August 15, 2018

>The Government Bubble Heads for a Blow-Off Top

>I have a friend that tends to express his ideas about everything in the jargon of a securities trader. Of course, this is probably because he has been a very successful trader, both in bull and bear markets, for many years. “Every trend in history, even liberty, can be charted like a stock,” he has often observed. I tend to agree.

As any trader will tell you, bull markets do not go straight up and bear markets do not go straight down. Rather, they tend to meander in the direction that they are headed. During a long-term bull market, a trend will have major pull-backs and long periods of consolidation. It is the experienced trader that knows how to “buy low and sell high,” taking advantage of the back and forth action of a stock or a sector on its journey. However, even wiser is the investor that can spot the trend at the beginning and keep buying lows without having to attempt to time the market and sell at all. The legendary Jim Rogers has often said that he is “the world’s worst short-term trader.” He would rather buy something that he can own forever than buy with the intention of having to sell.

Gold has been the most spectacular bull market over the past decade. Like all trends, it had periods of dramatic rise, followed by sharp pullbacks that gave back a portion of the gains, and then long periods of consolidation. Once a consolidation was over, another dramatic rise in price followed. The first run began at the beginning of the decade, with gold selling under $300 per ounce. It ran up to over $700 per ounce in 2006 before pulling back sharply under $600. The price then consolidated there for an entire year before the next leg up began. That second leg ran all of the way over $1,000 per ounce before pulling back to the low $700’s. Again, there was a long consolidation before this latest run, which will take gold we know not where.

All of the movements in the price have explainable reasons. When the fundamentals are stronger than the actual price of the security or commodity, investors begin buying. Once the price starts to move up, traders begin wading in to make profits on the movement of the price, both up and down. At any given time, there are those who are long and those who are short. Contrary to the nonsense you hear from government officials and their kept economists, short sellers play a vital role in keeping the market healthy. When a stock, commodity, or sector beings to fall in price, short sellers help stabilize that price because they have to buy the stock that they sold short to cover their short sales.

You will often hear the wisest of investors say that a trend is about to reverse when there is no longer any disagreement about it. When everyone is positive on a stock or a bull market, it is about to go down. When everyone is negative, it is about to make a run up. When all of society agreed that the NASDAQ would never go down – when every conversation in every coffee shop, supermarket, or dinner party revolved around the wonderful opportunities in technology stocks, wise investors knew it was time to get out.

Of course, this is not some sort of market magic or voodoo. It is simple cause and effect. When there are few sellers in a market and many buyers, the price is going to be inflated far beyond its value. From an opposite standpoint, when short sellers are forced out of the market in a “short squeeze,” there is now nothing to stop the price from falling precipitously once it starts to fall. With no short sellers covering their shorts, the price falls like a stone. Thus, at the end of long bull market, a bubble usually develops, characterized by a final, parabolic “blow off top,” followed by an equally dramatic drop in price.

The past 100 years has been a bull market for government. While the seeds of the run were sown in the mid-19th century, the bull market in government really began at the turn of the 20th century. The first signs of the bull could be spotted as early as the (Teddy) Roosevelt administration, but the real advances came under Woodrow Wilson. The income tax, the Federal Reserve, and the 17th Amendment were advances in government that made gold’s move from $275 to $700 look tame.

There was then a period of consolidation during the so-called Roaring Twenties. It was not so much a pull-back of government as a slow-down in the pace of its growth. Under three Republican presidents, the government bull market consolidated as Americans convinced themselves that they had restored a free market (because the Republicans said they did, despite their actual support of big government fundamentals).

The next big move came during the Great Depression. While the stock market and the real economy went south, government went on another tear as FDR fully instituted the modern welfare state, the fascist regulatory structure, and took America to war. After 16 years of absolute misery, even the most enthusiastic government bull must have thought it was time for a pullback. It was brief, but it came.

Americans again elected a Republican president in the 1950’s and convinced themselves that they had restored the American system and rejected the big government philosophy of FDR and his liberals. However, this, too, was only another consolidation. In actuality, it was Eisenhower that paved the way for LBJ’s Great Society by creating the Department of Health, Education, and Welfare (now the Department of Health and Human Services). The 1950’s are fondly remembered as a period of (mostly) peace and prosperity for America. It was only another consolidation period for government’s century-long bull run.

The next great move came during the 1960’s, when LBJ again lead a tremendous run up for government. Medicare and Medicaid, the other two entitlement monsters that will eventually combine with Social Security to bankrupt the United States, were born during this fabulous period for big government. The move ran right through a two-term Republican presidency (counting Ford’s mop-up after Nixon’s resignation) and into the Carter administration.

Most bull markets have two legs. Some have three, but usually no more than that. It seemed like that axiom would hold true for government as Ronald Reagan gave his first inaugural address. “In this crisis,” he told us, “government is not the solution to our problems – government is the problem.” It was the greatest inaugural speech of the 20th century. The government bull market was over. Or so we thought.

We now know that government didn’t get smaller during the Reagan years, but much bigger. However, there was at least a feeling of negativity about government during the Reagan-Bush years that even forced Bill Clinton to pass himself off as a free-market friendly centrist. It was another consolidation period, with a seemingly impossible fourth leg to follow.

We are in the midst of that fourth leg now, as government makes a more precipitous run up than at any time in history. In a few short years, the government will have nationalized the banking, auto, and health care industries. There are no more government bears to be found anywhere, either among Republican or Democratic politicians or (let’s face it) among 99% of the citizenry. Outside of a tiny constituency of libertarians, paleo-conservatives, and anarchists, there are absolutely no non-believers in government left. The rise is accelerating too fast for any protest or community organizing to stop. It’s a short squeeze as the government bull stampedes.

While this might be a terrifying period for anyone remotely interested in living his own life, there is much reason to be hopeful. As most bull markets eventually do, government is experiencing a blow-off top. The curve has bent straight up, with nary a short to be found in any political party or in any bowling alley or church social. Americans have convinced themselves that government either “should” or “must” do something about absolutely everything. We should expect the run to pick up speed, as government invades every aspect of our lives. Never before – not even in the most barbarous ages – has government made such enormous claims upon the life, liberty, or property of its subjects. Medieval serfs were taxed less. Ancient slaves were freer. Not even the brutal Romans killed with such efficiency and on such a scale.

For all of these reasons, it is about to end. With almost uncontested faith in government, its role has expanded so far beyond what it is actually able to deliver that soon we will see a fall that will make the real estate meltdown look like a mild pullback. Having rode the last leg of the move and squeezed out the last of the shorts, government is about to remind everyone that it not only should not be providing what it is attempting to provide, but that it cannot provide it.

At the moment that the whole world has accepted that government will centrally plan all of the economy, take care of its citizens from cradle to grave, and rule a worldwide military empire –all with money that comes from nowhere – at that very moment the age of government will end. The end is going to come fast, too, just like the end of the bull markets in technology stocks and real estate. Ben Bernanke will still be telling government bulls that there is nothing to worry about long past the moment when his time is up. That’s how fast it’s going to be.  As in any market, the moment when every bear is gone is the moment that the bull run is over.

This will not be a pleasant experience. No correction ever is. Fortunes will be lost (albeit mostly fortunes dishonestly made), but innocent people will be hurt, too. All of society will come to the realization that government really can’t provide anything, beyond the brute force that is only justified in self defense. It may take a generation to repair the damage. It’s going to be rough.

However, we should remember one thing. When a bubble deflates, the capital that is not destroyed seeks another refuge. When the NASDAQ melted down and the U.S. dollar began to implode, the smart money fled to gold. It will be no different during the bursting of the government bubble. With a precipitous fall in government, there is an equally dramatic rise in its opposite – liberty.

Americans will have to forego the ill-gotten gains provided by government and do with less while they rebuild. That is unavoidable. While the NASDAQ bubble actually started on a real foundation, the fundamentals of the government bubble were never real. It was all an illusion and it is five minutes from ending.

It’s going to be great.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2010

>A Nation of Hyenas

>One never knows where one will find profound metaphors for human existence and society, and I certainly wasn’t looking for one while channel surfing last weekend after a morning of yard and house work. However, I had the good fortune to flip on Mutual of Omaha’s Wild Kingdom and observe a perfect analogy to what our once-great society has become.

That episode was about the cheetah, the fastest land animal on earth. The cheetah is a beautiful creature. As the show pointed out, it is literally built for speed at the expense of brute strength, of which it has relatively little compared to other predators in its habitat. While unfortunate for the antelope, it was nonetheless quite inspiring to watch a high-speed pursuit of that animal by the cheetah, exhibiting gracefulness which rose to the level of poetry. Having made her kill, the cheetah brought the antelope back to feed herself and her young.

However, the story was not to end so happily for this family. The smell of blood in the air had attracted a pack of one of the cheetah’s competitors, the hyena. While the aforementioned lack of brute strength would probably not allow the cheetah to fight off even one hyena, that fact was irrelevant in that it was ten or twelve hyenas which now threatened her. Why? They were after the antelope – the fruits of the cheetah’s labor – and were going to use their greater numbers to take it from her by force. They weren’t intent upon killing the cheetah or her young, but were willing to do so, if necessary, to obtain her property without her consent. The cheetah weighed the risks to herself and her cubs and retreated, left to try to make up the loss elsewhere to provide for her family.

A few nights later I broke an embargo of sorts and actually watched a “news” program. I tuned in Cavuto on Fox News[1], which is one of the few shows where actual journalism seems to occur occasionally, despite its network affiliation with right wing propagandists Hannity and O’Reilly.

Cavuto’s regular panel of guests is arguably the most libertarian one can find anywhere in the “mainstream media,” regularly featuring Jonathan Hoenig, Peter Schiff, and even Yaron Brook, President of the Ayn Rand Institute.

That night, the auto company bailouts were again on the docket, and familiar arguments were made by Hoenig and the other panelists about why the results would be worse if the government took control of the auto industry. Cavuto’s token panelist from the left[2] (a female panelist whose identity I have been unable to verify), made the now also-familiar argument that “we bailed out Wall Street and now Main Street is demanding that the government do something for them.” Most of the panelists answered correctly that they were against the Wall Street bailouts as well, a point that was left unemphasized due to several people talking at once. However, the real chance for a meaningful debate still lay ahead. The boisterous Cody Willard set the stage when he said, “if you want to help them, send them your money, but don’t hold a gun to my head.”

The reply from the panelist arguing the liberal perspective was monumental:

“That’s why we have a democratically-elected government and the people want the government to do something.”

When she gave that answer, it was time to stop the quips, the witticisms, and even delay going to a commercial, if necessary. Despite the fact that the host trivialized the exchange by talking over part of both her and Willard’s comments, the exchange between the two was enormous beyond what most viewers probably realized.

There are many who would probably consider Willard’s statement a half-facetious exaggeration for effect. It was not. It is the horrifying reality of what any government bailout or other redistribution of wealth represents. We as Americans have forgotten that all government action is exercised under exactly these circumstances: at gunpoint. That is the purpose of government, to exercise brute force on behalf of its constituents when it becomes necessary to do so. That is why our government was originally so limited. The founders of our nation believed that brute force was only justified in self defense. Therefore, government action was limited to protecting its constituents from harm by other people, whether it was harm by a fellow citizen or a foreign army.

However, when the government undertakes to “do something” about a failed bank or auto company, it really means that We the People have decided to apply brute force to the problem, even though it is not a matter of self defense. Willard was completely accurate: a government bailout of a distressed auto company, whether it saves jobs or not, is really the people using their collective means of brute force (the government) to take property from one group of people and give it to another. This exchange is done at gunpoint – there is no consent by the party being taken from. Had the managers or the employees of the auto company armed themselves and sought to raise the funds themselves by stealing them at gunpoint from the people directly, they would have been arrested and prosecuted for armed robbery. However, Willard’s opponent in the debate argues that there is some ethical difference because a “democratically-elected government” acts as the armed robber in their stead. What can the difference possibly be?

This is the fundamental question that we as a society must answer if we are ever going to reverse the downward spiral we find ourselves in. Do we believe that individuals have inalienable rights or do we believe that a majority vote can take those rights away?

If one takes an objective look at our society as it has evolved over the past century, one must conclude that we have already answered it. Stripped of euphemism, almost every government institution in our society amounts to us using the brute force of government to violate the inalienable rights of our neighbors. Let us consider just a few examples.

Government involvement in healthcare has driven the price so high (through the artificial demand it creates) that the poor and elderly cannot afford it. Our answer is to apply the brute force of government to steal the money at gunpoint from one group of people to provide healthcare to another. In a truly bizarre development, that practice has now resulted in such high prices that almost no one can afford healthcare. So, we will now steal from everyone to provide healthcare for everyone. Lewis Carroll couldn’t have dreamed of anything quite so mad.

In order to be able to stop working but still enjoy the quality of life we feel we deserve after a certain age, we use the brute force of government to steal from those who are still productive to support those who are not. We could save for our retirement, but we choose instead to steal. We call this “Social Security.” It should be called, “Anti-Social Insecurity.”

Similarly, in order to afford to buy a house without saving the necessary down payment and establishing superior credit, we use the brute force of government to compel our neighbors to guarantee our mortgage loans with their money. When the inevitable tsunami of defaults occurred last summer, some objected to the government stealing the money to cover the losses of the banks. In truth, the money had been stolen decades ago, the minute that Fannie Mae was established.

Rather than saving the money for college tuition or allowing our children to work their way through college if we cannot afford to pay the tuition in full, we use the brute force of government to compel our neighbors at gunpoint to guarantee our student loans with their money. As with healthcare, this evil practice has driven the price of college tuition so high that not only are students going into long-term debt just to pay for their education, but their parents are taking out decades-long loans as well.

Should fortune not smile upon us or should we not develop marketable skills with which to obtain employment, we use the brute force of government to steal the money needed to sustain us from our fellow citizens. We call this the “social safety net,” but it also should be recognized as “anti-social.”

If we believe that we have a scientific theory that could lead to a new discovery that will benefit society (and enrich ourselves), we do not seek out capital to research it from those who can provide it voluntarily. We use the brute force of government to steal the money from our neighbors with the flimsy justification that “federal funding of research” will “benefit all of society” with a new medicine or a new technology.

This is by no means the length and breadth of the ways in which we violate each other’s rights on a daily basis. Every program funded by government, besides those that have the express purpose of defending our rights (police forces, the courts, the military), amount to the same thing: using our collective means of brute force to extract money from one group and give it to another.

What should be obvious is that it is not one evil group (the poor, the elderly, the corporations, Wall Street, etc.) that engages in this morally repugnant practice. Politicians will pick their scapegoats to play to their own power bases. The Republicans will blame the poor to get votes and campaign contributions from their base, the corporations and the rich. The Democrats will blame the rich and the corporations to get votes and campaign contributions from their base, the unions, average Americans, and the poor (the poor have only their votes to give and get back only the most miserable portion of the loot).

However, we must wake up to the fact that we all have a hand in this. The steady growth of one redistribution scheme after another has made it virtually impossible to function in our society without in some way participating in the looting of our fellow citizens, while we are at the same time looted ourselves. We have established all of these redistribution schemes through the democratic process. This past century has not been a progressive century. It has been a regressive one. We have regressed from a society of free people that respect each other’s inalienable rights to a society that is based upon competing groups stealing from one another through the brute force of government. We use only the support of greater numbers (majority vote) to justify the institution of each new crime. We have regressed to the brutal law of the jungle. We have become a nation of hyenas.

This has all followed logically from one fundamental break we made from our founding principles. We have elevated democracy to an ideal, at the expense of the individual rights that our government – and any government of free people – was constructed to protect. We have convinced ourselves that anything a majority vote sanctions is just, even if it violates those rights. Once we accepted that premise, the seeds of our destruction were sown.

As one might expect, this is something that the founders of our nation warned us specifically against. When one takes an objective look at our founding documents, the first thing that should jump off the pages is how little democracy there really was in our original government. Only the House of Representatives was chosen directly by the people, with the president and senate chosen indirectly by electors or the state legislatures, respectively.

More importantly, it is vital to realize what all of the limits, checks and balances, and even the Bill of Rights were intended to protect us from. They were intended to protect us from democracy.

One does not need to engage in interpretation to support this claim. The founders said it explicitly on more occasions that one could count. Here are just a few examples:

“Democracy is the most vile form of government … democracies have ever been spectacles of turbulence and contention: have ever been found incompatible with personal security or the rights of property: and have in general been as short in their lives as they have been violent in their deaths,”[3]

“The majority, oppressing an individual, is guilty of a crime, abuses its strength, and by acting on the law of the strongest breaks up the foundations of society.”[4]

“There is no maxim, in my opinion, which is more liable to be misapplied, and which, therefore, more needs elucidation, than the current one, that the interest of the majority is the political standard of right and wrong.”[5]

These vitriolic attacks upon democracy and majority vote from the founders of our nation would probably surprise most Americans. Nevertheless, there they are. The founders understood that democracy was a means, not an end. Their end was protection of the inalienable rights of each individual. Democracy was only good and just insofar as it helped to defend those rights. Furthermore, it must be prevented from being used to violate them. Again, the founders said this explicitly.

“In short, it is the greatest absurdity to suppose it in the power of one, or any number of men, at the entering into society, to renounce their essential natural rights, or the means of preserving those rights; when the grand end of civil government, from the very nature of its institution, is for the support, protection, and defence of those very rights; the principal of which, as is before observed, are Life, Liberty, and Property. If men, through fear, fraud, or mistake, should in terms renounce or give up any essential natural right, the eternal law of reason and the grand end of society would absolutely vacate such renunciation. The right to freedom being the gift of God Almighty, it is not in the power of man to alienate this gift and voluntarily become a slave.”[6]

This passage elucidates another conclusion that proceeds from natural law. Not only is each individual prohibited from using the majority vote to violate the rights of his fellow citizens, he is prohibited from using that vote even to relinquish his own rights. That is because rights are not granted by society. They are inherent in man’s nature itself. They are non-transferable. They cannot be taken or even given away. That is the meaning of “inalienable.”

It was at the turn of the last century that we made the fundamental change in our philosophy. Since that time, we have held democracy up as our ideal at the expense of our natural rights. We did this primarily to justify the routine violation of one specific right: property. It is no accident that as democracy has become more and more extolled as an ideal, property has become more and more reviled. We have even had professors in American universities teach their students that “property is theft.”

Of course, like the hyena, we really do not care what our fellow citizens say or believe. We will not expend much energy in violating their rights to free speech or freedom of religion, because in the end we have nothing to gain from violating those rights. However, by violating their rights to the fruits of their labor, we do gain enormously at their expense. This is the true danger of democracy. We must face up to this plain fact and stop talking about everything but property. As Adams also said, “Now what liberty can there be where property is taken away without consent?”

We are at a crossroads. The system we have built upon the brutal law of the jungle is about to collapse. We are presently suggesting even more brute force (government) to try to preserve it. If we continue on this course, the relationship between predator and prey on the African savannah will seem civilized compared to the state of our society. Unfettered democracy – not unfettered capitalism – has brought us here. We must choose respect for our inalienable rights over the loot that unfettered democracy can provide us with. If not, we must admit to ourselves that the way in which we live and deal with one another is no different from that of the savage beasts of the jungle. A return to our founding principles is our only hope.

Are we not men?

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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[1] “Cavuto” Fox Business News May 27, 2009.
[2] While hard-core progressives might call her a “Fox News Liberal” for even appearing on the hated network, her role on this telecast was without question to argue the liberal side of the issue.
[3] Madison, James Federalist #10
[4] Jefferson, Thomas To Dupont de Nemours Washington ed. vi, 591 1816
[5] Madison, James Letter to James Monroe October 5th, 1786
[6] Samuel Adams The Rights of the Colonists (1772) The Report of the Committee of Correspondence to the Boston Town Meeting, Nov. 20, 1772 Old South Leaflets no. 173 (Boston: Directors of the Old South Work, 1906) 7: pg. 419.