Happy Independence Day

This year's Independence Day theme (at least as I see it): getting our country back on track by rediscovering the principles which made us great.

Liberty, a spirit of independence (among individuals and the nation as a whole), commerce and trade, striving for peaceful relations with all nations & no entangling foreign alliances or policing the world. Can it be done?

There is a fantastic, recent essay from Ron Paul in The Washington Times that addresses some of these themes. While I am not a regular reader of said paper, I found this piece entitled, "'Fight them over there vs. over here' a false choice", to be highly worthwhile and extremely informative.

I hope you'll take a moment to read this piece during the July 4th weekend. Please share it with your family and friends, be they American or interested readers living abroad.

We also posted some very worthwhile articles and audio clips about the Founding Fathers and America's fight for liberty and independence at this time last year, so please have a look and enjoy. Thanks, and have a great Independence Day!

Bloomberg interview with Niall Ferguson

Niall Ferguson speaks with Bloomberg TV in Aspen, CO. A few important points from Niall in this discussion:

· We're living through one of the great financial crises in history, comparable in magnitude to the Great Depression of 1930s or any of the crises of the 19th century.

· After a banking crisis such as this, government debt "has a tendency to explode". Historically, financial crises have seen a debt crisis, followed by inflation.

· Danger of overdoing the parallel with 1930s. We (USA) now have a huge structural deficit and a "mounting public debt". The bigger danger is with longer term inflation and higher interest rates due to reckless efforts to stimulate the economy.

· We still have functioning globalization, and yet this global financial crisis has been met with fragmented, national efforts to thwart the economic fallout.

· Generals are famous (historically) for fighting the last war; similarly, regulators will try to solve the last crisis. These attempts may prevent a repeat of this exact style of crisis, but will give rise to a new set of problems leading to another style crisis. You can't regulate financial crises out of existence.

Enjoy the interview, and see our related posts for more commentary and interviews with Niall.

Related articles and posts:

1. Barron's interview with Niall Ferguson - Finance Trends.

2. Niall Ferguson: "What Price Liberty?" - Finance Trends.

Madoff, the "little guy", and the SEC

Bernard Madoff has been sentenced to 150 years in prison for defrauding investors of at least $13 billion.

We all pretty much know the details of his crime by now, given the months-long media coverage devoted to Madoff's decades-long ponzi scheme (which many refer to as the biggest ponzi scheme in history). We won't rehash all the details here. Instead, let's focus on how this giant fraud against investors was uncovered.

Madoff confessed to his crime back in December when adverse market conditions led to a wave of redemption requests from investors. In spite of one whistleblower's attempts to shed light on Madoff's fraudulent scheme (essentially handing the agency an investigative case file), and repeated examinations into Madoff's business by the SEC and other regulatory agencies, the fraud was never revealed. That is, until Madoff was forced to reveal it.

So what does the SEC concern itself with if it's not actively pursuing cases against the largest, most sophisticated investment firms? According to Joe Nocera at the New York Times, it's usually building a case against smaller investors and brokers, including those who have done nothing illegal or unethical:

"Three months ago, in a courtroom in Bridgeport, Conn., a 72-year-old former Morgan Stanley broker named Richard A. Kwak was cleared of any involvement in a small-time stock manipulation scheme.

The Boston office of the Securities and Exchange Commission began the investigation around 2001. Three years later, formal charges were brought against Mr. Kwak and seven others. By the time the case went to trial, in 2007, only three defendants were left; the others had settled with the S.E.C.

In that 2007 trial, Mr. Kwak and another defendant, Stephen J. Wilson, were cleared of one charge, with a hung jury on the remaining charges. (The third defendant, who foolishly acted as his own lawyer, was found liable and fined $10,000.)

The S.E.C. retried Mr. Wilson in 2008. He was cleared. Finally, in March 2009, the S.E.C. retried Mr. Kwak, with the same result. The jury took less than four hours to exonerate him.

Mr. Kwak’s life is now in tatters. He is around $1 million in debt and suffers from emotional problems. He has struggled to stay out of bankruptcy. Although he is still a broker — he certainly can’t afford to retire — he long ago lost his job with Morgan Stanley, where he had spent several decades without so much as a hint of impropriety. Needless to say, his business is a small fraction of what it once was.

“It pretty well wiped me out,” he said a few days ago. He is extremely bitter. The same is true of Mr. Wilson, who is also deeply in debt and struggling to reclaim his life."

An isolated incident, you say? Have a look at this post from Tim Knight's blog (Hat tip: Howard Lindzon) along with this story from one similarly affected investor in the comments section (Hat tip: Bear Mountain Bull).

I suppose this is what they mean when they say that Wall Street's regulators are "looking out for the little guy"?

Related articles and posts:

1. Chasing small fry, SEC let Madoff get away - NY Times.

2. The Outrageous SEC - Slope of Hope.

3. The SEC makes Wall Street more fraudulent - Mises.org.

Lie to me, please

Have you ever noticed how pervasive lying has become in our culture?

Whether it's mass media advertising, political speech, or a sign announcing a new home development or "office park", we seem to be bombarded daily with insincere, vacuous messages or outright lies which try to re-frame our perceptions of reality.

Charles Eisenstein has written a very interesting article on this topic entitled, "The Ubiquitous Matrix of Lies" (hat tip: Chris Nelder). Here's an excerpt from that piece:

"Increasingly, words don't mean anything. In politics, campaigning candidates make statements that flatly contradict their actions and policies, and no one seems to object or even care. It is not the routine dissembling of political figures that is striking, but rather our near-complete indifference to it. We are as well almost completely inured to the vacuity of advertising copy, the words of which increasingly mean nothing at all to the reader.

Does anyone really believe that GE "brings good things to life?" Or that a housing development I passed today - "Walnut Crossing" - actually has any walnut trees or crossings? From brand names to PR slogans to political code-words, the language of the media that inundates modern life consists almost wholly of subtle lies, misdirection, and manipulation.

We live in a ubiquitous matrix of lies, a sea of mendacity so pervasive that it is nearly invisible. Because we are lied to all the time, in ways so subtle they are beneath conscious notice, even the most direct lies are losing their power to shock us."

When was the last time you felt you were being lied to, implicitly or explicitly? Has it become harder to keep track of all the misleading messages and signals that we encounter in our daily lives? Please read "Matrix of Lies" and share your experience with us.

Related articles and posts:

1. George Orwell: "Politics and the English Language" - Mt. Holyoke.

2. Defining Bullshit - Timothy Noah for Slate.

Eric King interviews Rick Rule

Eric King serves up another great interview for us at King World News Broadcast, this time with investor Rick Rule, of Global Resource Investments.

It's been a while since we've heard from Rick here at Finance Trends, but as long-time readers and Rick Rule fans will know, his views on everything, from investing in the natural resource markets to free-market economics and libertarian philosophy, are always insightful and often fascinating.

Enjoy the interview with Rick Rule, and check out more of King's interviews with guests such as Marc Faber, Barry Ritholtz, and Jim Grant at the King World Broadcast page (Hat tip: Controlled Greed).

Related articles and posts:

1. Rick Rule: The Golden Rule - Finance Trends.

2. Three rules for buying resource stocks - Finance Trends.

Fading dollar reserve status brings opportunity?

The US dollar's status as the world's reserve currency seems to be quickly fading, as our creditors become intensely worried about the nation's finances and move to diversify out of their huge dollar holdings.

Puru Saxena (hat tip to Bear Mountain Bull) notes that the profligate spending and propping up of failing industries (banking, in particular) with debt-financed bailouts is by no means limited to the US. In fact, it's become a global phenomenon as governments spend trillions of dollars, effectively implementing a worldwide transfer of wealth from savers to debtors.

"...After decades of excess credit and over-consumption, the developed world is finally being forced to deal with private-sector deleveraging. However, the governments seem to have other plans and they’ve decided to fight these deflationary forces tooth and nail. Their solution – even more credit and even more consumption!

Rather than accept a painful adjustment period, policymakers are desperately trying to revive the party. And in the process, they are making the situation much worse. All over the world, governments are spending trillions of dollars in order to clean up the mess. Unfortunately, the stark reality is that these governments have no money. So, in most instances, these glorious state-sponsored spending programs are being financed by borrowing and money-printing.

Most people seem to forget that these fiscal spending programs aren’t creating any real wealth and are simply transferring wealth from the savers to the debtors. Essentially, governments are taking money from the solvent and re-distributing these funds amongst the insolvent!

Needless to say, by bailing out the incompetent and buying their toxic assets, the governments are cleaning up the private-sector balance sheets but at a huge cost. In the process of saving a few ‘too big to fail’ corporations and their bond holders, policymakers are greatly increasing the risk of sovereign defaults. In a nutshell, policymakers are erroneously transferring private-sector risk to the state... "

Saxena goes on to say that he expects sovereign (national) bankruptcies to follow, and that the reckless money printing and stream of bailouts ensure the die is cast for (over the medium-term) "massive inflation".

Now where is the possible opportunity in this scenario?

Against this backdrop, Tony Allison (also writing for FSO) suggests that America should take advantage of this small window of opportunity and "build a productive infrastructure before the currency is destroyed":

"...The clock is ticking on the U.S. dollar, and there is no time to waste. If we are as determined to destroy our currency as it appears, let’s at least build a productive infrastructure while we still can. We cannot afford to blow the stimulus money on political patronage and transfer payments. Those are the traditional political remedies to insure re-election. However, this time re-election may just mean taking the blame for a rapidly-declining empire.

Reserve currency status at risk

Time is critical and common sense is essential. If the U.S. loses its tremendous advantage of having the world’s reserve currency, we will not be able to simply print money and force the world to accept it to service our massive foreign debt. We will be forced to build up our savings and pay down our debts, which will greatly slow our growth rate. With an aging, inefficient infrastructure, this will make the process of revamping and restructuring our economy extremely difficult.

We need to rebuild the infrastructure of this country quickly (very difficult) and intelligently (even more difficult). Mindlessly dumping hundreds of billions into roads and bridges is not thinking strategically. We need a full-court press, all-out national effort to re-build intelligently and focus on areas with the most benefit..."

What do you think? Would an all out effort to spend money (while the getting is good) developing infrastructure and alternative energy help America rebuild for the future? Or is it simply another (seemingly practical) debt-financed scheme to throw money at our problems?

"Know Thyself" - Richard Russell on identity

This essay, from Richard Russell of Dow Theory Letters, is probably one of the most important pieces of writing you'll ever find on this site.

Russell's recent piece on self identity is not only a must read for traders and investors, it's essential knowledge for the entire human race.

Without further ado, here's an excerpt from Russell's recently penned essay, "Identity: Know Thyself":

"The following is what I think is wrong with the world. It’s a worldwide lack of IDENTITY on the part of the great majority of the earth’s population.

There are three levels of existence -

(1) the highest level is who or what you are.

The next lower level is -

(2) what you’re doing or what you have done.

(3) the lowest level is what you own.

An example of level (1) is Jesus, who changed the world based on who he was. An example of level (2) is George Patton, one of the great generals of World War II, whose daring exploits amazed the world. As for level (3), we have John Rockefeller who possessed fabulous wealth or today we have Bill Gates.

Most people on this earth have no identity, no “self.” As a result, they often pick an identity such as I’m a “Yankee fan” or I’m a “Texan” or I’m a “race-car driver” or I’m a “blood.” To lack an identity means you are mindless fodder in this world, and you’re open to join any group that fascinates you or that fits into your personal fantasy.

People long to have an identity - to belong to something which gives them an identity. People without an identity can be dangerous. When you have an identity you have a self - you are centered, and you can stand as a person with your own strong convictions..."

Read the full piece at Joe Cobb's blog, an interesting site in its own right (have a look around and find more to read there), and pass this article on to anyone who'd appreciate it.