Justice

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While there are certainly other cultures as self-deluded as the Anglo-Saxons, they tend to be self-deluded in different ways.

For example, Jews are raised to believe that an ancient god has chosen them as special above all others.

The Japanese and Chinese, among others, are taught that they are simply cut from superior genetic material, and based on standardized testing, there might be some truth to it.

Many Arabs are convinced that they are mere pawns of a higher being and that whatever that deity has planned for them is the way it will be, and there’s nothing much they can do about it.

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The Anglo-Saxons – and in the modern context, I refer primarily to the populations of the US, Britain and most of Canada to the west of Quebec – delude themselves into believing they are not only culturally superior in most things, but morally so as well.

For instance, ignoring for a moment well-known pockets of corruption such as Chicago and New Jersey, the average Joe in the United States thinks that his government is the most honest in the world.

Thus the Anglo-Saxon becomes positively smug while contemplating his moral superiority over other countries – the Mexicans always leap quickly to mind – that are steadily subjected to the greasy paw of political payoffs and petty bribery.

Not having studied the topic at any length, I can’t say how this notion first took root, but a quick scan of the historical record supports me in my view that it is largely a fiction.

Just off the top of my head, the list of institutionalized deceptions and crass criminality threatens to overrun the banks of my stream of consciousness.

Tammany Hall, Gulf of Tonkin, LSD and venereal-disease testing on unsuspecting citizens, Watergate, Abscam, Teapot Dome, Pearl Harbor, the genocide of the American native, Timothy Geithner’s taxes, Waco (where, for the record, 16 children under the age of 10 died), extra-judiciary renditions, “Charlie” Rangel, Jack Abramoff, illegal spying on American citizens, Hillary Clinton’s short but highly profitable commodities trading career, hundreds of cases of politicians being caught with their mitts in the cookie jar… the list could extend for many pages without running out of material.

But as bad as all of that is, there are growing signs that even the fiction of justice in America is beginning to wither under the heat of political tampering with the rule of law.

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Justice

Every nation-state has a body of laws woven into the fabric of society. As Peruvian economist Hernando de Soto has commented on extensively, the stronger the rule of law, the stronger the economy.

And by “stronger” laws, I mean laws that are impervious to tampering for personal or political gains. The connection between a sound judiciary and economic health is readily comprehensible, except maybe to a politician… businesses and individuals are far more likely to invest capital in a country with understandable laws that are impartially and universally enforced than if the opposite condition exists.

That’s because the lack of a consistent body of law breeds uncertainty and adds a huge element of risk for entrepreneurs. That is the case here in Argentina, where hardly a week goes by without La Presidenta and her meddlesome comrades cooking up some new hurdle for businesses to overcome.

Which brings me back to the matter at hand – American justice on a slippery slope.

Few recent cases make the contention clearer than the announcement last week by the US Justice Department that it had settled its case against HSBC for acting as the bag men for Colombian and Mexican drug cartels. The fine, $1.9 billion, amounts to about five weeks of revenue for the bank.

And that was pretty much it.

Matt Taibbi of the Rolling Stone magazine, who can run hot or cold when it comes to reporting, in my opinion, nails his column on the verdict, which you can read here.

The basic setup is that for years, at the highest levels of HSBC, the bank worked hand in glove with the drug cartels to launder their money. So smooth was their relationship that the drug gangs used special cardboard boxes for them to fill with cash – boxes that were designed to fit easily through the teller windows of the HSBC branches in Mexico.

Now, don’t get me wrong – I am 100% against the so-called “War on Drugs.” That there are hundreds of thousands of Americans in prison for the “crime” of voluntarily ingesting recreational drugs, or providing said drugs in a rare free-market transaction (there’s a willing buyer and a willing seller and no regulations – at least none that anyone pays any attention to), is an abomination.

And so it is that the US has the highest prison population in the world, and by a wide margin: on a per-capita basis, it is 33% higher than the closest contender, Russia.

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If you take into account everyone under “correctional supervision,” 3.1% of the US population is either in jail or on probation (for blacks, it’s a stunning 9.2%). According to Human Rights Watch, since 1980 the number of people in US jails for drug charges has increased twelve-fold.

Yet, the money men for the murderous cartels that supply the stuff – the sort of fat-cat villains that serve as the centerpiece of every James Bond movie – get off with a hand slap.

How is this possible? The answer is that, just like the much-maligned “banana republic,” the judicial system in the Anglo-Saxon world has been bifurcated into two systems – one for the politically favored and the other for the rest of us.

In the case of HSBC, the rationale for management being spared even a criminal trial, let alone years behind bars, is that the bank is too big to fail. And that should anyone within the bank be collared for their colossal crimes, it could provide the trigger for the widespread collapse of the global financial system.

To which an Anglo-Saxon from the UK might retort, “Bollocks!” This is rather a case of the politically connected and their equally politically connected, high-priced law firms twisting the judicial system to their purposes.

Another recent case is that of the LIBOR fixing scandal.

As you know, in this case a group of banks clearly conspired to rig the rates on the interest rate index used to underpin over $300 trillion in loans. As the scandal was revealed, it was also revealed that top tax dodger and now US Treasury Secretary Tim “Timmy” Geithner was aware of the rigging as far back as at least 2007 when operating the Federal Reserve Bank of New York.

Yet Geithner’s elevated position in the Obama administration meant that this inconvenient revelation quietly faded into nothingness. As did the clear implication that if Geithner knew about it, so did untold scores of others at the Fed and other institutions at the time.

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Meanwhile, back in the present, instead of rounding up the heads of these institutions, it was announced this week that a handful of floor traders – the ever useful minions – have been fingered to take the fall. For the sake of the public show, I suspect the fall will be pretty hard.

Hell, the last time I checked, even Jon Corzine, who as a former senator and governor of New Jersey is the über-insider, is still a free man despite being the lead actor in the bankruptcy of MF Global and the subsequent looting of billions in customer funds. No one, except maybe Corzine himself, thinks that he isn’t criminally complicit, yet, at this writing, there isn’t even a hint he’ll be prosecuted.

As  David Webb has so thoroughly documented, a spate of cases over the last decade have set a clear precedent that financial institutions – at least those of a size to count with the political class – are pretty much free to lie, cheat, misrepresent, and even use their clients’ funds to trade for their own book.

And if things go wrong, they can pass the losses on to the clients, or in the case of Corzine simply shrug his Savile Row-clad shoulders, and feign ignorance about where said funds went.

It Goes On… and On…

And the conniving and criminality doesn’t stop at the judiciary but has infested pretty much every corner of the government.

A personal recent favorite was Hillary Clinton‘s oh-so-convenient bout of fainting that kept her from testifying about the truly bizarre attack on the Benghazi consulate, thereby skipping the direct damage to her career that would have resulted from having to answer the unanswerable in front of television cameras.

Then there’s the sweetheart deal embedded in the soon-to-be-updated federal regulations related to mortgages. Given all the abuses leading up to the housing crash, John Q. might posit that there will be strong teeth in these new regulations. Sure, there’s a couple – but lookie what else is in the new regs, this from the NY Times

As regulators complete new mortgage rules, banks are about to get a significant advantage: protection against homeowner lawsuits.

The rules are meant to help bolster the housing market. By shielding banks from potential litigation, policy makers contend that the industry will have a powerful incentive to make higher-quality home loans.

But some banking and housing specialists worry that borrowers are losing a critical safeguard. Industries rarely get broad protection from consumer lawsuits, and banks would seem unlikely candidates given the range of abuses revealed during the housing bust.

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Here’s the full article.

Mind-boggling.

Skipping across the pond, we have the truly incredible case of Julian Assange, who is now a prisoner, surrounded by upwards of 100 police officers, in the Ecuadorian embassy in London where he’s been seeking asylum.

At one point, a senior British official suggested they were seriously considering throwing hundreds of years of diplomatic precedent out of the window by storming the embassy to get their man.

Yet his purported crime, having consensual sex with two different women without a condom (in one case, he had one, but it apparently broke) would, at most, be treated as a minor offense in pretty much any court, in pretty much every country in the world. Unless, of course, he knew he had AIDS and was deliberately trying to transmit it, which he wasn’t.

Do your own research, and maybe you’ll draw a different conclusion – here’s one fairly thorough story on the charges against Assange – but that the UK government is willing to spend untold sums of money it can’t afford keeping him penned up in the Ecuadorian embassy smacks of collusion and corruption.

What’s really going on, of course, is that Assange’s WikiLeaks organization embarrassed the power elite by doing what the media no longer does – getting to the truth, in this case releasing a stash of embarrassing diplomatic cables.

While Assange is fighting the good fight, it’s a fight against entrenched political interests, and so it’s a losing battle. Aided by the corrupt judiciary or, failing that, the malleable military, it’s just a matter of time before he ends up in a cell next to Bradley Manning whose tortured corpus is now on trial for giving up state secrets that were really not all that secret.

In economic policy, too, the evidence of two different systems is glaring. Look no further than the Fed’s recent decision to light the afterburners on over a trillion in new money creation each year.

Whom does such a policy help? The politicians, of course, by allowing them to claim they “fixed” the economy that they broke in the first place… when all they are really doing is replacing the capital formation and spending of a healthy private sector with the polluted effluence of government disbursements.

Whom does such a policy hurt? The population at large, by eroding the value of everything they own and eviscerating their ability to earn money on their money through a free market in interest rates… all the while fostering yet more malinvestment in the Potemkin villages of an uneconomic solar industry, electric cars, high-speed trains, etc.

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Make no mistake, the Fed and the government are keenly aware of the damaging consequences of their actions – but, out of self-interest, take those actions nonetheless.

The enviro-socialists that have bought their way into the corridors of power provide another array of examples, using laughably bad science and arbitrary rulings to disadvantage key sectors of the economy such as energy and mining.

What’s It Mean to You and Me?

There is little question that the vast majority of the public is ignorant or apathetic, or both, to the pervasive corruption of the political classes and their financiers.

But even if they were paying attention and outraged, the fact of the matter is that things have degraded to the point where there is next to nothing John Q. can do about it. Sure, you can write your congressman, just be sure to be extra polite, or your letter will end up in the hands of zee Homeland Security.

Ditto if you write angry emails and send them to all your friends. Just don’t make the mistake of thinking there is still such a thing as privacy or the right of free speech in the Anglosphere.

And heavens forbid you try to organize a physical protest. Next thing you know, you’ll end up wearing a pair of these bad boys coming to your friendly police officer’s belt soon.

(Not only do these next-gen cuffs restrain you, but they allow the arresting officer to remotely deliver electric shocks and, if that doesn’t do the trick, even inject drugs into you.)

Of course, if your company or industry wants to fight it out in the courts, you have to be ready and able to spend millions in legal fees fighting a government with unlimited funds (provided, of course, by your taxes and money borrowed from the Chinese or ginned up by the Fed).

What I’m trying to say is that, regardless of what the popular corruption indexes show – and those are typically based on fairly suspect surveys on matters such as transparency in corporate reporting or whether bribes are required to do business – when you take into account the systematic skewing of the judicial and electoral systems to favor the entrenched politicos and their friends in high places, the level of corruption in the Anglosphere would make an African despot blush.

It’s not an accident that the Republicans and the Democrats, two sides of the same coin despite all the rhetoric, are never remotely at risk of losing their collective grip on power – the system has been carefully and thoroughly rigged to prevent that from happening.

Logically, if there is virtually nothing the public at large can do about the rigged game they are forced to live with, then it comes down to decisions we make as individuals.

Some general approaches for your consideration.

  1. Suck it up. The Stoic approach is to recognize there are certain things you can’t do anything about, so put the hypocrisy and self-dealing of officialdom and their enablers out of mind and live your life the best you know how.
  2. Profit from it.While it may seem counterintuitive, the more challenging the environment for business creation, the more money an especially hard-charging entrepreneur can make. This is why Asian shop owners open up in ghettos and why the margins for “war profiteers” are so high – because they literally have to risk life and limb to collect them.A successful acquaintance recently told me that, as the head of the Argentine branch of a major international electronics brand, his division was regularly able to pull down margins in excess of 40% while his counterparts in less volatile political environments were happy with less than 10%.It just takes an extra measure of patience and fortitude to overcome the challenges that scare less determined individuals away.
  3. Move West… or South, but probably not North. A combination of #1 and 2 above, the brave minority might want to consider taking the show on the world. To give you a scintilla of the quality of life available if you are willing to look over the horizon, here’s a snippet from a recent email from a fairly regular correspondent and long-term resident in neighboring Uruguay…

Commenting on your comment about how your recent immersion in Northern Argentina feels too good to be true, my only comments are

1) WELCOME to the opportunities and freedoms OUTSIDE the USA. Much like Neo in “The Matrix,” you’ve woken up to what the USA really does to its citizens. Regarding the USA, when I hear “freedom,” I understand that to mean tyranny; when I hear the use of the word “opportunity,” I understand this to mean regulation, restriction and control. It may take you several years to realize “freedom” in the USA is actually tyranny in disguise (or perhaps you’ve seen it and that’s why you’re in Cafayate now).

2) My other comment is that IT WILL ONLY GET BETTER, David! IMHO, there are 3-5 times the opportunities for freedom, sanity, wisdom, and profitable ventures outside the USA than inside the country.

WELCOME, David, and Happy Holidays.

  1. If you can’t beat them, join them. As Doug Casey has often pointed out, the effect of Pareto’s Law operating over time on the large democracies has resulted in the worst sort of people controlling the levers of government at the federal, state and local level. If you happen to be a sociopath with control issues, then you might want to hop on the gravy train and worm your way into government, or into one of the many parasitic enterprises sucking the life from the body politic.
  1. Go outlaw. Yesterday, a flash mob gathered in the Southern Argentine city of Bariloche for the sole purpose of looting a large storeof electronics, food and booze, and sundry other items that will make the Christmas holidays all the more festive.When I heard of the incident, I mentioned to my wife that this could very well be the proverbial first shot in the breakdown of civil society in cities around the world. And sure enough, as I was writing you today, the news broke that spontaneous mobs have formed in a number of cities around Argentina for the sole purpose of looting stores.This is precisely the sort of thing one can expect in an economy laid low by political corruption, malfeasance and self-serving meddling. When people lose hope, and lose faith that the judicial system will protect them from the entrenched interests, then it is well within the range of some of those people to just say screw it and go outlaw.

I could be wrong, but I think what happened in Bariloche yesterday has the potential to be just as seminal as the self-immolation in Tunisia that set off the Arab Spring.

The implications of mobs deciding to come together to just take what they want are potentially huge. In the Anglo-Saxon world, it could provide exactly the excuse needed to bring down the stainless-steel curtain built with hundreds of billions of homeland security expenditures over the past decade.

In fact, while I am probably overstating it, the action of the mob in Bariloche yesterday could be the missing link between Neil Howe’s Third and Fourth Turning, ushering in the next and most troubled era.

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It’s ironic that it’s happening in here in my new retreat in Argentina, but it’s of no personal import because our new hometown of Cafayate is rural, small and very successful, and the sort of place where everyone knows everyone else. And, besides, there are no large supermarkets to raid.

In addition, despite the dark era of military rule (or perhaps because of it), Argentina is not a violent culture, and the big cities are few and far between. The same can’t be said of places like Chicago and Detroit, where flash mobs have been increasingly cropping up with the primary intention of committing violence.

How fast and how far things will spread from here is only a matter of conjecture, but the range of possibilities is wide.

Regardless of whether the rule of law continues to be diminished through the acts of corrupt politicians or a mob – or through the militarized arm of the politicos trying to control the mob – I fear the knock-on consequences on the economy and on society at large.

I really don’t want to be a Chicken Little, but taking some basic precautions to protect yourself and your assets is only commonsense at this juncture.

Which brings me to a timely guest essay from friend and correspondent Pete Kofod.


The Hardware Store

By Pete Kofod

“So this is what it looks like when a society is starting to collapse,” the man standing behind the counter at the hardware store said matter-of-factly. The remark had been directed at no one in particular, but generally at anyone standing nearby. As I was among that audience, I looked at him inquisitively, eliciting in return a look indicating that his observation should be intuitively obvious to even the casual observer.

“We should not be this busy,” he continued. “People are normally out Christmas shopping for the latest tech gadgets for their kids, but instead they are spending their hard-earned money here.” I had to agree with his observation, because the place was packed, and it was obvious that his inventory was disappearing from the glass showcases and from the wall behind the counter quicker than the store could replenish it.

“We have manufacturers that aren’t taking any more orders. We even have a manufacturer that has shut down production and furloughed the entire workforce. I guess when we run out, we run out.” He excused himself and joined his staff to help restock the shelves as well as operate the register.

As I surveyed the store, I noticed no discernible demographic pattern among the customers. They included elderly ladies, young couples, construction workers, police officers and hipster techies as well as people from virtually every ethnic and socio-economic background. They would have made the perfect tapestry for a politician’s campaign stop.

“So this is what it looks like when a society starts to collapse,” I reflected on what the man behind the counter had said.  As melodramatic as his words were, they would be understood by any student of human history, or many Casey Research readers, for that matter.

But it raised questions in my mind, “Does social decline precede economic decline? Does the decay of social graces, the protocols that define civilized interaction, the written and unwritten laws of the land, precipitate the ruin of a nation, or is it the other way around? Is it a vicious cycle where one feeds the other, and if so, can the destructive feedback loop be reversed?”

Based on what I observed in the store, I’m inclined to believe that people are concerned about social collapse, in whatever form that may take. Publications such as The Casey Report implore its readership to hedge against inflation (as well as deflation) by dividing their portfolio into balanced thirds spread across asset classes and political jurisdictions, but what does the erosion of a fiat currency really mean?

I would suggest that very much depends on where you live. In more resilient communities, in which economic actors all create value, the impact may in fact be little more than a moderate nuisance. Various South American countries have shown that, despite their governments’ penchant for destroying the nation’s currency at predictable intervals, life can go on. As a result, while people in those countries know that things can periodically get tougher, they also have become resolved to soldiering through the hardships, knowing that the latest challenging period will pass.

By contrast, with their advanced, and leveraged, economies and large urban centers that are highly dependent on government subsidies as well as consumer supply chains that are extended, the social impact of a fiat currency collapse in the US and Europe could be far more profound.

Such an event would likely be even further exacerbated, and significantly so, by the absence of such experiences to most Western nations in recent memory. In the United States, a small but emerging subculture known as “preppers” focus their resources and attention on developing personal resiliency in response to the perceived deterioration of both financial and social infrastructure. While the theories and actions of “preppers” range from the sublime to the ridiculous, it is undeniable that the financial, social and logistical fabric of the United States has been stretched very thin.

This tenuous position in turn manifests itself as a palpable level of stress readily observed in many people. There is no longer a sense that “everything will be OK.” In conversations with people, I get the sense that people feel very uncertain about the future, and not in a hopeful way. They see their prospects as having limited upside with virtually unlimited downward risk. There is a prevailing belief that this is as good as it is going to be for a long time. It is this subsurface tension that was palpable among shoppers in the hardware store.

You see, the hardware store I was in was a gun store. What on earth would compel me to visit a gun store so close to the horrible tragedy in Connecticut? As some readers know, firearms played a significant role in my former professional life, in the military. The truth is I wanted to get a sense for what’s actually going on in the gun industry, as opposed to the manufactured “reality” presented by the mainstream media.

Having returned from serving a customer, the owner of the gun store continued his observations.

“It’s different this time. The last time, with the Clinton gun ban, people knew that it would be temporary. The economy was good and people didn’t really care. This time… well, it’s different.” He then elaborated on the reason that one manufacturer had shut down their fabrication facility: Apparently they were unwilling to be stuck with inventory that at a stroke of a pen will become contraband.

In reply to my follow-on question as to what he meant when he said society was starting to collapse, he answered, “People talk about debt, a recession that won’t go away and how we are on track to bankrupting the country. This is all true. But they are all part of a bigger problem.”

“What problem is that?” I asked.

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“Respect,” he said, with just a hint of bitterness. “Treating people with disrespect has become a way of doing business, a way of life. When a culture ceases to demand respect for life or livelihood, anything and everything is fair game.”

At this point another gentleman joined the conversation, adding, “You know, these tragedies are a politician’s best friend. It allows them to take the public’s eye off issues like financial woes and cutbacks in benefits.”

In my view, the spectacle in the gun store, which apparently has played out nationwide, is a clear indication that people are doing the equivalent of “shorting” social stability. This is clearly concerning, because the extent to which we can plan our future is directly related to the faith we can reasonably place in social stability.

It may be presumptive, but in my view, people who rush out to purchase firearms in anticipation of gun control measures are not part of the “gun culture.” The “gun culture” already has its arsenal stocked up. The “last-minute shoppers” are people who believe that one day they may need a gun and may not be able to buy one. These are the same people that clean out the grocery store before the first big winter storm hits.

As for the logistics of controlling access to firearms, I suspect that in short order, it will prove to be an academic point anyway, perhaps even more futile than the War on Drugs.

The relevant agents include: crypto currency, open-source hardware, 3D printing, and Dark Net exchanges like The Silk Road.

On the topic of technical limitations to keeping guns out of the hands of the citizenry, let me direct your attention to the following article on a gunsmith who “printed” a gun. Is it a good thing or a bad thing? I don’t know, but I do know that it is inevitable. The first group that will make a go at it will likely be people who are legally prohibited from owning firearms yet their livelihood depends on access to weapons; in other words, members of criminal organizations. Shortly behind them will be technically gifted people who, one can only hope, are imbued with decency and respect for human life.

As I continued to look at the customers milling purposefully around the store, a young lady joined the group and listened to our conversation. After listening silently as the small group speculated on which gun control policy changes were likely to be forthcoming, the young lady pointed to a small handgun and finally spoke up, “I’ll take that one.”

In closing, I agreed to share my observations on my visit to the gun store because David thought they might be of interest to other Casey Research readers. I realize that this will be a highly charged subject for some, but please do not send me or any of the Casey Research team detailed position papers, unless it makes you feel better. I, for one, will probably not respond.

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Friday Funny

Holiday Exercise Routine


And Finally…

As something of a treat for you hardcore music lovers, dear reader, correspondent and fellow music aficionado “Blackbeard” assembled a remarkable trip down memory lane of the bands that got their start in Winnipeg, Canada, in the 1960s – and there were a surprising number of successful bands from there, back then.

Click here to access and enjoy Blackbeard’s Winnipeg Holiday Music Fest. And a special thanks to Blackbeard for pulling it together.

And with that, I will sign off for the week, and for the year, as ’tis that time of the year when many of our staff are taking a few well-deserved and hard-earned days off to spend with their loved ones – so we won’t be publishing the Casey Daily Dispatch over the holidays. Your next issue of the Dispatch will be back on Wednesday, January 2, 2013.

Despite the dire predictions of the Mayans, I look forward to welcoming you into what promises to be a very interesting new year.

Thank you for reading and for being a Casey Research subscriber – the best people in the world, in my sincere opinion.

Have a great holiday!

David Galland
Managing Director
Casey Research

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avatarDoug Casey - Casey's Daily Dispatch posted Friday, December 21st, 2012.

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