Overlegislation, Corruption, and Eroding Public Confidence "There are a lot of topics that make people uncomfortable. Talk about impending riots coming from the inevitable cuts in pensions and wages, and you’re crazy. Talk about the collapse in the rule of law, and well you must not be a patriot. People don’t understand nuance; everything is black and white. Are you a Republican or Democrat? Is there inflation or deflation? Austerity or higher taxes? Are lower interest rates good or bad? This is the type of thinking you would expect from 5 year olds. Or politicians.
There is a certain way of thinking that I feel is a bare minimum requirement to succeed in ALL market environments. You will always find people who do well in normal business cycle moves. They are the ones who “buy the dips” in real estate or stocks. But when a panic occurs, those who made a career out of buying the dips in stocks (like Bill Miller), get demolished. The same goes for people who called the bottom in real estate way too early because of their infallible “prices went down 15% so time to buy” indicator. There is a time to buy the dips, but there is also a time to get the hell out of the way. I don’t have to tell you that not one in a thousand people has the ability to discern between market environments.
You can always tell who the simpletons are. They are the ones who will automatically fight you when you say that the income tax is unnecessary and uneconomical. When you tell them income and sales taxes are not supposed to operate side by side, they get angrier because facts are just plain annoying to mindless robots. When you ask them how our government survived and thrived up to 1913 without an income tax, they get even angrier. Tax policy needs to be changed or this crisis is going to drag on into eternity. Indirect taxation, period. Let’s move on.
Over-legislation
When governments get too big, you get over-legislation that makes us all suffer in the long run. Let’s think about drugs from a pure common sense perspective. The simpleton government approach is to make drugs illegal. Fine. But in making drugs illegal, the price of drugs goes up, creating incentives to enter the drug trade. Criminal organizations sprout out of nowhere and governments need to sink money into solving a crime problem they created. Legalize drugs and you squeeze profit margins while also opening up an avenue for taxation. People who want to do drugs will do drugs no matter what the laws say. People who don’t have an interest in drugs won’t suddenly become drug addicts because of a change in law. Now in the America of black and white labels we live in today, perhaps I would be labeled a Conservative. This is amusing since I personally think record levels of idiocy reside in both parties. I like to think of these as issues of common sense. People put labels on you when they want to deflect attention from the issue at hand.
Corruption
Many of our leaders don’t pay income taxes, but they don’t go to jail like the little guy. There is a different set of rules for our leaders. This is scaring the hell out of capital in the U.S., I can tell you this much for sure. There is a very troubling trend in the American system where there is this presumption of guilt. Trends in government factor into investments. Anyone going long U.S. government bonds and short gold is insane. There is waning confidence in the government and people need to step in front of this trend.
This is no plain vanilla recession caused by the business cycle. This is the most obvious thing in the world, but people still make assumptions based on recent recessions. Yes I know about the business cycle, but do you know about the debt cycle? Do you understand what happens historically when governments become schizophrenic and corrupt? This crisis is so much more complex than normal business cycle recessions. You are starting to see asset moves reflect the loss of confidence in the public. Commodities are flying, as are stocks. But why isn’t real estate budging if our economy is recovering? Why are only the more liquid assets being bid up? What is this saying about how capital is reacting to the madness of our government? Capital is clearly getting out of the way of the government.
What to do?
If I had faith in the solvency of my counterparties, I would buy Credit Default Swaps on U.S. government debt and start planning my retirement. There is no way our short-sighted leaders will ever pay off our debts. Politicians have hoped for too long that this debt crisis would blow up on someone else’s watch. I have no doubt this crisis will blow up soon. After such a huge run up in gold, it’s hard for people to believe this is just the warm up. But I’ve already done very basic asset comparisons that show gold is cheap on an OBJECTIVE basis.
The level of complacency on the heels of “the worst crisis since the Great Depression” is startling. Wonder why people always get crushed by debt crises? Well study current events because this is a real-time experiment in apathy."
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