savings to sustain investments in the economy. At which point, it will start to be discovered that capital and labor have been drawn into investment uses and employments that cannot be completed or maintained in a, now, non-monetary inflationary environment.

An economic recession, therefore, is the discovery period of misallocations of scarce resources in the economy that requires a rebalancing and a recoordination of supplies and demands for a return to market- and competitively-determined harmony in the society’s economic activities for long-run growth, employment, and improved standards of living.

The current boom-bust cycle through which the U.S. and the world economy has been passing for over a decade now, has shown the real world application and logic of what Mises demonstrated in The Theory of Money and Credit decades ago, and why reading and learning from this true classic of monetary theory and policy still offers an invaluable guide for ending the business cycles of our own time.

via Zero Hedge Tyler Durden

How Voters, Not Politicians, Are Reforming California’s Harsh Sentencing Laws

California voters approved a sweeping change to sentencing on
Tuesday by
passing Proposition 47
and knocking most drug possession and
“petty theft” charges down from felonies to a misdemeanors. Only
months earlier, Governor Jerry Brown vetoed similar, and more
modest, changes to California’s sentencing laws, claiming that the
state’s plan to “realign” convicts from state prisons to county
jails required more time to fully take effect.

This is not the first time California voters have routed around
the obstinate political establishment to address the state’s
massive prison overcrowding problem. In 2012, voters amended the
state’s longstanding Three Strikes law to allow resentencing of
nonviolent, nonserious third strikes. 

How did an ostensibly liberal state like California become one
of the worst overincarcerators in the nation? Watch the video above
for an inside look at the messy politics behind prison reform.

The story was originally published on Oct 24,
. The original text is below:

“A prison that deprives prisoners of basic sustenance, including
adequate medical care, is incompatible with the concept of human
dignity and has no place in civilized society,” wrote Justice
Anthony Kennedy for the majority in a Supreme Court ruling against
Governor Jerry Brown and the state of California in the 2011 case
v. Plata

The Supreme Court had just affirmed what lower courts had been
telling California for decades: The prisons are too crowded. It’s
time to fix the problem.

Three years later, after several extensions asked for and
granted, California’s government has managed to reduce the prison
population, but not by enough to meet the 137.5 percent of
occupational capacity target set by the courts. But they are close
enough, at 140 percent, to give Gov. Brown the confidence to
declare victory.

“The prison emergency is over in California,” Brown said at a
press conference in 2013. “It is now time to return the control of
our prison system to California.”

Brown’s strategy to combat overcrowding has been twofold: Send
inmates to out-of-state and/or private prisons, and shift low-level
offenders down to county jails. Predictably, this latter strategy,
called “realignment,” has led to an increase in the county jail

“Rather dramatically, overnight, [realignment] changed the
makeup of our jails,” says Orange County assistant sheriff Steve

But Brown has been particularly resistant to one type of change:
sentencing reform. While California’s voters amended the state’s
Three Strikes law in 2012, without the governor’s endorsement,
Brown has taken public stances against further reforms, such as
, which would have given prosecutors the flexibility to
prosecute nonviolent drug crimes as misdemeanors rather than

“California is, traditionally, seen as a liberal state,” says
Lauren Galik, Director of Criminal Justice Reform at Reason
Foundation. “But not when it comes to their sentencing laws and
prison population.”

For years, the California Correctional Peace Officer’s
Association (CCPOA), the prison guard union, has been one of the
most powerful political forces in the state. It was a key player in
the campaign to implement Three Strikes, and against the later
failed campaign to repeal it. In 2010, the union
poured more than $2 million
in independent expenditures into
Jerry Brown’s gubernatorial campaign. Lynne Lyman, state director
of the California
Drug Policy Alliance
, says that the enormous lobbying power of
the law enforcement unions has hampered serious reform in the state
and nationwide.

“It really doesn’t matter which party an elected official is
with,” says Lyman. “The contributions that are coming in from the
law enforcement associations and the private prison lobby…
they’re tremendous.”

Watch the video above for a deeper dive into the politics of
California’s prisons, featuring interviews with state prison
officials, local sheriffs, and former inmates.

Produced by Zach Weissmueller. Camera by Tracy Oppenheimer,
Alexis Garcia, William Neff, and Weissmueller. Photography by Todd
Krainin. Music by Chris Zabriskie. Approximately 9 minutes.

from Hit & Run

US Economy Shudders: East Coast Set To Freeze As Polar Vortex 2 Arrives

Remember when last December, a bout of cold weather crushed the US economy for the next 3 months, and subtracted about $100 billion from trendline growth, and when one after another economist (who were then predicting the yield on the 10 Year would “greatly rotate” to 4% by right about now, and who expected the US economy to have reached escape velocity in the second half only to see a 2014 GDP trendline as follows Q2: 4.6%, Q3: 3.5% (soon to be reviser lower), and Q4 now estimated just about 2.0%) blamed the then -3.0% GDP print on snow in the winter? Well here comes round two, because as CBS reports, “prepare for an invasion from the north. A blast of polar air is about to send temperatures plunging in the heart of America.”

The polar vortex is back, and this time it means even less business: A mass of whirling cold air will dip southward this weekend, sending the mercury plunging. As the cold air moves south and east, it has the potential to affect as many as 243 million people with wind chills in the single digits in some places and snow.

Of course, the implication is that Q4 GDP is about to have its lights out moment. Either that, or if Q4 GDP mysteriously does not collapse, then scapegoating the weather for what was a fundamental flaw with the economy (and subsequent definitional revisions to GDP were the primary source of “economic growth” in 2014), will be just that.

According to CBS, the cause of the latest and greatest bout of abnormally cold winter weather is not “global warming” but a Supertyphoon named Nuri, currently located above the North Pacific.

Suomi NPP VIIRS Infrared image of the eye of Super Typhoon Nuri in the West Pacific Ocean on November 2, 2014

However, as CBS explains, “it would be wrong to think that it will affect only Alaska’s far-flung Aleutian Islands or those famous fishermen who work in the North Pacific.”

Images from the European Space Station show that Nuri is a growing meteorological bomb blanketing the Bering Sea. The 50-foot waves and 100 mile-an-hour winds will make conditions similar to those we had two years ago, and could make Nuri the biggest storm of the year.


The remnants of Super Typhoon Nuri will create a big buckle in the jet stream,” WBBM’s meteorologist Megan Glaros in Chicago explains. “And in several days time, it’s going to mean a big dip in the jet which will connect us with a big mass of Arctic air — taking temperatures east of the Rockies down to 10 to 30 degrees below average.”

So how does a typhoon over the North Pacific lead to what may be a several percentage points drop in US GDP?  The following sequence of events from EarthSky explains:

On November 2, forecasters thought Super Typhoon Nuri might strengthen further into a 195 mph storm with gusts near 235 mph. Fortunately, it peaked at 180 and started to gradually weaken on Monday. Nuri becomes the sixth Super Typhoon of the Western Pacific season, largely due to the unusually warm waters and favorable atmospheric conditions across the Western Pacific basin.

The storm will gradually weaken over the next couple of days into a tropical storm. It will stay east of Japan and move out into the Northern Pacific Ocean.

GFS model showing Typhoon Nuri on November 6, 2014. Image Credit: Weatherbell

As it gains latitude, the storm will transition from a warm-core low to a cold-core low, also known as an extratropical cyclone.The Northern Pacific jet stream will enhance the storm’s intensity. It will begin to “bomb out”, meaning the barometric pressure will drop drastically. Bombogenesis is a meteorological term used to define mid-latitude cyclones that drops at least 24 millibars within 24 hours.

Typhoon Nuri becomes extratropical as it gains energy from the Northern Pacific jet stream. Image Credit: GFS via Weatherbell

It’ll become a super strong storm with a pressure around 915 to 922 millibars. Imagine a “Superstorm Sandy” over the North Pacific instead of the east coast of the United States. The storm will affect the Bering Strait, and extreme winds and surf is expected.

A mega storm forms near the Bering Strait Friday evening into Saturday morning via GFS model. Image Credit: Weatherbell

The storm will affect parts of the Alaska coast by Friday into Saturday. Some areas will likely experience hurricane force winds, high seas of 30 feet or greater, and minor coastal flooding/erosion in parts of southwest Alaska coastal areas. Some of our weather models are even projecting waves as high as 50 feet!

Further color comes from Andrew Freedman of Mashable:

To put that into perspective, consider if the storm’s minimum central pressure bottoms out below 925 millibars — as is currently forecast by most computer models — it would set a record for the lowest pressure recorded in the Bering Sea. The current record holder is 925 millibars, set in October 1977 in Dutch Harbor, Alaska

Back to EearthSky:

The storm will influence the jet stream and atmospheric patterns across the Northern Hemisphere. It will likely trigger a ridge of high pressure across the Eastern Pacific and into Western North America. Meanwhile, it’ll likely contribute to a large trough that will dig down into parts of Central/Eastern Canada and the United States. As the jet stream digs south, it will likely bring the year’s first round of arctic air into the regions. Some of the weather models are indicating the potential for single digits in the Northern Plains by late next week (November 13-15). It is still uncertain if it will produce a big storm for the eastern United States. However, both the GFS and ECMWF models indicate a significant surge of cold air into the area.

The Climate Prediction Center is in agreement with a significantly colder weather pattern setting up for next week. They are forecasting temperatures well below average for Central and Eastern United States with above average temperatures likely along the west coast of Canada and the United States.

To summarize: Nuri will likely cause hurricane-like conditions along the Bering Strait as it becomes extratropical (no longer a tropical cyclone). It will help amplify the jet stream and likely produce a surge of very cold air that will reach parts of central/eastern Canada and the United States by November 12-15, 2014. There remains uncertainty regarding how cold the pattern will be, but as soon as models get within three to five days of the forecast, we will truly get a better idea of the overall setup and if a storm will develop.

Now, the only question is how the resultant tumble in Q4 GDP will be used by the Fed and econo-pundit talking heads to justify a further delay in rate hikes, which consensus expects to take place in Q2 2015 at the latest as a result of recent seasonally massaged “strong data”, or better yet, force the Fed to resume liquidity injections once it is revealed that the ECB’s intervention is limited to verbal jawboning, while Japan’s runaway import cost inflation and plunging real wages lead to a revulsion against Abenomics and Abe in 2015, and a premature end to Japan’s epic hyper-reflation experiment and the best laid plans of Goldman Sachs to boost “risk assets” and Goldman year end bonuses.

via Zero Hedge Tyler Durden