The Daily Reckoning December 18th

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The Real Truth About the Fiscal Cliff

 

What exactly is going to happen when the fiscal cliff hits on January 1, 2013?

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The “fiscal cliff” is a package of expiring tax cuts and federal spending cuts passed by congress during the last budget battle. $600 billion in combined tax increases and spending cuts will hit suddenly in January if congress does not come up with an alternate plan. The combination of cuts and tax increases would slash the budget deficit in half, but potentially pull the economy into another recession, according to many economists.

Republicans and Democrats are currently racing against the clock to come up with a deal to avoid this scenario. Despite the few days remaining, they have not been able to agree on the details of an alternative to the fiscal cliff scenario.

But are their plans so different? The difference in savings may not be as significant as you think.

 

The Real Truth About the Fiscal Cliff appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Why Can’t Schools Secure Themselves?

My inbox has been slammed with notes concerning the killings at Sandy Hook Elementary in Newtown, Conn. Given the accessibility of information, and the pace at which it travels, people have treated this event as not just a case of a ghastly local crime, but much more than that, a signal and a wake-up call to the culture at large.

There is no harm in such reflections. The 500-year-old trend toward ever less violent societies — a trend that continues to go in the right direction in our time — should be pushed further in the right direction through education and cultural change.

Still, it might be beneficial to ask more focused questions about the problem of security at schools in particular.

In the days that followed the killing, my browser kept taking me back to a Wikipedia link about the Gun-Free School Zones Act of 1990. The law, still intact after many challenges and rewrites, reads: “It shall be unlawful for any individual knowingly to possess a firearm that has moved in or that otherwise affects interstate or foreign commerce at a place that the individual knows, or has reasonable cause to believe, is a school zone.”

Guns of all sorts are banned anywhere near schools. If the government’s laws had worked, this killer would have realized that his plan was unachievable. After all, the world’s most powerful government had banned the whole idea of guns at school.

But the law did not work, at least not as intended. On the contrary. The killer could be pretty sure going into this that he would be the only one at the school with a gun.

Think of this: Schools in particular have been singled out as a place without the ability to defend against violence. The law has been challenged and revised and debated ever since, but the bottom line stands. Have school shootings declined? Most major shootings now occur in gun-free zones, and nearly twice as many since the act passed than in the 20 years prior. (See the full list.)

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People have wrongly tended to reduce the debate to more gun ownership or more gun control. It’s clear where the Obama administration wants to take this: toward more centralized control and fewer gun rights. The right responds by pointing to the example of Israel where teachers are heavily armed. That’s the choice the mainstream gives us.

Actually, the framing of the whole debate is wrong. It is not about whether teachers should be armed or whether guns should be banned for everyone but state-employed cops. The real issue is whether any institution in society is going to be in charge of its own security, and not be forced to obey the government’s plan.

Schools face a problem not different in kind from any other issue of security affecting banks, convenience stores, jewelry stores, theaters, homes, or churches. All these institutions are constantly threatened with violence from random sources. They must all make judgments about the risk of violence and how best to deal with it. There is no one aggregate solution that applies in every case. Each institution needs to determine security for itself.

Just days after Sandy Hook, a shooter attempted to gun down people at the Mayan Palace Theatre in San Antonio, Texas. An off-duty deputy whipped out her own gun and blasted him before the killer could reenact the rampage at the movie theater in Aurora, Colo. This is probably the first you have heard about this precisely because the tragedy was averted. The institution will learn from the event and respond in a way that is rational and not injurious of human rights and liberties.

Because school killings engender special social outrage, legislators made them an exception, and this was before airports and airlines received similarly treatment 11 years later with the creation of the Transportation Security Administration. Guns of any sort, unless carried by a cop, were not permitted to be part of anyone’s security solution. The federal government knew best, even to the point at which the federal law trumped state laws on guns.

Does this figure into the calculation that would-be killers make as they plot their malicious acts? Certainly. Advertising a place as gun-free by law is an invitation to killers. The law says to them that if they can get in, they will have a monopoly on violence. No efforts at defense will be available on the premises to protect the teachers and the kids. I don’t see how it could be controversial to suggest that this law is a very bad idea.

To be sure, these killings might have happened anyway. Dealing with violence was the last thing on anyone’s mind in this quiet and prosperous community school. All the events might have transpired as they did regardless. The point is that the law removes viable options for the school in dealing with security concerns. It says: We, the government, know what is best, and our way is the only way.

This is a terrible way to deal with any issue of security.

I am not saying that the school in question should have armed the teachers, the principal, or the students. What matters is who is in charge of security. What kind of incentives does the surety of the absence of effective security grant would-be murders?

Think of this in the case of your home. Let’s say your community passed a Gun-Free Home Act. Is such a law going to be something taken note of by would-be intruders? Is a criminal going to be more or less likely to enter a home knowing with certainty that all law-abiding citizens will not have the means to protect themselves?

Some people might respond that they don’t want to live in a society in which school administrators have to carry weapons. I completely agree. But wishing does nothing to deal with the problem of anti-social behavior on the part of a tiny minority. A tiny group is capable of ruining the social order for the rest of us, which is why we need mechanisms in place to deal with them.

It’s true in every aspect of life, whether our homes or online forums or banks or schools. Ownership is what allows the security calculation to be rational. Without private property, the destructive element rules.

In the online world, these people are known as trolls. In the online world, they can’t be violent, but they can wreck a good thing. A forum that cannot control them or kick them off is not long for this world. If the federal government had pass the No-Troll Act as a way of securing online communities against them, the forums would be all destroyed by now.

It is right and proper to wish for a society of perfect peace. But it is also very smart to have institutions in place that deal with those who do not want peace. Traditionally, people have relied on government to provide this service. This is a grave mistake. Security is inseparable from private property and the institutions of the market economy.

The reason violent crime has fallen by 65% since 1993 has not been government. It has been the private sector’s creation of advanced technology in the hands of private enterprise: surveillance cameras, private security, alarm systems, increasingly sophisticated systems of screening, and so on. Guns in the hands of private owners have been part of that solution.

The best path forward for schools in particular is to get out from under the protection of government and be put on the same status as regular commercial establishments. Private establishments that own and control their own space provide better security.

Whenever any institution is singled out for special protection by government and called too important to manage itself, that institution needs to worry about its future. That’s why the ultimate solution to public school violence is the full privatization of security and of the schools themselves.

At the very least, we need a repeal of the laws that make it impossible for schools to find their own solutions to the threat of violence. In the name of human rights, security needs to be privatized, whether government likes it or not.

Keep safe,
Jeffrey Tucker

Original article posted on Laissez-Faire Today 

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Why Can’t Schools Secure Themselves? appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

The State is Doomed…and Other Reasons to be Optimistic, Part II

“You may say I’m a dreamer,
But I’m not the only one.
I hope someday you’ll join us,
And the world will be as one.”
— John Lennon, “Imagine”

“Roads? Where we’re going, we don’t need roads.” — Dr. Emmett Brown in Back to the Future

————————————————–

[Ed. Note: If you missed Part I of this presentation, you can read an abbreviated transcript here.]

As the chart below displays, the Federal Reserve has, since 1913, destroyed roughly 97% of the dollar’s value. And that, despite (or perhaps because of) a mandate to maintain the same currency’s integrity and stability.

That’s more than just inconvenient, given the dollar’s present status as the world’s reserve currency. And yet, despite this “exorbitant privilege,” the feds claim — and enforce — a monopoly on the dollar’s counterfeiting and consequent debasement.

Many of us have tried to protect ourselves, to varying degrees of success, with gold and/or silver. Maybe you invest in gold stocks. Or perhaps you have a stash of physical bullion tucked under your pillow or buried in the back yard. And maybe, better yet, that backyard happens to be a long way out of the reach of the US government…somewhere like, say, Nicaragua.

As we know, gold and, to a lesser extent, silver, serve as a historical counterbalance to central banker arrogance…the supply of which is far from limited. Ironically, it is owing to that arrogance that the demand for alternative, para-state currencies remains robust. Perhaps now so more than ever.

Enter, Bitcoin.

Bitcoin (BTC) is a decentralized cyber-crypto currency. It is an open source project, whereby individual nodes contribute computational power to solve complex algorithms and to secure the BTC network.

The supply of BTCs is limited, mathematically, to 21 million coins. Therefore, as demand for the currency grows, and as more and more vendors begin accepting the coins as a valid form of payment, the value of them tends to appreciate, rather than depreciate. Where central banks indulge an age-old habit of adding zeros before the decimal point, BTC expresses precisely the opposite trend. Currently it is divisible to 8 decimal places…a kind of “reverso Zimbabwean dollar” effect.

The first transaction recorded for BTC occurred a couple of years ago when a happy customer paid 10,000 BTCs for a pepperoni pizza. At the time, a single BTC was deemed to be worth a paltry fraction of a penny. Assuming the vendor kept hold of those coins, he would have made out like a bandit. After a bubblicious run up to $30 per BTC last year, the cyber currency has since settled to a price today of about $13.5 per coin. Those same 10,000 coins, in other words, are now worth around $135,000.

Of course, the cyber-currency is still young and, accordingly, volatile. Just to be clear, I’m in no way saying Bitcoin is the answer to centralized banking cartels. That’s for the market to determine. What this experiment does show, however, is one of many possible solutions issuing forth from the competition for free market money.

Another voluntary trend making waves around the Internet is that of crowd funding. There are many players in this relatively new space…but probably none bigger than the three year-old Kickstarter. Here’s the idea, in brief:

Basically, entrepreneurs go to the Kickstarter website and pitch their ideas to the world. They make videos detailing how great their idea is and, if people like it and wish to invest, they can choose to back the project. Typically investments start as low as a dollar or two and go from there. Your return depends both on the success of the project and the amount you go in for…just like any other investment.

I had a quick look this morning and found a young fellow in Managua who’s come up with an idea pertaining to the robotics components industry. He’s looking to raise $3k to get his “garage” project off the ground. With twenty days left to go [at time of writing], he’s already raised $4,700 from 93 backers around the world.

Think about that for a second. This means a kid in Managua will get his project off the ground thanks entirely to funding from voluntary interactions. He doesn’t have to apply for a government grant or take out a student loan. He just needs to come up with an idea and tell the world about it. If people like it, they invest in it. Easy.

And there are plenty of other, larger success stories too.

One project, which aimed to turn Apple’s iPod nano into a watch, started out seeking $15,000 in funding. They raised $940,000. Thus spoke the market.

Another watch project, designed to connect to smartphones through Bluetooth technology, sought $100k for their project. They raised more than $10 million.

And still another project sought a hundred thousand dollars to record a music album. They ended up raising over $1.1 million.

There are literally thousands of other, similar stories.

P2P crowd funding is not just a way to raise money…it’s also a way to test the market. In this fashion, it helps producers hone in on what customers tell them they want. Moreover, it represents the beginning of a fantastic and encouraging funding transformation…and an answer to those who protest, with attendant intellectual indolence, “but without the state…how will we fund (for example) the arts…or technology research…or even infrastructure projects.”

Phooey to them! The answer, of course, is that people who want these things will fund them. And they will do so of their own volition…without the government’s coercive “middleman assistance.” Simple.

Over the past three years, the Kickstarter funding platform, one of many similar sites, has raised more than $323 million for over 10,000 projects around the world. Not bad for a bunch of hardscrapple startups. And not a bad start for the future of para-state cooperation.

Lastly, I want to leave you today with a story I came across only a week or so ago. Hands up if you’re familiar with this gentleman:

Salvatore Iaconesi

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Salvatore Iaconesi is a 39-year-old artist. He is the technologist behind Art is Open Source, and a professor lecturing in digital design at La Sapienza University of Rome.

Salvatore’s story is absolutely inspiring; one that serves as a poignant metaphor for how individuals are finding fresh ways to circumvent old, bureaucratic paradigms to solve problems — our most pressing problems — in new, creative and, importantly, voluntary ways.

Salvatore began an op-ed piece a couple of weeks back as follows…

I was recently diagnosed with brain cancer.

This was shocking news. Sitting across from a doctor holding a clinical folder with your name on it, and hearing him say the words “low-grade glioma,” “language and comprehension areas of your brain,” “surgery” and “chemotherapy” is a very weird experience.

Salvatore’s article went on to explain the complexity of his condition and the difficulty in dealing with the current model of diagnosis and information sharing in the healthcare sector as it exists today. Frustrated with his situation, Salvatore did something revolutionary.

No stranger to the open source culture, the savvy technologist immediately went about converting his voluminous medical records into multiple, readable formats: spreadsheets, databases, metadata files in XML and video, image and sound files. He then published them online at The Cure. He wrote:

The responses have been incredible. More than 200,000 people have visited the site and many have provided videos, poems, medical opinions, suggestions of alternative cures or lifestyles, personal stories of success or, sadly, failures — and simply the statement, “I am here.” Among them were more than 90 doctors and researchers who offered information and support.

A renowned geneticist also came forward and offered to sequence the genome of Salvatore’s tumor after his pending operation so that the medical community may learn more about the nature of his disease…and how to treat it. Again, the information will all be open source.

What might this mean for the future of medicine? Imagine how this will affect the sharing of information…regardless of time and location. Think of the wealth of scientific knowledge around the world, greater than any one man or team or hospital, that can be tapped, peer-reviewed, collated and catalogued for all to see and to learn from.

“As of now,” Salvatore concluded his article, “my cancer growth has stopped. We are waiting for the next test results to decide when and if to proceed to surgery.”

His progress is published online…and experts continue to contribute information and discussion to give Salvatore the best chance at a successful recovery.

At the first Rancho Santana Sessions conference, I urged people to give up on revolutions…be they Tea Party, Occupy or other. Give up on writing your congressman. Give up on pushing for change at the ballot box. Many a good and noble individual went to his grave having wasted valuable time and energy attempting to “throw the bums out.” As we know, when it comes to politics, the asshole supply is virtually without limit.

What we need is not a revolution which, by definition, only brings us back to our point of origin. (It’s why they say “history repeats.”) What we need is an evolution…a way to think beyond the false dichotomy offered by the Robamas and the Obamneys of the world.

I’ve mentioned here just a few voluntary, peer-2-peer solutions currently in operation. This is just the beginning…

Each and every day individuals are cooperating, sharing information, innovating and circumventing the fuzzy-knuckled, rule-by-jackboot mentality of The State. And they are doing so without asking permission.

They are building new models so clinicians and diagnosticians can share critical, life or death knowledge across arbitrary borders and neanderthalic, governmental jurisdictions.

They are working to create secure, cyber-cryptographic currencies that may eventually render central banks irrelevant and expose their thieving practices for exactly what they are.

They are providing new communication portals, through which individuals can come together peacefully in peer-secured environments to exchange goods and services without the state’s taxing and, worse still, “helping.”

The free market conversation is dynamic and exciting and full of promise and possibility. Its opposition, by contrast, will be remembered by future generations as a sad and unfortunate episode in the bawling infancy of our development as a species.

So let The State drive off the “fiscal cliff.” And good riddance to it!

As we’ve said before in The Daily Reckoning

If your answer to the question “but who will build the…?” is, “the government”…then it is not government you are lacking. It is imagination.

It’s time to think differently. It’s time to imagine.

Regards,

Joel Bowman,
for The Daily Reckoning

The State is Doomed…and Other Reasons to be Optimistic, Part II appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

The Case For $150 Oil… (In 2013)

If you thought the Middle East was a powder keg before, just wait till you see what could be on tap for 2013.

There’s mounting proof that shows the whole region could be headed down a one-way path to disaster. As you’ll see, this could be the short fuse that sends oil to a brand new all-time high.

That said, let’s head where most analysts won’t. Here’s the case for $150 oil, in 2013…

It’s time to head down the wormhole. Today there are a lot of dots that need connecting – and with some new information hitting the street, it presents a specific opportunity.

In particular, this could be the end of the Middle East oil cartel as we know it – and surely, this will have an immense impact on global oil prices.

The story begins in Saudi Arabia.

Saudi, according to the U.S. Energy Information Administration (EIA), holds nearly “one-fifth of the world’s proven oil reserves” and currently sits at the head of the list for oil producing and exporting nations.

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As it stands, Saudi is the “friendliest” and most stable of the oil producing nations in the Middle East. With that said, it’s safe to assume as Saudi goes, so follows the rest of the region.

Lately, Saudi’s position as top dog in oil production has come under some scrutiny. You’ve likely seen the reports from the International Energy Agency, Goldman Sachs and more, that predict the U.S. will out-produce Saudi Arabia (this could happen as soon as 2017.)

Regardless of when that forecast pans out, the Saudis and OPEC are starting to feel the heat from increased U.S. production. After all, with more oil coming out of the ground here in the U.S. the demand for Saudi oil heads lower.

Indeed, from the peak in 2003, the U.S. now imports approximately half of what it used to from the Saudis. (Note: that’s a lot of dollars NOT heading east.)

This trend is immediately affecting Saudi and OPEC’s ability to manipulate prices, too. With less demand for their crude, it’s hard to jack prices artificially higher.

Just to clarify, I’m not saying that the U.S. shale boom is going to cause world oil prices to plummet (as you know, I don’t think that’s the case.) But I do believe this unconventional oil boom in North America has shaved a premium off the price per barrel.

This premium, as you’ll see is vitally important to the Saudis.

Hold that thought.

In the meantime, Saudi Arabia has been smoking a lot more of its own dope. That is, with abundant and cheap oil, the country has increasingly been consuming its own oil production. Whether it be for power generation or vehicle use, the statistics are rather alarming.

Take a look at this chart, courtesy of the EIA:

Saudi Arabia, with each passing day, uses more of its own oil. Residents crank their air conditioners on hot days, modern conveniences suck up more kilowatts and car use is spurring the demand for more gasoline. It’s all adding up in a big way.

The sharp up-tick in consumption in recent years is proof-positive that the people like this “cheap” oil.

Just how much oil is Saudi Arabia using? A write-up in The Atlantic puts it this way, “It’s astounding to consider that Saudi Arabia, for example, has an economy one-sixth the size of Germany and yet consumes as much oil.”

After all, that’s what the Saudi subsidy does (it’s very similar to what happens in other emerging oil nations – and believe it or not, China – where most citizens don’t ever see a “real” price of oil.) Heck, if you and I were given subsidized gasoline imagine how much more we’d use!

But be warned, this cheap oil party in Saudi Arabia is going to come to an abrupt end.

Frankly, it can only happen two ways:

1. Give the oil to the people. In this scenario, the country uses so much oil that exports dry up (Citigroup suggests this could happen by 2032.) In short, this means the country no longer enjoys a constant flow of U.S. dollars – therefore the government struggles to stay solvent and pay for its welfare system.

2. Sell the oil to the world. In this scenario, the country realizes it’s using too much oil, in country, and decides to take action. The obvious action would be a cut of the subsidy. At that point the price for energy, in country, could double or triple.

Either scenario leads to an unhappy population. Either the government has no money and can’t continue welfare programs, or it cuts its energy subsidies and prices skyrocket.

The Saudi government will soon be sinking in a sandpit of unhappy citizens. And when the government gets neck-deep, something that could happen in the next 12 months, watch out.

A Convergence of Trends: Arab Armageddon?

Now, add restless natives to what we talked about above. Today, with more unconventional oil hitting the world market the Saudis are exporting less oil to the U.S., which is having a direct impact on Saudi’s ability squeeze a premium price from the market.

Without having that extra, say, $25 a barrel, the government is already struggling to keep pace. This gets back to something that Byron King calls “the breaking point.”

You see, if oil drops to $80 or less the Saudis have a hard time paying their ever-growing bills. In fact, just recently, Bloomberg reports, “Saudi King Abdullah promised to spend $130 billion on extra subsidies for housing and benefits as well as $500 billion for previously announced infrastructure projects.”

Rising budgets and shrinking revenue, as it tends to happen, won’t end well for this government.

And when things go awry (see: social unrest), and Saudi production is impacted, we’re talking about an epic impact on the oil market. Not to mention if the whole region loses stability, all bets on oil prices are off. Short-term, we could see a $150 easily – and higher prices aren’t out of the question. Compared to Arab Spring, this will feel more like Arab Armageddon.

Pretty ironic, huh? A fresh supply of U.S. oil puts pressure on prices and topples the Saudi government… leading to a short-term spike in global prices. Oh what a tangled web!

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter 

The Case For $150 Oil… (In 2013) appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

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