What Would Michael Do?

Here�s a thought experiment to keep us occupied while watching the
shocking mismanagement of the response to Katrina and its aftermath.

I think we can all agree that in Libertopia, people would have been
self-reliant, responsible for their own actions, supportive of their
neighbors, etc., and that this disaster would have happened entirely

But: what if Michael Badnarik had been elected in 2004, or, if you prefer,
another Libertarian (yourself, even)? Having been in office for seven and
a half months at this point, how much of the federal infrastructure could
have changed, and given the states� reliance on federal aid and our
nanny-state society, what would or should a Libertarian president do?

~Chris, inspired by hilarious �what would Peroutka do?� comments on
fark.com, by far the best source of news for this unfolding disaster

I imagine Badnarik would cite some constitutional passage and say it's not a federal concern. The sad thing is, the fed controls of the levee system(according to the info posted by Phil) so it is already responsible.

-- Steve

Chris can correct me if I am wrong, but I believe Chris was referring
to the principle of personal responsibility regardless of what any
level of the government structure does or does not do. I hope the
Fates will not come back to bite me for saying this, but in an
emergency that threatens my family, I will decide what to do, not the
government. A Libertarian president would have sold the levies to a
private contractor.


> But: what if Michael Badnarik had been elected in 2004, or, if


> prefer,
> another Libertarian (yourself, even)? Having been in office for


> and
> a half months at this point, how much of the federal


> could
> have changed, and given the states' reliance on federal aid and


> nanny-state society, what would or should a Libertarian president


I imagine Badnarik would cite some constitutional passage and say


not a federal concern. The sad thing is, the fed controls of the


I agree with that principle and I'm a bit sickened by the apparent welfare system attitude of some of the evacuees I've seen on television. I'm just saying that just as a business is responsible the products it's customers pay for, the government has some responsibility to the taxpayers for the levee system that it took control of. That said, I don't think the federal government should have ever gotten involved with the system, and the city should take ownership and responsibility after the repairs.

Thomas Jefferson wrote: "Were we directed from Washington when to sow, and when to reap, we should soon want bread." and it likewise seems that when we are directed from Washington on how to construct our levees, we soon find ourselves under water.

-- Steve

Perhaps the red cross or bono could have bought an aircraft carrier
for didaster relief, not to mention a whole buch of surplus
helicopters. Imagine how much cash would be available to hep with no
income tax. but more seriously, there is a real local concern I have.
San francisco and many other localities have laws onthe books
prohibiting price gouging in emergencies. This law severly limits the
incentives for outside help to find it's way here for profit, or for
speculators to storeessential goods locally in anticipation of profit
in an emergency. The prohibbition against profiteering endangers the
life and health of every San Franciscan, inckuding the poor and
vulnerable who could be helped by those ofmeans and generosity locally
and nationally if the market was permitted to function in an
emergency.It would be interesting to study how well private
enterprise, insurance companies and private sharity performed in the
San francisco earthquake ehwn we still had a free countrry.

The boom in real estate and stocks continues much longer and goes much
further than a rational person would expect because whenever the boom
wanes, aditional credit is injected by the banks. However as prices
get higher it takes ever more credit to continue the boom and it's
vulnerability becomes more and more obvious. The Fed has stated
repeatedly it will meet any serious threat of deflation with more
money and credit. This is where the real kicker comes in and I have
never read it so clearly before. Eventually the public becomes
convinced that no matter what there will be no deflation and no end to
inflation. At that point the public realizes that holding cash is
always a losing proposition and flees to real assets...

The following is from a recent article by Robert Kirby:
Murray Rothbard, the brilliant student of Mises, explained the genesis
of the boom. "Why do booms, historically, continue for several years?
The answer is that as the boom begins to peter out from an injection
of credit expansion, the banks inject a further dose. In short, the
only way to avert the onset of the depression is to continue inflating
money and credit. For only continual doses of new money on the credit
market will keep the boom going and the new stages profitable.
Furthermore, only ever increasing doses can step up the boom, can
lower interest rates further, and expand the production structure, for
as the prices rise, more and more money will be needed to perform the
same amount of work. Once the credit expansion stops, the market
ratios are re-established, and the seemingly glorious new investments
turn out to be malinvestments, built on a foundation of sand.

"It is clear that prolonging the boom by ever larger doses of credit
expansion will have only one result: to make the inevitably ensuing
depression longer and more gruelling."

Mises continues, "It is true, the banks (or the governments) are in a
position to prolong the boom for some time by injecting progressively
increasing quantities of bank notes and deposits into the market. But
the artificially created prosperity cannot last forever. Sooner or
later it must come to an end. There are only two alternatives: 1. The
banks do not stop and go on expanding credit at a progressively
accelerated pace. But the spell of inflation breaks once the public
has the conviction that the banks and the authorities are resolved not
to stop. If no limit of the inflation and, consequently, of the
general rise of prices can be foreseen, a general flight into real
values starts. Everybody becomes aware of the fact that to hold cash
and deposit balances with the banks involves loss, and that he does
better to buy and store goods. Everybody is anxious to get rid of
money and to exchange it for some other commodities, no matter how
much he must pay for them. Prices are running away, and the purchasing
power of the monetary unit drops to zero. The national currency system
cracks up. 2. As a rule, the banks do not let things go so far. They
stop sooner by restricting credit. Then the day of reckoning dawns.
The illusions disappear, people begin again to see reality as it is.
The blunders committed in the boom become visible."

The fact is that IT IS TOO LATE FOR OPTION 2.

We have been told in no uncertain terms by Federal Reserve Governors
that there will be no deflation. Whatever funds are needed to avoid
deflation will be made available. The electronic printing press will
be resorted to.

That simply means that the US Dollar is doomed to extinction.

The bell is tolling for the US Dollar but the bell is also tolling for
us. We need to make some important investment decisions in the months
and years ahead.

Gold is the only commodity that has always been produced for
ACCUMULATION and not for CONSUMPTION. Silver used to be in the same
category, but has recently become more of an industrial metal.

The reason that gold has been accumulated over the millennia is
wealth can be stored during times when existing Government money is
being rapidly debased and losing its purchasing power – exactly the
situation we are facing over the next few years.

Currently the price of gold is at bargain basement levels. Not only
has the price been manipulated downwards, but investors have to
re-learn the benefits of holding gold. This they will do rapidly as
the events relating to the US Dollar become obvious to everyone. We
need to acquire some additional gold holdings while the bargain prices
remain. I suspect that, like all bargains, this situation will not
last much longer.

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While the Nasdaq, dow and sandp have traded in anorrow range since
early the beginning of the decade gold is up from 260 to oner 430 and
the hui, the amex unhedged gold miners index is up over 700 percent.
Nevertheless the entire market cap of the index is less than one fifth
of microsofts alone. thus this bull and the genreal commodity bull is
invisible to the general investing public at this stage. Historically
commodity cycles are the inverse in time to stock cycles. Thus this
bull can be expected to last fifteen years. The fed could at any time
choose to end this bull market by ceasing to create new money, however
this course is unlikely as this would collapse the unstable credit
pyramid. Similar actions would be required worldwide. The world has
never been ina worldwide fiat system, as it has been since 1971,
therore ther is no way to know where gold will go relative to the
dollar in purchasing power. If one asssumes the imbalances are as
great as the seveties, than a target for the peak would be about 2500
dollars an ounce in present dollars. Assuming imbalances are far
greater than the seventies, including such factors asdemographics,
deficits debbt loads stc, a higher target may be in order. for present
dollar gold. Over the last few months gold has begun to rise against
all fiat, not just the dollar. Gold like the dollar is strictly a
faith basedcommodity. However gold is difficult to increse in supply,
even with modern technology. Thereofre if confidence in the long
medium and short term value of paper assets wanes, gold may catch a
signifcant bid. I believe 2400 dollars an ounce in present dollars is
a reasonable price target to reassess my portfolio balance. this
coreelates with one hundred fifty dollar silver, andone hundred fifty
a barrel oil. Interestingly, since 1046 fifteen barrels of oil have
bought on ounce of gold. Now only 7 barrels of oil will do. The ratio
is 3 standrd deviations below the mean, a ratio never seen since the
end of world war two. Unless something unknown has changed in relative
valuations, either oil has to decline dramatically in price or gold
has to rise. Inflation adjucted, oil is well within it's historical
trading range. Ben Bernnanke and Alan greenspan are no Paul Volker.
Therefore, I maintain a target of 2400 on Gold until the Fed
aggressively ceases money creation. As for commodities in general, I
believe the demand from the far east is sustainable over the long run.
Even thecivil watr didnot kill the us economy, and I believe that no
event can stop the dlowering of China and India for very long. Set
backs of cours. Commodities after a seventeen years of little or no
investment are scarce andwill continue to rise inprice relative to
other investment vehicles. I continue to hold my Molybdenum play
adanac with a market cap of around twenty five million and ten billion
dollars worth of rock and a clear path to mining it without
significant shareholder dilution. I have soured on my uranium
investment and weill redirect into gold exploration companies on the
cortes trend in Nevada.

It just seems to me, as I watch the feds actions and the markets,
which I have been doing since an undergrad in econ and bio at Wash U
in the early seeventies. I have seen the horrible stagflation,
strgggled to make a buck during that time, I have watched the tuition
at wash u go from 3k to 36k, seen the continued deterioration of the
working class in my home town, suffered through the unemployment in
the early Reagan recession, and all the while seen the economy and the
fed act in ways predicted by Mises. No other economic writings or
system that I know have have consistwently been as predictive of
behavior and consequences as Mises and his intellectual heirs. The
only human action I have seen that does not conform to wcpected dismal
central bank behavior was the bravery of Paul Volker. The resulting
recession was brutal, but very cleansing. I don't think there is the
intellectual courage or ability of the Fed to do a Volker again until
gold is at at least 2400 dollar s in present purchasing value with the
Hui at about ten times it's present level or more.If the fed doesn't
act by then , God help us. I do believe the fed will act
intermittently , but just like in 2001, it woll meet the resulting
deflation with a new larger injection of credit and money. Eventually
the public comes to believe the Fed will always resue any speculation,
and so the speculations become larger and bolder, requiring ever
larger amounts of credit to keep them afloat. Just like Mises said,
it's happening all around us. Hyman Minsky was a professor of mine at
Wash U. He was basically a red diaper commie, so I would feed the
keynsian socialist crap for an easy A, but now I am discovering work
was realy quite valid. Minsky is famous for the beautifully simple
idea... Stability creates instability. This is especially true of
stable continuous inflation. The icreasing debt load of speculation
starts limiting options of all players in theeconomy.

Gold will continue to climb a wall of worry with ocassional severe
drops due to brief squalls of deflationary fears that will be met by
ever larger liquidity injections. Prent value 2400 gold and2000 to
6000 hui will be the result. If history is any guide, the war between
political paper money and metallic money will be won by the metal and
the dollar will again be a claim on the metal. Wwther the transition
will be violent and accompanied my much suffering or peadcfully guided
by intelligence, forethought and brave leadership remains to be seen.
I remain optimistic. That is why I hope the ideas of Hyak Mises and
Rothbard, thogh not always perfect , will take root in the
consciouness of the ruling class and the people.