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The Daily Reckoning Weekend Edition Saturday, August 28, 2010 Alexander City, Alabama ------------------------------------------------------- Bernanke to the rescue...of a central bank created economic malaise, Self-government and voluntary association: a forgotten way forward, Plus, all of the past week's reckonings, neatly archived for your leisurely afternoon reading... ------------------------------------------------------- NEW Presentation from Resource Trader Alert - Offer Closes Monday! It's a Shame For You Not To Get Rich - When These Readers Do It So Easily! "I started out with $15,000. And I now have over $250,000!" - Mark Jacoby, New Smyrna Beach, FL Retiree "I made over $8,000 in 4 days." - James Kinley, Restaurant Manager, Hilton Head, SC "I opened an account with $15,000... The account value today is over $123,000." - Lorraine Filmore, Counselor, Harrisburg, PA That's just a small sample of hundreds of stories received from readers who use my research. But Could Yours Be One of Them? This New Presentation Tells You How ------------------------------------------------------- Joel Bowman, reporting from Alexander City, Alabama... GDP growth revised downward to an "anemic" 1.6%... Jobless claims rise more than forecast... Home sales fall off a cliff...worse than economists expected... Faced with a slew of deteriorating economic data points, Fed Chairman Ben Bernanke delivered a speech on Friday designed to assure investors that he has the fate of the nation's economy under control. The Fed, said he, "is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly." Come again, Mr. Bernanke? "Deteriorate significantly"? What happened to the recovery? What happened to the "substantial progress" you had so earnestly forecast at last year's annual Federal Reserve retreat? On that very occasion, a year ago to the day, Bernanke spoke thus to the committee: "Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery...and prevent a recurrence of the events of the past two years. "I hope and expect that, when we meet here a year from now, we will be able to claim substantial progress." The inability of Mr. Bernanke - or anyone else for that matter - to hold back the tide of necessary correction ought to be obvious to all. The study of economics wasn't always the bottomless well of embarrassment it has come to be. There was a time when moral philosophers - as those of the trade were once known - spent their days pondering things of actual importance. They listened to the market murmurs of the day, instead of forecasting the unknowable events of tomorrow...they observed rather than tinkered...and asked questions instead of falsifying answers. How ought members of a society allocate limited supply in an environment of unlimited demand? Is there a fair and equitable way to achieve such a goal? What controls, if any, should be employed to govern the process? Etc., etc., etc... Although economics is itself an imperfect science, a "soft science," as some assert, the perfect laws of science nevertheless bind it. Quantitative easing, for instance, is and always will be a bogus theory, a monetary mallet made of liquid, unable to bend anything into shape and forever doomed to flooding the system. Borrowing from one pocket to finance the other is a mug's game; just as increasing the supply of money in a closed system must necessarily devalue all pre- existing units by a commensurate measure. Put another way, two plus two is never equal to five...never mind what the modern economist has to say on the matter. Similarly, one can be reasonably certain that there are only two ways in which an economy, and indeed an entire society, is capable of governing itself. The first is by force; the second by means of voluntary cooperation. That both are mutually exclusive should be self- evident. One cannot be partly violated any more than they can be a little bit pregnant. The concept is oxymoronic, as well as ordinarily moronic. The idea is akin to that of a "voluntary tax." Obviously, no such thing truly exists. It is a donation or it is an act of theft. Plain and simple. Now wait just a moment, we hear some say. What about the rule of the majority? After all, we can't very well wait around for everyone to agree on everything all the time. That may be true. But, to paraphrase an old adage, the road to ruin is paved with the whims of political expediency. A system built on a foundation of coercion is sentenced to failure, whether by invasion from without or revolution from within. For its part, the voting process only serves to muddy the waters. Democracy, as Winston Churchill once observed, is the worst form of government...except for all those others that have previously been tried. Even if 99% of the people vote for some kind of sales tax, for instance, a full and very important 1% are still subject to what essentially becomes legalized theft. When considering that such an overwhelming consensus is so seldom reached in today's political arena (consider both Britain and Australia's recently hung parliaments), it is little wonder politicians rank marginally below economists on popular opinion polls. What is incredible, however, is the fact that so many people are content to simply cast their vote and to take the consequences on the chin, believing all along that they were a vital part of the process and that one must take the good along with the bad, and even the ugly. It was perhaps David Hume who expressed it best when, in his monumental First Principles of Government, he wrote, "Nothing appears more surprising to those who consider affairs with a philosophical eye, than the ease with which the many are governed by the few." Self government, through individual and collective acts of voluntary cooperation, therefore, seems to be the only philosophically consistent, defensible form of government available to man. The state, with its various forms of coercion, shrouded in the cloak of good intention and peddled by forecast-mongering central bankers, be damned. ------------------------------------------------------- Presentation Reveals - Government Retirement About to Belly-Flop Government-sponsored retirement is a myth. It's a great, big magic trick. Starting September 30, the government "safety net" officially begins to shrink. The smartest folks are getting ready now... For details - watch this shocking new presentation. Inside, you'll also learn how to collect thousands of dollars each year in "pension checks" from the government's "other" retirement program. You owe it to your future to watch this new presentation. To do so, simply turn on your speakers and click here. ------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... Earnings Aren't What They Used to Be By Dan Amoss Jacobus, Pennsylvania As Wall Street's big money players return from the Hamptons in the coming weeks, they will have to reassess the earnings power of their portfolio companies. Last week, Staples confirmed the message we heard from Office Depot and Office Max: the small business sector as a whole isn't very healthy. Disappointing earnings from Dell dampen the mood even further. Earnings Aren't What They Used to Be, Part II By Dan Amoss Jacobus, Pennsylvania They just don't make earnings like they used to. In many industries, the quality of earnings has deteriorated in recent quarters. Banks are among the worst offenders. On the downside of the biggest credit cycle in history, many banks are slowing the pace at which they're provisioning for credit losses. Some banks are even reversing their loan-loss reserves and adding these accounting adjustments to their net profits. These accounting games produce shams, not profits. The Nonsense Recovery By Bill Bonner Ouzilly, France Eventually, investors are going to realize that the discussion of a "recovery" is nonsense. The economy can never recover the pace and frenzy of the bubble years - and so much the better. It has to move on to something new. The big question is: What will this new economy look like? How Much Gold is Enough? By Jeff Clark Stowe, Vermont "Should I buy gold now, or wait for a pullback?" I get that question a lot...and it's a valid question. For nearly two years, gold hasn't had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold's largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we've seen this summer is 8.2%. Technically the summer's not over, but I'll admit I'm surprised we haven't had a better buying opportunity. Zen and the art of Economy Repair By Bill Bonner Ouzilly France According to an article that appeared in The New York Times, written by Norihiro Kato, the Japanese have gotten good at sloughing off their worldly cares. Japan is no longer the world's number 2 economy; it was eclipsed this summer by China. But the Japanese are used to slippage. We all know the story of their 20-year economic decline; Japan's GDP actually peaked out about 15 years ago. It has been sliding ever since. That is only a part of the story. ------------------------------------------------------- New Presentation: If This Iran News Leaked, There'd Be Panic in the Streets Nobody in the Pentagon knows how to handle this. Nobody in the White House has a clue what to do. This epic, 1,354-year old conflict could be about to boil over - bringing suffering on par with what Europe experienced during the 1930s. Watch this new presentation before it's too late, right here. ------------------------------------------------------- The Weekly Endnote: Thursday afternoon we drove east from Mississippi, the "Magnolia State," into "The Yellowhammer State" of Alabama. A while into the drive we noticed our right rear indicator had blown. Nearing the town of Tuscaloosa, we pulled into an auto parts store to have it replaced. "How's business been?" we asked the fellow. "Flat out," came his reply. "This is our slowest day of the week and we still can't keep up." "That's good, I guess. Most places are pretty slow." "Sure, on account of the recession 'n all. Not us, though. People ain't buying new cars anymore, not since that Cash for Clunkers program finished. Now they're just trying to keep what they got going as long as they can... "This place got hit pretty hard, all in. The Mercedes plant, just in town, shut down half their operations, laid of some twelve hundred workers or so. In a place like this, that's a heckuva lotta people. Where'd y'all come from, anyway?" "Mississippi." "Lotta hicks there," the fellow laughed. " 'course, we got our fair share too. This place is a football town with a drinking problem." "Or a drinking town with a football problem?" "Either way. We got our fill of 'em." Until next time... Cheers, Joel Bowman Managing Editor The Daily Reckoning P.S. "Stocks are for suckers," asserted our senior resource analyst, Alan Knuckman, earlier this week. That's quite a claim, you'll surely agree. And yet, with stocks having gone nowhere in the last ten years, and Alan cranking out a whopping 1,682% gains for his readers just last year - including losing plays - it's not such a crazy proposition. At the very least, his presentation is worth a quick listen. If you're interested, you can access it here. But be quick, it goes offline on Monday. ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future Have You Heard of the OTHER Government Backed "Pension Program?"