Habeas Corpus et al:

We are hearing a lot about the  proposed revised Anti-terrorist Law in Canada and similar laws in the United States. In particular the continuation of the denial  of the right to a fair trial  to prisoners in Quantanimo Bay Prison in Cuba, and the suspension of the Fourth Amendment right to privacy in the Edward Snowdon snooping controversy .

As with so many facets of the interaction of  democratic  government with its citizens, there is a lot of smoke and fire  and little common sense in the continuing dialogue. I suggest the reason for this is two-fold. First because there is a basic misunderstanding of our basic rights under British Law, or, in the case of the United States, the Constitution, and second because we are not being provided with the information to determine if the suspension of these rights is justified.

Habeas Corpus, one of the most basic rights at English Common Law, was incorporated  during the reign of Henry 2nd  ( not by the Magna Carta as commonly supposed) by means of the following language ” “The King is at all times entitled to have an account why the liberty of any of his subjects is restrained whenever that restraint is inflicted” 

It is technically only a procedural remedy. It is a guarantee against any detention that is forbidden by law, but it does not protect other rights such as the entitlement to a fair trial. So if an in-position such as internment without trial is permitted by law then habeas corpus may not be a useful remedy.

Law can, and frequently does, over-ride Habeas Corpus and make a mockery out of  certain other inalienable rights  As in times of war. The problem is that the meaning of War has changed. Used to be War meant a whole nation. Now apparently it applies to individuals or small groups of individuals, or even products such as drugs.

Democracy is dependent on enlightened debate upon the merits of the facts as they are, NOT  on some of the facts, as they appear.

Debate is being  stifled by redaction of the facts due to National Security concerns.  So we are left wondering if draconian measures are truly warranted. Put another way we are told that only the government is capable of determining if the facts justify the means.

The argument that redaction  protects sources is most times nonsense.’Humint’ (human intelligence)  as its is called, is rare in cases of terrorism.  Information, for the most part, is gathered electronically, and thanks to Edward Snowdon, we all how that is done.

So why not a debate based on the facts? I suggest the reason is diabolically simple. It is far easier to govern by fear  than by reason.

Creative Destruction:

The Austrian economist Schumpter once postulated that Capitalism could only be understood as continuous innovation and creative destruction. He likely had a point, although I doubt he had any idea of the speed at which the innovation and destruction  might happen.

In the horse and buggy days it took many years before the automobile   became dominant and then the horse and buggy Industry did not put up much of a fight. Now this all seems to be changing. Now no one it seems goes without a fight. It’s all rather like King Canute ordering back the waves on the shore of the ocean.

The innovation is being led by the digital revolution and the Internet and now the ‘Cloud’  The protagonists are the phone and cable companies, the old providers of content, taxi services, travel , hospitality and many other forms of service.

The innovation almost always provides greater freedom of choice and usage at lower prices to the consumer. A win win situation and a from a classic  economic viewpoint a more efficient use of scarce capital. What is different now, is the resistance to change bought on by the establishment, is many times an oligopoly. I have likened this in the past to the regulators attempting to get on a train that had already left the station.

I wrote in a previous  post  ‘Uber Uber’ the upstart Taxi Company,  about the battle being waged by an over-regulated and excessively profitable industry against a new service that offers greater freedom of choice at a lower cost. The battle rages on with insults and threats from all quarters including the heavy hand of government, and the apparent hubris of an intransigent company that believes  their model must be the sole survivor.

Recently we have seen the advent of a new battle over the delivery of content on cable and the airwaves. The new dominant player is Netflix  with over 40 million users that now projects the demise of the current TV Distribution model within the next two decades. This of course assumes that the current major players will go quietly, a very dubious proposition, in the North American Market.

It is the last link in the distribution process that all the fuss will be about. The cable or the satellite that joins the viewing device to the internet. The Band Width and in recent musings the time of usage.

The millennials’  do not watch television. They prefer to watch what they want, when they want, it by streaming content to their laptops or other mobile devices. This leaves traditional sources out of the loop. All of this means trouble.

It is my contention, born of experience, that oligopolies do not compete, at least not in the traditional sense. So beware the promise of even treatment for the various sources of content. Much more likely is a dirty fight ending once more in government regulation.

If and when this happens, it is but a hair removed from control of the internet itself, something that every government democratic or otherwise  can only dream about. Sin taxes be damned, what if they  could tax internet usage by the minute?

The dream of a free unrestricted internet is just that, and a fleeting one at that.

 

A Win for the People:

I recently received a missive from a reader, and fellow economist, that shocked me to the core, and  made me realize just how important social media has become as a watchdog over the mainstream media.

The case in point involves a successful  appeal in the Federal Court of Canada in a case bought by the Committee for Monetary and Economic Reform against the Federal Government. The subject of the law suite is a claim to Restore the use of the Bank of Canada to its original purpose by exercising its public statutory duty and responsibility—- that purpose includes making interest  free loans to the municipal/provincial/federal governments for human capital expenditures (education, health and social services) and infrastructure expenditures. 

Stay with me now because this is important to every citizen and certainly not trivia. In 1974 this duty was transferred without parliamentary amending legislation from the Bank of Canada to private banking interests, mostly the Canadian Chartered Banks and certain other major international financial institutions. In the intervening years these institutions have charged billions of dollars in interest all of which has increased the national debt immeasurably.

It should come as no surprise that these same institutions that make unconscionable amounts of money, and pay the lion’s share of Corporate Tax to the Federal Government, are  not at arms’ length in this matter.

Cooking the books is one thing but hiding the evidence from the glare  of public scrutiny is something far more ominous. According to YouTube  this very significant case has been hidden away by means of a media blackout with the mainstream media, for fear that the public would not understand (devalue  the shares of the major  banks) the consequences of a reversal of policy.

To my way of thinking this is definitely not a case where innocence is bliss, since an informed public is the best defense against government over-reach and fiscal excess. It is our pocket that is being picked so it behooves all of us to wake up and take notice.

The last remaining appeal for the Federal Government in this case is to the Supreme Court of Canada, in which court the Feds have an abysmal record. What would be far better is for the government to come clean and have an intelligent debate in Parliament as to the best course of action to correct this fiscal blunder that affects every man women and child in the country

Always remember that a government that masks its action in secrecy is but one step away from anarchy.

Eight the Hard Way:

I once had a friend, a millionaire  trader, by the name of Jim. I wrote about him in my book “Sell the Pig”. He was the smartest trader I ever met. He would never buy anything unless he knew who he was going to sell it to, hopefully,  before he owned it.

Jim traded on the stock exchanges before the advent of computerized trading, but not before the institutionalization of money. He taught me many things about trading, but nothing about investing. He showed me how to do a commodity straddle, an incredibly complex set of transactions that had the effect of deferring (not eliminating) taxes, and he showed me how to bet on the outcome of share prices without going bust in the process. (before the advent of Index shares)

One I remember was called ‘Nikkei Puts’ as opposed to ‘calls’ In the simplest of terms this was a bet that the stocks that made up the Nikkei Index would go down before they went up in value, at a time when that Index was at an all time high. I made money on this one.

I recently read Michael Lewis’ wonderful book ‘Flash Boys’ the story of high-speed computer trading and how it affects the little guy in the Stock Market. Great stuff and well worth a read. In Jim’s time what the ‘Flash Boys’ are now doing was called ‘Front Running’ a practice that was frowned upon by regulators who could levy  hefty fines and even suspensions. on practitioners. No so any more, apparently.

This all got me thinking about the obvious. The ‘ little guy’ or person, to stay politically correct,  has not got a chance in today’s financial markets. The institutionalization of money has seen to this, and computers and the use of  mathematical  algorithms have finished the job.

Now it is very difficult for an individual to save on their own behalf. In fact the practice is belittled by the chattering class, who are selling a service that herds savers together as a single group, all of whom, now need a ‘financial advisor’ ( another word for salesperson)

If we are to believe what we are told, by never-ending slick  ads, is that these people, or institutions, will diversify our portfolios, and provide rates of return that are, on due reflection,  unlikely. or  maybe,  impossible.

The true  historical, long-term  real  rate of return on capital is 3.5 – 4.0% before inflation.  This figure can be confirmed, by non-believers, by  taking a look at Endowment Funds run by Private Universities, and Charitable Trusts, that are investors in perpetuity.  Of course there are some that do better and some others who do much worse. Then there are the Pension Funds, who use all kinds of mathematical hieroglyphics,  to prove a point that they have miscalculated or screwed up in the past, and now need to take more risk in order to increase their rate of return.

Even more scary is the consideration that our Central Bankers and Senior Government Officials, now consider a 2% rate of inflation to be the desirable norm.

To my Grade 5 mathematical way of thinking, this means that if I buy a Government Bond to hold to maturity that yields less than 6% I am going to get screwed. Unless I am willing to trade or lever my investment all of which sounds to me rather like betting on the Eight the Hard Way on the crap tables.

Unlike the good old days, when a saver could buy a Government Savings Bond, a secure very liquid investment at any bank with no commission of fees involved. Now it takes an appointment with an advisor and a plethora of forms to even get started.

There is a very good reason for this. Money management has become an incredibly profitable business and one that generates a lot of taxes, that go toward paying for the Welfare State. Unlike many other forms of endeavor, these taxes tend to stay home. Just how profitable  can be evidenced by the fact that the last time the U.S. Government ran a surplus in its current account was during the Dot Com Boom in the  years of the Clinton Presidency. The time of ‘Irrational Exuberance’ and easy money.

I suspect this might also be the reason why financial corporations, rather than individuals, have borne the brunt of punishment for transgressions committed during  the housing bubble debacle. Love or hate them, we need them in order to pay the bills.

So we had all better get proficient in playing Eight the Hard Way. That is a side bet that the shooter will make the point eight by rolling two fours before he rolls a seven or snake eyes.

All simple but very hard to do.

 

“Guns and Butter”

I was taught that the phrase ‘Guns and Butter’ was penned by the Austrian/ German  Economist Schumpeter who ended his controversial career at Harvard in !950. I now think this maybe wrong (anyone know who it was?).  It came to mind when I caught a glimpse of the current Senate Hearings, chaired by Senator Mac Cain concerning the Defense Budget  for the United States Military Establishment, currently estimated at, give or take $640 billion. (I still have trouble getting my head around this number)

The last time the saying ‘Guns and Butter’ was used in the public domain  was to describe President Linden Johnson’s ‘Great Society’  social spending spree at a time when the Vietnamese War was still in progress. President Johnson thought, or was told, that contrary to the dogma of the time the U.S. could afford  huge new social programs (Medicare, Medicaid)  at the same time as fighting the Vietnam War. All without triggering Inflation. Ergo the devastating Stagflation of the 70s’

Now, apparently, the Americans have forgotten the terrible lesson of history. After two wars costing $2 trillion (Iraq & Afghanistan) and the debacle of 9/11  the  Defense Budget has climbed from $300 to $640 billion ( an annual 16% compound rate of increase) all without the Draft that was in place during the conflict in Vietnam. This at the same time when the U.S. is launching ‘Obama Care’ that well maybe the costliest social program of all time.

In searching for other reasons why this is so evident I came across mention that the “i shares” of Aerospace & Defense have increased  by 142% since June 2010. So obviously the Military Industrial is alive and well.

At the same time I found in my archives a copy of President Dwight D Eisenhower’s speech in April 1955  where, as a great military  general, he warned of the dangers and the futility of the same Military Industrial Complex.

“Every gun that is made, every warship launched, every rocket fired, signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its’ laborers, the genius of its’ scientists, the hopes of its’ children —————

This I repeat, the best way of life to be found on the road the World has been taking, This is not a way of life at all, in any true sense. Under the cloud of war and human conflict (sic) it is humanity hanging from a cross of iron”

So true So Sad.

 

Greece Vs Germany:

There is a comic political farce playing out in the E.U. (European Union) that pits the Minister of Finance from,  all-powerful, and very conservative Germany, against  his counterpart from socialist, and obviously  bankrupt Greece. At issue is payment of current amounts owing on the Sovereign Debt of Greece (approximately 246 billion Euros) an amount that is equal to 175% of the country’s GDP (Gross Domestic Product)

The ownership of the debt is split almost equally between E.U. Institutions and others, that likely  include hedge funds, that loaded up on Greek debt at a steep discount to par value in the belief that the ECB (European Central Bank) would not allow a country within a Monetary Union to default on its Sovereign Debt) In other words speculators as opposed to long-term investors such as Banks and Insurance companies.

The portion sold to ‘others’  is believed to include that purchased pursuant to a slick misrepresentation of the countries’ financial position all made possible by derivatives designed, and put in place by non other than Goldman Sachs. of New York.

Fair to say the current situation is a mess that has here-to-for been kicked down the road by the E.U. and the E.C.B. to the point where it is now somewhat,  but not entirely , imperative that a solution be found.

Past solutions have avoided the obvious  that Greece will never be able to retire the full amounts owing and have relied instead  on  postponement of payments, and  impossible austerity schemes. In any other  country this would have resulted in default (Bankruptcy) and a haircut for lenders.

This farce has come about by the mistaken belief that a small country such as Greece cannot default on its’ Sovereign Debt and remain in the E.U. and by inference the Monetary Union. Witness the fact that there are currently two countries (Great Britain and Denmark) that are members of the E.U. but are not members of the Monetary Union. These two countries have steadfastly refused, by democratic means, to subject their citizens to the whims of Central Bankers in the form of the E.C.B.  So, if there is indeed, an implied guarantee of the Union, toward Greek Debt, it has  come about by rote, as opposed to Maastricht Treaty obligations. In support of this thesis neither the E.U. or the E.C.B. has  to date controlled the issue of Sovereign bonds by member states of the Union,  surely a pre-requisite to any form of guarantee.

So Greece could likely default, without bringing down the whole house of cards. It could also leave the Monetary Union, without leaving the E.U. and revert to its’ former currency, drachmas’. Contrary to current dogma such an event would not cause a  catastrophic sell off in the bonds of other struggling E.U. countries.  Their situations are nowhere near as impossible as those of Greece.   But such an event would be difficult politically because it would fly in the face of the current rallying cry for  strength in solidarity. In particular the purchase of bonds (other than Greek) by the E.C.B. in the current round of Quantitative Easing. (Printing Euros) aimed at boosting the E.U. Economy. So it is possible but unlikely to happen. (Round two to the speculators.)

What is more likely is an exchange of bonds into lengthened maturities, a portion of which would carry  a quasi guarantee of the E.U in return for a lower interest rates.  In other words a trim for bondholders as opposed to a full haircut. If the amount and timing of obligations are eased then it will allow the Greek Socialists to claim victory by ignoring some of the austerity obligations currently in place. As for Germany, a partial victory will be far superior to the alternative, something Angela Merkel should be able to grasp because of the importance of the E.U. to her nation’s wealth.

In the meantime we can expect more saber-rattling and political posturing, as both sides play to their home audience, with the fawning press, following every word.

As a postscript I notice that the Guardian News Paper, as reported by the Huffington Post, made mention of the fact that Allan Greenspan (former Chairman of the Federal Reserve) foretold that Greece would leave the E.U. in order to devalue its currency. In view of this man’s record in forecasting futures economic events,  I will stick to my likely scenario.

 

 

 

 

 

 

Disaster and Prosperity:

This week Allan Greenspan,   former Chairman of the Federal Reserve  for twenty years, and arguably one of the most influential men in the World, wrote an article for the Blog ‘The Daily Reckoning’,  entitled “The Gap Between Disaster and Prosperity.”

The event might be taken as extraordinary, because the authors of, and contributors to, The Daily Reckoning have been highly critical of Greenspan’s  policies. In particular the “laissez-faire attitude, that contributed to the Housing Market Bubble and the Credit Crisis that followed in 2008.

Interestingly Greenspan did not take the opportunity for a mea culpa (he has done that on numerous occasions) but rather to reinforce the  vital importance of Savings, and  Investment  for the long-term viability of the World Economy.  Put another way we need savers as well as spenders to make things work smoothly. Nothing particularly new here.

It was what else he said, in a more erudite fashion, that caught my eye as a confirmation, for what I was trying to get across  in a former post “The Skin of the Gods” and also at the tail end of my book “The Accidental Gold Miner”

There is a historic  dichotomy between Savers and Consumers that still plays out every day in the valuation of the US Dollar against gold and  hard paper currencies (Swiss Franc) The consumers believe in using debt to finance an ever-increasing standard of living  whereas the savers avoid debt and consume only when they have the required means.

It is the savers (China Indonesia,  India  Japan et al ) that finance the debt of the consumers (North America, Europe GB et al), and it is Globalization of trade,  that had allowed for the incredible expansion of credit without inflation, (There are now a lot more Savers than Consumers)  Think of it like a great big sponge soaking up the trillions of US Dollars that are floating around the World.

At present it would appear as though fear is winning out over greed and the savers have the upper-hand. This is a condition that can lead to the dreaded Japanese Condition ( over ten years of no economic growth) or Deflation as it is sometimes called, when it is accompanied by falling prices.

Central Banks, as well as Sovereign  Governments, are now held accountable for the financial well-being of their citizens, that has come to mean  increasing standards of living. This has recently been evidenced by a sea change in the leadership of India, the largest Democracy in the World, wherein a majority of citizens, apparently now wish to become educated consumers (as opposed to predominantly savers) The same might be applicable to China, where the masses may only be willing to stomach the Proletariat, so long as their standard of living is increasing.

These two Goliaths’ make up nearly half the population of the World. If they succeed in continuing to increase the standard of living of their citizens, they will drag the economies of the Western Industrialized nations with them (assuming the continuation of globalization) This is a given. What is much more difficult to ascertain  is whether the present hegemony  of the US Dollar, as the only international accepted medium of exchange,  will allow this to happen.

Stay tuned: