Thread: Armada of Black Swans Hitting U.S. Economy, Financial Market

Armada of Black Swans Hitting U.S. Economy and Financial Markets, Gold Breakouts on QE TO INFINITY

Commodities / Gold and Silver 2011
Jun 23, 2011 - 04:58 AM
By: Jim_Willie_CB

Mohammed El-Erian is given credit for the phrase 'The New Normal' to mean an altered state of perceived instability within the normalcy realm, as in crisis being called normal, like endless crisis. As buddy Jim Mess in Europe says, just like trying to redefine what debt default is, it sounds like high octane prevarication. El-Erian is considered one of the good guys. He managed to slip away from Harvard University without much smear, where he served on the management team of the giant multi-$billion endowment fund. If truth be told, Harvard hatched the Enron monster from its Business School as a project, funded by Citigroup, where JPMorgan created all the off-shore companies to hide their dealings. Building #7 in Lower Manhattan contained the records until it fell from structural sympathy. Harvard successfully made money all the way on the Enron runup, but also successfully shorted Enron all the way down. So El-Erian is hardly squeaky clean. He does give a good interview though, does not deal much in varnished truths, and is an avid NYMets baseball fan. At PIMCO, he worked on the team to direct the biggest bond fund in the world to turn its back on the entire USTreasury Bond complex. In fact, their Total Return Fund, its flagship bond fund, is net short on USTreasurys as a group. That means they own a raft of Credit Default Swaps for USGovt debt default and an assortment of other vehicles like the TNX and TYX that track the 10-year and 30-year bond yield. They recognize an asset bubble when they see one, and even invest in Gold.

The other person relevant to the article title is Nassim Taleb, who coined the term Black Swan. Generally it refers to the extreme oddity that passes through view, shows up on the radar, the extreme warning signal being dire, but is largely ignored by the masses, regarded as the exception or outlier event. THE BLACK SWAN HAS BECOME THE NATIONAL BIRD!! When a few black swans appear, the alert analysts pay heed and express their warnings. When an armada of black swans appear, the message is clear. A systemic failure is in progress, and the important foundations are crumbling. In 2009 and 2010, it was clear that numerous black swans were sighted and identified. In 2011, something highly unusual and extraordinary has occurred. The black swans can be organized into groups. They are numerous within each important economic and financial camp. The Armada of Black Swans, well organized into regiments, has become dominant enough to be considered the New Normal. During the global financial crisis (which has earned a widely used GFC acronym), tragically the state of crisis has become an engrained latticework on the reality mosaic. A quick review at a high level should cause alarm, except for the gradual pathogenesis that dictates the pace of systemic failure in progress. If the list below were presented as a Wall Street Journal forecast in 2006, the author would have been subjected to laughter, derision, and mockery. Yet here and now, the organized groups of black swans are visible everywhere one looks. Worse, they are carrying nuclear slingshots, and defecate highly toxic green blobs into the liquidity streams that we have grown so dependent upon.

QE TO INFINITY

Quantitative Easing will continue for obvious reasons. Many were outlined in the last two articles. The QE2 will continue seamlessly, extending beyond the June 30th deadline. It will change in complexion slightly to become QE3, with some added twists like to include some municipal bonds. Later the entire financial initiatives will morph into a Global QE, since all major central banks will face the same plight. They will all purchase USTreasury Bonds or face extinction, in order to support their own balance sheets. The credibility of the US Federal Reserve has undergone major damage. In the next year, it will be totally destroyed. The factor ignored by many analysts is that the USFed balance sheet has expanded recklessly, and insolvency is its unavoidable condition. If the US housing market does not revive, then the US banks will go deeper into insolvency, carrying perhaps two million homes on their books at some point in the future. The resulting effect on the USFed balance sheet is permanent ruin.

The USTreasury Bond default might possibly come, as warned by a great reliable inside source in 2008, from the USFed resignation as central bank for the USGovt. They are not subject to bank regulations, to reserves ratios, to collateral requirements on loans, or to anything for that matter. They managed the secret handouts of $12 trillion under the cover of TARP Fund dispensation. They rescued foreign banks even though that is not under their charter. They orchestrate the narcotics money laundering effectively, certainly not in their charter either. The USFed does have owners, and they cannot be pleased. The turnaround in the housing market never occurred. Its prospects look worse with each passing month. If the USGovt or the Elite operating as handlers for the captive USGovt decide to convert private property into collectivized syndicate ownership, and use their Fannie Mae device as agent for the process, then perhaps the USFed might serve as a facilitator to the vast Collectivism project. The United States Government might someday own the majority of homes in the nation, maybe even commercial buildings and shopping malls too. The disenfranchised can always go camping, as in the Favored Environmental Managerie Amorphous camps.

ARMADA OF BLACK SWANS

Consider the following black swan specimens, each of which is astounding, each alarming, each serving as one more added element to the ruined situation. The swan organization is admittedly rough, but the regiments are put in sensible order. Any small handful of these signals would qualify as forewarning a profound crisis. Not anymore, since crisis is the new normal. Not anymore, since black swans adorn the entire landscape. A healthy white swan gradually suffers from toxic exposure, quickly to turn black from a putrefaction process. Apologies for overlooking at least a dozen other important other black swans, as time and space did not permit the exhaustive catalogue process. Emphasis was given to the United States ponds and its migratory bird population.

USTREASURY BOND SWANS

USGovt debt ceiling standoff, with actual violations
Over 75% of USTreasurys auctioned bought by the USFed in debt monetization
Turnaround from primary bond dealers to POMO repurchase by the USFed is 3 weeks
Foreign banks form 12 of 21 primary bond dealers
PIMCO owns no USTreasury Bonds, even short
Global boycott of USTBond by creditors, some net sellers
Foreign creditors owns the majority of USGovt debt
A fixture of $1.5 trillion annual USGovt deficits
Greenspan and David Stockman warn of USGovt debt catastrophe
USMint officers admit Fort Knox has been shut down for 30 years, as in zero gold

USFED SWANS

QE permanence, otherwise called QE to Infinity, worked into standard policy
Bank of England urges more bond buying
Cost of money 0% for two full years, implication being destroyed capital
Chairman regards monetary hyper-inflation as being zero cost
Ron Paul pushes for a USFed audit, an end run to pay down USGovt debt
USFed owns more USTBonds than any other creditor
Competing Currency War has Euro weakness mean USDollar as all circle the toilet

USGOVT SWANS

USGovt could shut all operations but still be have a budget deficit
USGovt could confiscate all income but still have a budget deficit
USGovt must cover AIG payouts on Greek Govt debt default from CDSwaps
US Postal Service stops all payments into their pension system
New York Fed refuses to disclose the destination of $6.6 billion stolen from Iraqi Reconstruction Fund
Federal Worker Pension Funds and G-Funds confiscated (called borrowed)
USMint runs out of gold & silver metal to make coins
Endless war accepted as sacred, whose costs are crippling
Council on Foreign Relations enables a foreign nation to control US foreign policy
Breaches to USGovt communications via WikiLeaks

COMEX SWANS

GATA Gold Rush 2011 in London Savoy Hotel on August 4th will feature the COMEX whisteblower Andrew Maguire
Silver futures contracts settled almost exclusively in cash, often with 25% vig bonus
Gold & silver futures contracts often settled with GLD & SLV shares
Umpteen margin increases for gold & silver futures contracts, but reductions in USTBond futures contract margin requirements
Brent versus West Texas crude oil price has a $20 spread
Every time Bernanke assures US financial markets, gold & silver rise in price
Elimination of Over The Counter gold & silver contracts due in mid-July

BANK SWANS

Chronically insolvent USFed and EuroCB, balance sheets ruined
FASB accounting rules permit banks to grade their own test exams
Stress Test for banks had almost no stress, a sham
Dependence by Wall Street banks on naked shorting USTBonds and narco funds, the former called Failures to Deliver, the latter recognized by the United Nations
Shadow housing inventory held by banks over one million homes
Wall Street firms in court on the defensive, JPMorgan foreclosed soldiers
Wall Street firms banned in Europe on bond securitization and issuance
Strategic mortgage defaults by homeowners on the fast rise
Gold holdings by tyrant Arab rulers targeted by New York & London banks
War over Libya grabbed $90 billion in Qaddafi money by New York & London
PIGS sovereign debt default in Europe to have impact ripples that reach US banks
Standard & Poors reminds the players what constitutes a debt default
No liquidation of big US or London or European banks since Lehman Brothers
Much of dimwitted US population believes the propaganda that Gold is a bubble

USECONOMY SWANS

USEconomic indexes fall off the cliff, see Philly Fed, Empire State, ISMs
Rampant systemic insolvency in banks, homes, federal government
US housing resumes its powerful bear market
US land title system in the disintegration process, see MERS on mortgage titles
Unemployment at 20% across the Western world, economic misery index hit 30%
USGovt economic stimulus never contains stimulus
Main non-military innovation in the United States is bond fraud
Shrinking US trucker industry from $4 gasoline and diesel
China begins to export price inflation to the United States
Killing state worker union pensions as part of the state budget shortfalls
Gulf of Mexico off limits for oil drilling
1 in 7 Americans is on Food Stamps, whose debit cards are good JPMorgan business
media blackout on the Fort Calhoun near nuclear plant meltdown in Nebraska

FOOD & WEATHER SWANS

Food price inflation is staggering but denied
Floods across Midwest & Plains states to interrupt with planting & harvest
Australian floods have interfered with coal industry and agriculture
Fukushima and Northwest US infant mortality, with vulnerable milk next
Big volcanoes like in Chile and Iceland disrupt weather and air travel

EUROPEAN SWANS

German bankers at war with Euro Central Bank
Germans abandon the EuroCB, leaving it to Goldman Sachs, see Draghi
Spanish banking system has yet to write down squat on housing credit assets
Portugal, Italy, and Spain sure to follow Greece into a debt default
Belgium has had no government for a full year
Ireland prints more money per capita than the USFed
US & NATO to part ways

CHINESE SWANS

G-8 Meeting is pushed aside, as the Anglos deal with broad insolvency
G-20 Meeting takes center stage in a power play, led by China and the BRICs
China buys discounted PIGS sovereign debt, to redeem later in central bank gold
Chinese FX reserves exceed $3 trillion held in sovereign wealth funds
China owns most world major ports, as part of a strangulation process
China conducts the great Idaho experiment, toward re-industrialization of America

HIDDEN SWANS

Swiss faces hundreds of $million lawsuits, for refusal to deliver Allocated gold
Saudi Arabia cuts new deal for Persian Gulf security protection, see Petro-Dollar
Citigroup has high hidden exposure to Greek Govt debt default
Chinese vengeance over reneged USGovt gold & silver lease, as part of the Most Favored Nation granted status, has motivated its extreme pursuit of precious metals
Containers hold $300 to $500 billion in EuroNotes at Greek port warehouses
Internet strides light years ahead of USGovt regulatory hounds at syndicate offices
Chemtrails, storm steering, lingering droughts, fallout falling, haarps a playing

GOLD & SILVER BREAKOUT IN ALL CURRENCIES

The great spring 2011 precious metals consolidation is coming to an end. In no way is the Quantitative Easing program coming to an end, otherwise known as hyper monetary inflation. Printed money is being abused to cover bank insolvency and to redeem toxic bank assets. The central banks are taking down the QE billboards. They will continue with their debt monetization in order to manage the financial system collapse in an orderly manner. As David Malpass adroitly said on Bloomberg Financial News, the debt monetization known as quantitative easing will quietly become an integral but hidden part of the USFed monetary policy. The central bank must find a way to cover the $200 billion in monthly USTreasury auctions, to roll over the obligated primary bond dealer inventory, and to lap up the mountain of toxic mortgage bonds that prevent an all-out cave-in of the bank balance sheets. The reality is that nothing has been fixed, nor attempted in solution. The grotesque insolvency of banks, households, and government is the marquee message. Without continued monetization, the system would collapse rapidly and disorderly. However, with continued monetization, with a QE chapter by another name or conducted behind the same curtains, the system will collapse in a gradual and orderly manner. The USFed has no more credibility. The announcement on Wednesday that the New York Fed refused to provide details on stolen Iraqi Reconstruction Funds is the latest blatant syndicate action that screams criminality. Witness the early stage of another uniformly applied global Gold bull market breakout.



The Gold price has hit record highs in the British Pound Sterling, where their banks are insolvent, their economy is in reverse, price inflation is ramping up, and their currency is facing grandiose debasement. The SterlingGold price smells monetary ruin. The global breakout is manifested first in the most broken non-American locations, since the spring ambush orchestrated in the COMEX has put huge pressure on foreign currencies. The Competing Currency War still leads the desperate USFed officials to slam foreign currencies and to place financial press attention on their declines.



The EuroGold price smells monetary ruin. The attention has been squarely on the Greek battle to avoid debt default. Every news story about the USEconomy faltering is following immediately by a story of Greek bailout impasse or Athens challenge to ingest suicidal austerity pills or riots on the Athens streets. The differentiation of EuroBonds with greatly varying bond yields has permitted the Euro to trade on speculative merit. The Greek default threat surely pushes down the Euro. But the prospect of a higher Euro Central Bank interest rate leaves speculators to buy the Euro, since proper pricing mechanisms are in place on the sovereign bond yields. The European investors are clearly flocking to Swiss banks on the paper investment side, but their pursuit of Gold is enormous. The Euro Monetary Union is running on fumes. The pain in Spain is hardly on the wane. The Gold price will rise and break out soon enough.



The YenGold price smells monetary ruin. The situation in Japan is terrible, complicated, and tragic. The advent of trade deficits will aggravate the outsized cumulative debt burden on the nation. The paradox is starting to show itself. Their trade deficits will force the national insurance firms and banks, even the Bank of Japan, to sell existing US$-based assets in a political compromise. They do not want to monetize more debts. They do not want to create worse federal budget deficits. They will compromise by selling foreign assets to finance the reconstruction and dislocation costs. The paradox will manifest itself with a rising Yen currency in the face of worsening deficits in every conceivable crevice. As their nation slides into the sea, both literally and with red ink, and the salt on the wounds coming in the form of price inflation, the Gold price will rise and break out soon enough.



Last to break out will be Gold in US$ terms. The Gold price smells monetary ruin on home turf, not to be deceived by any USFed head fakes. Perhaps a sudden awakening to the obvious continuation of QE2 and merge into QE3 could enable a Gold breakout in double quick fashion, ahead of other currencies. Much more stability is seen in the Gold price rise in US$ terms, as the destruction is more stable, the monetary ruin more understood, the federal budget debate more openly futile, and the national insolvency more publicized. The early May high of 1563 will easily be surpassed, all in time. The impetus might be QE163 or a liberated USGovt deficit from a raised debt limit or a failed USTreasury auction or a big US bank failure or a spike in mortgage rates or a plummet in housing prices or a longer parade than the current stream of miserable USEconomic data. The Gold price rose toward $1550 following the vacant FOMC meeting on Wednesday, where the main purpose was to put us to sleep.

by Jim Willie CB
Editor of the “HAT TRICK LETTERâ€

U.S. Horrific National Debt, Are You Prepared For The Coming Economic Collapse And The Next Great Depression?

Economics / US Debt
Jun 23, 2011 - 06:39 AM
By: Chris_Kitze

Michael Synder writes: It really is hard to find the words to describe the true horror of the national debt. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what "normal" is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. It was Dick Cheney who famously said that "deficits don't matter". Well, try telling that to the nation of Greece right about now. The horror that Greece is just beginning to experience is a preview of what is going to happen to us as well. Only when it happens to us it is going to be so much worse, because when we go down we are going to bring the entire global financial system down with us.

What we have done to future generations is beyond sickening. Previous generations entrusted to us the greatest economic machine in the history of the world and we destroyed it. Now we are leaving to our children and our grandchildren an economic future that has been totally wiped out and a national debt of more than 14 trillion dollars that we expect them to repay.

In Washington D.C. these days, there is a lot of talk about the debt ceiling. But whatever the politicians do, it is not going to solve our debt problems. If the debt ceiling does not get raised, we move the financial pain into the present. World financial markets would crash and that would be followed by a devastating economic nightmare.

If we do raise the debt ceiling, that will "kick the can down the road" a little bit farther. However, world financial markets will still crash eventually and our eventual economic nightmare will be even worse.

Well, can't we just "inflate our way" out of debt?

No, unfortunately things are just not that easy. If we try to inflate our way out of debt, interest rates will likely rise just as quickly as inflation does, and that would be absolutely catastrophic.

Before interest rates even reached 20% we would hit a point where it would take every single dollar taken in by the federal government just to pay the interest on the national debt.

Meanwhile, rapidly rising inflation would devastate the value of all of your bank accounts and every other single financial asset that you own.

So no, inflating our way out of debt is not going to work.

At the moment, the U.S. federal government is able to borrow gigantic quantities of money at super low interest rates.

When that changes, all hell is going to be unleashed.

The following are 41 statistics about the national debt that are almost too crazy to believe....

1 - As of June 20th, the U.S. national debt was $14,344,524,186,068.19.

2 - 30 years ago, the U.S. national debt was approximately 14 times smaller.

3 - It took from the presidency of George Washington to the presidency of Ronald Reagan for the U.S. government to accumulate one trillion dollars of debt.

4 - Since then, we have added more than 13 trillion dollars of additional debt.

5 - The United States government is responsible for more than a third of all the government debt in the entire world.

6 - If you divide up the national debt equally among all U.S. households, each one owes over $125,000.

7 - Mandatory federal spending is going to surpass total federal revenue for the first time ever in this fiscal year. That was not supposed to happen until 50 years from now.

8 - Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.

9 - The federal government has borrowed 29,660 more dollars per household since Barack Obama signed the economic stimulus law.

10 - During Barack Obama's first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.

11 - The U.S. national debt is currently rising by well over 4 billion dollars every single day.

12 - The U.S. government is borrowing over 2 million more dollars every single minute.

13 - The U.S. government borrows an average of about 168 million dollars every single hour.

14 - The combined debt of the major GSEs (Fannie Mae, Freddie Mac and Sallie Mae) has increased from 3.2 trillion in 2008 to 6.4 trillion in 2011. Thanks to George W. Bush, Barack Obama and the U.S. Congress, U.S. taxpayers are guaranteeing that debt. This is debt that is not even included in the $14.3 trillion national debt figure.

15 - Some experts estimate that the unfunded liabilities of the U.S. government for programs such as Social Security and Medicare are in the neighborhood of 60 trillion dollars. Other experts claim that the total for federal government unfunded liabilities could be well over $100 trillion. But what almost everyone agrees on is that it is going to be virtually impossible to even come close to meeting all of those obligations.

16 - The U.S. government currently has to borrow approximately 41 cents of every single dollar that it spends.

17 - The total compensation that the federal government workforce earned last year came to a grand total of approximately 447 billion dollars.

18 - The level of government waste in this country is absolutely mind blowing. For example, the Department of Health and Human Services has just announced a brand new $500 million program that will, among other things, seek to solve the problem of 5-year-old children that "can't sit still" in a kindergarten classroom.

19 - In the past, the U.S. government has spent $2.6 million dollars to study the drinking habits of Chinese prostitutes and $400,000 dollars to pay researchers to cruise bars in Buenos Aires, Argentina to find out why gay men engage in risky sexual behavior when drunk.

20 - The cost for the first week of airstrikes on Libya was 600 million dollars. Keep in mind that the leader of the opposition in Libya has admitted that his forces contain large numbers of the same "al-Qaeda fighters" that were shooting at American troops in Iraq. So we are going broke and we are helping al-Qaeda take power in Libya at the same time.

21 - Just one day of the war in Afghanistan costs more money than it took to build the entire Pentagon.

22 - In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for 18.4% of all income.

23 - 59 percent of all Americans now receive money from the federal government in one form or another.

24 - Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid.

25 - Back in 1950, each retiree's Social Security benefit was paid for by approximately 16 workers. Today, each retiree's Social Security benefit is paid for by approximately 3.3 workers. By 2025 it is projected that there will be approximately two workers for each retiree.

26 - U.S. households are now actually receiving more money from the U.S. government than they are paying to the government in taxes.

27 - Back in the 1950s, corporate taxes accounted for about 30 percent of all federal revenue. In 2009, corporate taxes accounted for just 6.6 percent.

28 - The U.S. national debt has increased in size for 54 years in a row.

29 - If the U.S. government was forced to use GAAP accounting principles (like all publicly-traded corporations must), the U.S. government budget deficit would be somewhere in the neighborhood of $4 trillion to $5 trillion each and every year.

30 - According to a shocking U.S. government report, interest on the national debt and mandatory spending on entitlement programs will absorb approximately 92 cents of every dollar of federal revenue by the year 2019.

31 - A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?â€

How An Economy Collapses

Economics / Great Depression II
Jun 20, 2011 - 02:41 AM
By: Dr_Martenson

Chris Martenson: Welcome to another ChrisMartenson.com podcast. I am Chris Martenson your host today as usual. Today we’re speaking with Fernando “FerFALâ€

U.S. Federal Debt on the Elevator to Hell

Politics / US Debt
Jun 19, 2011 - 06:26 PM
By: Gary_North

If you think the Federal debt ceiling is anything but an elevator, I've got news for you.

Maybe you saw the story about the Air Force airlift of $12 billion in unmarked bills that landed in Iraq sometime between 2003 and 2004 – no one seems sure just when. The story was written by a Los Angeles Times reporter and published on January 13.

Pentagon officials determined that one giant C-130 Hercules cargo plane could carry $2.4 billion in shrink-wrapped bricks of $100 bills. They sent an initial full planeload of cash, followed by 20 other flights to Iraq by May 2004 in a $12-billion haul that U.S. officials believe to be the biggest international cash airlift of all time.

There was a slight glitch in the execution of the plan. Some $6.6 billion of this – three fully loaded planes full – has gone missing.

The story was picked up by the Web, but got little play in the mainstream media. The Huffington Post and Fox News reported it, but not the other major media. The fact that several plane loads of shrink-wrapped $100 bills are unaccounted for is not big news in the minds of America's mainstream editors. A search on Google reveals how little mainstream media interest there was.

There was a modification published by Fox. The auditor in charge said that he never used the figure $6.6 billion. He claimed that only $2.8 billion are unaccounted for. This story was also not picked up by the media.

My point is not that the Pentagon cannot account for either $6.6 billion in missing currency or only $2.8 billion. That is hardly news. My point is that the conflicting sums are so miniscule in comparison with what the U.S. government wastes every day that the story is not considered media worthy when any agency loses this much. The public is so used to stories of wasted billions that this story is a curiosity at best. I suppose that it would make a good Bruce Willis "Die Hard V: Payback!" script, with Bruce going over to the dark side and leading a team that flies the tax-free money to Switzerland. Yippee-ki-yay.

Yes, the Pentagon flew $12 billion in currency to Iraq. But why? The reporter did not ask why Iraq needed American currency. Why not just digits?

Why was the dollar the needed currency?

Who picked up the cash? There were not enough receipts.

The follow-up story in which the auditor provided the $2.8 billion figure indicates that he thinks the Iraq government got the money. He doesn't really know. No one has asked what the Iraqi government intended to do with U.S. currency, as compared with digits that agencies normally use.

Who in the U.S. government authorized this transfer of funds? We do not know. Whose plan was being executed? We do not know.

This happened at least six years ago. Who in the U.S. government has been researching this? The money is long gone.

I could go on with other questions, to no avail. The facts are these: an unknown someone for no written official reason withdrew $12 billion in currency, loaded it onto 21 Air Force planes, flew the money to Iraq, where it was turned over to someone or other, with either $2.8 billion or $6.6 billion unaccounted for, sometime (no one seems sure) between 2003 and 2004. Explanation:

But U.S. officials often didn't have time or staff to keep strict financial controls. Millions of dollars were stuffed in gunnysacks and hauled on pickups to Iraqi agencies or contractors, officials have testified.

Buried in the story is this tidbit: the U.S. government has spent $61 billion on reconstructing Iraq's economy. This is in addition to the vastly large sums that the U.S. government spent on destroying the Iraq economy. Why? For these three words: "We got him."

Yippee-ki-yay.

WASHINGTON'S FREE RIDE

The lunacy is not the missing $2.8 billion or $6.6 billion in shrink-wrapped bills. The lunacy is the entire endeavor in Iraq. But this lunacy has not penetrated the thinking of the majority of American voters. There are no protestors in the streets. There are no well-organized campaigns of letter-writing. Basically, nobody cares.

The Republican debates held this week did briefly touch on the issue, but Ron Paul was the only candidate who said emphatically that our troops should be brought home immediately. That was easy for him to say: he publicly voted against the Iraq war.

We are halfway through Obama's third year, yet 45,000 U.S. troops are still there, plus however many mercenaries are on the payroll, a figure estimated in the past at 100,000. No one knows, any more than they know whether $2.8 billion or $6.6 billion in currency went missing. The point is, the voters do not really care that no one knows.

The public does not feel any pain from the war in Iraq. The Iraq war is still going on. We don't need 45,000 troops plus mercenaries where there is no war. The World War II refrain – "Don't you know there's a war on?" – is applicable today. Hardly anyone knows. It's no longer news.

Whenever the public feels no pain, the public does not care what the government does. The public is oblivious. The missing currency was not a big story, not merely because editors decided not to run it, but because they figured that it would not increase ratings or subscriptions to feature it. It was non-news. They perceive that the public is interested in other things, such as Congressman Weiner.

This lack of interest gives the politicians a free ride. They need not confront the issue of specific Federal spending. The deficit in general is of some interest, intermittently, but not the specific issues of the budget. Because Congress is unwilling to cut specific programs' budgets, the general deficit is heading higher. Congress knows that the public does not care.

In a June 15 article, a MarketWatch columnist dismissed the Republican candidates' debate with these words:

The half-minute answers forced the candidates to use Beltway shorthand in their answers that must have been indecipherable to any viewer who does not follow politics for a living. Texas congressman Ron Paul, for instance, babbled on about his fixation with the dollar as a reserve currency – a concern that is extremely remote for most voters.

Notice his dismissive adjective: "babbled." This is the rhetoric of contempt. The author of the article is clearly uninterested in something so remote as the issue of the dollar's reserve currency status. He has not spent 40 years, as Paul has, studying the Federal Reserve and monetary policy. In any case, 30-second sound bites do not allow time for babbling. But that did not faze the columnist's choice of a word.

He, like most of his peers, is in the obfuscation business. "Pay no attention to the make-up of the Federal Open Market Committee, where the New York Federal Reserve Bank – a private corporation – alone among the regional FED banks, always has a voting member. Move along. There is nothing to see here."

But his point regarding the public was well-taken. The concern of the mass of voters is not with the world reserve currency status of the dollar. They are concerned with unemployment. They are concerned with falling real estate prices, the possibility of the bankruptcy of Social Security and Medicare, and the disappearance of their dreams of a comfortable retirement. They are unaware of the tight connections among all of these concerns and Federal Reserve policy. Their ignorance benefits politicians, the Board of Governors of the Federal Reserve System, and the senior managers of the four or five largest U.S. banks. It gives these high-level decision-makers a free ride.

TRANSFERRING RESPONSIBILITY UPWARD

The total size of civil government in the modern world is immense. Not counting the economic burden of regulation and monetary inflation, the tax burden in the United States is in the range of 40% – Federal, state, and local. It is higher in most other Western democracies.

There is no way to monitor most of what civil governments do. We know that it is impossible to monitor the purchasing decisions of over 300 million Americans. Consider the number of transactions per day. One estimate of the total number of bar coded SKUs (stock keeping units) of products – not services – in the New York City region is nine billion. The immensity of the amount of information that goes into all of these decisions, month after month, is beyond the power of human comprehension. Yet the size of the various civil governments is close to the size of the private sector.

We do not try to monitor the decisions of 300 million Americans. We know it would be futile. It would require an immense government bureaucracy to do this. We do not want such a bureaucracy.

The logic of this attitude of humility regarding the monitoring of the private sector should not stop with the private sector. We should recognize the inherent limits on monitoring most of the decisions of most government bureaucrats. If we think that we can in some way monitor, evaluate, and direct these decisions, we are deluding ourselves.

Yet the logic of all civil government is that voters can somehow set up a coherent administrative system of central budgeting and management that enables salaried committees to monitor all of the expenditures of all of the bureaucrats, seeing to it that waste is minimal, freedom is maintained for the masses, and the public's will is implemented. In other words, the implicit assumption underlying modern civil government is inherently preposterous, i.e., lunatic.

All theories of democratic civil government rest on the assumption that the voters somehow can monitor the decisions of tax-funded government agencies. These theories assume that voters and their elected politicians can maintain control over what is done with the state-confiscated wealth of the voters. These theories are preposterous. Waste is inherent in civil government. So is graft. There is no way to monitor billions of transactions. The possibilities for theft are enormous and continuous. So are the possibilities for misuse of funds to suppress our liberties.

Occasionally, a story of some enormous siphoning off of public wealth surfaces. The story of the 21 plane loads of shrink-wrapped $100 bills sent to Iraq is such a story. The media rarely pick up these stories or emphasize them. Why not? Because the media are part of the overall system of control by the bureaucrats. The mass media are not interested in shrinking the state. They are interested in expanding it. This has been true in the United States ever since the Civil War.

WHY THE RACHET OF SPENDING RISES

Until voters perceive that they are being hurt by the transfer of 40% to 50% of their productivity to civil government, the system is immune to reform. Until voters feel real pain as a result of this confiscation, there will be no change. Until voters can identify the cause of their pain – wealth transfer by state coercion – there will be no change.

The politicians and the beneficiaries of their policies have an incentive to keep the pain level of the voters at a minimum. When politicians can use the voters' fear, envy, or guilt to persuade voters to transfer more responsibility and greater wealth to the state, they will do whatever they can to fan the flames of fear, envy, and guilt.

The story of the shrink-wrapped bills was itself shrink-wrapped by the media. A story like this has to be buried by the authorities. It testifies to the inherent absurdity of the democratic logic of the welfare-warfare state. It points to the impossibility of monitoring the siphoning off of our wealth.

The reporter did not press the official accountant with questions about the justification of the $12 billion transfer. Instead, he focused on the $6.6 billion in lost money. The relevant questions relate to the war in Iraq itself. But that question has caused no incumbent politician any pain.

In every war, there are a few politicians who oppose it from day one. In American history, Jeannette Rankin is the towering figure. She was the first woman elected to Congress, in 1916. You might think that this would give her an automatic paragraph in every U.S. history textbook. It hasn't. That was because she voted against World War I (one of 50 who did), and then literally alone voted against a declaration of war against Japan, and then voted "present" four days later in response to the declaration of war on the U.S. by Germany and Italy. The historians never forgave her.

The politicians who vote "no" are never proclaimed retroactively as heroes by voters after the war turns sour. Always, voters prefer to forget that they were sucked in by the politicians who fanned the war flames. This analysis applies to bad political policies in general. Opponents of highly popular bad policies are not rewarded later for their initial wisdom and courage in opposing the policies. Voters prefer to believe that they had been right when they supported the programs. To think otherwise is to condemn themselves as short-sighted fools. The result is obvious: reduced opposition to bad policies.

So, we rarely find any revocation of bad policies. They remain on the books. The bureaucracies that the laws created remain open for anti-business. There is an occasional exception, such as the Civil Aeronautics Board (price floors) and the Interstate Commerce Commission (price floors), but this is extremely rare.

CONCLUSION

Anyone who thinks the Federal debt ceiling is now or ever has been a ceiling has not come to grips with the political reality of the free ride. Until there is widespread political pain, there will be no debt ceiling. It's an elevator, and it keeps going higher.

There is not yet widespread pain. There is no widespread identification of the ever-expanding Federal government and the reduction of economic growth and the increase in Federal debt. The debt ceiling is not taken seriously by Congress and never has been. It never goes down.

The bills will come due. The can will grow too large to kick. But until then, the voters will continue to imagine that there are free lunches in life. They will continue to grant the politicians a free ride.

When the can is finally too large to kick, the defaults will begin. If you hold IOUs from the government, you will find that you, not the can, will get kicked. Hard.

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