Monthly Archives: January 2011

11% of US Homes Vacant

About half of that is due to foreclosures.

Read about it here.

And it’s just getting started.  A lot more people are waiting to get evicted than are waiting to buy.  From a market perspective, there is no reason – none whatever – to be buying a home right now.  Like catching a falling knife.  You just lose your fingers and the knife keeps falling.

On the other hand, people have to live somewhere.

I was always amazed by the McMansion neighborhoods that seemed to be all over suburbia in the 1990’s.  Not just the houses themselves, but everything that went along with them – the need to fill them up with stuff, the ridiculous distances you had to travel to shop or work – was flagrantly unsustainable.  It was wasteful pseudo affluence.  It’s crashing to earth within twenty years.

Still, people have to live somewhere.

I have proposed the 28th amendment and specifically its jubilee provisions primarily to cushion the fall.  People will still have to make other arrangements, and they should, but at least they won’t have evictions hanging over their heads.

In the end, though, a lot of those neighborhoods are going to be bulldozed.  So many people bought them, but they are inherently undesirable dwellings.

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A Few Preliminary Observations: “Social Credit” v. The 28th Amendment

Regarding the whole “social credit” thing:

I think there is something to these notions, very tentatively; but I haven’t much of a clue, at this point, how any of it would be implemented, or even whether it could be.

Briefly, though, it seems to me that it is proper to ask the question of why some things that have obvious economic value have no monetary value.  The “social credit” guru, C. H. Douglas, points out that every advance that adds value to the economy and people’s lives builds upon previous advances, that there is a sort of “heritage” component of all valuable things that isn’t owned by any particular person but is rather more or less the property of everyone.  There is something to this.  I’m not saying that it can be reflected in any action or conduct of the government, or in any monetary system that can be rationally instituted.  I’m not even saying I agree with it, exactly.  I just think that there is a kernel of a truth there, somewhere. It may or may not be meaningful in the sense that something can be done about it. It is entirely possible that nothing intelligible can be done.

Another interesting point Douglas makes concerns the fact that there is monetary value attached to, say, the land on which a factory sits.  And so the profit of the factory is reduced by the payment of rent for the use of the land.  But the factory also depends upon manpower, and it uses the labor of human beings to produce its profit.  Each of the human beings had parents who provided the human beings who ultimately provided that labor.  Yet there is no monetary value attached to this contribution, which is every bit as essential to the operation of the factory as the land on which the factory sits.  No payment is made to the parents, in other words.

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Social Credit Monetary-Economic Theories

At the urging of a number of readers and commenters, I am in the process of reviewing some literature – whatever I can find online – pertaining to a rather obscure but fairly interesting early 20th century economics phenomenon known as “Social Credit“.  I confess to never having heard of this stuff before, although I have seen similar ideas expressed, primarily over on Ellen Brown’s blog.

It would not be accurate to say that this is a “school of thought”; social credit  is more like a populist political movement centered around a Scottish engineer named C.H. Douglas.  There is a manifesto of sorts, authored by Mr. Douglas, here.  Some of the ideas of the movement were legislatively implemented, but apparently strangled in their crib, in the Canadian province of Alberta in the 1930’s, a time when governments may have been more amenable to experimentation on matters economic.

There were some prominent literary intellectuals associated with this movement:  Ezra Pound, T.S. Elliot, Aldous Huxley. If it interested them I can at least explore it.

My initial impression of Douglas’ writings are, however, not favorable.  He was no doubt a highly intelligent man.  His writing proves that much.

But those writings are also more than a little tinged with some of the worst anti-Semitism of the era:  the whole “Protocols of the Elders of Zion” and “international bankers” bugaboos.  These are not only objectionable to me on moral grounds; they are also a major distraction from the more important and practical concerns that are, shall we say, sufficient unto the day.  To say the very least.

In any case, more on this later.  It will take some more reading and thought on my part.



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Gold Standard II

Law trumps economics, or should.

The gold standard embodies this principle.  It codifies how value is to be measured without valuing any particular thing.  It is directly, precisely analogous to setting up other systems of weights and measures by law, such as gallons to measure volumes of liquid, fahrenheit or celsius degrees to measure temperature, feet or yards or meters to measure length, pounds or grams or tons to measure weight.

You would think that “weights and measures” would not be the kind of thing to arouse passions, but you would be wrong.  Controversy has attended daylight savings time.  But it would be fair to say that this happens only among a very few people.  Most people are content with any convention of weights and measures that is imposed by law as long as it is neutral and consistent.

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The Gold Standard

It’s atavistic.  Then again, so is Aristotle.

Durability.  Portability.  Divisibility.  Intrinsic value.  Everyone knows these, even the guys at “Market Oracle”:  it’s all Aristotle.  People get hung up on the “intrinsic value” thing.  So what.  It’s not that important either way.

Politics.  Ethics.  Economics.  Biology.  Tutor to Alexander the Great?  That Aristotle certainly got around.

I generally prefer Plato to Aristotle, but sometimes you have to deviate from your usual preferences because, well, it’s the right thing to do.  Look at this.  (Who the heck is Joan Bardina, anyway?  Does this discussion have something to do with Basque separatism, a phrase that appears here and there in media reports over the last few decades?  Let’s not go there.  At least not right now.)

Let me just say that sometimes these posts won’t make much sense if you don’t use the links.  Proceeding on, then…

Steve Keen is a smart guy and he likes to use charts and graphs, and there’s nothing wrong with using charts and graphs but when you start invading Aristotle’s territory you should remember that he didn’t use charts and graphs, and just maybe he was a smart guy, too, and if he didn’t use charts and graphs maybe they’re unnecessary or even counterproductive, otherwise that smart guy Aristotle would have used them because you can be sure charts and graphs were around back then and he would have – but since he didn’t I’m not going to, either.

Sorry for the run-on sentence but I think it’s effective, don’t you?  I mean, if I’m not going to put in a pretty chart or graph I need to try something else to hold a reader’s attention and that’s one way.

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Feedback from Steve Keen On 28th Amendment

He doesn’t like the gold standard:

“On your reform proposals, I did take a look and I am not a fan of a gold standard. Lots of reasons for that–some of which I cover in the Roving Cavaliers–but because it’s such a large part of your proposed amendment it makes it difficult to critique any component of the overall plan.”

I’m trying to get him to say something about the other stuff that is independent of the gold standard; specifically, whether the right way to do a jubilee, if we ever had one, would be to cancel everything but the currency and the demand deposits, which is what the proposed 28th Amendment does.

The problem that is addressing, of course, is that without those two things there would be no money out in the economy at all if you canceled every debt, since it is a debt-based monetary system.  Not to mention that commerce should have some monetary basis on which to continue, even if pricing is difficult at first.

For more on this subject, see this and related posts.

Yet, Keen is a self proclaimed fan of Joseph Schumpeter, another one of those early 20th century Austrian economists, and here is what Schumpeter had to say about the gold standard:

An ‘automatic’ gold currency is part and parcel of a laissez-faire and free-trade economy. It links every nation’s money rates and price levels with the money-rates and price levels of all the other nations that are ‘on gold.’ It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of [classical] liberalism. This is the reason why gold is so unpopular now and also why it was so popular in a bourgeois era. It imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man may quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of etatisme and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.

—Schumpeter, History of Economic Analysis (H/T Wikipedia)

So maybe while Steve Keen is not a “fan” of the gold standard he is not a staunch opponent, either.  Or perhaps he is a staunch opponent and is just being polite.

The gold standard, as I have stated elsewhere, is one of those “divisive” issues among economists. 


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A New Look

Because Mish Shedlock told me to.  And he has a lot of readers.  I thought black background and white letters was cool, but Mish differs, and when Mish differs on the nuts and bolts of blogging, I defer.

I may experiment with a few other “themes” but for now I like this one.  Mainly I like to have the blogroll prominent; make it clear and easy for comments; and a look that isn’t too busy or gimmicky.  The above book shelf thing is as gimmicky as I can stand, really; but the other features override whatever objections I might have to the layout.

But that’s just me and my preferences.  Feedback is welcome as always.

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Institutional Momentum Illustrated

The dust-up over lawyer disciplinary rules regarding fees continues in Texas.  Bennett is still at it.

There’s little or nothing I can do about goings on in Texas other than what I’ve done – which was not well received by those cantankerous Texans – but I couldn’t resist commenting on this:

As I have said before, the proposed rules have been vetted by the State Bar Disciplinary Rules Committee, the Supreme Court Task Force, the Board of Directors and the Supreme Court itself. To suggest that the final result is a product as flawed as the critics would have you believe is just a bit disingenuous. I hope you will study the proposed rules and make your own decision.

This, according to Bennett, is a quote from a letter from lawyer Ralph Brock favoring the disciplinary rule changes.  Bennett call this pitch a logical fallacy known as the “argument from authority”.

Logic should really dispose of such arguments but it doesn’t.  That’s the interesting, if maddening thing here.  A lawyer makes an “argument” like that and you jump all over its flaws because from a logical point of view it’s a stupid argument.  Not just wrong, but stupid.  Any first year undergraduate that took Phil. 101 probably knows that such an argument won’t fly.

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State Governments Going Bankrupt?

They have pensioners.  They have bondholders.

Screw ’em, though.  Let them eat cake.

States have over promised, like everyone else, and maybe they have to go bankrupt.  Or something.

There are 11th amendment problems with states themselves going bankrupt – which is a federal jurisdiction – that don’t exist with cities and other municipalities.  Those governmental subdivisions have Chapter 9. It’s a special form of bankruptcy – for governments only – that doesn’t involve a liquidation. That’s what a state “bankruptcy” would look like.

In other words, everyone else who doesn’t pay their “debts” can go bankrupt, but has everything they own confiscated and sold off.  But governments get to just “restructure”, and nobody confiscates anything.

As Mel Brooks once put it:  It’s good to be the king.


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28th Amendment – Some Final Thoughts

It’s worth pointing out what you can and cannot do with the law, the constitution and its amendments being the most fundamental law of the political entity known as the United States of America.

We are imperfect and so is any law we make.  The law cannot, as a general rule, redistribute wealth, or ensure that wealth is distributed evenly.  Nevertheless, the law should result in the fair distribution of wealth if the law is wise and just.  This fairness should be thought of as a by-product of good law, not its conscious purpose, the reason being that explicit opinions on how wealth is to be distributed will vary widely and cannot be embodied in a law without favoritism.  Picking and choosing between competing ideas about wealth distribution is as impossible for the law, practically speaking, as it is undesirable in any event.

As matters stand the law has failed this test completely and this is the problem that must be addressed.  The proposed amendment is an effort to recognize this failure and correct it as best that can be done.  It is not the source of the failure, and it is a very imperfect solution to an otherwise totally insoluble problem.

The “jubilee” is a one time departure from the principle I just described:  it is an explicit wealth transfer from one group – creditors – to another group – debtors – unlike anything that has taken place in modern times.  It will unfairly benefit some and unfairly penalize others, though again as a practical matter and under the circumstances the injustice will be collectively minimal, since not only debt but unpayable debt is nearly universal.  Nevertheless, it will cancel this debt once and only once.

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28th Amendment – An Addition: Blocking The Exits For The Banksters

I haven’t received a lot of input on this amendment thing, but I thought of something I believe I overlooked.  I figured I’d post about it both to invite further commentary and to illustrate for any leaders or thinkers the kind of foresight, imagination, knowledge and mental effort that goes into drafting laws, especially constitutional laws.  For me, at least, it’s fairly grueling and I’m prone to mistakes, which is one of the reasons I appreciate input.

Anyway, here’s the problem.

The amendment provides that the US dollar will be returned to a gold standard at what are very elevated dollar price levels from where they have ever been before ($27,300/oz or more).  If this amendment idea were to gain any steam (I know, unlikely, but bear with me) there would be a temptation for those with purchasing power to accumulate a lot of gold to preserve their position in the post amendment world.

Some people have come by their purchasing power in a fair fight, as it were.  Others, however, have profited only by virtue of the very game rigging this amendment is trying to address.

Happily, this latter group is easily identified:  the financial and government class.  Moreover, because they have a proven history of taking unfair advantage through rigging the game, they are the group that will most likely exploit any advantage the interregnum provides.

Accordingly, if possible their ability to do that should be blocked.  Thus, the following should be added to the amendment, which is already lamentably long, but nevertheless:

“All gold:  1) acquired by primary dealers of the Federal Reserve or their officers, directors or executive employees (as determined by the Secretary of the Treasury) on or after September 1, 2008; or 2) acquired by employees of the United States on or after September 1, 2008 shall be forfeited to the United States and surrendered to the Secretary of the Treasury within thirty (30) days of the ratification of this amendment, and the Secretary shall include such gold in determining the definition of the dollar under section 7.  Willful refusal to surrender said gold by said date by any citizen of the United States shall constitute treason against the United States.”

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Correctly Identifying The Issue

The issue is unpayable debt.  And debt-as-money.  The two are joined at the hip.

The constitutional amendment idea is addressing this issue.  I’m not aware of anything else that is.  So view these videos, go back and read the five posts about the constitutional amendment, do some thinking, then get back to me.  I’m right here.


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Lawyer Fees II

Quite the dust-up in Texas over “flat fees”.  Bennett is all over it, as he should be.  Greenfield weighs in, too.

I certainly hope the proposed amendment goes down in flames, but I wanted to add my two cents with a point that is being not missed, exactly, but not fleshed out enough.

I dealt with this issue a little bit here.  My point in that post was that bureaucrats seem to have no appreciation for, or even a concept of, the risks inherent in economic activity where the parties are free to contract or not.  The bureaucrat’s government paycheck appears every pay period, as if by magic, at least to him.  But it’s not magic.  That paycheck came from the collection of taxes which unlike commerce and even the private practice of law – which is not exactly commerce – is a forced transaction between the government and its subjects.  There is no economic risk involved, though there may be other kinds of risks – but that is not important here.

In other words, the bureaucrat’s paycheck is like when we buy our meat at the grocery store and don’t have to think about the butcher.

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28th Amendment – The Rest Explained

Section 4:

Section 4 does two things:  1) designates the Secretary of the Treasury as the point man for carrying out the provisions of the amendment; and 2) limits the power of Congress to do anything about what the Secretary of the Treasury does in doing so, unless the Secretary acts in bad faith.

Who, oh who, would want the job of the Secretary of the Treasury under these circumstances?  Hard to say.  Some heroic individual who is willing to place his life in the hands of some of the most contemptible people on earth – members of Congress – since, as section 10 provides, if those scoundrels determine by a super-majority that he has acted in bad faith he will be put to death in short order.  Unless the president refuses to carry out that provision, in which case the United States is to be dissolved, the situation at that point having become hopeless.

Section 5:

This section simply prohibits the federal government from ever establishing a central bank again.  Good riddance.

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28th Amendment – Section 3 Explained

This is as much nuts and bolts as I think we dare put in a constitutional amendment.

Section 3 essentially directs the Secretary of the Treasury:  a) to tally up the gold in the possession of the federal government and the federal reserve system; b) to keep one-tenth of it for the federal government as its own; c) to distribute one-tenth of it to the states, pro rata, to keep as their own; and for the remainder d) retain an amount sufficient to redeem all outstanding federal reserve notes in gold; and e) distribute the balance to banking institutions so as to enable their existing demand deposits to be redeemed in gold.

The dollar amounts of outstanding federal reserve notes and demand deposits will be known with certainty, as will the quantity of gold available and in the possession of the government.  From there it is a simple matter of arithmetic to define the “dollar” in gold terms so that there will be enough gold to satisfy every dollar claim against it.  This is what section 7 of the amendment requires the Secretary of the Treasury to do.

Let me use round numbers just to illustrate the process.  For example, let’s say the outstanding federal reserve notes stand at $1 trillion and demand deposits at $6 trillion.  The Secretary determines that the government has 8800 tons of gold.  The federal government keeps 400 tons and distributes 400 tons to the states, pro rata.  For the remainder, the Secretary just divides the amount of gold on hand into the dollar amount he needs to cover FRN’s and demand deposits and defines the dollar accordingly.

On the numbers given you would have 8000 tons of gold which is 256,000,000 ounces.  This would be divided into $7 trillion and the dollar definition would be roughly $27,300 to an ounce of gold.

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