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Wednesday, March 26, 2008

Napoleon's Discovery

Napoleon, or one of his advisers, discovered the evil role that banks play in enslaving everyone.

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."

Napoleon Bonaparte, 1815

Usually, when there's a political revolt, the bankers' property remains untouched. However, Napoleon kicked the bankers out of France.

That's why Napoleon gained so many followers. He explained to people how they had been tricked.

The rest of Europe united to defeat Napoleon. After being kicked out of France, the bankers' branches in every other country financed a war against Napoleon.

International banks are stronger than governments. If the government in one country gets hostile to the banks' goals, then an invasion or overthrow is financed by the banks' branches in other countries.

Tuesday, March 25, 2008

The Carry Trade

The "carry trade" is a mechanism whereby traders exploit central banks and their subsidized negative interest rates. The carry trade involves borrowing from the central bank that offers the lowest interest rate, and then investing in tangible assets and waiting for inflation.

The most famous example is the yen-gold carry trade. While the Japanese yen had 0% interest rates, people would borrow yen and buy gold. This was a practically riskless trade. The yen-denominated price of gold was practically guaranteed to rise as the yen was inflated.

The carry trade also can be used to borrow in a currency with a low interest rate and buy bonds in a currency with a higher interest rate. The risk of this trade is that exchange rates may change unfavorably.

The carry trade can be broadly be defined to ANY situation where you borrow at a negative real interest rate and buy tangible assets. For example, the typical hedge fund borrows from the Federal Reserve and buys stocks. The spread between the Fed Funds Rate and the true inflation rate is around 10%. Using 7x leverage, this means that hedge funds can make a 70% profit just from the difference between the borrowing rate and the inflation rate.

In a free market with an international gold standard, there's NO SUCH THING as the carry trade. With an international gold standard, and free shipment of gold between countries, interest rates must have nearly the same value everywhere! Otherwise, someone could arbitrage interest rate differences by shipping gold from one location to another.

The carry trade is one of many ways that financial industry insiders exploit central bank subsidized negative real interest rates. The profitability of the carry trade is a symptom of a defective monetary system. Don't blame traders who exploit the carry trade. Blame the corrupt monetary system that rewards such behavior.

Monday, March 24, 2008

FSK Asks - Should I Use Post Labels?

Other blogs attach "labels" to their posts. I haven't been doing this, considering it a waste of my time. I'm not concerned about SEO (search engine optimization). My PageRank is gradually increasing over time as more people link to my blog. As my "body of posts" gets bigger, more searches are hitting my blog. So far, "word of mouth" has been better for attracting new regular readers than "search", although it's hard to measure from Google Analytics. (Google Analytics doesn't let me filter my regular readership list by how they first found my blog. That's one advantage of self-hosting over using Blogger; better user statistics.)

Should I attach "labels" to my posts? I'm currently not doing it, because I think it's a waste of my time. People can already do "site:fskrealityguide.blogspot.com" Google searches if they want to search my blog for specific content. Blogger also supports a "search blog" feature. There's a little textbox in the upper-left corner that can be used for search. I can tell people are using it based on Google Analytics' reports.

It's easy enough to search my blog. Post labels are redundant and a waste of time.

Sunday, March 23, 2008

Reader Mail #43 - Apologies are for Statists

I liked this post on the Picket Line. If you pay taxes, you are as responsible for war as the soldier who kills people. If you pay taxes, you are directly responsible for *EVERY* bad thing government does. Paying taxes is immoral.

There also was this post on redpill8: (not to be confused with redpillguy)

It's one thing to say that taxes are wrong because it wasn't codified or was misused in a legal document, and another to say that taxes are wrong because they are being used to commit morally reprehensible and illegal acts.
When arguing against income taxes, it is important to use the *MORAL* argument. That is much more important than the legal argument.



I liked this article on Bill Rempel. Under what circumstances should you guest blog on another site? Bill Rempel was refusing to guest blog because the host wouldn't share advertising revenue. The host wouldn't share statistics about readership totals.

I would only guest blog on another site provided I could *ALSO* post the same article on my own blog. It's stupid to write a post and assign the copyright to someone else.

Kevin Carson is guest blogging on The Art of the Possible. If he's assigning the copyright to someone else, he's making a mistake. He should repost his articles on his own blog. You have to build your own brand instead of building someone else's brand. (Technically, Google could hijack my blogspot domain. In practice, they won't. If necessary, I would switch hosts or self-host.)

I don't consider intellectual property to be a valid form of property. If you want to copy some or all of my posts, go ahead. However, I'd appreciate it if you provided a link back to the original source.

For all practical purposes, placing something on the Internet is the functional equivalent of placing it in the public domain.



I was playing Titan Quest. In one scene, you're fighting dog/wolf-men. They make dog whining noises when you kill them. The neighboring dogs were able to pick up on the noise. They started barking.

That happened to me with another game. The Corporate Machine has a cricket chirping sound. It attracted a cricket from outside.



I liked this post on George Washington's blog.
"not only [world's richest man] Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't 'figure out'" the derivatives market.

Basically, the $516 trillion dollar derivatives market doesn't trade in real goods or real services, but abstract ideas and pieces of paper several steps removed from the real goods or services. The problem is that neither the buyers of sellers of derivatives have placed a value on the books of their trades. Indeed, they can't, because no one really knows what a lot of these abstract psuedo-investments are worth: they're so many steps removed from a tangible good or service, and have been re-packaged with a bunch of other derivatives, that even the large banks which hold large amounts of derivatives don't really know what they're holding in their hands.

As one writer put it:
"It’s all smoke and mirrors. The financial system has decoupled from the productive elements of the economy and is now beginning to show disturbing signs of instability.

"The world economy is poised to experience the worst financial crash in history because, according to Dow Jones' MarketWatch, the derivatives market dwarfs the real market for goods and services, and because the huge derivatives market is essentially an unregulated black market. In other words, the black market trading in half-truths, and can't-be-verified statements, and backroom deals dwarfs the market based on goods and services which free market capitalism is supposed to be all about, and may take down the latter.

And the flimflam derivatives salesmen all over the world, and the institutional buyers who have tried to stay in the green by buying derivatives (like wealthy Orange County, California, which went bankrupt after investing in derivatives), have been guilty of installing and enabling dishonest governments that lie, cheat and steal, not to mention bombing and exploiting poorer countries with abundant natural resources. In other words, the banks and other huge institutional investors which have been the largest players in the derivatives market have also been the ones propping up dishonest governments and fascist-wannabes worldwide.

Dishonesty is the poisoned tree. The economic crisis is its fruit. We will not be able to get out of the downturn until people are willing to stand up and demand that our economy be based on truth.

Is that the next asset bubble? The derivatives market?

The financial industry does *NOT* provide tangible goods and services. The financial industry leeches off the rest of society. The rules of the financial system were set up that way on purpose!

Once you understand the Compound Interest Paradox and how the US financial system operates, you'll realize that paying taxes is immoral.

The ultimate culprit for the derivatives market is Federal Reserve subsidized negative real interest rates. Banks and hedge funds make huge profits off derivatives transactions. These profits aren't free. They're paid by everyone else as inflation.

When/if the derivatives market crashes, the Federal Reserve will provide a bailout. It will take the form of an interest rate cut, as always. The Federal Reserve can *ALWAYS* bail out banks, by printing new money and giving it to banks.



I liked this post on Techdirt. Some people are saying that homework doesn't help children learn.

The purpose of homework is to *PREVENT* children from learning. Homework forces children to waste time on mindless tasks, instead of pursuing their own interests.



I liked this post on the Picket Line. More people are seriously contemplating agorism.

Businessmen are often the biggest obstacle to the free market and the staunchest friends of government regulation.

When people say "businessman", they mean "someone who takes advantage of government subsidies and regulations to line their pockets". If "businessman" has a negative connotation, what do you call someone who trades in the free market? An agorist is not the same as a businessman.

Words like "capitalism" and "businessman" should be tabooed. Capitalism and a free market are *NOT* the same. Someone who is successful in a communist corporate bureaucracy is *NOT* the same as someone who would be successful in a free market.



I liked this post on BradSpangler.com. He was asked to work in the Libertarian party. He correctly pointed out that's a complete waste of time. It's pointless to work for Libertarian red market agents.

You're either part of the problem or part of the solution. If you're performing *ANY* sort of political activism, you're wasting your time.

If you play by the rules of a corrupt economic and political system, you are a slave.



I liked this post on the Agitator. The RateMyCop website was shut down. There was no takedown notice. The hosting service just decided it didn't want to host it.

Luckily, the website found another host.

With network neutrality, censoring the Internet is hard. With many competing hosting services, it's easy to find a host when you're discriminated against.



I liked this post on the Agitator. Many cities have installed red light cameras, giving tickets to people who run red lights. Some people say this is leading to increased accidents, as people abruptly brake to avoid getting a ticket.

That article also claims that, at camera intersections, the yellow light is shorter than at other intersections!



I liked this post on the Agitator. The Federal government provides funding for local police departments if they make a lot of drug busts. There's some sort of quota system. This funding encourages militarization of police departments. The quota system encourages police to violently raid small drug offenders.

In a free market, drug use is not a crime. Drugs *REALLY ARE* bad for you, which makes this perversion of justice believable.

All people are government property. You are banned from using drugs, because when you use drugs you are damaging government property!



I liked this post on Liberty is My Homie, referring to this YouTube video on "Duck Tales inflation".



I liked this post on Distributed Republic.

It is very well understood how government grows, and why it is so difficult for taxpayers to protect themselves from the large-scale looting that goes on in Washington . . .

  • Government confers huge, concentrated benefits on select groups of people, while spreading the cost over all taxpayers
  • The groups that benefit from government favors have large incentives to fight for those benefits, while taxpayers have small incentives to fight any particular instance of looting

This essential insight tells us something very important about strategy . . . NO strategy for curtailing government growth has ANY chance of success UNLESS that strategy makes it EASY for taxpayers to fight government growth, and, as a result, more DIFFICULT for politicians to make government grow. We have built our entire organization, and we are basing all of our future plans, on this crucial insight.

This is the Distributed Costs and Concentrated Benefits problem. Government dilutes the cost of its activities over the entire population. The benefits are always handed out to a select group of people. Anyone who benefits from government violence likes government. A lot of people are deluded into *THINKING* they benefit from government. They see the benefits they receive. A lot of the taxes and costs are hidden or indirect. Many people don't notice how big income taxes are, because they're automatically deducted from their paycheck.

It doesn't pay to fight any individual government abuse. Each single abuse only costs you a small amount of money.

Agorism is the only effective resistance strategy. Agorism is the only resistance strategy that allows you to fight ALL GOVERNMENT ABUSES AT THE SAME TIME! With agorism, you resist the bad guys and show a profit at the same time!



I didn't like this post on Econospeak. The poster claims that an asset bubble is developing in gold.

I disagree. If you compare the price of gold to other commodities, such as oil or silver, there is no bubble. The problem is not that gold is increasing in value. The dollar is decreasing in value.

Also, the author says "stocks are a better investment than gold, because stocks pay dividends". However, corporate management lines their pockets with corporate assets. As a small shareholder, you have no choice but to finance management largesse and waste. Large corporations receive massive government subsidies but they also have massive inefficiencies.

I am not convinced that stocks are a better investment than gold or silver. Over the last 10 years, gold really was a better investment than the S&P 500. That's a nontrivial time period.

If you invest in gold, your long-term inflation-adjusted return should be 0% minus your transaction costs and storage costs. The bad news is this may truly be the best investment out there!



I liked this post on Econospeak. At many universities, faculty are now less than 50% of the staff. The ranks of administrators have swelled.

A large university is dependent on government funding. A "research" university is effectively an extension of the government.

The purpose of a university is *NOT* to provide research and education. The purpose of a university is to provide the *ILLUSION* of research and education.

To many people, a university education is merely a piece of paper that entitles them to a high-paying job.



I liked this post on Marginal Revolution, referring to this article. Hedge fund managers can generate market-beating returns by writing naked put options. Essentially, they are writing insurance contracts against longshot events. Most of the time, they will make a tidy profit, collect huge salaries, and look like geniuses. The rest of the time, their fund will lose everything. Even in that case, they can probably raise capital from other investors and try again.

Combine this with the massive government subsidy that hedge funds receive in the form of negative real interest rates.

Does anybody want to hire me to run a hedge fund for them?

I'm starting to seriously consider the possibility that physical gold and silver is the least risky investment *AND* the investment with the highest rate of return.



I liked this article, forwarded by the Picket Line. It is a pie chart illustrating US Federal government spending. Over 50% of the budget is military. It's hard to tell exactly, because of budget tricks. Military spending includes pensions and healthcare for retired/disabled veterans.



I liked this post on the Bell Tower. The Federal government is giving a tax rebate to "stimulate the economy". This is a pittance compared to the MASSIVE bailout that banks have received.

No mainstream news source will *EVER* mention the huge government subsidy that banks receive. Negative real interest rates guarantee bank profits. The cost is paid by everyone else as inflation.

The banking sector is *GUARANTEED* to be around 10% of the size of the economy. This is built into the rules of the monetary system.

When large banks lose money, they *MUST* be bailed out. Otherwise the dollar would collapse in hyperdeflation. Large banks get to print the money that everyone else uses to trade. When large banks lose money, they aren't able to issue loans. New money is *ONLY* created when a large bank borrows from the Federal Reserve and makes a loan.



This post on the Freedom Symposium was interesting. The author is disappointed that he isn't yet living out his philosophy of freedom.

Are you a hypocrite if you write about freedom, but don't fully practice it yet? No. It is sufficient to do the best you can.

There are *MANY* practical and legal obstacles to free market economic activity. For now, writing about agorism is the best I can do. Hopefully, in a few years, I will be able to make the transition from "theoretical agorism", to "practical agorism".

In the meantime, if I write about agorism as best I can, there will be people with the mind-set of agorist trading partners. According to Google Analytics, my blog has a decent number of reader in the same city as me.



I liked this article on Fred on Everything, referred by to Herd or not to Herd. He is explaining the Voting Scam.



I liked this post on Techdirt. The Associated Press took pictures of Eliot Spitzer's prostitute from her MySpace page. They published them without her permission. She is now complaining about copyright infringement.

In other cases, the AP has *AGGRESSIVELY* cracked down on people who reproduce AP photos without permission.

Intellectual property is not a legitimate form of property.



I liked this post by redpillguy. He makes several interesting points.

The offensive part of the Eliot Spitzer scandal is the way he was caught. He was caught by "anti-money laundering" laws. Under certain circumstances, your bank is required to report transactions to the government. These laws don't just catch drug dealers. They catch people for tax evasion and all sorts of free market activity.

"Money laundering" is one of many fake crimes imposed by an illegitimate government.

If you really want to engage in free market economic activity, you *HAVE* to use sound money (gold or silver). Otherwise, you will be foiled by government reporting requirements.

A large corporate bank is an extension of the government. You should assume that all transactions are automatically reported to the bad guys.

The law in the US resembles the system in the USSR in many ways. The law is so complicated that practically anybody could be accused of a crime at any time!

I heard the argument that prostitution should stay illegal because of the "abuse" of women by their pimps. However, the reason that prostitutes can't go to the police when they get abused is precisely because prostitution is illegal! If it weren't illegal they could go to the police when they get abused.

This is the ultimate problem with black market violence. People working in the free market are shut out of government dispute resolution facilities. Therefore, they must directly resolve their problems themselves, via violence. A free market justice system is needed to go along with the free market economy.



I liked this post on Marginal Revolution. Prostitutes in India have no place to save money.

“But earlier there was no way to save money. Even if you gave it for safekeeping to a shopkeeper or brothel manager, they would never return it.”

There literally is no way to save money *ANYWHERE IN THE WORLD*. There is no investment that won't be eaten away by taxes or inflation or storage costs.



I liked this post on From the Archives, referred by Marginal Revolution.

Are people inherently "loss-oriented thinkers"? This is an aspect of state schooling/brainwashing, rather than an inherent human property.

Due to "loss-oriented thinking", people remember their losses more than their gains. People try to "avoid losing" more than they try to win.

Over time, this leads you to assume that your opponents are omnipotent liars. This is called the "Devil's Shift".

This is *NOT* natural human behavior. It is an aspect of state brainwashing.

It is built into the rules of the economic system. Someone who makes a mistake and loses their job is heavily punished. Someone who performs brilliant work goes unrewarded in a wage-slave job. Why would anyone accept any risk when they are punished for losses but not rewarded for gains?



The US Supreme Court is making a decision regarding a gun ownership case in Washington D.C. Some people are saying "Finally, the Supreme Court is going to clarify what the authors of the Constitution meant in the 2nd amendment."

Just because this group of nine people say something, that doesn't correlate with what another small group of people meant 200 years ago.

Why should the US Supreme Court get to impose their will on the rest of the country?

It seems that the US Supreme Court writes more laws than Congress! In Congress, most laws are written by lobbyists.

Ultimately, your "right to own a gun" comes from the gun itself.

Monopolistic government police have *NO OBLIGATION* to protect you. Suppose you're being robbed. If you call the police and they don't respond, it's too bad for you.

If government is going to ban gun ownership, then the government should *ALSO* accept full responsibility when someone is the victim of a crime.



I liked this post on Techdirt. Google has threatened to sue any telecom corporation that violates network neutrality.

Some Congressmen were considering expanding antitrust law to cover network neutrality. Is that a redundant extension?

You can't rely on "market forces" to ensure network neutrality, because the USA is not a free market! The "market forces ensures fairness" argument only holds in a free market!



I liked this post on Techdirt. Why are ATM machines secure, while electronic voting machines are not? ATM machines use a security model that isn't defective. ATM machines leave a detailed paper trail of every transaction.

With an ATM, the victim will complain if they're robbed. With an electronic voting machine, there's no way an individual can confirm if the results are genuine or not.

A bank loses money if its ATM machine fails. An election official loses nothing if the election results are sabotaged. The election official probably *WANTS* to be able to tamper with the election.



I liked this post on Unqualified Offering.

The media doesn’t invite the Flat Earth Society to “discuss the controversy” every time they show a picture of the globe. They don’t invite a North Korean official to argue that his country isn’t a shithole when they want to do a story on North Korea. They don’t invite NAMBLA to offer an opposing perspective when somebody is accused of child molestation. And they don’t give a guest column in leading publications to a cheerleader for the Libyan regime. Yet when somebody wants to show up and argue that Iraq is a success story, that torture (fricking torture!) is OK, that unchecked executive power is just peachy, they invite that person onto the show and thank him. Instead of reporting the abuses of power they treat the apologists as honored guests.

No, I don’t want a partisan media. But I do want a media with a better bullshit detector, one that doesn’t feel the need to bend over backwards to be “fair” whenever somebody wants to say that torture and unchecked power are necessary to defend freedom. I want a media that won’t let somebody show up and defend torture, treat him as a Serious Person, and then thank him for appearing on the show.

At some point you have to say that an idea has been sufficiently discredited that it’s time to move on and stop treating its proponents like the Serious People that they insist they are. As long as the worst ideas in circulation are treated as Serious, it’s impossible to hold their proponents accountable because what they do is not a crime but merely a controversial decision.
The most serious crimes are NEVER DISCUSSED at all. You will *NEVER* see a mainstream media source seriously debate "Is the Federal Reserve necessary?" or "Is the income tax a good idea?" or "Who needs a government at all?"



I liked this post on lowercase liberty. In a war, the state oppresses its own citizens, via taxation and other restrictions. The "civilians" killed in bombing raids are also victims. Why should slaves suffer for the misdeeds of their masters?

Without government, war is not profitable. On both sides, the "average person" is a big loser in each war. The average Iraqi is much worse off for the war. The average US citizen has paid a lot for the Iraq war, in the form of taxes and inflation.



A lot of Bear Stearns shareholders are outraged at the $2/share offer price. They plan to vote against the merger.

The communists on CNBC made an interesting point. Even though Bear Stearns' stock has tanked, Bear Stearns' bonds have soared! This debt is now fully backed by JP Morgan Chase. It has gone from a "junk" credit rating to investment grade overnight.

If you're a Bear Stearns' bondholder, it pays to buy Bear Stearns stock and vote *FOR* the merger!

The Bear Stearns bailout isn't free. The Federal Reserve printed new money and gave it to JP Morgan Chase to finance the bailout. The cost of this bailout is paid by everyone else as inflation. The Federal government is sending "tax rebate checks" to "stimulate the economy". The Bear Stearns bailout is *BIGGER* than all those tax rebate checks combined. If you include the bailout for the financial industry as a whole, the effect is humongous.

The government cannot "stimulate the economy". The government can only move wealth from one group of people to another, destroying wealth in the process. Using gold as your inflation index, the US economy is shrinking at a rate of 10%/year!



I heard a rumor that Obama made a speech critical of the Federal Reserve. I tried googling for it, and couldn't find details. It would be really cool if Obama decided to challenge the Federal Reserve like Ron Paul.

If Obama wants to go all the way with the Kennedy analogy, challenging the Federal Reserve is the way to go. Challenging the Federal Reserve would be suicide (literally). I don't see a major political candidate publicly stating they intend to abolish/reform the Federal Reserve.



I heard a rumor that the margin requirements for long commodity speculators was increased. This drives down commodity prices. I googled and couldn't find any details.

Sometimes, the margin requirements for longs are raised over 100% of the price they would need to pay on delivery. That is absurd. That's like requiring someone to make a $300k downpayment on a house that you agreed to buy $200k.

Such requirements are not usually imposed on shorts. Commodities exchanges sometimes unfairly discriminate against longs to favor shorts.



I liked this post on Marginal Revolution. It is critical of Federal Reserve bailouts of the banking industry.

If you think the managers were in charge, and will remain in charge, the real moral hazard problem is the severance pay for the failed managers, not the so-called bailouts.

At a failed corporation, management usually negotiates itself lucrative severance packages. They will usually find similarly cushy jobs at other corporations.

Executive management has *ZERO* downside risk when a business fails.



I liked this post on lowercase liberty.






The pro-State call who calls himself "John Galt" writes by E-Mail.

You are grossly unfair to call me a Statist troll. I am merely bringing up the issue of tactics not goals. I agree with your 10 points. I don't know why you would want to alienate someone who agrees with you on every principle and disagrees merely over an implementation choice (and is in fact open to the idea that he's wrong).

Different people have different reactions when I call them a pro-State troll. Some people reexamine their thinking. Others get offended.

I used to just say "troll", and some people complained that wasn't descriptive enough. "Pro-State troll" is a more accurate term. Someone else said I should use "State-embedded thinking". I'm sticking with "pro-State troll". From my point of view, it's impossible to tell if someone's intentionally being disruptive or merely is clueless.

Pro-State brainwashing is so pervasive! People are pro-State trolling even when they aren't consciously aware of it!

When you say "ideas before actions", that's pro-State trolling. It isn't enough to write about a free market. At some point, ideas need to be put into practice or they're useless.

If all anyone ever does is write and talk, then nothing will ever be accomplished.

Raising awareness is still important. Pretty soon, I'm going to start seeking free market trading partners.

You act like an Objectivist. Are you one? You should be insulted by the question but you deserve it given your completely unsubstantiated and unjustified attacks. Looks to me like you might have bought a bill of goods and now are refusing to question their quality, just like any zealot.

I prefer the term "agorist" to "Objectivist". There are similarities.

I went to an "Ayn Rand" discussion group once. They were a bunch of fruitcakes.

Agorism is the way to implement Ayn Rand's vision of a strike by productive workers.

I'm not making an "unsubstantiated attack". When you say "ideas before actions", that's pro-State trolling. I'm eager to move from theoretical freedom to practical freedom. I'm not making an ad hominem attack. I'm criticizing a specific point you made. You're reflexively using the Strawman Fallacy.

No, I haven't been counter-brainwashed. There is nobody else who is forcing this philosophy on me. Once you really think about it, agorism/anarchism is the only political philosophy that isn't inherently contradictory. You have to move from theory to practice, eventually.

It is somewhat hypocritical for me to be writing about theoretical agorism instead of practical agorism. I do the best I can, given the circumstances. For now, I try to attract an audience by writing. Eventually, I will seek in-person free market trading partners. There are a *LOT* of obstacles to free market economic activity. I haven't read many success stories. I don't know of any people who are successful with "practical agorism". Someone, somewhere, has to be the first.

Until I make the transition from "theoretical agorism" to "practical agorism", I won't know how effective it is. My analysis is that a "practical agorist" will be incredibly efficient and productive. When I start "practical agorism", that will improve the quality of my "theoretical agorism". A lot of the details won't be resolved until people start experimenting with a free market.

You feel alone? Strictly following reason can be lonely. Irrationally following a fringe idea can be even more so. Your insults of me make me wonder which it is that you are doing. Now do you want to apologize and redeem yourself or should I just settle for believing it's the latter?

This gets back to freedomain's concept of "banish annoying people from your life". He says that if your relationship with someone is not healthy, you should terminate it. Unfortunately, 99.9%+ of the people in the world are pro-State trolls. Almost all people are mindless zombies. In order to develop non-mainstream ideas, it's necessary to distance yourself from people who can't think clearly.

There are some blogs I read that illustrate clear thinking. I'm constantly pruning the lousy blogs and adding new ones. Overall, the quality of writing on the blogs I read is increasing.

Fewer than 5% of the people who read my blog bother to post a comment. Why should I let a vocal minority distort the content I present on my blog? My readership statistics are increasing. That doesn't mean that they would increase more with a different approach.

"A vocal minority distorts policy" is the way that the State works! Various interest groups profit from various State activities. They are able to lobby for perks. Distributed Costs and Concentrated Benefits makes it impractical for the average person to lobby against these abuses. If you steal $1 from everyone via the State, that's a lot of money! If you're only losing $1, it isn't practical to defend yourself against that theft.

My policy is to post and respond to every comment that isn't obviously spam. If you make a comment that sounds like a troll, I'm going to say so. Overall, the quality of reader comments is increasing. I don't complain that *EVERYONE* is pro-State trolling. Different people have different reactions to being called a pro-State troll.

You haven't made any useful contributions to the discussion. I won't be injured if you decide to not E-Mail me again. I don't rely on my blog for income, so I won't be injured if you stop reading my blog. You are free to use the Strawman Fallacy.

A mainstream media source is obligated to coddle its readers. Someone who doesn't toe the Statist line is forced to "apologize". Why does an apology matter? I proofread my posts carefully.

When you "demand an apology", you're also pro-State trolling! Why should I act as if you have sovereignty over me? If you don't like my blog, stop reading. If you don't like being called a pro-State troll, then stop trolling.

I don't see how you can be "personally offended" when you're posting anonymously under a pseudonym.



JEK has left a new comment on your post "Reader Mail #42 - Feeding the Trolls":

As a security guy for Tel-Aviv school, I'd like to make an unfortunate explanation.
Yeshivat Merkaz HaRav, where the shooting happened, is not part of Goverment Education system. Therefore they didn't have a security measures installed in all official schooles and sponsored by the Govt. On other hand, students there are coming from more troublesome areas. Therfore of many Yeshivas of Jerusalem, this one is more likely to have armed students. Now, should student in official school carry a gun, the israeli would cry for extra-enforcement just like the Americans. But as long as the institution is not part of the establishmet, they may act as they please. The real question to ask is: if Yeshiva's security meaures were the same as in official institutions, could we prevent all the shooting? (BTW, the answer is no)

I wasn't aware of that aspect of the story.

Individuals should have a right to carry a weapon everywhere they go. Monopolistic State police have *NO OBLIGATION* to defend you. They have no obligation to compensate you if you're the victim of a crime.

People need a gun to defend themselves against crime. They also need to defend themselves from criminals wearing uniforms and shiny badges!

In many poor neighborhoods, the police are afraid to enter a person's apartment. They know they risk being shot. Maybe I should move to a poor neighborhood!



Anonymous has left a new comment on your post "The Black-Scholes Formula is Wrong! - Part 11/12 -...":

Dear FSK or whatever,
It is interesting how smart people can often be incredibly stupid.
Once again, at the risk of being called a troll feeder or whatever, I would like to point out that in the cause that you and I have chosen in common, PRIVACY is the most important thing, web statistics and other conveniences simply fade in comparison.

Why should I care if the bad guys are spying on me? It's *IMPOSSIBLE* for me to use the Internet without risking the possibility of my communications being intercepted. How do I know there isn't a keystroke logger bundled with Vista? Even if I use Linux, unless I check the source code myself *AND* check the hardware for backdoors, I'm not sure.

I only care if the bad guys choose to show up at my residence and arrest me or otherwise violently silence me.

If I shared your level of paranoia, I would cease using the Internet completely. I only learned about agorism in the first place because of the Internet! The Internet is *TOO CONVENIENT* for me to give up. Blogger and Google's other tools are *TOO USEFUL*. If I self-host, I have to pay $50/month. Plus, someone doing a "whois" search could discover my real name.

For example, Google Analytics tells me what posts are popular. Some posts, like The China Experiment, have been surprisingly popular, even though I thought the post was boring and obvious. Google tells me what sites are linking to my blog. Google tells me what people are searching for.

If I shared your level of paranoia, how do I know my true readership statistics? After all, the data Google Analytics presents me with could be forged! Maybe all my reader comments are planted by the bad guys to distract me!

Before I started blogging, I was paranoid about posting controversial information on the Internet. I've since mellowed out.

Reaching the widest audience possible is the BEST DEFENSE. The more people are aware of the truth, the less danger each of us faces individually. At this point, an agorist revolution is a historic inevitability. It couldn't be stopped by assassinating me or even 100 people.

My blog is getting over 100 readers/day now. Is it practical for the bad guys to locate and arrest/kill all of them?

You betray all of us by bugging your own blog to the benefit of the red/pink organizations.

I am not betraying you at all. If you are that paranoid, you may use Tor and block all scripts in your browser. In that case, I won't have any data on you at all.

I doubt that Tor provides you with genuine anonymity.

I doubt that more than 1% of my regular readers have that level of paranoia.

Sure, you say with a righteous finger pointing up, they already know everything! WRONG. They don't know everything, and the less YOU give them the less they know.
So why don't you help the ignorant fools who don't know that one must run NoScript in their browser and block cookies to STOP FEEDING THE TROLLS, and better yet, stop feeding them yourself!
Here is a parting shot for your reading pleasure:
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/05/AR2008030503656.html
Remember, Red organizations actually have nothing better to do than sift through mountains of data, simply to keep their jobs.
Sincerely,
Paranoid Bastard

That article on the Washington Post is different than the point you're making. Currently, police in each city use incompatible computer databases to track criminals. The trend is for a centralized, nationalized database. Such a database can be used fairly and unfairly. Most laws forbid things that aren't really crimes. In those cases, the database is being abused. For genuine crimes, that database is being used fairly.

The "all Internet traffic" database is operated by the NSA. They may be able to capture nearly 100% of all Internet traffic. I have no idea if they are able to process that much information intelligently.

Information is not, by itself, evil. It is only the way the information is used that makes it evil.

By using Google Analytics, I am creating something useful and convenient for myself. I have no evidence of someone else being injured because I have Google Analytics enabled for my blog. I doubt that more than 5% of my readers block Google Analytics, so the data presented is a reasonable snapshot of my traffic.

I am unconvinced. If I give up using Google tools, I am inconveniencing myself. I don't believe that other people are injured because I am using Google. Someone as paranoid as you may block all scripts and use Tor, if they choose.

You are giving too much power and competence to the bad guys. Just because they are collecting a ton of information, that doesn't mean they're capable of using it intelligently!

The bad guys are searching for people who are advocating direct violence against government property or government employees. I am *NOT* suggesting that sort of thing. That is a complete waste of time. For example, a bunch of fools staged a protest at an IRS office recently. They were wasting their time.

It isn't clear that practicing agorism is illegal! No judge would come out and directly say "all citizens are property of the government". The details are carefully obfuscated. Most of the people who do bad things aren't personally aware that they're doing anything wrong. For example, almost all policemen aren't capable of understanding that "possession of drugs" isn't really a crime.

The USA economy is shrinking! The resources of the bad guys are decreasing, not increasing! They have software to help them spy on people. At some point, a human has to manually inspect the data collected. Someone needs to be able to write software that spies intelligently.

Any spying system that flags my blog as "dangerous" probably generates too many false positives to be useful. Flagging my blog as "dangerous" might really be a false positive! After all, I'm only writing about "theoretical freedom". I haven't tried "practical freedom" yet.



Anonymous has left a new comment on your post "The Defect With Social Networking Websites":

Thank you for pointing out this defect. This is a big problem, as no matter what I do to preserve my online privacy, my idiot friends continue putting my email address on bogus e-vites, e-cards, etc. or adding me to their 'buddy lists' conveniently maintained by Goggle and Ychoo, or companies they own. It appears that not having an email address may be the only way to avoid this idiocy.

You're actually making the opposite point I made in that post. You're arguing that your friends should need to get your permission in order to give away your E-Mail address.

It sounds like your true problem is that you need friends who aren't complete and total fools.

The solution is not to abandon E-Mail. The solution is to have multiple E-Mail addresses. Give your "real" E-Mail address out to friends who aren't fools. Then, you won't have a spam problem.

Do you think that "fsk2006@gmail.com" is my only E-Mail address?

Besides, gmail is pretty good at filtering out spam! Its spam filter has practically zero false positives, and the occasional spam makes it to my inbox.

Saturday, March 22, 2008

The Black-Scholes Formula is Wrong! - Part 12/12 - Summary

Table of Contents

Part 1 - Overview and Background
Part 2 - Axioms
Part 3 - Formula Derivation
Part 4 - The Put/Call Parity Formula
Part 5 - The Volatility Smile
Part 6 - The Contradiction
Part 7 - Resolving the Contradiction
Part 8 - The Kelly Criterion
Part 9 - How FSK Trades Options
Part 10 - Only Fools and Hedge Funds Write Covered Calls
Part 11 - Other Options
Part 12 - Summary

The problem with the Black-Scholes formula is not that the underlying Mathematics is wrong. The axioms don't model reality. Options are priced as if the expected return in the underlying asset equals the risk-free interest rate. The expected return of stocks exceeds the risk-free interest rate. The expected return of bonds and commodities also exceeds the risk-free interest rate.

The entire options market feeds off negative real interest rates, sponsored by the Federal Reserve. In an options trade, the two parties to the transaction experience different interest rates. Banks can borrow cheaper than retail customers. Banks can lend at a better rate than retail customers. Banks get much more favorable terms for short sales and investing the short sale proceeds.

Under a gold standard, you can't have a large derivatives market. Negative real interest rates are needed to funnel money to banks and hedge funds. Complicated derivative transactions allow this interest rate subsidy to be packaged and sold.

Options traders do not notice that every listed option is mispriced because they adopt a hedged position and the errors in the pricing model work in favor of professional traders. If you are willing to adopt an unhedged position, you can profit from this structural defect in the economic system.

As a retail customer, you shouldn't make a short stock bet unless you have specific information that a stock is going to tank. Similarly, you should avoid writing calls or buying puts. Statistically, the odds for those trades are very poor because you are betting AGAINST inflation. A retail customer shouldn't short naked puts, because of the margin rules. Long-term deep out-of-the-money calls are extremely attractively priced for a retail customer.

A retail customer can't normally borrow at the Fed Funds Rate to buy stock. When you buy a call option, the interest rate priced into the call option is the Fed Funds Rate, making the purchase very lucrative. This trade is useless to banks and hedge funds, who have other more reliable ways to make money.

Buying out-of-the-money call options risks a 100% loss certain times. A banker or hedge fund manager won't risk losing his job by adopting a strategy that might lose money. Their managers and shareholders want a trading system that *ALWAYS* makes money. The Kelly Criterion tells individual investors approximately how much of their savings they can risk buying options.

When you buy an unhedged call option, it's like you're making a leveraged bet that there WILL be inflation. According to my calculations, some options are mispriced by as much as 200%. The edge from the trade is a lot greater than the transaction costs and capital gains taxes.

Commodity futures are mispriced, because the interest rate priced into the future is the Fed Funds Rate and not the true inflation rate. Bond options and commodity options are also similarly mispriced, although I haven't analyzed the details fully. I couldn't find a reliable online resource for prices and quotes. There are many online brokers that offer stock option trades. I couldn't find a decent online broker for commodity option trades. I've been considering buying some gold, silver, or oil commodity options, but haven't found a good broker or information source.

Analyzing the Black-Scholes formula and its contradictory axioms led me to discover the fundamental structural flaw in the US monetary system. This is a good information source, because all the "official" axioms for the Black-Scholes formula can be found in many economics books. Mainstream economists have a strange ability to simultaneously believe contradictory axioms. I'm lucky that I didn't study economics much in school. I avoided economics because I sensed that there was some funny business going on. I learned to think before I started studying economics.

Friday, March 21, 2008

The Incredible Shrinking Economy!

My two posts on Real GDP Growth has Been Negligible Since 1990 and Real Annual Income is Decreasing have been popular in Google Analytics.

Now that I can easily import Excel files to Blogger, I'll make an updated version of my post with data included. Since my original post, official GDP data for 2006 is available. Official GDP statistics for 2007 aren't available yet, so my analysis ends in 2006.

Contrary to official government statistics, the US economy is shrinking at an alarming rate.

The official inflation-adjusted GDP numbers are calculated using the CPI. The CPI is biased and understates the true inflation rate. If you adjust GDP using an unbiased inflation measure, the US economy is shrinking rapidly.

A common myth is "The US economy is dependent on continuous growth to survive!" This is false. The US economy is dependent on continuous money supply growth. Due to biased inflation measures, money supply growth is misreported as economic growth.

Source Data

Here is the raw data that I use as a source for my calculations.

Raw GDP

I use this page as my source for GDP data. That page has different numbers that the official US government page, but they're approximately the same.

I use GDP not adjusted for inflation. I'm going to adjust for inflation correctly, instead of using the CPI.

The GDP value is in billions of dollars. The population is in thousands. "Per cap GDP" is GDP divided by Population.

YearGDP ($B)Pop (k)Per Cap GDP
1990580325018123195
1991599625353023650
1992633825692224668
1993665726028225578
1994707226345526844
1995739826658827749
1996781726971428982
1997830427295830424
1998874727615431674
1999926827932833181
2000981728243334759
20011012828537235490
20021047028821536326
20031096129096437671
20041168629364439796
20051243429637341954
20061319529919944100

Median Annual Income

In addition to GDP, I'm going to look at median annual income. I use this government report of median income.

I use median income not adjusted for inflation.

YearHouseholdsMed Inc
19909431229943
19919566930126
19929642630636
19939710731241
19949899032264
19959962734076
199610101835492
199710252837005
199810387438885
199910643440696
200010820941990
200110929742228
200211127842409
200311200043318
200411334344334
200511438446326
200611601148201

M2

Instead of using the CPI as my index of inflation, I use M2. The Federal Reserve publishes M2 statistics.

YearRaw M2
1990-Jan.3176.6
1991-Jan.3296
1992-Jan.3389.7
1993-Jan.3431.5
1994-Jan.3489.6
1995-Jan.3508.7
1996-Jan.3665
1997-Jan.3842.5
1998-Jan.4068.2
1999-Jan.4416.9
2000-Jan.4680.5
2001-Jan.4981.6
2002-Jan.5458.5
2003-Jan.5798.2
2004-Jan.6058.6
2005-Jan.6408.4
2006-Jan.6705.8
2007-Jan.7056.3
2008-Jan.7484.4

M2 is the broadest money supply measure still published by the Federal Reserve. Compare to M3, M2 excludes accounts over $100,000 and dollars held outside the USA.

M3

The Federal Reserve ceased publishing M3 in 2006, so I can't use M3. Superficially, the Federal Reserve says it stopped publishing M3 because the data was too hard to collect. That reason is invalid. Instead of publishing M3 weekly, the Federal Reserve could have published M3 quarterly or annually.

The Federal Reserve stopped publishing M3 because they wanted to cover up how bad inflation really is.

When the Federal Reserve stopped publishing M3, it was growing at a rate of 15%/year. Some people have reconstructed M3 from other available statistics.

Even though M3 is no longer available, there's another unbiased measure of inflation.

Gold

The increase in the price of gold should track the growth of M3.

Unlike Federal Reserve Points, gold is real money. The purchasing power of an ounce of gold has remained mostly constant for 100+ years. Some people say the purchasing power of gold has been constant for thousands of years. I don't know any reliable source for the price of a loaf of bread 1000 years ago.

For example, the price of a Model T car, quoted in gold, is approximately the same as the price of a car in the present. A modern car has more features than a Model T, but the total price is the same. When comparing goods available now to goods available 100 years ago, the price quoted in gold is usually similar. Of course, no amount of gold would have bought you a computer or cellular phone 100 years ago.

The gold price is the least biased measure of inflation.

I used these three sources for the price of gold.

The price is the price on January 1 of that year.

YearPrice
1990$386.20
1991$353.15
1992$333.00
1993$391.75
1994$383.25
1995$387.00
1996$369.00
1997$287.05
1998$288.70
1999$290.25
2000$279.11
2001$271.04
2002$309.73
2003$363.38
2004$409.72
2005$444.74
2006$530.00
2007$639.75
2008$846.75

Gold's price has risen substantially so far in 2008. Gold is currently over $1000/ounce.

There has been extensive manipulation of the gold price. Central banks have nearly exhausted their gold reserves. They are losing their ability to suppress the gold price.

The bad guys really want gold to be discredited as an investment. I am seriously considering the possibility that physical gold is a better investment than stocks! Even though corporations receive massive government subsidies, there also is a massive amount of fraud and waste. Corporate management is more concerned with lining their pockets than creating value for shareholders.

Some people are saying "gold is experiencing an asset bubble". The price of gold/$ is skyrocketing. Compared to other commodities, the price of gold is relatively constant. The price of gold/silver or gold/oil is mostly unchanged. It is inaccurate to say "the price of gold is skyrocketing". It is more accurate to say "the value of the dollar is crashing".

If you believe "gold is money", then the price of gold is the least biased measure of inflation.

Calculations

Here, I share the result of my calculations.

Per Capita M2

Using M2 as my measure of inflation is somewhat inaccurate. If the population increases by 1%, then 1% more money can be printed without causing inflation. Of course, the financial industry still prints this new money and recognizes seignorage profit. If the population grows and the money supply remains constant, then people would naturally experience deflation. This would be an extra incentive to savers. Instead, this benefit is stolen by the financial industry.

Per capita M2 is a more honest measure of price inflation than M2.

YearRaw M2 ($B)Pop (k)Per Cap M2
1990-Jan.317725018112697
1991-Jan.329625353013000
1992-Jan.339025692213193
1993-Jan.343226028213184
1994-Jan.349026345513246
1995-Jan.350926658813162
1996-Jan.366526971413588
1997-Jan.384327295814077
1998-Jan.406827615414732
1999-Jan.441727932815813
2000-Jan.468128243316572
2001-Jan.498228537217457
2002-Jan.545928821518939
2003-Jan.579829096419928
2004-Jan.605929364420632
2005-Jan.640829637321623
2006-Jan.670629919922413

Inflation Adjusted GDP

Now, I'm going to calculate inflation adjusted GDP. I'm going to adjust for inflation correctly, instead of using the CPI.

Per capita GDP and per capita M2 are copied from my previous tables. "GDP/M2" is my index for how much the US economy is growing or shrinking. "% gain" is the % gain relative to the previous year. "Cum % gain" is the cumulative percentage gain from that year-1 to 2006. For example, in the row for the year 2000, the "Cum % gain" is -6.23%. This means that the US economy shrunk by 6.23% from 1999 to 2006. "Ann %" is the "Cum % gain" converted to an annualized percentage.

YearPer Cap GDPPer Cap M2GDP/M2% gainCum % gainAnn %
199023195126971.827


199123650130001.819 -0.42%7.71%0.465%
199224668131931.870 2.78%8.16%0.524%
199325578131841.940 3.77%5.24%0.365%
199426844132462.027 4.46%1.42%0.108%
199527749131622.108 4.03%-2.91%-0.246%
199628982135882.133 1.16%-6.67%-0.626%
199730424140772.161 1.33%-7.74%-0.803%
199831674147322.150 -0.52%-8.96%-1.037%
199933181158132.098 -2.40%-8.48%-1.102%
200034759165722.097 -0.05%-6.23%-0.915%
200135490174572.033 -3.07%-6.19%-1.059%
200236326189391.918 -5.66%-3.22%-0.652%
200337671199281.890 -1.44%2.59%0.640%
200439796206321.929 2.03%4.09%1.344%
200541954216231.940 0.59%2.01%1.002%
200644100224131.968 1.41%1.41%1.411%

The data in this table is really disturbing. From 1998-2006, the US economy was shrinking at an annualized rate of 1.1%. The cumulative growth from 1990 to 2006 was less than 0.5% per year.

If you use M3 instead of M2, the results are really depressing. When you use gold as your inflation index, the results are also depressing.

This table has the same format as the previous table. "GDP/Gold" is the per-capita GDP in ounces of gold. "% gain" is the 1 year gain in the size of the economy. "Cum % gain" is the cumulative gain/loss for the time period. "Ann %" is "Cum % gain" converted to an annualized value.

YearPer Cap GDPGoldGDP/Gold% gainCum % gainAnn %
19902319538660


1991236503536711.50%38.54%2.058%
1992246683337410.62%24.25%1.458%
19932557839265-11.86%12.32%0.834%
199426844383707.28%27.44%1.883%
199527749387722.37%18.79%1.446%
199628982369799.54%16.04%1.362%
19973042428710634.94%5.94%0.579%
1998316742891103.51%-21.49%-2.653%
1999331812901144.20%-24.16%-3.398%
2000347592791258.94%-27.21%-4.436%
2001354902711315.14%-33.19%-6.500%
200236326310117-10.43%-36.45%-8.669%
200337671363104-11.61%-29.05%-8.223%
20043979641097-6.31%-19.74%-7.067%
20054195444594-2.88%-14.33%-7.444%
20064410053083-11.79%-11.79%-11.795%

There has been substantial manipulation of the gold price. Even so, the conclusions are surprising.

If you use gold as the index of inflation, the US economy has been in severe recession/depression every year since 2001. The US economy has shrunk a total of 36% in that time! The US economy is shrinking at an annualized rate of more than 8% per year!

This chart only goes to 2006! I didn't include the substantial run-up in the price of gold in 2006, 2007, and so far in 2008! If you extend this chart to the present, the US economy is in a severe depression!

Median Annual Income

I perform the same calculation for median annual income.

"Med Inc" is the median annual income, copied from the above table. I again use per capita M2 as my inflation index. "Inc/M2" is an index measuring M2-adjusted median income. "% gain", "Cum % gain" and "Ann %" are the same as in the above tables.

YearMed IncPer Cap M2Inc/M2% gainCum % gainAnn %
199029943126972.358


199130126130002.317-1.74%-8.80%-0.57%
199230636131932.3220.20%-7.19%-0.50%
199331241131842.372.05%-7.38%-0.55%
199432264132462.4362.79%-9.24%-0.74%
199534076131622.5896.29%-11.71%-1.03%
199635492135882.6120.88%-16.93%-1.67%
199737005140772.6290.64%-17.66%-1.92%
199838885147322.640.41%-18.19%-2.21%
199940696158132.574-2.50%-18.52%-2.53%
200041990165722.534-1.55%-16.44%-2.53%
200142228174572.419-4.53%-15.12%-2.70%
200242409189392.239-7.43%-11.10%-2.33%
200343318199282.174-2.92%-3.96%-1.00%
200444334206322.149-1.15%-1.06%-0.36%
200546326216232.142-0.29%0.09%0.04%
200648201224132.1510.38%0.38%0.38%

If you use M2 as your index of inflation, median annual income has decreased 18% since 1999, an annualized decline of 2.5%/year. If you go back to 1990, the decline is at a rate of 0.57%/year.

Notice that "median income" has fared worse than "total GDP". This reflects the increasing disparity of wealth in the USA. The median income reflects the average person more than the mean income or total GDP.

Here's the most depressing calculation. This is median income adjusted for inflation using the price of gold.

In this table, "Inc/Gold" is the median annual income in ounces of gold. "% gain", "Cum % gain" and "Ann %" are the same as in the above tables.

YearMed IncGoldInc/Gold% gainCum % gainAnn %
19902994338678


1991301263538510.03%17.30%1.002%
199230636333927.85%6.61%0.428%
19933124139280-13.32%-1.15%-0.082%
199432264383845.57%14.04%1.016%
199534076387884.59%8.03%0.646%
199635492369969.24%3.29%0.294%
19973700528712934.03%-5.45%-0.559%
1998388852891354.48%-29.45%-3.802%
1999406962901404.10%-32.48%-4.790%
2000419902791507.30%-35.14%-5.997%
2001422282711563.56%-39.55%-8.046%
200242409310137-12.12%-41.63%-10.207%
200343318363119-12.94%-33.58%-9.723%
200444334410108-9.23%-23.71%-8.626%
200546326445104-3.73%-15.95%-8.322%
20064820153091-12.69%-12.69%-12.690%

From 2001-2006, the median income has declined by 41%! This is an annualized rate of decline of 10%/year!

If you go back to the 1990s, the results aren't as bad. In the 1990s, the world's central banks were selling off their gold supplies to manipulate the price of gold downward. Recently, they have nearly exhausted their gold reserves. They are no longer able to manipulate the gold price as much.

There are price variations in any given year. My analysis covers several years. Over that time, any short-term fluctuations should be smoothed out.

Summary

Contrary to official government reports, the US economy is in really bad shape. All my data comes from official sources. With just a little independent thinking, you can manipulate government data to tell the true story.

Government policymakers/terrorists use the CPI as their measure of inflation. The CPI is biased and severely understates inflation. Relying on this corrupt statistic, they see an unfairly optimistic picture of the US economy.

I only performed this calculation for the US economy. Many of my readers are located outside the USA. I suspect a similar calculation in other countries would show a similar result. The economy in Canada, the UK, the EU, and Australia is probably just as bad.

If you use M2 as your index of inflation, the US economy is barely growing and median annual income is slightly decreasing. If you use the price of gold as your index of inflation, the US economy is in a severe depression.

The results for gold-adjusted inflation are particularly depressing! I didn't even include the huge run-up in the price of gold from January 1, 2006 to the present! The price of gold has nearly doubled since January 1, 2006! If you correct for that, the picture of the US economy is truly bleak.

Thursday, March 20, 2008

The China Experiment

In the USA, there still is the presumption of things like "freedom of the press" and "freedom of speech". In the USA, there still is the presumption that individual people control their government, even though that isn't how it works in practice. In many other countries, writing a blog like mine would be a crime. In the USA, anyone who tried to prosecute me for the contents of my blog would probably be laughed out of court. In the USA, mainstream media sources uniformly spout the official corporate party line. In other countries, violence is typically needed to keep rogue newspapers in check.

In spite of an incredibly corrupt monetary system and taxation system, the USA still is one of the most economically productive countries in the world. Even though the rules of the economic system are incredibly biased against individuals, there still is a lot of economic growth generated by small business owners. Individual freedom allows innovation from individuals IN SPITE of the huge obstacles. In other countries, the obstacles to small business owners are EVEN BIGGER.

According to what I've read, in China, there is no presumption of the individual freedoms that the average person in the USA experiences. In order to get a permit to start a business, an individual must spend a lot of time, deal with a lot of bureaucracy, and bribe many Communist party members. These restrictions are being relaxed somewhat, and China's economy is growing.

Obviously, the Supreme Leader of Humanity controls China's government as much as he controls the US government. What is the Supreme Leader of Humanity trying to accomplish in China?

Some people say that China is an experiment. Is it possible to have a USA-style booming economy when you:

  • deny people freedom of speech
  • deny people the right to communicate freely
  • deny people the illusion that they have the right to choose their leaders by voting
I suspect the answer is "You can't have a booming economy lacking all the above." The bad guys are hoping that China will prove the answer is "You can have a booming economy lacking the above", and use China as the model for the future US economy. Currently, the booming Chinese economy is really US companies relocating their factories to China, using production techniques developed in the USA. China won't reach the level of innovation present in the US or Japan, unless they allow their citizens the ability to think independently. Currently, a lot of factories are being developed in China, but you don't hear of many new technologies being invented in China. Contrast that with Japan, which contributes many inventions in the area of electronics and software.

I think that the Supreme Leader of Humanity is setting up China's government to collapse the same way the US government is being set up to collapse. China needs to allow individuals to have an advanced communication network, because of the huge productivity gains such a network allows. That will eventually break the Chinese government's monopoly of information. Even though China spies on the Internet heavily, it becomes very hard to prosecute everyone, and people will start setting up private networks.

Blogging sites are heavily restricted in China. I read that if you set up an "invitation only" blogging network, you aren't harassed by the Chinese authorities as much.

China's government spies on the Internet heavily. To avoid frivolous harassment, businesses respond by strong-encrypting all their traffic. This make it impractical for the government to spy on everyone.

I'm pretty sure that the Supreme Leader of Humanity's plan is for a global collapse of all governments. Allowing the average person in China to have access to the Internet helps achieve that goal.

This Blog Has Moved!

My blog has moved. Check out my new blog at realfreemarket.org.