Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Federal Reserve

FedSpeak reigns

You don’t get to be the President of a Federal Reserve bank unless you are an insider. Charles Evans qualifies, in spades. His bio proves it. Among other things he is a director of the Chicago Council on Global Affairs.  I’m going somewhere with this, so bear with me.

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Gold Standard Arguments Being Promoted Again

Two years ago Steve Forbes, two-time candidate for nomination for president by the Republican Party and Editor of Forbes magazine, predicted “a return to the gold standard by the United States within five years … [because it would] help the nation solve a variety of economic, fiscal and monetary ills.” It’s now two years into his prediction and articles explaining how such a return would work, and why, are beginning

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A Rand Paul/Mike Lee Ticket for 2016?

Bernie Quigley, writing at the Pundit’s Blog for The Hill on Wednesday, considered the fiscal cliff bill that became the American Taxpayer Relief Act of 2012 (ATRA) as a “touchstone…a benchmark…to mark the progress of history.” He considers the law as a

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Debt Ceiling Debate Now Set for February 2013

The debt ceiling is expected to be reached, officially, on Monday, December 31st, when the national debt reaches $16.4 trillion. Unofficially, with various “extraordinary measures” employed, the Treasury won’t bump into the real limit until early February.

Those measures will give the Treasury some $200 billion in “headroom” and since the government is borrowing $100 billion every month, the math is easy. The question then becomes:

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More of America’s National Debt Being Bought by Foreign Governments

On Monday, December 17th, the US Treasury Department announced that China and Japan have increased their purchases of United States government securities despite concerns over the continuing negotiations about the fiscal cliff. Foreign holdings rose to $5.5 trillion in October, or about one-third of the country’s $16 trillion national debt. The increased interest in owning US government debt by foreign governments is welcome as the government’s monthly deficits continue growing at about $150 million every month. 

Although China is often referred to as the primary financier of America’s continuing profligacy, that country’s total holdings, some $1.16 trillion, represents just a little over 7 percent of the US’s national debt. Japan comes in at second place, owning $1.13 trillion, with Brazil holding $255 billion.

In contrast, two-thirds of the country’s national debt is owed by individual American investors and by Social Security and civil service and military pension plans. The balance of $1.6 trillion is owned by the Federal Reserve.

How much longer can such profligacy with its resulting trillion-dollar annual deficits continue? Back in 1995, Harry Figgie wrote Bankruptcy 1995 and predicted the end would occur within five years:

The good news and the bad is that neither we nor any other nation can continue the sin of deficit spending indefinitely. The laws of economics eventually exact their punishment, and we are dangerously close to getting ours.

Just as interest compounds in a savings account, it compounds on our debt. The $4 trillion debt we owed in 1992 becomes $6.56 trillion in 1995 and $13 trillion by the year 2000 just from the accumulation of deficits and interest alone.

Only a fool would contend that this insanity doesn’t have to end.

That was 13 years ago and yet that “day of reckoning” hasn’t arrived. Part of the reason is those “laws of economics” that resulted when interest rates were forced down by the Federal Reserve following the bursting of the dot.com bubble and have remained historically low ever since. That brought the cost of borrowing to record lows as well. For instance, the percentage of taxes that were devoted to interest payments on the national debt in 1991 was nearly 20%, but by 2003, it had declined to just over 8 percent. When compared to the country’s gross domestic product, interest was eating up just 1.4% of it. As Bill Sardi noted, “America was saved by cheap money.”

But with interest rates at near zero, how much longer will investors, foreign and domestic, continue to put up with such low returns in the face of an ever-increasing risk of default? Following the debt ceiling crisis during the summer of 2011, the rating agency Standard and Poor’s downgraded its rating on U.S. Government debt for the first time in history. And unless something positive comes out of the fiscal cliff negotiations, Fitch Ratings is likely to follow.

The Tax Policy Center, using rosy economic assumptions, projected that deficits would continue at least out to the year 2017, and would average $700 billion a year. As Sardi noted, “There is no substantiation for this scenario.” And so something’s got to give.

Indeed, if the average monthly deficits of $150 billion were simply extended in a straight line into the future, deficits over the next five years would add $9 trillion to the national debt, bringing the total to over $24 trillion by 2017.

There are several reasons why that “day of reckoning” may in fact be years away. For one thing, where else would China and Japan invest their surpluses? Name one country that boasts, at least on paper, a better credit rating than the US. With Germany and Japan in recession, and the Eurozone countries struggling to stay afloat, options for “safe” places to invest are limited.

Second, because at present the US dollar is the world’s reserve currency, there continues to be a demand for them no matter what they might be worth. Since Saudi Arabia must deal in dollars when selling the West their oil, there is a floor under that demand. And the recent drop in the price of oil shows, for the moment at least, that Saudi Arabia is happy with the arrangement.

And then there’s the Federal Reserve offering itself as the lender of last resort, announcing last week that it will continue to buy at least half of the government’s deficit for the foreseeable future.

The “day of reckoning” may instead occur in baby steps as the value of the American dollar continues its slow decay in purchasing power.

Despite the cries of worthies like Figgie and Sardi that the end is near, it may not be. The cross-currents of forces demanding further deficit spending are increasingly being met by demands for fiscal sanity will likely put off that “day of reckoning” for a long time, perhaps years into the future. That may indeed be enough time for those demands for sanity to be heard by enough in Washington to begin the sensible rebuilding of the country’s fiscal integrity, in which case the “day of reckoning” would happily never arrive.

 

 

 

 

Latest Move by the Federal Reserve Raises Important Questions

With Federal Reserve Chairman Ben Bernanke’s latest announcement of a new bond-buying program linked to unemployment data instead of the calendar, commentators called it an “historic move,” “another innovation,” and a “surprise” that amounts to a “complete reversal” from the Fed’s days of using Fedspeak to disguise and obfuscate its moves.

After reviewing how the economy looks from the Fed’s point of view, Bernanke announced that his Federal Open Market Committee (FOMC) will

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Refreshing Clarity on Raising the Debt Ceiling

English: Chart of the United States' debt ceil...

Chart of the United States’ debt ceiling from 1981 to 2010 in $ trillion. This chart tracks the debt ceiling at the end of each calendar year. Years are color coded by congressional control and presidential terms highlighted. (Photo credit: Wikipedia)

Once in a while I run across someone with such uncanny ability with words to describe the essence of an issue that it takes my breath away. Star Parker did just that:

Why do we have to keep raising the debt ceiling? Because politicians are afraid to be honest with the American people and immediately raise taxes to pay for all their new spending. So instead of raising taxes and paying for our new bills when we incur them, they just borrow the money.

They do it without our permission, and then expect us – force us – to pay those bills when they come due. Says Parker:

They could be honest. When they have their wonderful ideas about what they want to spend our money on, they could go right to taxpayers and say we are going to spend X for Y so we will raise your taxes Z to pay for it. OK?

They discovered years ago that they couldn’t do this. That’s why they had to create the money machine – the Fed – in order to spend money they don’t have and can’t raise in taxes – and then

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Honoring Freedom Fight Activists

Mike Adams calls himself the “Health Ranger” who has a blog at www.NaturalNews.com where he comments frequently not only on health and nutrition issues but on larger issues as well. Yesterday he gave us a peek at some of those people who have influenced and galvanized him to action in the freedom fight. You’ll no doubt recognize some of the names: Alex Jones, Dr. Joseph Mercola, John Perkins and Gary Null.

The list goes on. You can do a search on each of them for their backgrounds and their contributions to the fight:

On economic issues, freedom advocates like G. Edward Griffin, Paul Craig Roberts, Lew Rockwell, Max Keiser and Gerald Celente question the lies and deceptions of the Federal Reserve and the global banking cartels. They are the brightest economic minds of our time, vastly out-thinking the parrot-headed zombie journalists at the New York Times, TIME Magazine or other mainstream media rags (nearly all of which are slowly going bankrupt, by the way).

He holds them in high regard and esteem because they are courageous and not cowards. Adams makes the distinction:

Jones, Rockwell, Roberts, Griffin, Icke, Quayle, Celente, Keiser, Null, Mercola, Cummins, Smith, Perkins and many more… these people exercise courage. They dare to do what the vast majority of others refuse to do: Speak out forcefully on the real problems facing our world… and the necessarily “radical” solutions to save our world from tragedy in every area that matters: health, environment, finance, liberty, spirituality and more.

He contrasts these with those who take the wide road, the popular road, the one that is most heavily travelled and popular:

In contrast to the courageous truth-tellers, we have the cowards: People who repeat the same thing we might hear from Monsanto, or the FDA, or the White House under any administration (Bush, Obama, you name it). As a coward, it is easy to become a pop culture celebrity because you’ll be offered endless speaking engagements, TV appearances and opportunities to publish your propaganda in mainstream media news magazines. Telling corporate-sponsored lies is not just easy, it’s also popular.

Adams teaches us a good rule to follow:

Look at who the mainstream media says you should pay attention to… and then run like crazy in the opposite direction…

 

 

Mark Zandi’s Credibility is Seriously Damaged

Mark Zandi

Mark Zandi (Photo credit: New America Foundation)

Mark Zandi is an establishment economist who is highly regarded and often quoted with reverence by others in the media. I’ve been known to quote him from time to time when he has something worthwhile to say. He’s a co-founder of Moody’s Economy.com, which is part of Moody’s Analytics, which in turn is owned by the credit rating company, Moody’s Corporation.

But his latest book reveals a fatal flaw. He made an error so glaring that it not only exposed his statist worldview but damaged his credibility significantly because of it.

Garett Jones reviewed his Paying the Price, over which people like Alice Rivlin of the Brookings Institution positively gushed. Wrote Rivlin:

One of our most insightful economists examines the extraordinary actions the Federal Reserve, the Treasury, and other authorities took to cope with the economic catastrophe that followed the financial crash of 2008. A readable, balanced account of what they did, why they did it, and how well it worked out–so far.

Jones wasn’t as impressed:

There are plenty of areas where Zandi tells only part of the story; it’s his book and he’s welcome to his angle. But his dismissal of Fannie’s and Freddie’s role in the housing bubble cries out for exposure.

Zandi uses incomplete data and then draws the wrong conclusion from it:

His discussion of the government-sponsored enterprises features a graph showing that the “nongovernment” share of subprime “mortgage originations” rose during the bubble years. From this he concludes that the private sector, not Fannie and Freddie, deserves the blame for the subprime bubble.

It’s that nasty, private capitalist, laissez-faire greedy runaway system that caused the Great Recession. This is the statist’s primary meme in

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Proposed Changes to US Currency Symptom of Much Larger Disease

US Currency in UV, visible and IR light

US Currency in UV, visible and IR light (Photo credit: xxv)

Within days of each other, two announcements concerning the future of the US currency appeared in the popular press, and each avoided any mention whatsoever of the primary driver of the changes.

First was the announcement on November 26th from Secretary of the Treasury Timothy Geithner that the U.S. Mint will begin removing pennies and nickels from circulation starting the first of the year, allegedly that they’re too expensive to make. It costs the mint nearly 5 cents to make each penny while it costs more than 16 cents to make a nickel. This is costing the mint a lot of money, an estimated $187 million last year alone.

Two days later CNN reported that the Government Accountability Office (GAO) has called on the Congress to stop printing one-dollar bills and switch instead to one-dollar coins. The GAO claimed that such a move could actually make the government some money:

A $1 coin typically costs about 30 cents for the U.S. Mint to produce, but then the government can sell them to Americans for a dollar each. That financial gain is called seigniorage, and over a period of 30 years, it could [make] the U.S. government about $4.4 billion, the GAO said.

Avoiding the real issue, the GAO said that although the coins cost more to make, they would last longer, thus turning a profit to the government:

We continue to believe that replacing the note with a coin is likely to provide a financial benefit to the government if the note is eliminated and negative public reaction is effectively managed through stakeholder outreach and public education.

Unfortunately there is little likelihood that any of that “outreach” and “education” will include any attempt at explaining why the change is necessary.

The real issue is the declining purchasing power of the currency. And that goes back to the year 1913 when the Federal Reserve System was

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Skyscraper Announcement Confirms Impending Chinese Recession

Empire State Building all

Empire State Building all (Photo credit: Wikipedia)

I thank Gary North for alerting me to this. It’s far more than just historical coincidence. The announcement that China is going to build the world’s tallest building is a strong indicator that it is going into (if it hasn’t already gone into) recession. Tall buildings signal the top.

Mark Thornton, a senior fellow at the Ludwig von Mises Institute, wrote about this in July, 2004:

This 4th of July will mark the groundbreaking of the Freedom Tower at ground zero of the World Trade Center. The design of the building calls for a height of 1,776 symbolic feet, which will capture the title of world’s tallest building when it is completed in late 2008 or 2009.

Groundbreakings, opening ceremonies, and certainly July 4th are all causes for celebration, but the Freedom Tower may be a signal that something much more sinister is afoot. For more than a century there has been a correlation between the building of the world’s tallest building and severe economic downturns.

That correlation is eerie, but here it is:

The correlation is as follows. The announcement and groundbreaking for the world’s tallest building takes place at the end of a long boom or sustained bubble in the economy. The stocks go into a
bear market; the economy goes into recession or worse. The building is completed. The economic turmoil that ensues is either severe, drawn out, or as in the case of the Great Depression, both.

There’s this:

The Panic of 1907 which helped bring about the Federal Reserve Act was signaled by the building of the 612 foot Singer Building completed in 1908 and the 700 foot Metropolitan Life completed in 1909. There was only a short, sharp downturn in 1913 when the 792 foot Woolworth building was completed, as the establishment of the Fed and WWI intervened.

And then this:

The Great Depression was signaled by a series of three record-breaking skyscrapers. The 927 foot Wall Street building was completed in 1929; the 1046 foot Chrysler Building was completed in 1930; and the 1250 foot Empire State Building was completed in 1931. The Great Depression helped bring on Roosevelt’s New Deal.

And this:

The 1970s were characterized by high rates of unemployment and inflation. This “stagflation” was signaled by the building of the 1368 foot high World Trade Towers which were completed in 1972 and 1973. The Sears Tower set a new record at 1450 feet when it was completed in 1974.

Then Thornton explains why the correlation is valid, in economic terms. Faulty price signals at the top of a boom cause bad decisions to be made, often very bad:

At first glance the association of record-setting skyscrapers and economic crisis would seem to be a spurious correlation. Surely, the building of such skyscrapers does not cause economic crisis. However, there is good reason to believe that skyscrapers and crisis are linked via the business cycle. Long periods of easy credit create economic booms, particularly in investment, speculation becomes pronounced, and entrepreneurs lose their compass of economic rationality and make big mistakes. The biggest mistakes — record-setting skyscrapers — comes toward the end of the long boom and signal the bust. (my emphasis)

The Chinese economy, like ours, has been running on paper money for years and giving out false and misleading signals to investors. They have made the mistake which I characterize as “straight line thinking in a curvilinear world.” Here’s a link to the announcement that not only are they going to build the world’s tallest building, they’re promising to do it in 90 days!

Stay tuned and watch for the coming recession in China.

Double-Digit Unemployment May Be the New Normal

AMERICAN PROPAGANDA POSTERS: OBAMA JOBS

(Photo credit: printthetruth)

After parsing the unemployment report that was issued by the Bureau of Labor Statistics (BLS) on Friday, November 2nd, two scholars at the Heritage Foundation, Rea Hederman and James Sherk,  concluded that at the present jobs growth rate it could take another five years for a full jobs recovery to occur from the Great Recession. That would place the recovery after the next presidential election in 2016 and nearly ten years after the start of the recession in December 2007.

Noting that 125,000 new jobs must be created every month just to keep up with population growth, they turned to the “jobs calculator” offered at the website of the Federal Reserve Bank of Atlanta and asked it to determine how long it would take for job growth to return to normal, based on the average job growth over the past three months (170,000). The answer: the summer of 2017.

This assumption that future job growth would be maintained at that rate is laden with so many difficulties and subject to so many unknowns as to call the entire exercise into question. This is called “straight line thinking in a curvilinear world,” or, put another way, this assumes that the future will look like the past. It probably won’t.

For instance, there is the “fiscal cliff” and the great uncertainty about how the lame duck congress will deal with it, if they deal with it at all. Great speculation abounds about various scenarios but each concludes that

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What’s to Blame for the Slow Economic Recovery?

Obama: Jesus would back my tax-the-rich policy

(Photo credit: porchlife)

What’s remarkable in this article is not what is said (with which I agree ) but who is saying it: Jerry Dwyer used to work at the Federal Reserve Bank of Atlanta, while James Lothian used to work at Citibank/Citicorp. These are Keynesian guys who have worked in the belly of the beast, and yet have seen the light!

The economic recovery is historically very slow:

Our current recovery has been the weakest since at least World War II.  Thirty-nine months since the recovery started in June 2009, job growth has been  only 2 percent. During the average recovery since 1970, job growth over the  first 39 months has averaged over 8 percent. The current recovery has failed to  keep up with the growth in the working age population. Unlike past recoveries,  much of the drop in the unemployment rate simply reflects people giving up  looking for work. And there is no doubt there was a financial crisis.

But blaming it on the financial crisis is merely political cover for the Obama administration to assume unto itself more powers and excuses to use them, all in the name of

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Taxmageddon Only Part of the Problem

Explosion

Explosion (Photo credit: Freidwall)

The Heritage Foundation went to the trouble of calculating exactly what will happen to the tax liabilities of taxpayers if Taxmageddon stays in place after the first of the year. Accordingly to Amy Payne, “Taxmageddon” is the

horrifying combination of expiring pro-growth tax policies from 2001 and 2003, the end of the once-temporary payroll tax cut, and just a few of Obamacare’s 18 new tax hikes…

Taxmageddon will be the largest tax increase EVER to hit Americans. It’s nearly $500 billion in one year, starting January 1. That’s two months away.

Here is Heritage’s breakdown of Taxmageddon’s impact on Americans:

  • Families with an average income of $70,662: tax increase of $4,138
  • Baby boomers with an average income of $95,099: tax increase of   $4,223
  • Low-income workers with an average income of $24,757: tax increase of $1,207
  • Millennials with an average income of $23,917: tax increase of $1,099
  • Retirees with an average income of $42,553: tax increase of $857

But even this fails to measure the real impact of Taxmageddon starting January 1. It’s that most of the tax increases will be borne by s

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Preliminary GDP Report a Nasty October Surprise

Cash

Cash (Photo credit: bfishadow)

The preliminary report on the country’s gross domestic product (GDP) issued on Friday by the Bureau of Economic Analysis (BEA) was called a “nasty October surprise” by James Pethokoukis at the American Enterprise Institute. On its face the report noted that the nation’s economic output during the third quarter exceeded economists’ expectations, growing at an annualized rate of 2 percent when it was expected to grow at only 1.7 percent. This was a significant jump from the second quarter which notched a poor 1.3 percent annualized rate of growth.

But Pethokoukis, an expert at parsing such reports, found little about which to rejoice. For instance, the economy has only averaged 2.2 percent annual growth since the Great Recession  officially ended in June 2009 and Friday’s report showed essentially no change from that average. In fact, when this year’s first quarter and second quarter growth rates are averaged, the economy grew at 1.65 percent, triggering the distinct probability, according to Pethokoukis, of another slip into recession.

Relying on data from both the Federal Reserve and Citigroup, Pethokoukis offered three reasons why another recession is likely: 

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The Trouble with Outright Monetary Transactions

Mario Draghi presents his credentials as candi...

Mario Draghi presents his credentials as candidate ECB president (Photo credit: European Parliament)

Mario Draghi, President of the European Central Bank (ECB), spoke before Germany’s Parliament on Wednesday, defending his decision to purchase government bonds from member states needing financial assistance but without unleashing inflation. Similar to the Federal Reserve’s continuing attempts to stimulate the economy through the purchase of government securities, called Quantitative Easing, or QE, Draghi’s Outright Monetary Transactions, or OMT, “will not lead to inflation,” he claimed in the closed-door session. He said:

In our assessment, the greater risk to price stability is currently falling prices in some euro-area countries. In this sense, OMTs are not in contradiction to our mandate; in fact, they are essential for ensuring we can continue to achieve it.

This is utter nonsense, wrote Mish Shedlock, in his blog Global Economic Analysis. Since Draghi’s “mandate” is similar to that of the Federal Reserve — that is, to maintain price stability along with low unemployment — it’s impossible to increase the supply of money by buying government bonds with credits created out of thin air without eventually unleashing price inflation at the consumer level in the economy. Shedlock wrote:

The problem with such nonsense is you cannot break the law while screaming you are upholding it. Draghi now sounds and acts like hypocr[itical] US presidents of both political parties.

Both President Bush and President Obama (as well as the treasury departments under each administration) have shown little concern for the law. Increasingly presidents are of the mind [that] “we have to destroy capitalism [in order] to save it” or as President Bush stated and Obama practices: “ I’ve abandoned free-market principles to save the free-market system.”

What the members of the German Parliament wanted to hear was that Draghi would not be

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Layoffs Hit New High

Breakfast with Barack

(Photo credit: jurvetson)

Bloomberg’s Chris Burritt reviewed the carnage on Wednesday: Ford is closing a car-assembly plant (the first one in ten years for the car-maker, with rumors of a second closing in early 2013), while Dow Chemical, DuPont and Advanced Micro Devices (AMD) have laid off 5,500 workers since the first of the year. Since September 1st, North American companies have announced plans to lay off 62,600 more. According to Bloomberg, total firings this year amount to 158,000, 30,000 more than in the same period last year.

That doesn’t sound like economic growth to me.

He quotes Janna Sampson, an investment manager with $3 billion under management:

Companies are saying, “Let’s not build up inventories, let’s be lean and mean until we know until we have a better idea of what 2013 is going to look like. There is a fear now as companies see that the economic recovery is not picking up.”

Third quarter earnings reports aren’t doing well, either. Out of the 204 companies in the S&P top 500 that have reported so far, 120 of them have reported

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Fiscal Cliff, Fiscal Gap, Lame Duck Congress

Lame Duck

Lame Duck (Photo credit: Thomas Hawk)

Private congressional conversations about how to keep the country from racing off the fiscal cliff in January are already taking place in Washington, but few are willing to give many details. With the promise of anonymity, congressional staffers from both sides of the aisle are working feverishly to come up with solutions to the onrushing fiscal train wreck.

Investigator Richard Rubin, writing for Bloomberg, said the Republicans are building a “toolbox” of options — including raising taxes — that could be used during the lame duck session following Election Day. Which tools will be used depends on how the elections turn out. Likewise, Democrat staffers are developing their game plans as well, but tax cuts are not in their “toolbox” according to unnamed parties familiar with the discussions.

Which tools each side will be using depends upon if the Democrats retain control of the Senate and the White House, but fail to gain control of the House. If Romney wins, and the Senate goes Republican, then

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Is QE3 a Myth?

English: President Barack Obama confers with F...

President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

Graham Summers, writing for ZeroHedge, has pointed out that Fed head Ben Bernanke hasn’t done any new buying of securities despite his promise to do so back in September. The Fed publishes its balance sheet. You can see it here, in graphical form. As Summers said, if Bernanke was buying, how come the measure of money – the adjusted monetary base – is declining?

Would Bernanke lie? Oh, no!

The stock market jumped up nicely at the news, but has retraced most of those paper gains. Maybe the market has figured it out: it was

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A Progressive Gets Austrian Schooled!

Barnstar for WP:Economics, but awarded to thos...

(Photo credit: Wikipedia)

James DeLong is an Austrian School economist who lives most of the time in Red Lodge, Montana. He wrote something that upset a local Progressive who asked, condescendingly, just who he thought he was, expressing antediluvian ideas like these?

He wrote back. He taught me an awful lot about how to neutralize, in a charming, winsome way, the vitriol of his attacker. He succeeded, in my opinion, in “turning away wrath” while doing himself, and the freedom movement, a world of good.

First he answers her question: Who am I?

Judith Gregory wants to know who I am. That is easily answered: I live primarily in Washington, but since 1995 I have regularly spent time in Red Lodge, and I hope to spend more in the future. Recently, I wrote a book on current politics, and complete information about me is on the book’s website, www.specialintereststate.org.

Plain and simple: here I am. Nothing special. Except I wonder how

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.