The Extremist

Scapegoating Capitalism

There have been many deeply mistaken ideas that enjoyed almost universal acceptance until reality overtook the illusion. Take for instance the once unquestioned truth that “Key West real estate never goes down.”

The persistent and widely accepted falsehood I have in mind for today’s essay is that the current U.S. economy could be accurately described as unrestrained “capitalism.” This idea, and it’s even worse corollary, that lack of regulation of that system has brought us to our present state of crisis, muddies the economic water so thoroughly that you’ve got to be pretty thirsty to try a cupful.

Whatever remains of free market capitalism in the U.S. exists mostly at the micro level where small businesspeople earn their living. When someone opens a typical small business, that person is exposed to all the risks attendant to entrepreneurship. President Obama won’t be coming around with a few billion of your neighbor’s money if your barber shop or hot dog stand goes belly up. Small business people are exposed to the full force of the free market, with all its risks, rewards, and responsibilities.

In the larger picture, American capitalism has morphed into something that only faintly resembles free market capitalism. The economy in which the corporate giants dwell would be more accurately termed "state capitalism." An observer less inclined to civility than this one might label it "fascism," but the pejorative connotations of that term have clouded its usefulness in describing what its founder, Benito Mussolini, called "the corporate state."

State capitalism is a system that relieves wealthy capitalists of business risk while allowing politicians to buy votes without visibly raising taxes. It is an alliance between powerful businessmen and powerful politicians. Its purpose is to benefit both at the expense of the taxpayer. The scheme uses government power to shift the consequences of poor business decisions away from those who make them.

State capitalism creates enormous profit, highly concentrated political power, and steadily growing economic hazards. State capitalism privatizes profit and socializes risk. On their own in a free market, corporations would have to risk failure like anyone else. But with the help of politicians they can transfer the risk to taxpayers while leaving the profits in private hands.

The system attempts to manipulate and often to counter the forces of the free market. At its heart is a central bank steadily inflating a paper currency, which, like Peter Pan’s Tinkerbelle, depends fully on a belief in magic. Inflation is legal counterfeiting by central banks. It is a form of theft that serves as an invisible tax on which the corporate state grows.

By suppressing self-regulating market forces the system creates growing imbalances, misallocates resources, sends false pricing signals, and distorts credit markets. Capitalism corrects disequilibrium sooner or later as certainly as gravity guides stock brokers from office windows to sidewalks. The forces of capitalism, like those of gravity, can only be temporarily countered.

A reader of an earlier column I wrote on this subject, a man who I know to be well informed and intelligent, wrote in response that, "Capitalism has a long, notorious, and devastating record of NEVER self-regulating." He offered examples of financial debacles beginning with the Great Depression.

A glance back through America’s history shows that capitalism very efficiently self-regulated until the formation of the Federal Reserve in 1913. What economic crises there were before that were local and brief. It was only after the Fed took control that capitalism’s feedback mechanisms would be suppressed long enough to create system-threatening imbalances.

The Great Depression was capitalism's first attempt to correct the Fed’s efforts to avoid market discipline. Then, as now, government intervention made the depression longer and worse. It took a world war to end it, and the extension of that war for over 60 years to bring us to the ruin we are facing now.

War is the ultimate public works project, a complete waste of resources, but as long as it is fought far away, it produces a convincing illusion of prosperity. The illusions are finally becoming impossible to sustain. We are now entering capitalism's second great correction of political and central bank abuses. As today's sins are orders of magnitude worse than those of the 1930s, so will be the pain involved in correcting them.

The financial upheavals since the founding of the Fed - the Great Depression, the oil crisis, the S&L debacle, the LTGM bailout, and the recent rescues of AIG, Goldman Sachs, and GM - demonstrate not capitalism's failure to discipline the foolish, but politicians' determination to prevent capitalism from doing its work. Without politicians ready to rescue the well-connected at taxpayer expense there would be no "credit crisis." The fools would long ago have been separated from their money and forgotten like yesterday's lotto numbers.

Politicians do not protect taxpayers. They exploit them every bit as thoroughly as any con-artist, pickpocket, or greedy capitalist. To paraphrase P.J. O'Rourke, of course politicians are interested in people, but fleas are interested in dogs, too.

Elected officials carefully cultivate their image as defenders of the taxpayer against greedy capitalists because to reveal the truth of the alliance would precipitate their having to find honest work, or figure out how to get tar and feathers out of their $100 haircuts.

Greed is not a human failing confined to private business people. It is a human constant as prevalent in the political class as anywhere else. We may be seeing what happens when greed overwhelms prudence, but the idea that corporate avarice by itself, without political help, could have caused the problems we have today is at best naive. The notion that politicians can correct those problems is equally myopic. Politicians are full partners in crimes rooted in the irresistible temptations that accompany dishonest money, rent seeking, and power mongering.

The alliance between financiers and politicians against the free market is well camouflaged with propaganda and nationalism. But the scheme is designed to defeat the inconvenient realities of capitalism's self-regulating nature and its tendency to diffuse the power of established institutions through open competition. The fruit of that alliance bears only a superficial resemblance to free market capitalism. That capitalism is taking the blame for the wreckage caused by a fascist partnership is a triumph for the guilty and a tragedy for the rest of us.

Harnessing the Ants so the Hoppers Can Ride

Fighting capitalism is a thankless task that requires not only a colossal arrogance, but a masterful mendacity. A notable example is the Obama administration’s bragging about having created 640,000 jobs with $159 billion of “stimulus” money. Whether that many jobs were created seems doubtful to me, but let’s assume it is true. We will also ignore that those numbers work out to $250,000 per job. The real questions are, “What are those 640,000 people doing for the money?” and “How does it stimulate the economy?”

We can be fairly certain the new job holders are not producing anything anyone wants. These are, after all, government jobs, which is to say, jobs that depend not on what they produce, but on funds drained from or borrowed on behalf of the productive economy.

Though there are government jobs that people demand, like police and fire protection, stimulus jobs, created simply for the sake of creating them, are like hiring people to dig holes and fill them up again. They are a waste of resources. They don’t stimulate anything. No productive work is done. All money the job holders receive is taken from people who already have jobs. We see the money spent on these new jobs, but what we don’t see is how it might have been better spent by those from whom the government took it.

It’s the old politicians’ trick of concentrating benefits and diffusing costs. You create a small vocal constituency of relatively big winners at the expense of a much larger group of small losers. You create a powerful voting bloc of Peters for whom you rob a larger group of Pauls. You are careful not to sting the Pauls so much they will complain. The only stimulus is to campaign contributions from the Peters, while the Pauls are slowly but steadily drained of hard earned wealth.

Job creation is part of the illusion that hides the real nature of the scheme. If a person has a job we assume he is doing something useful. But the Obama administration could simply have sent $10,000 checks at random to 15 million American homes or $1,590 to all 100 million American households and got the same effect. But wait a minute, $1,590 is exactly what $159,000,000,000 costs each of the 100 million American households. There’s no political traction in that and it becomes painfully obvious that your ‘stimulus’ check is exactly equal to the increase in your tax bill. Stimulating the economy with government spending is like trying to fill a bathtub by scooping water from one end and pouring it into the other.

In the razzle dazzle involved with fooling voters into believing government can fix what ‘free market greed’ has caused, the voters must constantly be distracted from what is really going on. The administration talks about the jobs it creates as if a job were an end in itself. But only productive jobs are sustainable. Drones digging holes and filling them in again have to be fed by people producing food.

Picture yourself on a desert island. You don’t need a job. You need food, shelter, clothing, and tools. The absolute uselessness of a congressman or a building inspector becomes obvious to even the most obtuse. The folly of taking orders from people you have to feed, clothe and shelter can’t be overlooked. The only “jobs” worth doing on the island are those that produce something.

When the private economy creates jobs there is reason for celebration. It means that a business is producing something that people want. It means that demand is such that more workers are needed to increase production.

By the same token, when a company closes and jobs are lost, it means that the company wasn’t productive enough to survive. Bankruptcy is capitalism’s way of making sure that resources are not wasted.

Greed is a constant. It doesn’t exist exclusively in capitalist systems. Capitalism self-regulates against greed by punishing sloth, recklessness, and stupidity, and rewarding prudence and efficiency. Government intervention does just the opposite.

Government’s stepping in to ‘save’ a dying company prevents the market from redeploying the resources being wasted and wastes more in the effort. Thus does the Obama administration turn dead companies like GM, AIG, and Goldman Sachs into zombie consumers of precious resources, rewarding the reckless at the expense of the prudent, putting the ants in harness so the grasshoppers can continue to ride. Thus did the governments of communist Eastern Europe and Asia create repressive hell holes where people have to be kept in at gunpoint. If you are looking for a model for Mr. Obama’s changed America, look at Detroit, Michigan, a sprawling slum that has enjoyed generations of government help and planning.

The supply of labor in any society is, like all other resources, limited. The free market efficiently directs that labor to the most productive tasks without any central planning. Capitalism is at this very moment trying to redirect America’s labor force to more productive work after years of false signals from an economy shaped by government policy and dishonest money that encouraged ruinous debt, over-construction of housing, and speculation in financial markets. The forces of capitalism are working to correct the false signals in the only way they can, by punishing greed, gambling, and self-delusion. Government job creation is an effort to defeat capitalism that is as foolish and unjust as it is doomed to failure.

Gold Price, Bull or Bubble?

A friend of mine recently told me he was thinking of loading up his credit cards to use the money to buy silver. My friend isn't a professional speculator, nor does he really have very much experience in speculation of any kind. I told him I thought such a move would be wildly risky. I reminded him that when the little fish like us start thinking about pushing all our chips into the pot, it usually means that we are close to a top, and that the mushy nature of the U.S. dollar gives signals that are less than accurate.

Here's an opinion from a pro.

Gold: What's REALLY Behind the Record Rise, Bull or Bubble?

October 20, 2009

By Nico Isaac

When prices in a financial market go from Sea Level to Outer Space in a relatively brief time, two scenarios are at work -- and they both start with the letters “B-U.”

When a precious metal goes from being a popular long-term investment of buy-and-holders to the quick, get-away “vehicle” of day-traders, two scenarios are at work -- and they both start with letters “B-U.”

And when the majority of mainstream pundits see a "new paradigm" in which prices continue to rise indefinitely, two scenarios are at work – and, you guessed it, they both start with the letters “B-U.”

Enter: the recent Gold Rush of 2009, when ALL of the above conditions apply. Everyone from hedge funds to housewives now hustle to hitch their asset wagon to the rising gold star. Which begs this question: Which of the possible two scenarios are at work: B-U-ll
--- Or B-U-bble?

Here’s the difference: A genuine bull market is driven by a self-sustaining internal dynamic that's reflected by a host of technical indicators. A Bubble, on the other hand, is the result of untenable psychology that could shift at any moment and bring prices plummeting down.

For long-term forecasts and more in-depth, historical analysis for precious metals, download Prechter’s FREE 40-page eBook on Gold and Silver.

It goes without saying into which category the mainstream experts put Gold: namely, a new bull market that has years, if not decades more to soar. “Gold Will Hit $2,000 an ounce,” reads an October 8 Market Watch. And -- “Gold Has More Upside… The metal’s bull run is just getting started,” adds a same day Barron’s.

I found hundreds of news items which agree about the long-term potential for gold’s uptrend. But not a single one could tell me why the rally would continue, other than because the experts say so.
To know whether a diamond is real, it must cut glass. And, to know whether the bull market in gold is real, it must encompass at least one of these FOUR traits: 

1. A surge in demand that outpaces supply
2. A falling stock market, which raises the “safe haven” appeal of precious metals.
3. A real (not imagined) threat of inflation
4. An increase in value relative to major foreign currencies

Right now, the Gold market can NOT check off a single one of these items. Case in point:

Supply: Demand for gold from jewelry makers – which comprises 60%-70% of the market – has plummeted to its lowest level in 20 years.

“Safe haven” appeal: From its March 2009 bottom, the U.S. stock market has soared 50% right alongside rallying gold prices.

Inflation: As the October 2009 Elliott Wave Financial Forecast (EWFF) notes: An increase in money supply is only inflationary if it is used to RAISE the total amount of credit. This is NOT happening, as both bank credit and consumer credit levels are contracting for the first time since World War II.

A gold rally in other currencies: Again, the October 2009 EWFF presents the following close-up of Spot Gold prices VERSUS Gold denominated in foreign currencies such as the Canadian dollar, the Australian dollar, the euro, franc, pound, and yen since 2007.

The major non-confirmation between these two markets is clear, as is the overlying message: IF demand for gold truly outweighed supply, then its value as measured in other currencies would increase.

The rise in gold is primarily the result of speculation and a falling U.S. dollar. These are exactly the “untenable” forces that contribute to a Bubble, not a genuine Bull market. The difference is only a matter of time.
For long-term forecasts and more in-depth, historical analysis for precious metals, download Prechter’s FREE 40-page eBook on Gold and Silver.

---

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

My Favorite Contrarian Against the Crowd Again

I've been a follower of Robert Prechter and since I stumbled on his work on Elliot Wave Theory in the 90's. His calls have been a little late but his predictions have been consistently accurate for some years now. I've read most of his books and recommend them. I subscribe to several of his publications. In the interest of full disclosure, if you buy something from him, he pays me enough to buy a beer and a burger.

This article is based on Precter's consistently contrarian investment theory.

Death of the Dollar, Again: Before You Mourn, See This Chart
October 9, 2009

The following article is based on analysis from Robert Prechter’s Elliott Wave Theorist. For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.

By Nico Isaac

If you want the latest news on the U.S. Dollar Index, try a search under its new ticker symbol, RIP. -- as in, "rest in peace." Let the record show: In the early morning hours of Tuesday, October 6, the mainstream financial community officially declared "The Demise of the Dollar" (The Independent).
The "coroner's report" cites these details as the causes of death:

• An alleged (and later denied) secret meeting among leaders of certain Arab States, China, Russia, and France which aimed for the immediate discontinuation of oil trading in U.S. dollars.
• And, an open statement from one senior United Nations official that proposed the dollar be replaced as the world's reserve currency.

In the words of a recent Washington Post story: "The growing international chorus wants the dollar replaced... a move that would end the greenback's six-decades of global dominance."

And with that, the line between negative sentiment -- AND -- "EXTREME" negative sentiment was crossed. It occurs when the beliefs about a market lean so far over in one direction, that the boat investors are sitting in is about to tip over... Just like the last time.

Case in point: Spring 2008. The U.S. dollar stood at an all-time record low against the euro after plunging more than 40% in value. And, according to the usual experts, the greenback was "dead"-set to meet its maker. On this, these news items from early 2008 say plenty:

• "The dollar is a terribly flawed currency and its days are numbered." (Wall Street Journal quote)
• "It's basically the end of a 60-year period of continuing credit expansion based on the dollar as the world's reserve currency." (George Soros at the World Economic Forum)
• "Greenback is losing Global Appeal... the 'Almighty' Dollar is Gone." (Associated Press)

YET -- from its March 2008 bottom, the U.S. dollar came back to life with a vengeance, soaring in a one-year long winning streak to multi-year highs. In the most current Elliott Wave Theorist (published September 15, 2009), Bob Prechter presents the following close-up of the Dollar Index since that trend-turning bottom. (some Elliott wave labels have been removed for this publication)

At a measly 6% bulls, the bearish dollar boat tipped over. The situation today is even more remarkable: The percentage of bulls is lower, at 3-4%, while the dollar's value is higher than the March 2008 level.

It's crucial to understand that markets don't necessarily respond to sentiment extremes immediately. But, such extremes do indicate exhaustion of the trend -- which is usually the opposite of what the mainstream expects.

For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.

---

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

The Era of Responsibility Arrives, at 174 MPH

Free OFMP, Get Yours Now

This morning, my wife Sally and I received some kind words from Key West blogger Rock Trueblood about our past in Key West real estate. Having people praise Sally as knowledgeable and honest is always appreciated, but nothing new. A reference to me, however, as anything but an extremist nut-job is such a surprise, I was compelled to send a note of thanks to Mr. Trueblood.

Because real estate is still of more than passing interest to Key Westers and us, I'll expand on my reply to Mr. Trueblood here. And for those who were less than dazzled by O'Boyle's economic foresight in the past, or unaware of it, I'll give you another chance to point and laugh.

You will find below a free OFMP (O'Boyle's Fearless Market Prognostication) worth at least double what you will pay for it. Don't cheat and look ahead or you may be turned into a newt.

Rock mentioned the return of a marketing method for which we became notorious, or infamous, depending on how you look at it, during the go-go years. According to Rock, what we called the 'Fast Dutch Auction' is coming back into vogue. That's where a seller starts at the dream price and reduces it weekly in big chunks (we used to recommend 5% or so) until it sells. You advertise your plan. It gets a lot of attention from buyers. 

The method sprung from a great faith in free markets, and from our experience that 'the good deals sell first.'  Sally and I also never forgot the words of Key West's real estate Yoda, Curtis H. Wild:

"There is a price at which that house will sell today."

That price is, by definition, the market price. In a rising market, which Key West enjoyed for so long that people thought is was an immutable law, the sellers would get their fantasy prices if they were willing to wait long enough.

In this falling market, finding the market price quickly is more urgent. A Fast Dutch Auction does just that.

The market price will most likely still not be the number in the seller's head (it almost never is) but it will be all that the market has to offer. And, by the way, at this point it will probably be lower than any price paid during the frenzied bubble years of '04-'06.

I was glad to see that at least one of Rock’s readers had caught on. Diana wrote a comment about being a tire kicker in Key West real estate. She plans to sell a house in Tampa and move south. She plans to rent in Key West until the market realigns with the value of shelter.

She better hurry selling that house in Tampa. Bubble markets tend to be symmetrical. That is, on a graph, bubble prices go down about as fast as they went up. I recall something like 30% a year was the  climb rate when the champagne was flowing.

And here, as I promised, is your OFMP on where the market will bottom.

Housing prices in dollars are impossible to predict, simply because the dollar is a meaningless unit that changes at the whim of bankers and politicians. The truth is in the traditional ratios. Dollar prices change with the number of chits in circulation, but key ratios remain constant over time.

The real estate Price/Earnings ratio has been used by investors for as long as people have bought and sold real estate. That is the ratio of the rent a property generates to the property’s price.

For many years in Key West, the ratio was about 100 months' rent. That is, a house that rented for $1000 a month would sell for about $100,000. Of course there were variations from sale to sale, but rarely more than 10%. In the big picture, the ratio was stable.

Early in this decade that ratio started to change. By the middle of 2005 or so, which I reckon to be the peak, there was a dancer on every table and a lampshade on every head. Houses were going for over 500 months' rent. A pulse was all you needed to get a jumbo mortgage.

I don't have to remind anyone the party is over. There are a lot of headaches to prove it.

For the market to return to the 100-month mean, the ratio will have to overshoot on the downside for a few years. The down-price period will have to last longer than the up-price spike, because prices can't go down far enough to correct to the mean in a short time. The value of land, lumber, nails, and concrete forms something like a floor on prices. As we have seen in recent years, the ceiling is set only by the limits of delusional optimism.

So here it is, the OFMP: at the bottom of this down cycle, houses in Key West will sell within spitting distance of 50 months' rent. This number represents a slight low-end adjustment of the traditional commercial pricing ratio of 60 to 70 months' rent. In real numbers, that would mean that a house that rents for $1000 a month will sell for $50,000. Financing will be hard to get. Condos will probably be cheaper.

Other indicators of a bottom will be that no one will talk about real estate at cocktail parties anymore, and if you tell someone you are going to buy a house they will assume you've lost your mind.

Let the pointing and laughing begin.

The Laws of Supply and Demand Won't Be Conned

You would think that the destruction of capitalism would be enough to keep our new president busy for at least a year or two. Nationalizing the banking, finance, insurance, and automobile industries is a pretty big bite to chew. But as they say in the ads, there’s more. Controlling your money is not enough. There’s your health to consider.

We can take some comfort in the fact that, since the prez is planning to socialize the medical industry too, many of us will very likely not live long enough to get the full effect of living in a socialist hell hole. By the time the country collapses in government run ruins, having our health care in the hands of the same folks who are doing such a bang-up job with Amtrack, Social Security, and the IRS, will spare millions of us the trouble of living long enough to see it happen.

If you’ve ever had to renew a driver’s license, apply for a building permit, or get on an airplane it should be obvious to you why government supplied health care is a lousy idea.

Never the less, with the confidence of the righteous Obama and the fawning media are convinced that a  government-run universal health insurance scheme will bring down the cost of healthcare while improving its quality. Such a notion is logical only to people who believe that capitalism is a scourge that must be wiped out, and that the laws of supply and demand can be conned as easily as voters. If it does turn out to be true, it will be the only accurate government economic prediction ever made.

Unexamined, except to bash greedy capitalists, is the role of government health insurance in driving up the prices of health care. Up until 1964 the cost of health care had never risen faster than inflation. Doctors made house calls. People could afford health care. Few people bought health insurance. 

That was the year the feds got into the health insurance business. They passed Medicare and Medicaid, essentially free health care for the poor and the elderly. They seemed like good ideas at the time. The compassionate looting of the young to pay for the old was wildly popular with the old. The program has been a reliable vote getter ever since.

Politicians gave a large block of voters free health care at the expense of their children and grand children while making it seem like an act of compassion rather than intergenerational looting. It is not a coincidence that starting that year the cost of health care began increasing faster than the rate of inflation.

Government insurance increased medical costs by creating a class of citizens for whom money was no object in considering what treatment they wanted. They weren’t paying for it, so they wanted the best, and right now.

The escalating costs were noticed by those who still had to pay for treatment. Unfortunately, those folks made the mistake of complaining to lawmakers. Politicians stepped in to help by making the problem worse. They made the cost of health insurance tax deductable for employers.

Employers liked it because it was cheaper than paying an equal amount of wages, on which they had to pay Social Security and unemployment taxes. This in turn dramatically expanded the class of the fully insured.

Millions could now say, “Ok, Doc, make my deductable!” When government employees themselves got on the health insurance bandwagon the class of the fully insured expanded once again.

As it did, naturally, health care costs exploded. There were now millions of people who, after paying just a few hundred bucks of their own money, could command vast corporate or public fortunes to treat any ailment they might have. When price is no object, demand goes up. As demand increases, prices increase.

Today the U.S. government is the largest single buyer of health care in the United States by a wide margin. The government has been as thrifty and prudent spending that money as it is buying every last limousine, junket, and toilet seat.

 And now the “debate” boils down to how much more the government should meddle in the insurance and health care market. There are no proposals to get the feds out of health care. The only choice we hear about is between doing nothing and creating one compulsory government run class of fully insured consumers. The choice is do nothing or  create essentially unlimited demand for medical services. Unlimited demand does not make for falling prices.

Unlimited demand can only drive up prices. In similar systems, the Canadian, British, Australian, and many others, demand is controlled the only way it can be, by rationing care. Bureaucrats decide who is the most deserving of limited available treatment, the rest die on waiting lists. Universal national health insurance is why Canadian politicians come to the U.S. when they get really sick.

Once we have it in the U.S., where will you go if you get really sick?

Never Waste a Crisis, Hustling the Swine Flu Pandemic

"Rule one: Never allow a crisis to go to waste. They are opportunities to do big things." 
--Rahm Emanuel, Obama White House Chief of Staff

Lately, some friends have helpfully passed along information about how to protect myself against swine flu. Information on how to avoid colds is pretty easy to find, and I rarely get them. Nevertheless, I appreciate my friends' concern for my family's well-being, and for that of humanity in general. However, what we really need in situations like this is information on how to avoid fear mongering propaganda.

I am deeply suspicious of the trustworthiness of my government and its ability, or even its desire, to protect me. My skepticism is based on the unquestionable fact that the government lies to us all the time. With that skepticism in mind, I'm also suspicious of why such a hoopla is being made of the "pandemic" of swine flu.

A major clue that the “crisis” is really a power grab is the involvement of the Department of Homeland Security. How did they get in the health care business? They are experts at keeping airplanes free of styling mousse and feeling up our womenfolk. But the DHS is the last outfit you would charge with protecting your health or containing a communicable disease.

However, when you look at the agency’s unstated purpose, it becomes obvious why it would be involved in the swine flu “pandemic.” The main job of the Department of Homeland Security is to keep us scared and obedient. A pandemic is a near perfect crisis for promoting that objective.

People thinking for themselves evaluate their risks and the cost involved in avoiding them. Government agencies like DHS don't need to make such evaluations, because they aren't paying the costs. And the risks, no matter how remote, are what they use to scare us into thinking they are protecting us. It is only governmental thinking that can so widely separate risk and the cost of avoiding it that we find ourselves in a near panic over catching colds.

Everyone except the government must evaluate risk and cost in making decisions, therefore, to help my loyal readers do just that, it's time for one of O'Boyle's Big Statistical Oversimplifications (OBSO).

Simply looking at the numbers, we've already wasted more time on the first five paragraphs of this column than the dangers of swine flu would justify.

The world is full of things more dangerous than swine flu, not the least of which is the United States government itself, which at this very moment has over a million non-violent citizens locked up for consuming harmless herbs.

The statistical probability of contracting swine flu shouldn't be keeping you awake at night. As of this morning, the number of cases in the U.S. is 286. Nobody has died, except the baby who came in from Mexico to Texas early on in the show.

There are over 300,000,000 people in the United States. So far, your odds of contracting swine flu are 286 divided by 300,000,000. Roughly one in a million.

World wide, your chances of staying healthy improve. With 6.5 billion people on this rock and 1000 confirmed cases, your odds are about one in 6.5 million. With 25 confirmed deaths, your chance of death by swine flu are one in 260 million.

For comparison, here are some unlikely ways of kicking the bucket, which are all much more likely than succumbing to swine flu. The numbers are from a website of questionable authority, but are probably at least as reliable as a major news network or the CDC.

For the benchmark long-shot death, wrath-of-God lightning strike, your lifetime chance is 1 in 5000; in any given year, it's 1 in 700,000. Probably worse if you golf.

Your odds of being murdered are 1 in 18,000 and increase dramatically for careless answers to questions like "Honey, does this outfit make my butt look big?"  Your chance of dying of any kind of injury are 1 in 1,820.

Or how about these: Death by falling, 1 in 20,666; drowning, 1 in 76,000; in a fire, 1 in 81,000. All many times more likely than death by swine flu.

Using world statistics, you are twice as likely to be executed than to die of swine flu. We are many thousands of times more likely to die of spoiled tacos, drunk drivers, stray bullets, or angry Rottweilers.

Swine flu is, however, statistically more dangerous than falling airplane parts or death by combustion of nightwear. I'm sure that last one varies considerably depending on the company you keep and the hobbies you have.

I just can't work myself into the state of terror the media and the politicos are looking for. It makes me wonder what the agenda really is.

World wide there were nearly 2 million deaths in 2007 from tuberculosis, a highly contagious disease. Somehow the CDC decided not to go to their level 6 emergency response against TB or to declare it a "pandemic." The Department of Homeland Security has somehow overlooked the TB crisis. Nobody is wearing face masks to keep from getting a communicable disease that annually kills more than 2,000 times as many people as have yet even contracted swine flu.

The slogan of governments and this one in particular is “Never waste a good crisis.” And all crisis is good. Emergencies of all kinds are opportunities to expand power and influence.  Nothing illustrates that fact better than the arrival of the undie-pawing drones from Homeland Security to save us from the sniffles. What most astonishes me is that anyone who has ever been through an airport checkpoint would think Homeland Security could possibly be of any help.

Take this Crash Course, You Won't Be Sorry

I came across this video course the other day. I don't remember exactly where. I've spent some time watching it. I recommend it highly. A nice "unified theory" approach to what's happening in the world now, and why the next 20 years are likely to be very different from the last 20. Click on the link to go to Martenson's blog and the video course.

CHRIS MARTENSON'S CRASH COURSE

No Hope for This Change

You can hardly pick up a paper or listen to a newscast without hearing how inflationary Uncle Sam’s bailout efforts are. “Money out of thin air” is a phrase never so popular as it is these days. And, indeed, every bit of the money going to bail out the administration’s political cronies on Wall Street and fatten Obama's constituency everywhere else is being created out of thin air.

The Federal Reserve recently proposed what may be the most inflationary policy in it’s history, directly buying government securities to the tune of a trillion or so. Thin air again is the well from which all the Fed’s funds are dredged up.

One might logically ask, with all this inflationary action by the Fed and Obama, why are the prices of so many things, notably housing and gas, coming down like the Hindenburg? The answer is complex, but never so complicated that O’Boyle can’t oversimplify it with a few wisecracks.

Economically, change is the last thing the administration and the banks want. The only welcome change in the money game is an increase in the supply of it. Our leaders underestimate their enemy, however.

They imagine that they are fighting merely a “lack of confidence” on the part of borrowers and lenders. What they are really fighting are the enormous natural forces for the other 'flation: DEflation. These forces gathered impressive power since Uncle cut away the dollar’s anchor to gold in 1971. In the last few years they’ve become what Elliot Wave theorist Robert Prechter has called a cresting tidal wave. It is a capitalist wave breaking onto the shore of manipulated markets and dishonest political money. It is breaking onshore now, sweeping away the illusions created by paper money.

Politicians have convinced people that capitalism that has failed. But capitalism is not a system, it’s a law of nature. It neither succeeds nor fails, it simply rewards good decisions and punishes bad. To the extent that political systems allow the capitalist laws of nature to operate freely, those systems prosper.

It is not a co-incidence that as communists have become more capitalist they have increased their prosperity and freedom. Nor is it a co-incidence that as capitalist countries have moved toward planned economies they have become poorer and less free. Obama is making all the right moves to achieve levels of prosperity in the U.S. that are more common in North Korea, Cuba, and China.

What we are witnessing today are the natural forces of capitalism attempting to correct the vast misallocation of resources that the abuse of political money has caused. The bankers and politicians can no more stop the correction than they can relieve us from the force of gravity. To be sure, they can bail out a few leaky boats and keep them floating as the wave passes, but only by filling a whole lot of smaller boats to the gunnels and dooming them to certain destruction. Most of us are in the fleet of smaller boats.

Deflation is the natural finale for inflation. Money is borrowed into existence these days, not printed. All the money that was borrowed to inflate the prices of stock, housing, sushi, and granite countertops is now vanishing as waves of default sweep over the markets. Inflation is the increase in the money supply. Deflation is the inevitable destruction of all that imaginary wealth.

Ironically, after such a long and constantly accelerating increase in the supply of dollars, it doesn’t require an actual contraction in the money supply to cause deflation. Simply reducing the rate of increase is sufficient to cause prices of all manner of assets to crash. The rate of increase in the money supply has plummeted in the last few months and will probably continue to do so for a while. Political efforts to try to create money faster than it disappears will merely punish the prudent to reward the reckless. Deflation follows inflation as night follows day.

It is impossible to borrow ourselves rich or spend our way to prosperity. Obama is doomed to take the rap for the depression no matter what he does. If he changed his mind and did nothing the worst would be over before he left office. At least he would have done no harm.

But I fear that is one change that simply has no hope.