At a Federal Bureau of Investigation conference on Monday, FBI agents said state and local law enforcement should be on alert for people who consider themselves “sovereign citizens,” individuals who believe they are not subject to any type of government authority.

According to Reuters, these anti-government extremists “may refuse to pay taxes, defy government environmental regulations and believe the United States went bankrupt by going off the gold standard.”

Routine encounters with police can turn violent “at the drop of a hat,” said Stuart McArthur, deputy assistant director in the FBI’s counterterrorism division.

“We thought it was important to increase the visibility of the threat with state and local law enforcement,” he said.

In May 2010, two West Memphis, Arkansas, police officers were shot and killed in an argument that developed after they pulled over a “sovereign citizen” in traffic.

Last year, an extremist in Texas opened fire on a police officer during a traffic stop. The officer was not hit.

The heightened concern against “sovereign citizens” is the result of the rise in legal convictions from 10 such cases in 2009 to 18 cases in 2010 and 2011 respectively.

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The recent correction in the commodities markets may be providing Bernake, Geithner and their easy money acolytes with a sense of relief given the relentless run up in prices of raw materials since the announcement of QE back in 2008, but they should not sleep tight just yet.  As anyone in the markets will tell you, when any underlying commodity has a price move so vertical in its trajectory it’s bound to face a correction as the smart money, having gotten in for fundamental reasons much earlier along the trend line now wait for the panic buyers or the Johnny-come-lately’s to give the rally that last unsustainable spike to unload their longs and leave the suckers holding $40.00 silver in their purses.

So one must step back and take a long view.  Although it would appear that those of us who warn that inflation is not just a threat but very much a fact of life now were knee-jerk pontificators jumping on the commodities rally trend for political (read: Fed/Obama bashing) reasons, the analysis is quite sound.  Most important, it is methodical not emotional as price surges tend to make investors and analysts from time to time.

Here are some facts: even with the inevitable correction in commodities, as of this writing crude oil is 35% more expensive than it was a year ago…advancing with ups and downs along the way from as low as $17.50/bbl in November of 2001 to its current level of over $100/bbl or around a 19% annual appreciation in a decade since the Fed started giving away dollars.  In that same year silver is still up 93%   Wheat 84%. Cotton 100%  Coffee 55%. Cattle 10%, etc.  In that same decade the USD index against all currencies shed 40% of its value.  Gold is up 22% for the year.  More revealing, the most precious metal and most stable of exchange mechanisms is up an astonishing 450% since 2001. Put another way, whereas the dollar was worth 1/250^th of an ounce of gold in 2001, it is now only worth 1/1500^th.  Money can be printed with much more ease and speed than gold can be mined.

To understand why the Bernake’s and Geithner’s of the world view CPI through rose-tinted glasses we must remember who they are.  They are wonks who have spent their entire careers lecturing and/or fidgeting with economies without actively participating in them.  They are awash in data and are hardwired to extrapolate patterns from the past to predict the future.  But we have only had a non-gold fiat monetary system in place since 1971 which is hardly enough time to get a handle on repeating macro-economic cycles in such an ever changing and dynamic landscape.  And I want to offer something else.  From the late 1940s to the mid-1980s the United States was the dominant manufacturer in the world.  The reason?  Of our three main foreign competitors today, China, Japan and Germany, one was mired for much of the third quarter of the 20^th Century in a disastrous experiment with Maoist communism while the latter two’s urban centers had been reduced to utter wasteland as their reward for launching the most devastating war in human history.  Indeed, all of Europe was digging out of the wreckage of their mass-fratricide, including a bankrupted Great Britain…once the supreme power of the world.

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On today’s edition of Coffee and Markets, we’re talking commodities, the debt ceiling, and the unemployment rate with Francis Cianfrocca.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

WSJ: Unemployment Rate Rises
Bloomberg: Trichet on ECB and Inflation
Gokhale: Why We Must Freeze the Debt Limit
Harsanyi: What Debt Ceiling?
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To put it mildly, the Federal Reserve has a dismal track record. It bears significant responsibility for almost every major economic upheaval of the past 100 years, including the Great Depression, the 1970s stagflation, and the recent financial crisis. Perhaps the most damning statistic is that the dollar has lost 95 percent of its value since the central bank was created.

Notwithstanding its poor performance, the Federal Reserve seems to get more power over time. But rather than rewarding the central bank for debasing the currency and causing instability, perhaps it’s time to contemplate alternatives. This new video from the Center for Freedom and Prosperity dives into that issue, exposing the Fed’s poor track record, explaining how central banking evolved, and mentioning possible alternatives.

This video is the first installment of a multi-part series on monetary policy. Subsequent videos will examine possible alternatives to monopoly central banks, including a gold standard, free banking, and monetary rules to limit the Fed’s discretion.

One of the challenges in this field is that opponents of the Fed often are portrayed as cranks. Defenders of the status quo may not have a good defense of the Fed, but they are rather effective in marginalizing critics. Congressman Ron Paul and others are either summarily dismissed or completely ignored.

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The Great Depression has been a deeply contested subject from the very beginning. After John Maynard Keynes’s General Theory became sacred writ for most mainstream economists, Keynesian interpretations generally prevailed, notwithstanding pockets of resistance among older economists, in general, and Austrian school economists, in particular. Milton Friedman and Anna Schwartz’s monumental Monetary History of the United States eventually helped to displace Keynesian interpretations with a monetarist interpretation, especially after the stagflation of the 1970s worked to discredit Keynesian macroeconomics.

Nevertheless, in part because mainstream macroeconomics never settled into a fixed orthodoxy for very long, competing interpretations of the Great Depression continued to attract adherents and to incorporate new elements of analysis during the past thirty years. The Austrians, once again attracting young economists to their ranks from the 1970s onward, persisted in waging guerrilla warfare against Keynesian, monetarist, New Classical, and other varieties of interpretation of the Depression.

With the onset of the current economic troubles—what some call the Great Recession—the debate about the Great Depression flared up anew, because many commentators began to compare these two episodes of exceptionally subpar overall economic performance. In 2008, an article by Gauti Eggertsson, “Great Expectations and the End of the Depression,” was published in the leading mainstream journal, the American Economic Review. This article advances a variation on one of the leading themes among mainstream economists, attributing the U.S. recovery after 1933 to a regime change associated with the New Deal’s abandonment of the gold standard and its commitment to active intervention in the private economy, allegedly in sharp contrast to the Hoover administration’s hands-off policy stance.

Steven Horwitz has taken issue with Eggertsson’s article in an important critique published in 2009 in the online journal Econ Journal Watch, edited by Daniel B. Klein. Eggertsson replied to Horwitz’s critique in 2010. Now, Horwitz has rejoined this back-and-forth in a new contribution to Econ Journal Watch titled “Unfortunately Unfamiliar with Robert Higgs and Others: A Rejoinder to Gauti Eggertsson on the 1930s.” No one will be surprised if I recommend Horwitz’s original critique and his follow-up piece as important contributions to this highly significant debate.

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At the very start of the “Reagan revolution,” David Stockman exposed the myth that Ronald Reagan and the modern Republican Party are dedicated to small government.

In 1981, the 35-year-old Stockman gave up his Michigan seat in Congress to become Reagan’s budget director. A vocal critic of what he continues to call the “welfare-warfare state,” Stockman had signed on because he believed in the limited government rhetoric that Reagan espoused. Once inside the White House, Stockman quickly became disenchanted, and gave an interview to journalist William Greider that became the basis for an explosive Atlantic Monthly article in which Stockman admitted that Reagan’s spending cuts had been a “Trojan horse” used to justify tax cuts. In his 1985 memoir, The Triumph of Politics, Stockman chronicled Reagan’s reluctance to fulfill his campaign promise of shrinking the size and scope of government and balancing the budget. The result? The gross federal debt tripled while Reagan was in office.

Last fall, Stockman was the GOP-defector du jour once more, arguing against extending George W. Bush’s tax rates in the New York Times, on 60 Minutes, the Colbert Report, Parker-Spitzer, ABC, NPR, and MSNBC. Stockman’s argument – that it’s irresponsible to cut taxes when cumulative U.S. debt is steadily mounting as a percentage of GDP – is based on the simple principle that balanced budgets come only when revenues actually meet expenditures. If we’re not willing to actually shrink government spending, he says, then we should pay full freight now, rather than forcing our children and grandchildren to foot the bill down the line.

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In today’s edition of Coffee and Markets, Ben Domenech and Francis Cianfrocca to discuss the the latest Fed actions, Wall Street numbers, earnings report expectations, whether the Democrats are wise to keep Nancy Pelosi, and President Obama’s declaration of the “New Normal.”

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. You can find our iTunes feed at CoffeeandMarkets.com. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

WSJ: Obama Warns of New Normal
Zerohedge: Zoellick Talks Gold Standard
WSJ: Ford and GM Rise, Chrysler Sinks
Cianfrocca: Bernanke Treats the Fever, Not the Infection

Deflation is a concept many Americans have a tough time understanding.  They do understand the concept of Social Security.  As Federal budget deficits soaring, the public is being barraged by late night advertisements to buy gold as an inflationary hedge.  Unfortunately, the deflationary environment we are facing today is the biggest threat to the Social Security check Joe the Plumber is counting on for retirement.

The definition of deflation as a decrease in the general prices of goods and services may be simple, but a Google search for articles on deflation generates 3.5 million “hits”, versus a whopping 354 million “hits” for inflation.  This demonstrates that Americans are 100 to 1 more knowledgeable of inflation!

There have only been three bouts of deflation in the United States since its founding over 200 years ago. The first was the recession of 1836, when the currency in the United States contracted by about 30%.  The second was after 1865, when the Nation returned to a gold standard by retiring paper money printed during the Civil War.  The third period was the Great Depression, when prices and output fell by 25% from 1928 to 1933.  Very few Americans are familiar with the specifics of what happened during these periods, but they know it was a bad time for the “common man.”

Social Security was established during the Great Depression and continues to be the most important income stream for America’s seniors.  A large majority of the 16 million people over age 65 rely on Social Security for at least half of their income.  One-third of this group relies on Social Security for over 90% of their income.  Most retirees have come to rely on the annual cost-of-living increases in their check to make their life better.  In a deflationary environment we are facing today, few recipients are prepared for their check to actually shrink.

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Before the most recent report on Lehman Brothers’ use of Enron-like methods to hide debt from its balance sheet, Greece had recently been accused of similar shenangians.  The sovereign was under scrutiny for swaps it had set up with Goldman Sachs that allowed the nation to mask its real debt load, effectively cooking its books in order to meet the fiscal standards required for admittance into the Eurozone in 2001.  This was not the first time this type of deceptive transaction had been consummated.

The joyfully iconoclastic financial blog Zero Hedge had uncovered a little-known 2001 report by a little-known Italian Economist named Gustavo Piga which showed that Italy had used almost the exact same transactions as those used by the Greeks to mask their finances and gain entrance to the Eurozone in 1997.  For his courageous exposé, most disturbingly Piga’s life was threatened.  Why was this the case?

Piga had been the first to find “…a real-world example of how sovereign borrowers can use derivatives to window-dress public accounts as a means of achieving short-term political goals.”  As the Council on Foreign Relations which collaborated with Piga on the report noted, Italy was able to do this by “taking a cash advance in 1997 against an expected foreign exchange profit in 1998.  Under accounting rules, this is simply impermissible.  Borrowers cannot use loans to anticipate capital gains on a bond.”  The transactions allowed Italy to artifically reduce their deficit in 1997 by increasing their deficit in 1998.

And according to the CFR, what was the significance of this Enron-like Italian book-cooking?

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Negative interest rates finally materialize, Tim Geithner falls on his face at Congress, and the House moves forward with their policy of gutting the authority of the Federal Reserve. That’s three big stories to talk about on today’s Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.

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You can subscribe to the podcast by following the links above, and if you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

WSJ: House Attacks Fed, Treasury
MarketWatch: Panel Votes to Audit Fed Balance Sheet
WP: Threatening the Fed’s Independence
Bloomberg: Geithner Resignation Calls Increase
Ryan and Hensarling: Why No One Expects a Strong Recovery