With America on the verge of achieving energy independence in the next five years by dramatically expanding domestic energy production, why should anyone be surprised that it’s Big Oil money that’s out to kill the Keystone XL Pipeline to prevent competition.

Most Americans were stunned when the U.S. State Department on January 18th denied the Keystone XL building permit to construct a 1,661 mile pipeline through Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas in an election year. The media blamed the rejection on opposition from environmental activists, such as Robert Redford, who commented: “Canada wanted to send the dirtiest oil on the planet through the heart of America so that they could access export routes.” But polls demonstrated the promise of 6,000 unionized construction jobs and lower energy costs fostered 67% support to build the pipeline and only 25% against.

For the last three years, the mantra of the Obama Administration, the United Nations and the Agenda 21 “sustainability” crowd had been the coming of “Peak Oil”, the point in time when the maximum rate of global petroleum extraction would be reached, then the rate of production would terminally decline and the prices would rise exponentially. This justified more money worldwide for the first time being invested in alternatives versus traditional energy sources to generate electricity. Projects for wind, sun, water and biomass captured $187 billion, while only $157 billion went into coal, oil and gas. Unfortunately for “sustainable” investors, this was before the realization that “fracking” and other new technology was drastically increasing U.S domestic energy production, causing the price of gas to be cut in half. Based on the U.S. Energy Information Administration data,; wind now costs 50% more, photovoltaic 300% more and solar almost 500% more in comparison to burning natural gas to generate electricity.

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Just over a week ago in an article I published here in Big Government: “New California Budget Crisis May Torpedo November Tax Increase Initiative.” The article illuminated how State Controller John Chaing had shocked California’s spendthrift politicians by announcing the State would be out of cash beginning March 8th and would miss up to $5.4 billion in vendor payments through May 1st. The timing of the Chaing announcement was disastrous for state politicians; because it destroyed any hope that Governor Jerry Brown’s $6 billion tax increase initiative on the ballot in November would pass.

Now it appears that Brown successfully lobbied for California to get $6 billion in cash and siphon off a total of $18 billion from the $25 billion mortgage settlement with the five largest U.S. banks, who were accused of fraud in the handling of foreclosures and loan modifications. But as Franklin Center Fellow, Steven Greenhut asks in a deliciously sarcastic article: “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?” Greenhut highlights that the mortgage settlement money is really just another accounting entry, because the real source of cash to fund the “Left Coast” is “implicitly via Federal Reserve/Government coffers.”

Most Americans still snarl about crony capitalism when they think of multinational banks taking $1 trillion slurp of taxpayer’s hard earned cash and then paying themselves record bonuses, while hiking fees and cutting off borrowers. But with the United States President and Congress solemnly telling Americans healthy banks were key to our future, most Americans gritted their teeth and came together to bail-out of banks, insurance companies, and other financial firms.

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This year marks the twenty-fifth anniversary of the United Nation’s Brundtland Report, which defined Sustainable Development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” But aristocratic socialists have corrupted the sustainable development movement into a vehicle to achieve vast administrative power for themselves. Nations that adopt Sustainable Development are doomed to fail at meeting the needs of the present generation and through debt accumulation from deficit spending will consign future generations to a life as debt slaves.

Through the early 1980s, socialist Latin American economies powered growth by quadrupling their indebtedness from $75 billion to $315 billion. With aristocrats controlling government, while the poor had no voice in these loan matters, nor did they benefit from them as most of the loan proceeds were siphoned off to benefit the aristocrats and their crony amigos.

When Ronald Reagan was elected President in 1980, the U.S. economy had suffered a decade of stagflation, turning our Midwest manufacturing base into the Rust Belt. Reagan was determined to regain international economic dominance by reasserting our Founding Father’s demand for limited government and maximum personal liberty. Reagan viscerally believed what John Adams wrote:

“ the moment the idea is admitted into society, that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence”

Reagan’s relentless focus overcame the bi-partisan drumbeat to continue the socialist expansion of the money supply to promote growth. He then leveraged monetary restraint with the largest income tax cut in American history to power the American economy to sustained growth with low inflation.

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State Controller John shocked California legislators this week when he sent a letter announcing that the State will run out of cash on March 8th without the legislature agreeing to allow the State Treasurer to delay $2.4 billion in payments to universities, counties and Medi-Cal, plus borrowing another $3.3 billion from Wall Street bankers.

The Controller’s announcement comes just two weeks after California Gov. Jerry Brown gave his State of the State speech to the Legislature, then immediately hit the road in a two-day campaign swing through Southern California to tout his November ballot initiative to raise taxes on all Californians. At a stop with 50 of Orange County’s top business leaders and CEOs, the Governor outlined how he was already making severe budget cuts, reorganizing state government, and implementing a 12-point pension reform plan.

Brown said he offered these actions as credibility before asking business to support his November tax initiative. The Governor added that he welcomed California’s future population growth and assured his audience that the State’s future is bright. Brown reiterated his support for the nation’s first high-speed rail system and for expeditious completion of the environmental review on a proposed project to fix the state’s water delivery system that has devastated Central California farmers.

California lawmakers had been assured by the Brown Administration’s Department of Finance that the State had sufficient cash reserves through the end of the State’s June 30th fiscal year. But Controller Chaing warned that for the first six months of the fiscal year state tax revenues came in at $2.6 billion below budget and spending came in at $2.6 billion over budget.

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Four months ago, when I published the article “Nature Journal Discredits Global Warming” at Big Government stating that the Nature Journal of Science, ranked as the world’s most cited scientific periodical, had published the “definitive study” rebuking Anthropogenic (man-made) Global Warming, the internet exploded. The article generated 286 Big Government comments, 2642 Facebook recommendations, and Google currently lists 5,230,000 search results.

Conservatives gushed with praise. But liberals, including the New York Times, threated to ruin me as a fraud for doubting the “proven science of man-made global warming”. Now, temperature data from 30,000 world-wide measuring stations analyzed by the United Kingdom’s Meteorological Office and the University of East Anglia Climatic Research Unit confirm that the rising temperature trend in world temperatures ended in 1997 and the world may be facing a mini-ice-age.

Leading climate scientists told The Daily Mail of London over the week-end that after emitting unusually high levels of energy throughout the 20th Century, the sun is now heading towards a ‘grand minimum’ in its output, threatening cold summers, bitter winters and a shortening of the season available for growing food. Analysis by experts at NASA and the University of Arizona – derived from magnetic-field measurements 120,000 miles beneath the sun’s surface – suggest that Solar output goes through 11-year cycles, with high numbers of sunspots seen at their peak. These sun spots are generated from a massive circulating current of fire (hot plasma) within the Sun, referred to as the Great Conveyor Belt. It has two branches, north and south, each taking about 40 years to perform one complete circuit.

Researchers believe the turning of the belt controls the sunspot cycle, and that’s why the slowdown is important to climate predictions.

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Public officials are scrambling in the wake of the Supreme Court’s decision in California Redevelopment Agency vs. Matosantos to react to their loss of tax-increment financed redevelopment, which served as their piggy-bank under the Community Redevelopment Law for the past 65 years. The California State Legislature and their crony capitalist allies will desperately try to resurrect new tax and economic incentives to reclaim their ability to interfere in the California real estate markets. But barring any last-minute emergency legislation, many redevelopment agencies will go into financial distress and be forced to hammer-sale huge amounts of depressed California real estate to avoid default.

Redevelopment agencies incurred debt to finance “improvements” to properties held by private developers. The primary source of redevelopment district financing has been tax-allocation bonds that pledged the property tax increment increases in assessed valuation to the redevelopment districts as the sole source of payment for tax-free municipal bonds financing unsecured advances from local cities and counties as start-up capital.

Given the speculative nature of real estate development, prospectus for redevelopment bonds were loaded with risk factors; including decline in the value of real estate, failure of the project to generate increased tax increment, and changes in California state law. Given that local cities and counties generally dominate and control the redevelopment districts, local politicians also appear to substantial liability regarding the activities of the districts. Unfortunately, all three risk factors identified in the prospectus have now occurred.

According to Seth Merewitz, Municipal & Redevelopment Law partner at Best Best & Krieger:

“If redevelopment is not reinstated in some fashion by the legislature, then the successor agencies will be charged with meeting enforceable obligations entered into by the redevelopment agency as well as performing many other wind down functions. Moreover, the successor agencies will begin the process of selling off all of the commercial, industrial, residential and even vacant land assets currently held by redevelopment agencies across California. This inventory of property for sale throughout the state will present vast opportunities for investors to pick up real estate assets and trigger future economic development or add more real estate inventory to a flooded and depressed market.”

Many redevelopment districts now fantasize they can enter into Public-Private Partnerships to maintain their unfinished projects.

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In the face of strong national consumer spending and private sector employment gains, State Controller John Chiang released California’s December financial statement showing the General Fund is running a staggering cash deficit of $21 billion on an $88.5 billion budget. This imploding financial condition is a reflection of how California’s high businesses taxes and excessive regulations are accelerating the trend of businesses abandoning the state. According to Chiang:

“While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections. Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.”

The above are “code words” that the state is financially dysfunctional and getting worse. The December report shows that compared to last year, California revenue, at $39.4 billion, is down by 11.2% due mostly to a 26.4% nose-dive in sales tax collection, and state spending of $52.3 billion is currently running 33% higher than the state’s revenue.

The Controller does not seem impressed that Governor Brown and the California State Legislature’s only solution to fix this budget mess is to relying on voters’ willingness to approve an initiative to raise the already hefty sales tax they pay by 13% and add another surtax on the wealthy to generate $6.9 billion in revenue. Even if the public shocks pollsters and actually passes the tax increase, the non-partisan Legislative Analyst’s Office (LAO) calculated the initiative would only generate $4.8 billion per year. (more…)

Presidential Candidate Ron Paul’s growing libertarian movement within the Republican Party is causing a high degree of angst among American liberals, who historically deflected any criticism of their crony capitalism by attacking Republicans as sycophants for the “American empire and big finance.” But with Ron Paul’s decades of authentic opposition of the “Military Industrial Complex” and the Federal Reserve, the left is being challenged as their vitriolic moralizing is boomeranging back at themselves and their Democrat allies.

An article: “Why Ron Paul Challenges Liberals”, by Mat Stoller of the Roosevelt Institute and former Policy Advisor to Democrat Congressman Alan Grayson, describes Ron Paul as:

“dedicated first and foremost, to his political principles, and his work with his grassroots base reflects that. Politics and procedure simply didn’t matter to him.”

Stoller confesses that liberals treasure the Federal Reserve as a power-tool of big government they wield to advance their social and military agenda. He concedes Paul and his staff have been effective by working with “vigor and principle” to force greater transparency regarding the Fed’s central banking practices and is disturbed that as Paul’s libertarian movement grows the power of the Fed to advance the liberal agenda will be diminished.

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China is suffering a brutal economic “hard landing” as the pay-back for their massive Keynesian stimulus spending to revive economy growth after the 2008 credit crisis. China’s stimulus bought two years of economic boom, but the cost of this instant gratification was unleashing venomous run-away inflation that forced the central government to hammer the economy this year. Touted by most Wall Street analysts as the world’s engine of growth, we now learn that regional Chinese governments are so cash-strapped they are refusing to make interest and principal payments on their bond debt. Given the state integration of banks and the economy, if Chinese local governments are unable to pay their debts, who will bail-out China’s economy?

China Daily reported this morning: “China’s biggest provincial borrowers are deferring payment on loans just two months after the country’s regulator said some local government companies would be allowed to do so.” After the economy shrank by 8% during the 2008 worldwide credit crunch; Chinese authorities responded with epic spending of borrowed money. Adjusted for the differences in size of economies, the China stimulus was twice the size and happened in half the time for the U.S. stimulus programs. But now that the world’s economies have again stalled and the European sovereign debt crisis is about to spark a deflationary spiral, the cash-flow of China heavily indebted provincial governments has evaporated.

China’s Zhou Mubing, Vice-Chairman of the China Banking Regulatory Commission, announced in October the first Chinese national audit determined local governments had $1.7 trillion dollars in debt. Given China has 1/3 of the GDP as the United States, Chinese provincial government debt is twice the debt load of U.S. state and local governments. More than half this debt was issued in the last three years and Chinese state-owned-banks hold 79% of the debt.

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Europe’s Left elites championed the introduction of the euro to “increase political cohesion” by building on the “cultural, religious and humanist inheritance of Europe”. But according to Evans-Ambrose Pritchard of the London Telegraph, as a result of that cohesion “almost 97 percent of the European Union’s population is now governed by conservative or Right-leaning coalitions or EU-imposed mandarins:

“The whole machinery of the European Union (EU) system is under the control of the Right, with variants of Rhenish corporatism in the Council, and pre-modern Hayekians at the European Central Bank (ECB). Whether you regard this Hegelian ascendancy as good or bad, it certainly has profound consequences.

For just as former Prime Minister Margaret Thatcher protested at Bruges that “we have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level”, the Left might equally protest that they have not fought the long, hard struggle for worker rights in their own democracies to see social welfare rolled back by Brussels and Frankfurt.”

Pritchard offers numerous examples of the ascendency of conservative Europe. The most dramatic change is taking place in Italy, where the European Central Bank (ECB) forced the resignation of elected Prime Minister Silvio Berlusconi and his replacement with the ECB’s hand-picked technocrat, Mario Monti. Embattled by credit downgrades on Europe’s second most indebted nation and the doubling of interest rates; the Italian public has turned to the conservatives out of fears Italy might be the next nation to fall into Greek style chaos. This morning 85% of the Italian Parliament approved a $39 billion austerity budget that cut pensions, increased primary residence taxes, and cracked down on tax evaders. “We had to act in a hurry,” Labor and Welfare Minister Elsa Fornero told state-run television regarding Italian public finances. “We have been called to the sick-bed of a very ill man.”

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The European Sovereign Debt Crisis that morphed into the European Banking Crisis is about to morph into a powerful worldwide deflationary spiral. The bankruptcy of MF Global, a former primary dealer for the U.S. Federal Reserve, has propelled a growing electronic bank run as many depositors have lost faith in the liquidity and solvency of many of their financial institutions. The banks, brokers and other lenders are responding by firing bankers to slash costs, selling off assets, and curtailing lending. As borrowing becomes more difficult large companies and virtually unavailable for smaller firms; production will fall and unemployment will rise.

On February 2, 2011 MF Global was accepted as one of the 21 “primary dealers” for the U.S. Federal Reserve Bank on the strength of the economic and political clout of Jon Corzine, former CEO of Goldman Sachs and Governor of New Jersey. Primary dealer is a formal title for the world’s most elite financial institutions that are allowed to act as direct market-makers with the U.S. Federal Reserve System (“the Fed”). The stellar credibility of this designation gave the firm inside access about funding requirements for the U.S. budget deficit and implementation of Fed monetary policy. Primary dealers legally use this information to distribute debt of the U.S. at home and around the world.

Less than eight months later on October 30, 2011, MF Global announced a “material shortfall” in client funds. The next day regulators froze assets and the company filed the 8th largest bankruptcy in U.S. history with $1.2 billion of missing customer funds. What creditors are now learning is the “hypothication agreements” banks routinely require their customers to sign, allow banks to re-hypothecate customer funds to invest repurchase agreements (repos).

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With the rise of Ron Paul in the Presidential Primary polls; America may be ready to crush crony capitalists by embracing “libertarianism.” As the founding philosophy that once unified our nation; today libertarianism represents the true existential threat to the crony capitalism that has flourished for decades in both established political parties. But with both political parties in decay and independents positioned to determine the outcome of next year’s Presidential and Congressional elections; voters seem ready to embrace a political philosophy that puts strict limits on all government activity in order to maximize individual liberty and economic freedom.

Libertarianism is defined as “any political position that advocates a radical redistribution of power from the coercive state to voluntary associations of free individuals.” To the political party establishments who fund their existence on the ability to attain this power and rent it back to their crony capitalist fellow travelers; libertarianism was dismissed as a “popular, dogmatic political cult in the vein of Marxism-Leninism.” The political elites have been comforted that “libertarians would never get hold of true power – for unlike their Marxist-Leninist brethren, they are a political cult without a broad base of support; they have no proletariat and no peasantry!” But in the age of social networking’s viral formation of voluntary associations at virtually no cost; libertarianism has found its broad base of support that can competes favorably versus paid advertising that drives the “peasant” support of the established parties.

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A study issued by the Public Policy Institute of California (PPIC), a non-partisan think-tank, just confirmed that during the 2009-2010 recessions, every income bracket in California lost income faster than the rest of the United States. But even more disturbing, all but the top 25% of earners now make less than equivalent income classes in other states. Once known as a job magnet for its sunny climate, world-class universities, and burgeoning high-tech opportunities, California has been transformed into a toxic anti-business state that works hard at drive businesses away.

From 2007 when the recession began through its end in 2009, family incomes across all income classes dropped by over 5%. But instead of going back up during the recovery, they continued to plummet by another 6% in 2010. The declines weren’t spread evenly across the income classes. Families with incomes in the top 10% saw their family incomes decline 5%, but the bottom 10% of California’s poorest families saw their incomes plummet by 21%.

In surveys, business executives regularly call California one of the country’s most toxic business environments and one of the least likely places to open or expand a new company. Many firms still headquartered in California consciously refuse to expand their workforce. Brutalized by the bursting of the housing bubble and currently suffering an unemployment rate of 11.7%, 3% above the national average, California family incomes continue to rapidly lose ground.

Already boasting the lowest credit rating of any state in the nation, State Controller John Chiang just released his monthly financial report covering California’s cash balance, receipts and disbursements for November that demonstrates the state’s grim economic circumstances: (more…)

Harbinger Capital Partners LLC hedge fund just acknowledged its highly political founder Phillip Falcone and other key executives have received “Wells Notices”. Such communications are normally sent by the Securities & Exchange Commission to a target for fraud just before the Justice Department launches a civil and or criminal case. Although the Wells Notice appears to relate to allegations that Mr. Falcone used his hedge fund customers cash as his personal slush fund; an indictment of Mr. Falcone will also inflame the swirling crony capital investigation by the Congress of White House pay-to-play donations in support of a $14 billion scheme to siphon off part of the U.S. military and civilian Global Positioning Satellite (GPS)’s dedicated wireless bandwidth by a start-up company Mr. Falcone controls, called LightSquared.

LightSquared’s business model appeared to be the creation of an entirely new “4G” internet wireless network from the fringe safety zone bandwidth dedicated to the secure military and civilian GPS. Mr. Falcone, his wife Lisa Falcone, and LightSquared Chief Executive Officer Sanjiv Ahuja each made $30,400 political contribution to Democratic campaign organizations in 2010 to allegedly influence Federal Communications Commission (FCC) to allow the project to proceed under increasingly relaxed standards according to Congressional sources. A letter from Republican House members referred to e-mails between LightSquared representatives and White House officials about attendance at fundraisers for President Barack Obama that coincide with LightSquared contacts: “While some may call it a coincidence, we remain skeptical.”

LightSquared’s FCC operating license had originally included strict provisions intended to ensure the network would be primarily a satellite-based system, with terrestrial components serving as a backup when users were not able to link with a satellite. But these provisions were softened via several license modifications; including the FCC granting LightSquared permission to sell terrestrial-only handsets as a concession to help the company raise billions in financing.

The FCC had ordered testing and Congressional committees on science, armed services and transportation held hearings to determine if the LightSquared plans to offer wireless Internet services to 260 million people would cause harmful interference to GPS operations. In September Congressional investigators asked Jacob Lew, director the Office of Management and Budget and John Holdren, director of the Office of Science & Technology Policy for records of all contacts by LightSquared or its affiliates with staff of the agencies.

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In a stunning worldwide move, the U.S. Federal Reserve in coordination with the European Central Bank, Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Swiss National Bank and China’s Monetary Authority agreed to temporarily “dollarize” the euro. Facing a vicious bank liquidity crisis and a political nightmare; the German dominated European Central Bank (ECB) agreed to the virtual outsourcing of Europe’s monetary policy to the U.S. Federal Reserve. Although described as a precautionary arrangement for political cover; the “dollarization” of Europe has re-established the U.S. dollar as the world’s only reserve currency.

Twenty years ago, European nations sought to form their own reserve currency to limit the power of the United States in controlling their economic destiny. Following World War II, the U.S. took control of European monetary policy by pouring over $50 billion of cash into the war shattered economies. Over time, sovereign currencies were re-introduced; but the U.S. maintained dominance over each nation’s monetary policy through its reserve currency status.

In 1971, President Richard Nixon exercised this domination in a trade dispute with Europe and Japan by suspending the convertibility of the U.S. dollar into gold, setting wage and price controls, cutting taxes, and placing a 10% surcharge on all imports in an effort stimulate the U.S. economy by devaluing the exchange rate of the dollar. U.S. stock markets had their largest one day rally in history; while foreign stock markets crumbled. Four months later; the United States forced agreements for currency appreciation by Japan of 16.9%, Switzerland of 13.9%, Germany of 13.6%, France of 8.6%, and Britain of 8.6%. This effective devaluation of the dollar is credited as creating 700,000 American jobs and cementing President Nixon’s reelection in 1972.

Having suffered from such manipulation under America’s control over European financial affairs; in 1992 the nations of Europe began creating an economic integration that would lead to the introduction of the euro currency on January 1, 1999. Overnight, Europe became the largest trading block in the world and the euro with €890 billion in circulation became the world’s second reserve currency.

Prior to the introduction of the euro; the southern European nations of Portugal, Italy, Greece, and Spain (PIGS) regularly devalued their currencies to remain competitive with the highly industrialized and sophisticated northern European countries. The introduction of the euro permanently fixed exchange rates for all euro members; but gave the PIGS access to loans from northern banks at less than half their prior interest costs.

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I warned last week that a recession and higher unemployment were about to hit the U.S. economy. On Tuesday, the Bureau of Economic Analysis cut their estimate of growth in the third quarter ending September from 2.5% to 2%. Then on Wednesday, the Federal Reserve rocked financial markets by forcing America’s 31 largest U.S. banks to “stress test” balance sheets to determine their capability to withstand an 8% drop in the economy; which would cause home prices to plunge by 21%, and unemployment rate to jump to 13%.

I illuminated in my report that U.S. Bureau of Labor Statistics has been under-counting unemployment by at least 2%. For a nation reporting 154.4 million workers; this means the 13.9 million reportedly unemployed should actually be 17 million. Given only 12.8 million were unemployed at the 1933 peak of the Great Depression, when the undercounting and the Fed’s stress test are added the total is 23.2 million unemployed; almost double the Great Depression.

Formerly bullish top bank analyst Dick Bove in an Bloomberg interview commented on the Fed:

“By taking these draconian views of what could happen in the market, if they in fact force the banks to defense themselves against the outlook that they’ve put up, they’ll cause a recession,”

Consistent with my prediction that the booming production of capital goods would fall hard next year after the expiration of the 100% “bonus depreciation” tax credit; the bad news parade picked up steam this week with reports that U.S. durable goods orders fell 0.7 percent last month and initial jobless claims came in higher than Wall Street analyst’s predictions.

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When Ronald Reagan was elected the 40th President of the United States the competition between nation states was defined along the political terms of communism, democracy, and fascism. But Reagan sought to redefine nation state competition in terms of the market. This capitalist worldview was powered by Reagan’s own American experience of upward mobility of the middle class. As President, Reagan pursued policies that reflected his personal belief in individual freedom, economic independence, and reduction of people’s reliance upon government. Reagan’s “market states” competition is broken down into America as the laissez-faire state, Europe as the managerial state, Japan as the mercantile state, and China a combination of the three. The Obama Administration sought to move America to embrace a post-Reagan managerial state. But with the U.S. credit downgrade and Europe facing financial collapse; the U.S. has no option other than a hard turn back to the laissez-faire market state.

The European advocates of the managerial state argue the core idea of government in a democracy is to provide services to the public through professional and political bureaucracies. The managerial state rationalizes that ethics demands only government can allocate society’s wealth to fund socially beneficial ends. The managerial state acknowledges that scientific management and efficiencies of the laissez-faire state maximize supply and growth; but they see these capitalist tools as leading to adverse outcomes of intense materialism and inequality of income. The managerial state demands control of healthcare: where death and pain cannot be priced without creating some very unhealthy social consequences and control of infrastructure where markets do not think in decades or would not properly price environmental damage as core state functions. University intellectuals are expected to embed therapeutic criteria to achieve right reasoning through public education.

Problems with these concepts according to Paul Gottfried of the Ludwig von Mises Institute, is that the managerial state will use its professional and political bureaucracies to sponsor a “series of social programs based on vague egalitarian spirit”. If anyone criticizes the bureaucracy’s lack of scientific management and efficient use of resources; they are attacked as unethical. If government loses popular democratic support for their policies, elites simply resort to ridicule, regulations, and litigation to maintain their monopolies.

C.S. Lewis remarked that every increase in man’s power over nature can turn out to mean an increase in the power of some men over others, with nature as its instrument. He stated:

“Given technological progress, we need to fight hard to retain our clarity about the nature and rights of human beings. We hear of human “autonomy” and of man’s “control of his own destiny.” But the autonomy is enjoyed by a select (or self-selected) few, and the control is exercised by a shrinking elite.”

Three years into America’s managerial state experiment, the middle class is in revolt over loss of upward mobility.

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Over the last five months the strength of the United States economy has surprised on the up-side. America posted its strongest quarterly economic growth since the end of 2006 and U.S. corporate profits hit an all-time record high. But with the end of 100% “bonus depreciation, government spending shrinking for the first time since the 1940s and rising tax rates”; I project America is falling into a recession that will drive up unemployment to a new highs during the 2012 election.

Although the U.S. economy officially emerged from recession twenty-six months ago, most Americans report that they believe there has been little or no growth and 75% believe the nation is headed down the economic wrong track. The “Great Recession” of 2007 to 2009 was the longest since the Great Depression and was the first time U.S Gross Domestic Product actually fell in any year since 1948. Unemployment according to the Labor Department peaked in October 2009 at 10.1% and then declined to 9% last month. But this statistic does not include those unemployed who have been out of work for so long they no longer “participate” in registering for unemployment benefits. As shown below; labor force “participation” shrank by 2% since 2009. Add in these jobless and real unemployment rate is at a record 11% right now:

The stimulus that has recently been driving GDP growth is a provision contained in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This tax incentive allows businesses to book 100 percent “bonus depreciation” for any qualified capital expenditures purchased and taken delivery by December 31, 2011. This explains why the industrial production index has jumped back up to its average level for the last 40 years. The good news is businesses substantially increased capital investments in everything from $25,000 new Ford cars to $335 million Boeing 747 airplanes. The bad news is that business investments are being pulled forward into 2011 and 2012 suffer an off-setting fall in demand. Next year the U.S. economy will surprise on the down-side and unemployment will be on the upswing.

To fund spending increases on salary and pension benefits during the Great Recession; state and local governments raised taxes so much the effective percentage of all taxes paid by the average household in America jumped from 17.5% to 17.9%. This $247 billion tax increase more than off-set the stimulus effects of the last year’s federal payroll tax cut stimulus; but was not enough to prevent the lay-off of over 900,000 workers. But with voters in revolt and tax collection falling; state and local governments will cut spending this year for the first time since 1944.

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Orange County, California is often referred to as the “Most Conservative County in America”. But County Supervisors have made a mockery of that title by increasing spending by $145.8 million, in a year of lower property tax collection. Now that the County has started running out of cash, they simply diverted $73.5 million from the school’s share of property taxes to stop lay-offs of 490 County unionized employees. Conservatives support small government, low taxes, and prudent spending. The County protecting their union buddies at the expense firing 865 school teachers doesn’t sound very conservative to me.

I published a report last week: “California has Drawn Down 85% of its Credit Lines”; where we first reported the State of California has a $13 billion budget short-fall and has already pulled 85% of their available credit lines. I warned the state might start short-checking schools and local government in an attempt to avoid laying-off politically active state unionized employees. But I had no inkling that a big County with an upside-down budget would be the first to rip-off schools to shield powerful union friends.

Orange County has a dicey history when it comes to playing games with other-peoples-money. In 1993, I discovered that the County was trying to cover a $180 million budget short-fall by leveraging the County and the local school’s payroll accounts by 500% and speculating in the wild and woolly world of derivatives. When I confronted the County they claimed what they were doing was “perfectly legal”. I tried to get the FBI, the Controller of the Currency, and the State Attorney General to stop this egregious activity. I was told that: “Government makes laws to regulate the people, not to regulate themselves.” A year later Orange County filed the largest bankruptcy in U.S. history. Of the $2 billion in losses, local schools portion was $93 million.

In 2006, I ran and was elected as Orange County Treasurer to succeed Republican John Moorlach; now a Supervisor. When I came in office I discovered the $8 billion County pension plan was leveraged with $22 billion of derivatives. It turns out that the County had granted their unions the highest public pension benefits in the nation by spiking their pensions. To avoid having to actually pay for the higher costs of the benefits spike; the pension plan was secretly taking conspicuously bad investment risks. It took me a year of battling with County officials to get the pension to drastically reduce risk in 2007. Had the County not sold the derivatives, they would have suffered $2 billion in losses in 2008 Credit Crisis.

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Social liberals are extremely frustrated that the “worker’s paradise” that seemed so near three years ago, is fast slipping away due to voter rejection. With the huge borrowing and spending stimulus failing to revitalize the economy, social liberals took to the streets in Occupy Wall Street movements around the country. But the movement is rapidly being taken over by vicious Marxist elements bent on over-throwing capitalism with violent revolution, called “Black Bloc”.

In 2008, candidate Barack Obama campaigned in Germany and France to trumpet that America would soon bond with Europe and “Together, we must forge trade that truly rewards the work that creates wealth.” These are code words for America is embracing Europe’s collectivist march. Over the next two years, the President and his veto proof Congress legislated for the collectivization of healthcare, socialization of financial services, bail-out the unionized auto industry, and unbounded arrays of new regulatory constraints to fundamentally transform the U.S. economy. In solidarity: the United Nations designated October, 31, 2011 as the beginning of the International Year of the Cooperative to celebrate “the beginnings of a genuine discussion and debate about different economic models —models that value fairness at their core”.

The breadth of socialist ambition and the failure of massive borrow and spend initiatives to deliver economic recovery led to spontaneous rise of the Tea Part movement in America and an epic rejection of social liberal policies at the polls in 2010. Following that electoral shellacking, a broad spectrum of pundits urged President Obama in the words of Politico to: “move to the center to find common ground with the GOP and adopt the “triangulation” strategy employed by Bill Clinton” after his 1994 midterm losses.”

Social liberals have howled this year at what they see as the President lurch to the political center as selling out their core values. Bent on creating their own spontaneous movement; social liberals quickly latched onto the Occupy Wall Street movement. Over $500,000 in donations poured in as labor unions and elected officials embraced the movement. Marches and occupations sprung up nationwide to serve as a national microphone for the cause.

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