Corporations vs Charters

The history of constitutional law is the history of the impact of the modern

corporation upon the American scene.

-    -  Supreme Court Justice Felix Frankfurter

Individuals are legally required to support corporations’ political advertising. Opposition is a violation of the corporation’s First Amendment rights. [1]

EPA monitoring of the air over a corporation’s factory, constitutes violation of the corporations Fourth Amendment rights. [2]

Corporations must be compensated for compliance to environmental regulations. Lack of compensation violates the corporation’s Fifth Amendment rights.[3]

Yes, inanimate, non-accountable corporate entities have the very same rights[4] afforded you by the authors of the Constitution. But it wasn’t always so. The Constitution doesn’t mention corporations. In Colonial times, corporations as we know them today didn’t even exist. Instead, there were charters*. The Founders knew well the abuses of the contemporary charters such as the East India Company, the Hudson's Bay Company and the British Crown charters in America and chose to allow the States to regulate them.

*Technically corporations are charters. For the purposes of this post, “charter” is used to identify the original charter entity before the re-definition of the word in the 19^th century.

Some key differences between corporations and charters;

Charters	Corporations
Of limited duration, Must be renewed or disbanded.[5]	Perpetual
Capital is limited	Capital unlimited. Can be "too big to fail"
Established for defined reason	Essentially unlimited
Strong accountability to shareholders is written into charter	Weak accountability to shareholders.
Minority shareholders protected	Minority shareholder support not needed for major decisions
All stakeholders responsible	Stakeholders not responsible for corporate actions

As early as 1816 Thomas Jefferson, always a foe of large powerful entities, warned of the threat to the young democracy from “moneyed corporations”;

“"I hope we shall …crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."
- Thomas Jefferson, Letter to George Logan, 1816”

It took 70 years of struggle, but the corporations won their “trial of strength” in the infamous landmark Supreme Court review of Santa Clara County v. Southern Pacific Railroad, 1886; which overturned previous precedent and was used to give corporations the legal status of a natural person, and thus by extension, protection under the Bill of Rights. (Before this time corporations were considered “artificial persons” with a limited sub-set of human rights).  Since then, corporations have won erroneous judgements one after another, until we have arrived at the sorry state we find ourselves now.

Supreme Court Justice William 0. Douglas commented on the decision decades later, writing;

"There was no history, logic or reason given to support that view"

Corporations are Accountable to No One

Not the Government;

We regularly see in the news headlines “Corporation X Fined XX Dollars”. This is misleading. Corporations no longer exist as a privilege granted by the people through their government, but rather they exist under “contract” with the government. This is the reason fine amounts are “recommended” and companies are allowed to negotiate the final value. Corporations are not “fined” in the sense that you are fined for speeding or jaywalking, but rather the “fines” are more akin to liquidated damages for a violation of their “contract” with the government.

Directors can be held liable only for their own personal misconduct. No single person or persons are accountable for miss-deeds of the corporation.[6]

Not the People;

Corporations, having usurped the Commerce Clause to relieve “themselves” of government authority, and gained protections under the Bill of Rights, have granted “themselves” much greater freedoms than enjoyed by any individual. Individuals cannot invoke Commerce Clause precedent to overrule laws. Corporation can, and do on a regular basis. This has created the curious situation where an entity (the corporation) is no longer accountable to the entity that created it (the government). 

Even the most die-hard free-marketer must admit that even if individuals and corporations should have equal rights, it is much more difficult for the individual to assert those rights. Do you have a personal lobbyist in Washington? (No, your congressional representative doesn’t work for your interests. They follow corporate wishes and interests; you are not going to give them a job when they leave government).

Not Shareholders

Shareholders routinely resort to litigation to assert their supposed rights to control the corporation. Minority shareholders are easy silenced by majority shareholders or shareholder blocs. Shareholders have no direct influence in matters such as treatment of workers or the environment.

Not the Consumer

Even if corporations are not accountable to any one else, they must be accountable to the consumer, right? Not really. Corporations can treat consumers any way they chose. Telephone companies are one example. They routinely mistreat their customers, their business declines, and then they merge or otherwise reform themselves under a different name and continue business with the same equipment, the same employees and even the same customers (Who are non the wiser) Study the history of ATT for proof.  Airlines are another striking example. Under a charter system, entities that harmed the public good would be disbanded and their assets sold and delivered in proportion to their stakeholders.

Corporations (including the Federal Reserve) are the scourge of democracy and will be the cause of the failure of the Grand Experiment.  You cannot “vote with your dollars” to force corporations to behave in an ethical manner. The only hope is to reform the nature of corporate “personhood” and return to the ideals of the founders of this great country.

[1] Pacific Gas & Electric Co. v. Public Utilities Commission of California ET AL. Appeal from the Supreme Court of California. No. 84-1044.

[2]  Dow Chemical Corporation v. U.S., 476 U.S. 337

[3] U.S. Supreme Court review of Pennsylvania Coal Co. v. Mahon 260 U.S. 393 (1922)

260 U.S. 393 Pennsylvania Coal Co. v. Mahon et al. No. 549.

[4] Actually, they have more. An individual’s power to control government is through the vote and the resultant composition of Congress and the Presidency, and ultimately, through elected officials, the Judiciary. But since corporations have successfully hijacked the Commerce Clause to limit government’s power, they are ultimately accountable to no one.

[5] The scourges of the First and Second Banks of the United States were eliminated by allowing the charters of these abominations to expire. The present incarnation of this evil, The Federal Reserve, cannot be dispatched so easily because its status as a corporation allows it to exist in perpetuity.

[6] To cite a recent example, is the CEO of British Petroleum responsible for the Gulf disaster? No, he wasn’t even there, he had no way to know what they were doing, and he can’t be expected to keep up with every employees actions. How about the guy on the

 

rig? No, he was just an employee doing a job. He can’t be responsible for the corporation. Inevitably, a mid-manager will be taken to task for the disaster and punished accordingly. But does this change the corporate attitude? Can this alter the corporation’s way of doing business? Of course not. In the end, no one is accountable. What incentive does BP really have to be responsible? If worse comes to worse, they can always simply merge with some unknown company, change their name, and continue business as usual. BP can easily change their legal structure, since there is no longer a requirement to serve a public good. Articles of Incorporation are available simply for some relatively trivial paperwork and fees. Would the boycotters even know? No, they would declare “victory”. Would anyone even care that the new ACME Oil company was formerly BP? No, they will have moved on to the next cause. BP knows this.

The Reality of One World Government - It's Not A Theory

Many people are vaguely aware of the so-called One World Government “conspiracy”. While the idea has always been considered a fringe element, more and more people are suspecting that the idea contains some truth. They are correct.

Throughout history there have been men and groups of men who attempted, and sometimes succeeded, in establishing control over large portions of the earth’s population; Alexander the Great, Genghis Khan, the Romans, the Turks and many more. The desire to rule over one’s fellow man goes to the very essence of mankind

The One World Conspiracy has also been subject to what I call “Absurdity Poison”, a form of the informal Appeal to Ridicule fallacy. Put simply, the OWG idea has been poisoned by absurd extensions. Person A believes there is a movement to create a One World Government, Person B posits that the world is actually being run by a race of super intelligent reptiles. Person C dismisses the entire discussion based on the absurdity of Person B’s position. Person A’s argument, however true, is poisoned by Person B’s absurdity. No rational person wants to be associated with insanity, so they avoid the topic all together. This is a very strong propaganda technique. The best way to hide a truth is tell a greater lie.

There is a concerted, conscious effort to establish a worldwide unified government. But it isn’t being directed by super-intelligent reptiles, or immortal Jewish bankers who have been alive for hundreds of years. As improbable as it seems, the origins of the current quest for one government began with the United States itself.

The United States found itself the most powerful nation after the end of World War Two. Europe was in ruins and the assent of the great Japanese economy had been halted.  People in power in the U.S. at the time, including Cordell Hull, Harry Dexter White and of course Franklin Roosevelt (and later Harry Truman), knew that it was only a matter of time before Europe and the Asian countries regained their economic strength and would challenge America’s newfound power. Russia, although weakened, was also a direct threat to America’s supremacy. These men wanted to seize the opportunity to establish a new paradigm to ensure the U.S. remained in a position of supreme power.

The first step in the consolidation of The U.S.’s power came before the war was even over. In June 1944 the United Nations Monetary and Financial Conference, better known now as “Bretton Woods” was held. This conference created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) (now the World Bank). In summary, these institutions established the U.S. dollar as the world’s primary currency and allowed the U.S. to enjoy seigniorage and effectively “tax” or more accurately, steal from, the world’s economy. How this works is the subject of another article. The point being made here is this; The U.S took advantage of their brief authoritarian power at the end of WW2 to establish a world system that guaranteed that temporary power would became permanent.

To avoid being seen as just another opportunist country, the U.S. asserted its power through the United Nations, giving the impression that it was a series of world-wide agreements that enshrined The U.S. as the world’s preeminent power.

But they left a gaping hole.

While the U.S was concentrated on firmly taking control of the world’s money supply, in the spirit of “international cooperation” they allowed other countries equal power in the lesser institutions of the U.N.

It was in the “lesser U.N.” that the world’s elite saw their opportunity. In a long series of rulings, agreements and treaties, the sovereignty of all nations has been eroded. In the areas of trade, food, and even firearms, many of the actions of the U.N. are unstoppable by the U.S.

In order to exercise sovereignty over matters such as gun control and food labeling, the U.S. would be required to give up their control of the world’s money supply.

People wonder why the U.S. doesn’t leave the U.N. or ignore their anti-constitutional rulings. The simple reason is the U.S. is beholden to the U.N. because of its economic monopoly. Those in power, including every president since FDR know this. It is one of the reasons they all seem to be cut from the same cloth. They are all constrained by the same paradigm. One could say the U.S. has sold its soul.

In order to keep sovereignty the U.S. would have to give up its dependence on the advantages of seigniorage. The country would have to get its financial affairs in order and keep them that way. But this is unlikely to happen, and soon it will be a moot point. The other countries of the world have already established formidable power through the U.N. and are now working diligently to replace the Dollar. When that happens, the U.S. will be another third world country subject to the whims of the all-powerful elite, enjoying their rule from the halls of the U.N.

Make no mistake. One World government is a reality. There are elitists that believe they should rule over the lesser, common man. We have allowed our government to create the path for them to accomplish that goal.

Asymmetric Cryptography As A Tool Of Liberty

Asymmetric Cryptography in the form of Public-Private Key Pairs can be a strong tool for personal Liberty by breaking the monopoly governments have on personal identity.

For example, I am Bob. Unless I am severely mental ill, I intuitively know I am Bob. Simple enough. But how do you know I am the Bob I say I am? Because my government tells you I am. Most people have a birth certificate, issued at the time of their birth or at some point later. The validity of this document by itself can range from completely bogus to quasi-official. The way to make it offical or trustworthy is to have it certified by a government agency in the form of a certified birth certificate, or use it obtain an official identity card or papers. Therefore, the government entity holds tremendous power by controlling, or withholding, identities.

At various times throughout history governments were simply extensions of the people, for example, in post Revolutionary America. But much more commonly, governments have been usurped by factions to serve their own agendas. e.g. Nazi Germany. Since governments in general are historically unreliable, it is dangerous for them to have the power to say who you are!

Going back to the Bob example, my close friends and family, even extended family, know I am Bob. They don't need me to present a government document to tell them that. What if this familiarity can be extended without the involvement and permission of a government? It can, through Public/Private Key certification. We won't get into the specifics of encryption, there are many sources of information on the topic, see footnotes. The purpose of this article is to explore the possibilities of using the process beyond encrypting documents.

The part of asymmetric encryption that concerns us in regards to identity is Certificate Signing. A document is encrypted with Alice's public key and sent to Bob, who decrypts it using his private key. All fine, but how does Bob know the document came from the Alice he thinks it did? This is where Certificate Signing comes into play. Alice has people close to her; family, friends, associates, sign her certificate. They are saying, in essence, "I certify this key belongs to this particular Alice". With enough certifications, we can be sure that Alice is who she says she is. Given the ability to de-sign her certificate, the assurance is even stronger.

To put it very simply, we can be sure Alice is Alice because a hundred or or ten thousand, or a million people say she is. This takes even less faith than believing Alice is Alice because a government bureaucrat, who may or may not be neutral, says so. Everyone dealing with Alice can make their own assessment of Alice's credentials. If she's going to walk my dog, I may be okay with 10 signings. If she's going to have access to my financial records maybe I would like to see five thousand. If she just shows me a drivers license, this gives me almost zero confidence. Is it a real drivers license approved by a conscientious license bureau worker under no influence from her superiors? Or was it printed in a Mexican document factory yesterday?

If such a system were adopted on a large scale, there would be no need to depend on a possibly malevolent government to establish one's identity. It is unlikely that a group of thousands of dis-interested people would have an interest in denying a person's identity, but history is littered with cases where it has been in the interest of a government to deny someone's access to identity, or coerce a person into submission in exchange for an identity.

This isn't a completely matured proposal, it is a starting point for discussion. What do you think?

Economics Is NOT Rocket Science - Stages of the Economic Cycle

This blog was created to simplify the alchemy of economics. Economics is not rocket science, . I maintain that it isn't even a science at all. Behind the facade of formulas, theories and schools, the underlying principals are relatively simple. 

The issue is separating economics from business and investing. Both are essentially the study of people. In economics, if people do a, the result is x. If they do b, the result is y, and so on. The problem in business and investing is trying to predict if and when people will do a or b. Of course, this can be impossible, and is the reason business and investing is difficult....and complex. 

In economics there are "laws" or "rules". Economics doesn't follow the Austrian School some of the time and the Chicago School some of the time. This is ludicrous, despite the fact there is a huge industry of producing and employing economists and researchers. The Federal Reserve itself employs over 300 PhD level professionals. 

So in the interest of offering people a clear view into the obfuscated world of economics, I am re-posting an article from a couple of years ago outlining the true stages of the economic cycle. This cycle has been repeated over and over throughout the history of mankind, and despite of, or perhaps because of, our technical progress we are still subject to the same cycle. Because we are now in stage 11, it is important to know the truth.

True Stages of the Economic Cycle 

1. Hard Money. A form of currency is established to facilitate commerce. In order to gain acceptance the currency is backed by something of intrinsic value such as precious metals. This is known as Hard Money.

2. Debasement of the Currency. It is immediately evident that “free” wealth can be created by Debasing the Currency. In its most fundamental form this involves the practice of charging interest (or usury, the meaning has been exactly the same throughout history up until recent times).

3. Enactment of Legal Tender Laws. Without Legal Tender laws, implied values are self correcting and always closely match true value. Legal Tender laws greatly facilitate the debasement of a currency. The Founding Fathers knew this, Thomas Jefferson wrote: 

"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered".
 

The U.S. Constitution, Art. I Sec. 10 Cl. 1, states: 

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;"

The Supreme Court ruled in U.S. Supreme Court - Wheaton 1827; 

“The prohibition in the constitution to make anything but gold or silver coin a tender in payment of debts is express and universal. The framers of the constitution regarded it as an evil to be repelled without modification; they have, therefore, left nothing to be inferred or deduced from construction on this subject.”

4. The Accumulation of Debt is unavoidable with legal tender laws in general, and especially in a Central Banking scheme such as our current Federal Reserve, in which the perpetual increase of debt is an essential component.

5. An Illusion of Economic Prosperity is created by the accumulation of debt. This is no different in principle from a person going on a spending spree with credit cards. They have the illusion of being very prosperous, but in reality they are destined for a reckoning when the debt cannot be paid.

6. Monetization of the Debt. As the accumulation of debt becomes unmanageable, it become necessary to monetize the debt. The debt grows so large it cannot possibly be paid. There are a few ways to “resolve” this. 

• The most obvious way is through taxation, but this is never politically acceptable. 

• Another way is by directly devaluing the currency. This has been done many times in history, but is also not very politically acceptable.
• The third, and easiest (for leaders at least) is hyper-inflation. In simple terms hyper inflation erases debt by transferring wealth from individuals to government.

It is apparent that all three solutions have one thing in common – all transfer wealth from individuals to government, or more accurately, to the central banks.

7. Dilution of Currency Value The process of monetization directly causes a Dilution of Currency Value.

8. Loss of Confidence. In essence Consumer Confidence is a measure of how well the taxpayer is being fooled into thinking all is well. The dilution of his buying power caused by the dilution of currency creates a Loss of Confidence.

9. Inflation. As buying power decreases, the consumer tries to make up the difference by charging more. The merchant charges more for his goods, the laborer demands more for his services. This is classic Inflation.

10. Inflation Stabilizes as government  implements inflation control measures, but does nothing about the underlying problems, causing a:

11. Return of Inflation, quickly followed by:

12. Hyper-Inflation, which effectively erases the debt. If the U.S. experiences the level of hyper-inflation similar to Hungary in 1946/7 (42 QUADRILLION percent per month), the entire national debt could be paid off with less than a penny. This may sound like a good thing to some, but the truth is, wealth is simply transferred from private individuals to the government. This is the stage of Reckoning. It is obvious that there was no real wealth created in phase 2. This is the essence of my argument against the “Economy creates wealth” proponents. Economic trickery does not create wealth. It never has and it never will.

The wealth transfer causes:

13. Depression, which leads to:

14. Reorganization of Government. It is only at this point that a significant number of people understand the inextricable link between wealth and real money. This enlightenment leads to:

15. Return to Hard Money, and the cycle repeats.

These phases are exponential in nature. The time from the debasement of a nations’ currency to the loss of confidence in that currency can be measured in decades or even centuries. The time between the loss of confidence and inflation however, may only be weeks or months. In the later stages of hyper-inflation the loss of a currency’s value and the accompanying price increases can double in days or even hours.[1]

It should also be noted that inflation is not bad for everyone in equal measure. It is actually a good thing for those people of means who are in a position to borrow to purchase property. The reason is the same; the repayment of debts, is made in currency that is worth less than the currency originally borrowed. This is also the reason working people cannot prosper during times of inflation or hyper-inflation. Wages are generally not indexed to inflation and always lag price increases. Even in the case of the relatively few people whose wages are indexed to inflation, the adjustment is always done after the fact. Loses accumulated from the previous adjustment are never recovered.

---

[1] In the Weimar Republic in 1923 workers demanded, and were paid three times a day in order to be able spend the money before it lost further value. 

American Taxpayers Supporting Jihad and Islamic Sharia Law

Does it get any more bizarre than this?

The steady implementation of Islamic sharia law in the United States is a fascinating, complex and deeply disturbing topic of which most Americans are blissfully unaware. This post focuses only on the case of how the American taxpayer has been duped into supporting a system of "laws" that are incompatible with the U.S. Constitution.

Sharia is:

“a wide-ranging body of law and personal rules, regulating matters of jurisprudence, hygiene, politics, business, banking, family, sexuality, diet, and society. It is meant to serve as the governing principle both within the Muslim world and for Muslims living outside it”.

It is obviously incompatible with Western style democracy. Limited “NO-GO” zones have been implemented in western European countries where sharia law governs every aspect of society including criminal cases, trials and punishments. These areas were established under the threat of terrorism. Needless to say, there are many cases of problems. There has even been an Islamic “Court” established in Texas, the “Heartland of American Conservatism.” [1]

The largest supplier of Sharia Compliant insurance products is, yes, AIG. With the Federal Governments assumption of 77.9% of AIG, the American Taxpayer, through the evil Troubled Asset Relief Program, has been placed in the curious position of supporting a way of life  (Sharia)’ that is demonstrably incompatible with our Constitution, government and way-of-life. Since AIG is not required to account for the TARP money it is entirely possible that some American Taxpayer money has been used to support terrorism and attacks on our troops in Iraq and Afghanistan.  This is possible, perhaps even likely, because Sharia requires some funds to be “cleansed”. One way to “cleanse” money is to funnel it to organizations engaged in jihad. Sharia also requires a “tax” of up to 20%. This tax is also used for, among other things, the support of Jihad.

Fortunately, but maybe a matter of too-little-too-late, a lawsuit has been filed challenging this unholy alliance. The lawsuit, Murray v. Geithner et al., was brought against the Federal Reserve and the Treasury by the Thomas More Law Center on behalf of Kevin Murray, a former Marine who served honorably in Iraq to defend the United States from Islamic terrorists. President Obama’s Justice Department sought to have the lawsuit dismissed on the technical grounds that the plaintiff did not have standing.  Again, fortunately, the government (our government, isn’t this bizarre?) motion was not granted. In denying the government’s motion, Judge Zatkoff wrote;

Pursuant to the EESA, the government has injected AIG with tens of billions of dollars, without restricting or tracking how this considerable sum of money is spent. At least two of AIG’s subsidiary companies practice Sharia-compliant financing, one of which was unveiled after the influx of government cash. After using the $40 billion from the government to pay down the $85 billion credit facility, the credit facility retained $60 billion in available credit, suggesting that AIG did not use all $40 billion consistent with its press release. Finally, after the government acquired a majority interest in AIG and contributed substantial funds to AIG for operational purposes, the government co-sponsored a forum entitled “Islamic Finance 101.” These facts, taken together, raise a question of whether the government’s involvement with AIG has created the effect of promoting religion and sufficiently raise Plaintiff’s claim beyond the speculative level, warranting dismissal inappropriate at this stage in the proceedings.

Congresspersons Frank Wolf and Sue Myrick have also taken AIG to task over this topic:

".. your touting of Shariah finance is much like your marketing and promotion of subprime loans. Many in the financial industry believed subprime loans were a great way to make money and would cause no harm. Do not make the same mistake by supporting shariah finance, because, as we have stated, there are far more dire consequences."

"You may defend your decision to offer Shariah products and will probably state that they have no real ties to Shariah Law, and therefore, pose no threat. You are wrong. "

- Letter from Congresspersons Frank Wolf and Sue Myrick to AIG CEO Edward Liddy, December 8,2008

Even individuals adamantly opposed to getting involved with anything political should follow this topic because it has the potential to affect our lives in ways we have never dreamed.

CASE UPDATE (June 1, 2012): The Sixth Circuit rules that Murray lacks standing to challenge the federal government's use of taxpayer funds to support sharia.  Read the opinion here.  Read more about opinion here.

CASE UPDATE (June 15, 2012): AFLC files petition for review asking the full court of the Sixth Circuit to review the decision rendered by a three-judge panel. Read petition here.

CASE UPDATE (July 12, 2012): The Sixth Circuit denied our petition for full court review of the decision rendered by a three-judge panel which held that a federal taxpayer lacked "standing" to challenge the constitutionality of the federal government's use of taxpayer funds to support sharia.  We are now working to take this case to the U.S. Supreme Court.

CASE UPDATE: (October 10, 2012): AFLC filed a petition for a writ of certiorari in the United States Supreme Court, asking the Court to review the appellate court decision which held that a federal taxpayer lacked “standing” to challenge the constitutionality of the federal government’s use of taxpayer funds to support sharia. You can read the petitition here.

---

[1] The Court of Appeals for the Second District of Texas, Ft Worth, has granted a ruling to The Texas Islamic Court to enforce rulings. This means the State of Texas is obligated to enforce decisions made by Islamic clerics or advisors.

Crisis In Cyprus Update

In a previous post, Crisis In Cyprus, I mentioned that the Euroroup would take action to try to prevent a run on banks in other troubled Euro countries.
This is a statement from the Eurogroup dated 25 March 13;

"Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.
Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used."

The statement is carefully worded to characterize the Cypriot plan as "specific". No mention is made that the newly adopted "Bank Resolution Framework." specifies that all future assistance will be under the exact same conditions as the Cypriot plan. For all practical purposes, it isn't a unique case at all.

Crisis In Cyprus - Part 3

Agreement between the Eurogroup and Cyprus in regards to the bail-out/in has been achieved. The terms were much more sensible than first discussed, and represents a seemingly responsible position for the Eurogroup. Seemingly, because while they have taken a correct position towards Cyprus, fundemental problems with the Euro have (still) not been addressed.

Cyprus, on the other hand, is doomed to disaster. They are encountering the perfect storm of both supply-side and demand-side crises. Their banking industry is decimated and it is estimated will be cut in half, resulting in massive layoffs. They are of course, unable to devalue their currency to stimulate the other majority sector, tourism.

Cyprus, like Greece before it, will slip into severe recession, possible depression. Over the next year or two, it will become more obvious that their best option would have been to exit the Eurogroup, take the severe devaluation, adjust the Cypriot pound, and immediately begin the process of recovery.

But having accepted the Eurogroup's bail-out, and still being saddled with the Euro, there will be a long, long period of austerity. The capital controls put in place were initially supposed to last a week. Now it has been announced they will be in place a month. In reality. the controls will be in place until there is political change. Being a democratic country, the people will grow weary of the austerity, and vote themselves into power a government that promises to reject the EU's demands. Then they will end up in the same place they find themselves today. The only viable choice it to dump the Euro.

Crisis In Cyprus - The Options

After Cypriot lawmakers rejected the ECB bailout, there is much speculation as to what will happen next. The official response from the Eurozone (Eurogroup) is that they have “noted” the rejection. The bank reopening that was to occur on Tuesday, but then delayed until Thursday has now been extended indefinitely. With the closing of banks, the Cyprus Stock Exchange has announced they will close as well.

What are the options for Cyprus?

Get a loan from Russia and stay in the Euro -

Russia has much more vested interest in Cyprus than the EU does. Around 30% of Cyprus bank deposits belong to Russians. This is a sore spot with Euro leaders because they feel that much of any bailout would go directly to Russia. It is also a possible motivation for the deposit tax they demanded.

Russia has no compelling reason to agree to a loan without monumental concessions from Cyprus such as access to their undeveloped offshore gas deposits. Russia has been trying to gain access to these deposits for years, but have been repeatedly thwarted by the EU.

A Cyprus banking collapse would actually be good for Russia as it would shut down a huge tax haven for Russian taxpayers and bring some deposits back to Russia.

Convince the Eurozone leaders to lighten bailout terms -

There are two key elements that might prove to make this option very difficult or impossible. Number one is the feeling among Eurozone finance ministers that the Cyprus banking sector is simply too big, (8 times as big as GDP) and acts as a money laundering enterprise. The ECB is characterizing the Cyprus bailout as a unique, one-time situation that will have no affect on other troubled Euro countries. Cyprus is also a tiny part of the total Eurozone economy, accounting for far less than 1%.

The second reason is more complex; northern Euro countries whose economies are doing well are resistant to further bailouts. The Euro representatives have kept interest rates very low for the benefit of countries like Germany, causing countries like Cyprus and Greece to become more uncompetitive and making economic recovery much more difficult for them.

Exit the Euro and return to the Cyprus Pound

This option would require a deflation of approximately 20-30% along with the significant cost of actually converting the currency and financial instruments. While it would be very difficult in the short term, it would yield several important benefits in the longer term. The country would regain the ability to independently adjust the value of their currency to suit domestic financial conditions instead of being at the mercy of stronger northern EU member states. It would allow them to keep access to the potentially lucrative offshore gas fields. It would give them an opportunity to restructure and further legitimize their banking system

Cyprus exiting the Euro would be bad of course for the Euro’s reputation and might further acerbate the problems in the other weak Euro economies. But behind closed doors, the northern countries may be secretly wishing for a Cypriot exit.

Crisis In Cyprus

As stock market speculation reaches new highs, it is important to realize that the rumblings of global financial collapse are growing in the Eurozone.

The European Central Bank has outlined a €10 billion “bailout” plan for Cyprus.[1]

In what is being called “The Great Bank Robbery”, the plan calls for a one-time theft (tax) of 6.75% on all bank deposits under €100k, as well as a 9.9% “tax” on deposits over that amount.

The 6.75% and 9.9% amounts have been immediately frozen and will not be available for withdrawal when banks reopen on Tuesday. Thursday. Citizens and other depositors of funds in Cyprus banks woke up Saturday morning potentially poorer with no warning.

In a normally functioning economy (or what passes for normal today), when an institution is insolvent, the order of liquidation is;

Shareholders

Preferred shareholders

Debt (Bond) holders

Central Bank creditors

and lastly, Depositors ...in that order.

Deposits of €100k or less are, or were, guaranteed. This guarantee has been abandoned. This abandonment sets a damaging precedent and calls into question all Central Bank guarantees and assurances.

The ECB says €10 billion is needed, but €17.7 billion could be raised from shareholders, bondholders, and Central Bank creditors[2]. This begs the question why does the Central Bank need to steal money from depositors? As investors, shareholders and bondholders are, and should be, exposed to risk. Depositors should not be.

I believe the European Central Bank is doing this as a high-risk test case to judge the peoples reaction and to see how far they can go, how blatantly they can steal from the general populace to protect their rich accomplices.

The risk of course, is a run on banks in other troubled Eurozone countries, specifically Spain, Italy and Portugal. We will be seeing measures in the next few days by the ECB to attempt to stave off these bank runs.

Can it spread to the U.S.? Probably not in the near term. Americans are still lulled into believing that all will be well. In the medium term, the probability that the collapse will ensnare the U.S. as well is 100%.

You have been warned.

---

[1] http://www.imf.org/external/np/sec/pr/2013/pr1380.htm

[2] http://www.imf.org/external/country/CYP/index.htm

Liberty

The word Liberty gets thrown around regularly these days. This is, of course, because Liberty is being destroyed now at a faster pace and more thoroughly than at any time in the history of mankind. Technology has given tyrants of today unprecedented ability to enslave people. But do you even really know what Liberty means? What is the essence of Liberty? It isn’t the ability to vote for “the lesser of 2 evils” every four years. 

“Liberty is the control of one’s actions free from the arbitrary will or coercion of another.”

It is a personal and individual quality, just as individual rights are. It isn’t a collective trait of a group of people. It follows then that Liberty can only be asserted at an individual level. No one can give you Liberty, it is inherent to humankind. It isn’t something created or granted by a declaration or constitution. Every person is born with the desire to assert their will.

No one can “fight” for your Liberty. The common notion that someone else can “fight for our liberty” is simply illogical. Since every person must assert their Liberty for themselves, the only thing another can do for them is protect them from the consequences of that assertion.

.

Unfortunately the responsibility of exercising one’s own freedom has been divorced from the inseparable responsibility of accepting the consequences of that exercise. But the fact remains that no one can take away your Liberty unless you agree to give it up.

Living in a tyrannical condition, it is often “unlawful” to criticize the tyranny. But  freedom is constrained only if the people are compliant. If one person speaks or acts out they will likely suffer grave consequences. This is the true price of freedom. If all the people speak out, the tyrant loses the power to constrain freedom. The true hero’s are the ones who stand up first for Liberty. The more people that stand for freedom, the easier it becomes for the remainder. But with each successive wave of free people, the farther they are removed from the reality of the cost of their freedom.

I believe the founders of the United States implicitly understood this. They pledged their very lives and fortunes on the acts of exercising their Liberty. They didn’t fight for a flag, or a tradition, they fought for “control of  their actions free from the arbitrary will or coercion of another’ – Specifically King George and British bureaucracy. Many of them did indeed lose their lives. Did they purchase or guarantee freedom for you? No, they removed the forces that constrained their freedom in their time. But there are never ending threats to Liberty and it is our responsibility to take action against the enemies of Liberty for our time, at an individual level, regardless of the cost. The longer we wait, the more difficult the struggle will be.