You miss the point by a wide margin. Whether or not this is merely a personal blog, Michael isn’t simply talking about how fat his dog is getting, or some new fashion trend. He is appearing on here as Michael Shermer. He claims that there is only one Michael Shermer. Michael Shermer made his name through the skeptical movement. He professes the principles of skepticism, and requests that others do so as well; or so I believed.

I don’t see why his skepticism should suddenly be weakened, or abandoned for a personal blog? Is he some kind of superhero who is a principled skeptic by day, and a shallow political pundit by night?

The problem isn’t so much the discussion; although I think that such discussions about fringe political movements will almost always divide people, and become unproductive. The problem is the repeating of personal opinions, and rumors as facts, and Michael’s overall glibness.

Of course, we know that this is related to Michael’s adoption of the Libertarian ideology, and he seems determined to use whatever small amount of influence that he has to push it.

Like Penn & Teller, Shermer is starting to cut and paste his belief system from common Libertarian discussions. He’s being entirely unoriginal. For people new to Libertarianism, these might seem like fresh ideas, but to anyone who has spent time discussing them, they’re little more than the standard, Libertarian script.

Again, I have followed Michael Shermer for a long time, but his increasingly sloppy thinking has effectively ruined my interest in him. If this is the best that he can do, then he should do something else. I understand that Shermer isn’t a serious intellectual figure outside of the relatively small skeptical community, but it’s still a sad development to see a once prominent skeptical figure fall for such a weird belief.

I suppose that there are always more books to sell.

In 1979 the Soviet Union invaded Afghanistan. In 1980 the USA elected Ronald Reagan as President. Reagan administration officials noted that Muslim extremists didn’t like the Soviet invasion. As a result, the ‘Reagan Doctrine’ was created – the CIA was ordered to help organize fund recruit and train muslim extremists focused on opposing the Soviet incursion into Afghanistan. This resulted in the unified Muslim extremist movement that eventually was responsible for the attacks against the USA on 9/11.

The USA suffered from the 1973 oil crisis, this the result of Nixon going off the gold standard in 1971

http://www.youtube.com/watch?v=iRzr1QU6K1o

The oil crisis led to the energy crisis of 1979 which led to an economic crisis by 1980. This led Ronald Regan again to promote and pass the Depository Institutions Deregulation and Monetary Control Act of 1980.

This killed the S&Ls in the US, and gave absolute control to the commercial banks. To get an idea of what this means, watch ITS A WONDERFUL LIFE – and recall that George Bailey owned an S&L, and the evil Mr. Potter owned a commercial bank.

This did help, temporarily to end our difficulties by opening up our banking system to foreign investors – but we are paying the price now.

Back at the end of World War Two President Truman and General Eisenhower organized the USA for constant war footing despite the end of the war. Why? To avoid a ‘nuclear Pearl Harbor’. To pay for this permanent military industrial complex, wise guy economists urged that we rebuild the post-war world in a specific way. This structure was thought to help the USA, but they missed a few points. Since the whole thing was done by wise guys in secret, people either don’t know, or don’t talk about it. But here is what’s going on.

http://www.youtube.com/watch?v=qdrGKwkmxAU

The goal is to outspend everyone else on military build up and in that way keep control of the world in the nuclear age and in this way avoid a global thermonuclear war. Got it? So, how to pay for it? By reserving the high value jobs for yourself, and outsourcing all the low value jobs. What’s a high value job? Well, economists in the 1940s noticed that there were three kinds of jobs; low, medium and high value. This arose naturally from the way things worked. Say you had a farmer that made $1 worth of wheat. He sold it to a flour mill that produced $5 worth of flour from it. She sold it to a baker that made $25 worth of puff pastry. Or say you had a miner that dug $1 worth of ore from the ground. He sold it to a smelter that made $5 worth of steel, and then to a fabricator that made $25 worth of cutlery. In short there were three classes of jobs;

low value: Extraction
med value: Manufacturing
high valu: Retail/Banking

Retail function produces real value. People often don’t get this. Illustrate this with a story. Three people live in a valley. One lives in a forest, and makes baseball bats. One near the river and makes baseball gloves. One in a field, and makes baseballs. In a season each makes 3 balls, 3 gloves and 3 bats. Yet none can play ball until they go to a festival in town and trade a ball for a bat a bat for a glove, now each have a ball bat and glove and all can now play ball. What’s the value of playing ball? About 5x what the things themselves cost.

So, the USA was going to be the shopkeeper of the world. Our allies would be our manufacturer, and our friends would supply them with raw material. This would also help us fight Communism and Socialism at home, since low value workers were generally more socialist in their political views while high value workers were not generally. This was considered a plus at the time. But, the main benefit was the US could tax at 4% rate, and our allies would have to tax at 20% to match us dollar for dollar, while our friends would have to tax at 100% to match us dollar for dollar, and our enemies, excluded from this scheme, would have to tax about 30% to match US dollar for dollar.

The system worked, the USSR went bankrupt. But, the USA did also, we just failed to see it.

That’s because we were like a mining town that just shut down its mine. Sure, the miners didn’t make much, compared to the bankers and shop keepers, the bakers and tinkers. But, the mine kept the town alive, and without it, the town’s fortune decline.

The same for the USA.

As the US shifted its manufacturing, farming and other low value jobs overseas, it was shipping dollars overseas and not getting them back. That’s why Nixon had to go off the gold standard. We could play games with money, but it caused commodities to skyrocket. Everything from sugar to oil went up in price. This lead to the oil crisis, and then the energy crisis, which led to the banking crisis.

But Reagan fixed it right?

Well, yes and no.

Reagan did in George Bailey in favor of Mr. Potter because Mr. Potter could package the Bailey home mortgages, car loans, and personal lines of credit in a way that let him sell them to foreigners who were accumulating US greenbacks overseas at an alarming rate!

So, Americans could buy oil from a Saudi Sheik and that Sheik could buy GMAC credit for American cars. Americans could buy Tee-shirts from the Communist Chinese and the Chinese could buy mortgages on US homes. Americans could buy frozen fish sticks from a Chilean food processor, and that food processor could buy commercial credit from Bank of America.

All was right with the world.

Oh, some economists, like Nobelist Wasily Leontief wondered how America could survive. Americans were paid more, worked fewer hours, required more capital, and were less educated than many people who supplied them. How could this be? It could be because the vision of Eisenhower and Truman appeared to be working, once it was fixed by Reagan and Nixon. But, Leontief wondered how long it could last? As long as the USA was a safe haven, free from terror attacks, free from corruption, free from madness, people would continue to invest their wealth in the USA, and US citizens would be beneficiaries.

http://en.wikipedia.org/wiki/Leontief_paradox

In 1980 90% of all deposits and 90% of all stocks were held by US citizens. Americans saved 9% of their income and owed 60% of their income in debt. By 2000 30% of all deposits and 30% of all stocks were held by US citizens. Americans saved -3% of their income and owed 160% of their income in debt.

Then in the 2000 presidential election the purported winner George Bush, son of a previous president, won due to a miscount in a swing state, Florida, whom his brother Jeb, happened to be governor. The flap eventually subsided and the American people accepted the new president. But, foreigners, looked at this a little differently. They thought the election was rigged. The French newspaper LeMonde was very clear in this. This is why the new President hated the French. Money that kept arriving in the USA, started to leave it – as a small minority of foreign investors, began to question the status of the USA as a free and fair country. Markets in Asia China, Brazil and Moscow, benefited greatly from this influx.

In the Spring of 2001 rumors that Enron may be having financial difficulties. Tyco announced also a deal to acquire CIT Group that same spring. The unraveling of these two well respected giants merely added to the concerns some foreigners had regarding the United States – the flight of capital from the USA accelerated.

This began causing difficulties in our banking system.

Alan Greenspan assured us that we could handle these difficulties. Here’s how that worked.

Capital is loaned out and repaid paying interest. Each dollar of capital supports several dollars in loans. So, if the interest rate is 5% and each dollar of capital supports $5 in loans a trillion dollars in debt will cost the economy $50 billion per year and require $200 billion in capital. Lets say our capital base is reduced to $100 billion. We have to borrow $1.1 trillion against the $100 billion to have the same $1.2 trillion total. No worries, if we can arrange to support $11 in loans for each dollar of capital and lower interest rates so we’re paying the same $50 billion we paid before.

This works until we reach a tipping point.

Then, the most highly leveraged, least productive loans would not find the capital they needed to keep the system going.

We were far from a tipping point according to Greenspan.

Then there came the attacks of 9/11. Ignored in the USA was the commentary from OBL about WHY he attacked the WTC. He wanted the world to know that the USA was no longer a safe haven and he attacked the WTC in the hopes that he would bring down America’s economic engine. The man was well informed and well trained. After all, the CIA had recruited and trained him to fight the Soviets.

The world -even the French- initially supported the USA, but the Bush Administration squandered this initial good will in a variety of pugnacious acts and by lying about WMDs in Iraq. In the end we had troops in Afghanistan AND Iraq. We were not greeted as liberators in either place, torture at Abu Al Grahaib, gitmo torture and excesses, collapse of Enron, Tyco, etc., etc., etc… all were viewed by foreign investors as a reason to flee with their investments in the USA – reducing our capital base and our access to capital, while enlarging the capital base of others.

By summer of 2007 the Beijing Stock Exchange exceeded the NASDAQ for the first time in history. After five years of double digit rate growth staid investment funds were finally allowed to invest in far away markets in China, India, Brazil and Moscow just like any other market. As a result, money flew out of the country as US money joined foreign money overseas.

In the fall of 2007, the weak link in the chain broke. The subprime housing market collapsed due to lack of liquidity. Due to rule changes in how loans had to be reported, these loans were instantly toxic and corrupted the balance of our banking system.

Now, this toxicity caused problems. That’s because of recent rule changes related to how loans must be reported.

Why did the rules change at this time?

Well, recall Enron collapsed, declaring bankruptcy in October 2001. They fooled a lot of people by playing tricks with loans and how they accounted for loans. Enron followed the rules, and still figured out how to fool people. This led to Congress meddling with how loans could be reported. Congress changed the way loans had to be reported.

In the process Congress created toxic loans. Something that never existed before. This created new liabilities, which increased the cost of doing business and new liabilities for banks and insurers alie – right at the time we faced the most serious liquidity shortage in our history.

To put this in perspective lets look at the money involved;

subprime cost: $ 0.3 trillion
banking cost: $ 0.9 trillion
transfer cost: $ 8.2 trillion
public debt: $12.8 trillion
Military cost: $14.1 trillion (1960-2010)

I put the military cost in there because that’s what the whole system was set up to pay for. Note, from 1900-1960 total US military expenditures (which includes WWI, WWII, Korea, Cold wars) total $1.0 trillion!

Since the collapse we have pointed fingers at poor people who never commanded enough money to make any difference, and then to speculators, who make money off each other while making markets stable, and bankers, the best of which started following money overseas in 2000 leaving the B-team behind.

Sure there are corrupt bankers corrupt speculators and others, but these are the side shows thrown to the public so they don’t ask difficult questions. Just like corrupt S&L owners were thrown to the press in 1980 to cover up the fact that Reagan had done the S&Ls in in the interests of national security. We see that today even while we pass laws that make it impossible for the USA to compete with China and India Moscow and Brazil to get the money back we lost!

There are ways we can re-establish our ‘safe-haven’ status in the world and again lead the world. This includes;

1) reducing our military expenditure to 1/10th current level
2) solving the energy crisis using US technology
3) create telerobotic factories and operate them in US
4) create unmanned factories and operate them in US.
5) develop ocean floor resources
6) develop off-world resources
7) create global business/insurance platform

Henry Ford created the assembly line and revolutionized work in 1908 by allowing the people who worked at the factories to buy the products the factories make. 2008 saw the 100th anniversary of the assembly line pass without any substantial improvement. People spoke in glowing terms of the umnanned battlefield, but nothing about unmanned factories or farms and what that might mean for the future.

The world is not the same as 1945. Commodities due to environmental concerns and depletion are not low cost. Labor due to robotics is far more highly valued. Meanwhile, retail and banking functions are highly automated and easily replicated at low cost eroding their relative value. This changes the US business model – and forces us to address our concerns about nuclear conflagration a different way. The forces that are threatening us the most are those forces created by the very systems we put in place to secure us. We suffered another Pearl Harbor style attack, not from some unknown enemy, but from an enemy we ourselves created. We had the opportunity to end the madness each time we faced a crisis. Each time we chose wrongly and enlarged the threats facing us, even while it seemed those threats subsided. It is time we looked clearly at our troubles and take fundamental corrective action – by ending our present approach to statecraft, and military control.

The banks knew full well that the loans weren’t going to be honored.

Lemme ask: What happens to the bank if someone defaults on their loan? Oh, so the bank gets the asset back (house) to resell, but doesn’t get paid back the monopoly money (mortgage) used to finance it? They created the checkbook money out of thin air via journal entry. The paper isn’t backed by anything.

Who is in charge of auditing the bank? You mean, nobody does? Really?

Fact is, the banks should have taken the loss for their own doing, NOT the American taxpayer via government help.

It seems quite obvious to me that neither the bank, nor government, nor the press, is representative of we the people. The ONLY way this is going to change is if we the people get VERY organized toward some predetermined goals, one of which I think should be laws for trade that benefit the US citizens, and not international corporations who bleed us dry. Outlaw corporations because really, what benefit do they provide us?

Really, it isn’t so complex. Math is absolute, so too should be the money system, with no room left to interpretation. Simple.

We do not have a free market economy in the USA, and haven’t since before the last depression. If we DID have a free market economy, the market would eventually regulate itself. It doesn’t.

Instead, there exists a privately owned, for profit corporation which is absolutely in charge of how much money gets printed and put into circulation. They have the power to move entire markets one way or another based on how much paper they put into the system thus controlling interest rates, as well as the rate of inflation.

They are the Federal Reserve bank. Not scrutinized by anyone besides their own board of directors.

Congress used to be in charge of printing the money, and were accountable to we the people, so that if they did a poor job, they got voted out.

Accountability is the key. Today, there is none. JFK was killed for the same reason as Lincoln, they wanted to change the money system. One bullet kept TRILLIONS of dollars in the coffers of the international bankers who have no allegiance to anyone save themselves, least of which- we the people…

There was only one candidate in the primaries who even dared to speak about this, Ron Paul. He was summarily squashed in the “free” press… Another joke. He was in third place in the Pennsylvania primary yet in the news you wouldn’t even know he was running.

Fractional reserve lending is what it comes down to. It is what the bank does with your “deposit”. Another interesting scam the banks have is credit cards.

You “apply” for a credit card, and sign your name on an “application”. Only thing is, once you do that-you turn an “application” into a promissory note, which has value.

Without getting into the details, for all of you who have “credit card debt”, just ask the creditor to provide proof of a loan. Also known as consideration. They will not be able to. They cannot because no proof of consideration exists. That is when they will turn around and offer you a settlement of the illegitimate “debt” they claim you owe. Their goal isn’t accountability, it is speed. If they had a legitimate claim, wouldn’t they fight tooth and nail for the entire amount? NO, they would rather be done with you sooner so that they can reinvest your money that much quicker, even if it isn’t the “full amount”…
I don’t want to hear another pundit talk about the market, until there is actual transparency of it. We need to not only eliminate the Fed, but also find and deal with those who help keep it going. Treason is the crime and it is punishable by death. One day hopefully, the international bankers can find out the will and resolve of we the people on their way to being hanged. Long live freedom, and God Bless these United States!!!

A flat measure of spending on financial regulation is meaningless on its own. If the financial sector has grown larger, we can have less regulations and still spend more on regulating.

A casual search finds that from 1995 to 2007, derivatives held commercially in the US increased 17-fold, to $170 trillion.

As for a ratio of GDP… spending on regulation increased by 35% as a measure of GDP from 1980 to 2007? The financial sector as a proportion of GDP increased from 23% to 31%- an increase of 35% as well!

Only that was from *1990* to *2006*! And no, it didn’t shrink in the 80′s- that was the start of the boom.

I’m not committed enough to a blog comment to do more research, but given the boom in finances and debt began in 1980- which “just happens” to be where Shermer has taken his figures from- it is unlikely that spending on regulation in this period increased substantially above the increase in size of the regulated sectors turnover. Its ratio to the sectors held assets certainly fell by a long way.

It is very unfortunate to see a skeptic using such misleading statistics. It is not something that belongs on this blog.

All the above is made with the caveat that it accepts not only the figures Shermer gives, but that spending by government results in actual regulatory action. It seems strange to me that libertarians will ordinarily declare government spending wastefull and ineffective, but have not questioned that this money all efficently enforced damaging regulation. Wheres the possibility of waste and inefficency where it wouldn’t help your argument?