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The Daily Reckoning | Friday, December 2, 2011 Nowhere is safe: The attack on personal freedom continues... A way to take advantage of the Fed’s spendthrift ways... Plus, Bill Bonner on the rich, the poor and why people are losing faith in Capitalism... ------------------------------------------------------- External Advertisement If You Thought the Oil Sands was Big News... Get ready, because this could be bigger — much bigger. Like the tar sands, it’s also in Alberta...but doesn’t have anything to do with oil. Yet it could make you 744xs your money. Find out more right here.   Misunderstanding Capitalism Why People are Coming to Believe that “Capitalism As We Know it Doesn’t Work”   Bill Bonner Reckoning today from Baltimore, Maryland... As expected, the euphoria died overnight. On Wednesday, the Dow was up nearly 500 points. Thursday, it fell 23 points. More and more people are coming to the same conclusion. The bull market is a fraud. And the system is corrupt. And they’re right. But not for the reasons they think. Here is Number One on the “Capitalism as we know it doesn’t work” hit parade. From Forbes: Top 0.1% of the Nation Earn Half of All Capital Gains The top 0.1% — about 315,000 individuals out of 315 million — are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400. It’s crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs. The reduction in the tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth. It had first been reduced from 35% in 1978 at a time of stock market and economic stagnation to 28%. Again 1981, at the start of the Reagan era, it was reduced again to 20% — raised back to 28% in 1987, on the eve of the October 19th — 23% crash in the market. In 1997 Clinton agreed to reduce it back to 20%, which move was an inducement for the explosion of hedge funds and private equity firms — the most “rapidly rising cohort within the top 1 per cent.” Make no mistake; the battle that is to be fought over the coming attempt to reverse this reduction in capital gains will be bloody and intense. ..the super wealthy plutocrats obtained the largest share of national income — 25% of the nation’s wealth — greater than any other industrial nation in the period of 1979 to 2005. Pretty soon some enterprising journalist will publish the names and addresses of these super-rich people. Then, lynch mobs will form out in front of their houses. Not that there is anything wrong with getting rich. And nothing wrong with a 15% capital gains rate. In fact, we rather like it that way. But people are looking for someone to blame for their troubles. And they’re not likely to identify the real culprits. That would take too much time and thought. So they point the finger at the “rich”... They’re right, of course. The system is corrupt and degenerate. But it’s not because of the 1% or the 0.1%... Nor is it because the feds passed deregulation legislation. Nor because tax rates are low. Nor because corporate CEOs are greedy. Nor because capitalism isn’t up to the challenge. But even The Wall Street Journal misses the point. Here’s Number Two on the “Capitalism as we know it doesn’t work” hit parade, an article that explains why China’s economic model is superior to America’s supposedly free market system. For those who lack the time or sense of humor to read the whole thing, we’ll summarize. In short, the article basically argues for a “modified” market economy, as opposed to the “free market” model, under which the author mistakenly supposes America to have been laboring. It cites Orville Schell, who directs the Center on US- China Relations at the Asia Society, who was last month quoted in China Daily as saying: “I think we have come to realize the ability to plan is exactly what is missing in America.” Right! Just what America needs... More central planning. More bureaucrats. More zombies! One big disappointment during the crisis of ’08-’09 was that you could stand on the corner of Broad and Wall without risking getting crushed by a falling body. There were scarcely any suicides. Few people were disgraced. Even fewer did themselves in. This can partly be explained by the lack of double-hung windows in lower Manhattan. Fixed glass forces suicidal people off the window ledges and into tawdry bathrooms where they have to slit their wrists ignominiously. The other explanation is even simpler: the fix was in. As we keep pointing out, if capitalism had been allowed to do its stuff during the crisis of ’08 and ’09 we wouldn’t be having this conversation. The Dow would probably already be at about 6,000...and the rich would have lost about $10 trillion in bankruptcies, defaults, sell-offs and write-downs. We wouldn’t have the Bank of America or Goldman Sachs to kick around — they probably would have gone out of business. That’s what crises are for...to separate fools — especially rich fools — from their money. The rich lose much more money than the poor...because they have so much more to lose. Remember our zombie theory. Everybody wants wealth, power and status. (The rich are just better at it.) They want to get it in the easiest possible way. And the easiest way is to take it away from someone else. That’s what government does. It allows the rich to get rich...supporting their stocks and real estate holdings with artificially low rates and expandable paper money. Then, when the rich go too far, it bails them out with even lower rates and even more ersatz paper money. The rich get their dividends; the politicians get their sinecures and campaign contributions; the middle classes lose their jobs, their houses, and their standards of living. The masses never even try to figure this out. They only know that the game is rigged against them...and they get angry. In anticipation, the government prepares to deal with its revolutionaries just as it deals with “insurgents” in Afghanistan or Iraq. The military, you will remember, is not learning how to win real wars. It learning how to hold down ‘terrorists.’ Today, the terrorists are in the Middle East. Soon they will be in the Midwest. Here’s the Business Insider: The new National Defense Authorization Act is ridiculously scary ... Fellow entrepreneurs, Americans, anyone who still cares about this country at all — this is a must read: By the end of this week, the US government very likely will have the power to lock up US citizens for life at Guantanamo Bay or other military prisons — without charge and without trial. This means that, in the near future, a controversial Twitter post, attending a peaceful protest, or publishing an anti-Congress critique or anti-TSA rant on Google+ could land you “indefinite detention” for life, in the wording of the bill. No access to a lawyer, no access to trial. Yes, dear reader, corruption leads to discontent. Discontent leads to rebellion. Rebellion leads to repression.   Get Rich as Europe Collapses? It sounds weird, but did you know a Euro-collapse could be a GOOD thing for your retirement? It’s true! A little known strategy that could have literally saved your retirement in the middle of the 2008 market meltdown is set to soar again according to one market analyst. But you must act before January 2012, or you risk missing out on this opportunity... Click here to learn more. The Daily Reckoning Presents SBM — Sweet Disposition — Seeks Loving Home   Gary Gibson We’ve spent the last few months in search of a corner of the country to call home. A place that has it all, as far as our particular idiom was concerned... Someplace urban enough...but not too urban...someplace pleasant and full of nice architecture...preferably, someplace we would only need a car every great once in a while... We have repeatedly expressed our commitment to finding our personal Shangri-La within the borders of the United States. But just before Thanksgiving, we found ourselves wondering if it didn’t make sense to get ourselves — and our gold and silver — out of Dodge while the getting was still good — and possible! We sent our concerns to fellow Agora Financial managing editor, Joel Bowman, of The Daily Reckoning. Joel is from Australia, but has hopped the globe a bit and is currently making his home in the continent below our own. “Go where you’re treated best,” he counseled. “And when that changes,” he continued, “go somewhere else.” We took a look around and figured that we’re still being treated pretty well here...despite ominous developments... But a few days ago, Joel sent us an article that reminded us that nowhere in the world is truly safe from the wild, desperate grasps of our dying empire. From Infowars: The Senate is set to vote on a bill today that would define the whole of the United States as a ‘battlefield’ and allow the US Military to arrest American citizens in their own backyard without charge or trial. “The Senate is going to vote on whether Congress will give this president — and every future president — the power to order the military to pick up and imprison without charge or trial civilians anywhere in the world. The power is so broad that even US citizens could be swept up by the military, and the military could be used far from any battlefield, even within the United States itself,” writes Chris Anders of the ACLU Washington Legislative Office. Under the ‘worldwide indefinite detention without charge or trial’ provision of S.1867, the National Defense Authorization Act bill, which is set to be up for a vote on the Senate floor this week, the legislation will ‘basically, say in law, for the first time, that the homeland is part of the battlefield,’ said Sen. Lindsey Graham (R-S.C.), who supports the bill. The bill was drafted in secret by Senators Carl Levin (D-Mich.) and John McCain (R-Ariz.) before being passed in a closed-door committee meeting without any kind of hearing. The language appears in sections 1031 and 1032 of the NDAA bill. “I would also point out that these provisions raise serious questions as to who we are as a society and what our Constitution seeks to protect,” Colorado Sen. Mark Udall said in a speech last week. ‘One section of these provisions, section 1031, would be interpreted as allowing the military to capture and indefinitely detain American citizens on US soil. Section 1031, essentially, repeals the Posse Comitatus Act of 1878 by authorizing the US military to perform law enforcement functions on American soil. That alone should alarm my colleagues on both sides of the aisle, but there are other problems with these provisions that must be resolved.’ This means Americans could be declared domestic terrorists and thrown in a military brig with no recourse whatsoever. Given that the Department of Homeland Security has characterized behavior such as buying gold, owning guns, using a watch or binoculars, donating to charity, using the telephone or email to find information, using cash and all manner of mundane behaviors as potential indicators of domestic terrorism, such a provision would be wide open to abuse. “American citizens and people picked up on American or Canadian or British streets being sent to military prisons indefinitely, without even being charged with a crime. Really? Does anyone think this is a good idea? And why now?” asks Anders. The ACLU is urging citizens to call their senators and demand that the Udall Amendment be added to the bill, a change that would at least act as a check to prevent Americans being snatched off the streets without some form of congressional oversight. We have been warning for over a decade that Americans would become the target of laws supposedly aimed at terrorists and enemy combatants. Alex Jones personally documented how US troops were being trained to arrest US citizens, in the event of martial law, during urban warfare training drills back in the ’90s. Under the National Defense Authorization Act bill, no declaration of martial law would be necessary, since Americans would now be subject to the same treatment as suspected insurgents in places like Afghanistan and Iraq. If you thought that the executive assassination of American citizens abroad was bad enough, now similar powers will be extended to the ‘homeland,’ in other words, your town, your community, your backyard. Yet it’s not as easy as leaving the borders of the United States. The empire, in its hubris, believes the entire world lies within its jurisdiction. The American president recently assassinated an American citizen, whose words supposedly constituted a threat to the United States... How long will it be before dollar-ditching expatriates are declared “deserters,” “traitors”...whose very actions undermine the United States...and who must be dealt with as examples? If this doesn’t make you want to run for the hills, we don’t know what will. But if you hope to make it to the hills, walk; don’t run. By running, you may appear to be a domestic terrorist, deserving incarceration. Regards, Gary Gibson, for The Daily Reckoning P.S. We first brought this particularly troubling piece of legislation to the attention of our readers earlier this week...before the Senate, in a rare display of bipartisanism, had voted it into law (93-7). Since then, a handful of concerned individuals have written in, asking for some clarification on the statutory language. Specifically they wanted to know about the wording of sections 1031 and 1032, buried deep in the bill itself. “Section 1032 (b) appears to expressly prohibit such action with respect to a US citizen or a lawful resident alien,” wrote one reader, wondering carefully whether there existed legitimate cause for alarm. An article we saw in Friday’s Associated Press goes some way to clarifying the wonky legalese: “The bill would require military custody of a suspect deemed to be a member of al-Qaida or its affiliates and involved in plotting or committing attacks on the United States. American citizens would be exempt. The bill does allow the executive branch to waive the authority based on national security and hold a suspect in civilian custody. But! (Underscore and emphasis ours)... “The legislation also would deny suspected terrorists, even US citizens seized within the nation’s borders, the right to trial and subject them to indefinite detention. Senate Intelligence Committee Chairman Dianne Feinstein, D-Calif., had sought an exception to the provision for US citizens, but her effort failed, 55-45. The whole farce might be amusing, if it weren’t so darned tragic. A spree killing mass murderer is afforded Miranda rights and due process. But a citizen even “suspected” of terrorism? Eh...not so much. These bills, this voting, these procedures increasingly exist as mere formalities. The trend is dangerous, yes...but it is far from new. The “Idea of America” has been on the defensive since an iron- fisted tyrant first reminded the American people that they were not masters of their own destiny, that the state would be always be there to guide and mould them. How did this come to pass? And how was the “Idea of America” lost? The very subject is examined at length in a collection of masterful essays, edited by Bill Bonner and Pierre Lemieux. Check it out here.   Could This Create More Millionaires Than the Bakken Oil Reserve Has? ONE little-known, revolutionary oil recovery technique is taking the American oil industry by storm. It could produce up to 4 TIMES MORE OIL than North Dakota’s huge Bakken reserve will. And potentially mint riches for savvy wealth-builders. Click here now for the inside scoop on this unique energy phenomenon.   And now over to Jim Nelson, Agora Financial’s in-house income expert, who sent us this intriguing note just this morning... Taking Advantage of the Fed’s All-You-Can-Spend Buffet   Jim Nelson The big discussion this week — and the reason we’ve seen such a stellar week for stocks — was the decisions of the world’s Central Banks to give free money to Europe. And why not? They’ve been giving free money to US banks for the past few years. And just look how well that’s been working out! Clearly these wise monetary sages know precisely what they’re doing. But while there’s little doubt the politically-well connected stand to make out like bandits (again), the real concern here is how their reckless moves will impact the little guy...the individual investor. Put simply, it won’t be pretty. The average saver is already getting crushed. The old saying, “A penny saved is a penny earned,” has gone right out the window. “A penny saved is a penny wasted,” has become the lamentable, modern variation. It doesn’t take a mathematician to realize that rising prices — in everything from groceries to gasoline — are destroying hard-earned savings these days. Right now, the typical 5-year bank CD pays 1.2%. The average savings account, less than 1%. Even the stock market, with all the volatility and myriad risks therein, disappoints on the income side. The S&P 500, for example, pays just 2% in dividends. As you can see, it takes a truly unique approach to get anything reasonable. More on that in a minute. Back to the central banks’ all-you-can-spend money buffet... Just about everyone that has done the “right” thing over the past several decades and saved what they could is taking an enormous hit because of these central banks’ actions... and not just the most recent move. In 2008, when the world was burning, they all slashed their target rates to practically nothing. When that didn’t work, they started taking bad bets off bad investors’ (banks) plates. When that didn’t work, they announced a plan to force the backend of the yield curve down. You remember “Operation Twist.” Now, well, let’s just give it to Europe...they sure could use it. We’ll just print more. Not once has the thought of 70-plus million baby boomers hitting the retirement age, the flat lining of Social Security benefits through canceled COLA increases or the disappearance of billions of dollars’ worth of home equity throughout the country, crossed any central banker’s mind. Without this equity in homes, without savings rates high enough to keep pace with retirees’ costs and without an entitlement program that could actually keep retirees from falling under the poverty line, where are these 70 million or so people going to go when they reach the end of their work life? Well, probably back to work, which isn’t such an easy task these days. I’ve been compiling ways to deal with this myself because you sure can’t leave it to anyone making global monetary policies. What I discovered, however, was way bigger than I ever expected. And right now, precisely because of these poor decisions, the individual investor has an incredible opportunity to get into an often- misunderstood type of investment called “Income Safe IOUs”. I’ll explain what that means in just a moment. But first, just take a look at this chart: What you’re looking at is a chart comparing the difference in yields between the average Income Safe IOU and a US Treasury note. Buying a government bond will net you practically nothing. But these IOUs still pay significant income — and the difference is still growing. With inflation running around 3.5% per year, the bare minimum your investments need to yield is 3.5%. But even with that, which is a tall order from the average dividend payer, you’re not actually making any money. You’re just protecting the buying power of the money you’ve already made. So when you think about it, you would need a near double-digit rate of return just to make a few bucks. The 2% Treasury note yield just won’t cut it. But a 10% Income Safe IOU would. Ok, no more messing around. I’ll let you in on what these are, how you can use them to avoid stocks altogether, skirt fed policy — or even turn it to your advantage — and easily triple or quadruple your annual income. Here, I’ll turn it over to a coworker of mine. He’ll give you all the details. Click here for his presentation... Sincerely, Jim Nelson for The Daily Reckoning ------------------------------------------------------- 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 Corruption Continues... Anticipating a Correction in the Global Monetary System The Staying Power of Debt Rate Cut Week Next Week? The Risk-On Rally Continues Central Banks Pump Dollar Liquidity into the Markets The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor Additional articles and commentary from The Daily Reckoning on: Twitter Facebook DR iPhone APP To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription. If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning. © 2010-2011 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. 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