The human ape has any number of qualities not often found in other species of mammalia, including opposable thumbs and the ability to fashion and use tools.

Continuing the list, I would add a tendency to form all manner of mental constructs and to then act in accordance with those constructs, even when those constructs have little or no connection to reality.

Thus, for instance, I stride confidently onto the golf course with the firmly held conviction that I am a solid striker when, in fact, on most days I am a wild-hitting duffer of the lowest order.

But an over-elevated opinion of one’s golf game is harmless compared to some of the delusions humans are capable of. For instance, the teenager who becomes convinced that by blowing himself up in a crowd of innocents, he is serving some sort of higher purpose… or that his reward will be an eternity highlighted by bedding virgins.

A more widespread delusion is a tendency to believe in the status quo. Simply, that tomorrow will be roughly on par with today, a construct that extends out as far as the mind’s eye can see.

This particular construct is entirely understandable – it’s this expectation that things will be more or less constant that allows us to make plans and take the steps necessary to execute those plans. In other words, it is a lynchpin to human progress.

Conversely, when the controlling force of the economy that sustains us in our businesses and lifestyles is ever changeable – and these days that controlling force is the government – sensible humans become wary and start squirreling away nuts in preparation for an uncertain future. This is, of course, not conducive to a vibrant economy.

What will Team Obama dream up next in their flailing attempts at reinvigorating an economy that more than anything needs certainty? It is literally anyone’s guess. Are we going all in on the whole carbon credit thing, or is that now a passing fad? Will the Dodd-Frank Act, with its 400+ new rules for financial institutions and everyday businesses, such as automobile dealers who offer financing, help or hurt? Will the government, having bailed out the big banks, now turn around and sue them out of existence… or just until they squeal?

Is it any wonder that the banks now have upwards of $1.6 trillion in reserves sitting on the Fed’s balance sheet? Sure, they are earning a whopping 0.25% interest rate while taking no risk, as they would do if they put the money out as loans to the public. But the real implication – at least to me – is that they are keeping their capital on hand against the uncertainty of future government action and to deal with the hundreds of billions in toxic loans still on their balance sheets.

Another large subset of the human herd has become brainwashed to the point of delusion by a combination of state education, misinformed college professors, mainstream media, religious leaders and high-talking politicos into believing that they as individuals are little more than pawns, knee-benders, set on this planet to follow a path proscribed by the power elite.

As a consequence, when social trials arise on that path, they look first to the government for solutions. And they cling stubbornly to false beliefs, such as the myth of anthropogenic global warming, even though the truth of the situation would be readily apparent if they trusted in their instincts and did some actual research.

And so it is that while the world is dominated by the human ape, the species is greatly hindered in its progress by stupid monkeys. Let anywhere near the levers of power, it is a certainty these stupid monkeys will start pulling madly, and keep pulling even as the machine begins to shudder and smoke.

Making the point, I would like to share with you – a more sensible species of simian, I am sure – a few examples of stupid monkeys at their dumb deeds; deeds that can only make one shake one’s head in dismay.

For example….

The stupid monkeys at the Justice Department decided to block a merger between AT&T and T-Mobile because it would “harm competition.”

“Gawd’s blood!” I cry out loud to no one. The whole idea of such a business combination is, of course, to “harm the competition” by enhancing profitability with a combination of larger market share and reduced redundancies. Maybe the Justice Department should require AT&T to shut down, because the very act of staying in business is clearly damaging to the competition. And while they are at it, the feds should also clamp down on the burgeoning Internet telephony companies that are now slashing into the market share of all the big telecoms.

A sub-species of particularly stupid and destructive capuchins in the California legislature appear poised to pass a bill that will effectively put an end to hiring an adult babysitter or anyone seeking casual employment doing odd jobs.

Here’s the state’s own legislative summary of the bill’s intent:

Existing law requires employers to secure the payment of workers compensation for injuries incurred by their employees that arise out of and in the course of employment. The failure to secure workers compensation as required by the workers’ compensation law is a misdemeanor. Under existing law, employers of persons who engage in specified types of household domestic service and who work less than a specified number of hours are excluded from that definition of employer and are therefore excluded from the requirement to secure the payment of workers’ compensation, as specified.

This bill would remove that exclusion and require all domestic work employers, as defined, to secure the payment of workers compensation and would make conforming changes. By expanding the definition of a crime, this bill would impose a state-mandated local program.

In lay terms, the bill – which already overwhelmingly passed in the Democrat-controlled assembly and just passed unanimously through the California State Assembly Committee on Appropriations, precedent to passage by the Senate and therefore into law – will require you as a parent (or otherwise casual employer) to follow formal employee reporting protocols and, among other disincentives to employ, provide your babysitter with worker’s compensation benefits, regularly scheduled rest and meal breaks and even paid vacation time.

Failing to do so will open you up to lawsuits from disgruntled help and being dragged into court by the nanny’s nanny (state).

Now, a monkey with even average intelligence might conclude that passing this law in the grips of an unemployment crisis – and California’s unemployment rate is over 12%, versus the nationwide average of 9.1% – would curb enthusiasm for hiring and so should be avoided. But not the stupid California capuchins.

Vermonters want to block the shipment of oil from the tar sands through the state.

This next example is particularly ripe, providing evidence of just how badly the US educational system has failed its pupils.

Quoting a supportive article in Vermont’s Burlington Free Press

A tar sands oil developer might be planning to pipe its product to Montreal – and then across Vermont’s Northeast Kingdom in an existing pipeline to Portland, Maine, according to Canadian and American environmental groups.

That threatens the region’s air, water and wildlife habitat, the environmentalists say.

Egad, a reader might decide, the region’s environment is at risk. Break out the placards, fuel up the lawyers!

We are all aware, of course, of the principle of NIMBY – as in Not in My Back Yard. But even the most simple of simians might want to rethink the notion that Ft. McMurray, Alberta – the hub of the Canadian tar sands and source of the hateful oil – is in Vermont’s backyard. Unless one also considers, say, Phoenix, Arizona to be similarly a part of the neighborhood: Ft. McMurray is about 2,750 miles from Vermont, and Phoenix just 2,600.

And how is it that feeding processed oil into an existing pipeline constitutes such a dire threat?

Oh, what folly these enviro-monkeys are capable of. It it’s positively laughable, but only if you like laughing in the dark.

Then there’s this, from the Stupid-Monkey-In-Chief (SMIC)

This week, our own President Obama, the SMIC, has confirmed his intention to tune up his vocal chords in order to create the jobs that have so far gone missing in this crisis, and which, according to today’s again dismal unemployment data, remain nowhere in sight.

Said the SMIC:

“It is my intention to lay out a series of bipartisan proposals that the Congress can take immediately to continue to rebuild the American economy by strengthening small businesses, helping Americans get back to work, and putting more money in the paychecks of the middle class and working Americans, while still reducing our deficit and getting our fiscal house in order,” Obama said.

“We’re saved!” shout the staunch few that still believe the SMIC is cut from superior cloth. But even the stupidest of the stupid monkeys might be tempted, after so many disappointments, to raise their hands and ask, “What’s the plan, chief?”

In answer to which I provide the following preview of “the plan,” courtesy of Bloomberg

Obama’s plans include more infrastructure spending, tax incentives to spur hiring, a reduction in the employer portion of the payroll tax credit and changes to unemployment insurance to subsidize worker retraining.

Did you just get an overwhelming sense of déjà vu? If so, it’s probably because the SMIC’s latest plan is pretty much the same as the previous plan, and the one before that. Sure, there are a few tax breaks here and there – but companies don’t hire people based on tax breaks. They do so because there is work to be done and people are needed to do it. And in the real world, a $5,000 tax credit for hiring someone – the amount being bandied about in the new plan – will be burned through in a couple of months of (now mandatory) health insurance payments.

Still in the real world, if the country is to pull itself out of the muck, the government needs to stop spending itself into a deeper and deeper fiscal hole. And it needs to undergo radical reforms in regulatory and tax regimes (to attract businesses and capital here, versus over there). And it needs to remake the monetary system on a foundation of something more tangible than political promises.

But first of all, the government has got to acknowledge the simple reality that it cannot meet its obligations and begin, in earnest, the restructuring of those obligations.

Of course, only a stupid monkey would look at the state of our degraded democracy – where half of the monkeys pay no taxes while complaining about the half who do – and believe that the government will willingly make any significant reforms, versus just handing out more bananas.

Therefore, smarter-than-average monkeys are actively taking steps to protect themselves from the coming currency debasement – the only way the government knows to reduce its debt in a politically acceptable way.

Back in 2001, Doug Casey and very few others were waving their arms and hooting about the need to buy gold – had you acted then, you would have outperformed even the legendary Warren Buffett. And as the chart here shows – thanks, Dominick! – you would have outperformed them, decisively so.

(Click on image to enlarge)

Japan’s Soooo Screwed… and So Are We!

Japan’s newly appointed prime minister, Yoshihiko Noda, far left, and members of his government demonstrate the extent of just how hard the Japanese public is going to be shafted.

While there are certain differences between Japan, the US and eurozone, there are also important similarities. Most notably, they all are in the throes of the terminal decline that is the fate of all democracies.

Just below is a revealing quote from a New York Times article this week; at a glance, it paints the future of the US and Europe as the pandering politicians continue with the pretense of being able to solve the intractable problems that have piled up over decades without offending any significant voting constituency.

TOKYO – As Japan’s fiscally conservative finance minister, Yoshihiko Noda long sounded the alarm on the nation’s ballooning government debt. It is more than twice the size of its $5 trillion economy – and rated more risky than that of Italy and Spain.

Now, after being elected Japan’s prime minister this week in response to the nation’s natural and nuclear disasters, the question is whether Mr. Noda can administer his prescription: raise taxes while reining in spending.

“We will no longer spend wastefully as if we are pouring buckets of water into a sieve,” Mr. Noda declared in a speech on Monday just before Japan’s ruling Democratic Party elevated him to the top job.

But that political resolve could prove hard to sustain – and not simply because of the systemic weaknesses that have resulted in six prime ministers in the last five years.

This is a country that was already addicted to its public spending, even before the huge needs of the postquake reconstruction. The last time the Japanese government ran a budget surplus was in 1992, almost two decades ago. Tax income now covers less than half of Japan’s annual budget.

Summing the situation up, Japan and the other aging democracies will continue to degrade until the point where the monetary system collapses. And collapse it will – under the unsustainable weight of the unreasonable demands made by a public unwilling or unable to understand the importance of having an unequivocal and unambiguous form of money – money that is unassailable by unscrupulous politicians.

It will be interesting to watch Prime Minister Noda twist and turn as he tries to navigate between a rock and a hard place. You’ll want to keep a close eye on the situation, because as Japan goes, so, in time, will we.

Friday Funnies

The English language has some wonderfully anthropomorphic collective nouns for the various groups of animals.

We are all familiar with a herd of cows, a flock of chickens, a school of fish and a gaggle of geese.

However, less widely known is a pride of lions, a murder of crows (as well as their cousins the rooks and ravens), an exaltation of doves and, presumably because they look so wise, a parliament of owls.

Now consider a group of baboons. They are the loudest, most dangerous, most obnoxious, most viciously aggressive and least intelligent of all primates.

And what is the proper collective noun for a group of baboons?

Believe it or not… a congress!

The Farmer and the Pond

An elderly farmer had a large pond on a corner of his property that he tidied up for outings on a nice day so he could enjoy swimming, complete with picnic tables, horseshoe courts and some apple and peach trees.

One evening, the old farmer decided to go down to the pond, as he hadn’t been there for a while, and look it over.

He grabbed a five-gallon bucket to bring back some fruit.

As he neared the pond, he heard voices shouting and laughing with glee.

As he came closer, he saw it was a bunch of young women skinny-dipping in his pond.

He made the women aware of his presence, and they all went to the deep end.

One of the women shouted to him, “We’re not coming out until you leave!”

The old man frowned, “I didn’t come down here to watch you ladies swim naked or make you get out of the pond naked.”

Holding the bucket up, he said, “I’m here to feed the alligator…”

Manufacturers of Downward Arrows Post Record Profits

Rare Bright Spot on Wall Street

NEW YORK (The Borowitz Report) – In what stock market analysts are pointing to as a rare bright spot in an otherwise gloomy period for Wall Street, manufacturers of downward arrows posted record profits this week.

While makers of cars, computers, farm equipment and practically everything else saw their fortunes plunge this week, producers of downward arrows notched double-digit gains, inspiring investors to snap up their shares like never before.

Companies like National Plunging Arrow Corp and Consolidated Downward Pointy Lines saw their shares rocket as investors rushed to participate in the suddenly red-hot red-arrow sector.

“We are seeing investors move out of Treasuries and gold and into downward-arrow stocks,” said analyst Harland Dorinson, who covers plunging trend-line manufacturers for Morgan Stanley. “At a time when the world is facing extreme uncertainty, the one thing we know for sure is that going forward there will be strong demand for downward pointy things.”

But the euphoria surrounding the plunging arrow sector may be short-lived, as some analysts caution that that investors’ mania for downward arrow stocks may be a bubble, with others warning that downward arrows are increasingly being manufactured in China, where the arrows are mass-produced using far cheaper labor.

For his part, though, Morgan Stanley’s Dorinson sees a silver lining in such gloomy forecasts: “Even if people wind up losing billions of dollars investing in downward arrows, you know what? There’s only one way to show that.”

Bailout Fatigue

By Doug Hornig

I’ve used the term outrage fatigue on numerous occasions in this forum as a way of trying to explain why there has been such a muted outcry from the general population as the tally of financial atrocities committed against American citizens has exploded.

August 22 was just another average day with another average headline that could easily have been ripped from some radical economic watchdog website (liberal or conservative, either one): Wall Street Aristocracy Got $1.2 Trillion from Fed.

But the line wasn’t the work of someone out there on the anti-capitalist or anti-government fringe. It was attached to an article from the very mainstream Bloomberg News.

Bloomberg has been engaged in a long, frustrating FOIA litigation battle with the Federal Reserve over that entity’s reluctance publicly to reveal what it has been doing with our money. Slowly, the stone wall has been coming down. And looking at what’s behind it, it’s pretty obvious why the Fed would have preferred to keep its deeds locked away from all prying eyes.

Thus the above headline. And here’s an ugly truth that goes along with it: It’s a near certainty that the vast majority of those who saw it – probably not too many in number, since the story got scant coverage on the network news – said to themselves, Yeah, we already knew that. Ho hum.

Call it bailout fatigue.

Because, guess what? This is not a recycled story from last year. This is news that we didn’t know before the 22nd.

This money is not a part of the $16.1 trillion in emergency loans the Fed handed to US and foreign financial institutions between Dec. 1, 2007 and July 21, 2010, according to figures produced by the first-ever, one-time-only GAO audit of the central bank ordered by Dodd-Frank. Nor is it part of the $2 trillion quantitative easing program. Nor is TARP’s $700 billion in there, either.

Read that again. This $1.2 trillion – and perhaps we also have trillion fatigue, because that’s a lot of money – is separate from all that other stuff. It’s another hitherto secret funding program that we never would have heard of if Bloomberg hadn’t torn it from the Fed’s mouth like a rotten tooth.

The list of who got the bucks is a basic guide to the American banking industry. $107 billion to Morgan Stanley. $99 billion to Citigroup. $91 billion to Bank of America. Over $75 billion to State Street and just under that to Goldman Sachs and JPMorgan Chase. And the list goes on. And on. And on. Even the disgraced Countrywide Financial got in on the act, claiming about $12.5 billion.

In addition, as the Fed was bailing the leaky American boat, it must have asked itself, Why stop here? There are foreigners out there who need our help just as much.

So, almost half of the Fed’s top 30 borrowers were European firms. They included the Royal Bank of Scotland, which was propped up to the tune of $84.5 billion, the most of any non-US lender, and Zurich-based UBS, which got $77.2 billion. The big foreign borrowers also included Dexia, Belgium’s biggest bank by assets, the French Société Générale, Deutsche Bank, Barclays, and Crédit Suisse.

“These are all whopping numbers,” says Robert Litan, a former Justice Department official who investigated the savings and loan crisis in the 1990s. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

So much for the free market, where failed business ventures … well, fail. But not to worry, the Fed did it all for us.

“We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the US taxpayer,” says James Clouse, deputy director of the Fed’s division of monetary affairs in Washington.

Furthermore, the Fed’s official line now is that “nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses.” In fact, $13 billion in interest income was supposedly realized.

That works out to an average of, yes, one percent.

Now that’s a pretty nice loan rate if you can get it. They could, and they did. Citigroup, for example, was the most frequent US borrower, in hock to the Fed on seven out of every 10 days from August 2007 through April 2010. On average, the bank had a daily balance at the Fed of almost $20 billion.

And the ability to raise truckloads of money for almost no interest raises another disturbing question: Did the banks really need this cash to stay afloat?

University of Pennsylvania finance professor Richard Herring, an authority on financial crises, is suspicious, saying that some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.”

But regardless of whether banks needed the Fed’s money for survival or used it because it offered the opportunity to turn a quick, easy buck, the central bank’s lender-of-last-resort role amounts to a free insurance policy for banks, Herring notes.

Access to Fed backup support “leads you to subject yourself to greater risks,” Herring says. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.”

All of this might conceivably make citizens revolt against an entity that uses their money to secretly fund the “Wall Street aristocracy.” It might make them vote for a Gary Johnson or a Ron Paul, someone who favors dismantling the Fed.

Or not. When a story as big as this one generates a bare minimum of media coverage, you know it’s probably headed for that huge waste bin in the corner of the parking lot. The one marked Bailout Fatigue.

Coming up in Next Week’s Edition of The Casey Report

With the crisis showing no signs of abating, gold is once again proving the naysayers and top-pickers wrong by powering up $50 an ounce. While the sort of breathless rise we have seen of late is almost always susceptible to a breather, I think it is becoming abundantly clear that gold has reached a new baseline from which it is likely to continue to advance, perhaps for years to come.

In the upcoming edition of The Casey Report, due out next week (Click Here), Casey Research Chief Economist Bud Conrad is updating his views on gold, with a very surprising forecast as to how long the gold bull market is likely to last, and how far the monetary metal is likely to rise. Given that Bud absolutely nailed his forecast for this year, his updated longer-term forecast is worth paying attention to.

Also in that edition, I just finished a long interview with someone who might be termed a Lord of Finance, the now-retired CFO of one of the world’s largest and most preeminent financial institutions. He agreed to the interview only on the condition that we would keep his identity secret. We covered a lot of ground, including the state of the big Wall Street banks, the sea change in how the big guns view gold, the growing feud between the banks and the politicians, and much more.

In addition, co-editor Terry Coxon, who used to run a money market fund, writes on the threats that many money market funds face as we head into the next phase of the ongoing crisis.

There’s all that and much more – don’t miss it.

And you don’t need to, with our risk-free three-month trial. Either you love the publication or cancel within three months for a full refund. It’s only fair, and the only way to understand the sort of work we do in our paid publications. Get all the details.

That’s It for This Week!

As I sign off, I would mention that we have just sent out the invitations for the next big event at Doug Casey’s version of Galt’s Gulch, La Estancia de Cafayate, in the stunning northwest of Argentina. If for some reason you didn’t get your invitation, check it out.

If you can make the trip, you really should, as these events are the stuff of lifelong memories. Hope to see you there.

And with that, I will sign off for the day and get back to my duties as managing editor of The Casey Report.

David Galland
Managing Director
Casey Research