Most of our subscribers to The Casey Report appear to be libertarians or classical liberals - i.e., people who believe in a maximum of both social and economic freedom for the individual. The next largest group are "conservatives." It's a bit harder to define a conservative. Is it someone who atavistically just wants to conserve the existing order of things (either now, or perhaps as they perceived them 50, or 100, or 200, or however many years ago)? Or is a conservative someone who believes in limiting social freedoms (generally that means suppressing things like sex, drugs, outré clothing and customs, and bad-mouthing the government) while claiming to support economic freedoms (although with considerable caveats and exceptions)? It's unclear to me what, if any, philosophical foundation conservatism, by whatever definition, rests on.

Which leads me to the question: Why do conservatives seem to have this warm and fuzzy feeling for George W. Bush? I can only speculate it's because Bush liked to talk a lot about freedom and traditional American values, and did so in such an ungrammatical way that it made him seem sincere. Bush's tendency to fumble words and concepts contrasted to Clinton's eloquence, which made him look "slick."

I'm forced to the conclusion that what "conservatives" like about Bush is his style, such as it was. Because the only good thing I can recall that Bush ever did was to shepherd through some tax cuts. But even these were targeted and piecemeal, tossing bones to favored interests, rather than any principled abolition of any levies or a wholesale cut in rates.

Is it possible that Bush was actually the worst president ever? I'd say he's a strong contender. He started out with a gigantic lie - that he would cut the size of government, reduce taxes, and stay out of foreign wars - and things got much worse from there. Let's look at just some of the highpoints in the catalog of disasters the Bush regime created.

• No Child Left Behind. Forget about abolishing the Department of Education. Bush made the federal government a much more intrusive and costly part of local schools.
• Project Safe Neighborhoods. A draconian law that further guts the 2nd Amendment, like 20,000 other unconstitutional gun laws before it.
• Medicare Prescription Drug Benefit. This the largest expansion of the welfare state since LBJ and will cost the already bankrupt Medicare system trillions more.
• Sarbanes-Oxley Act. Possibly the most expensive and restrictive change to the securities laws since the '30s. A major reason why companies will either stay private or go public outside the US.
• Katrina. A total disaster of bureaucratic mismanagement, featuring martial law.
• Ownership Society. The immediate root of the current financial crisis lies in Bush's encouragement of easy credit to everybody and inflating the housing market.
• Nationalizations and Bailouts. In response to the crisis he created, he nationalized Fannie Mae and Freddie Mac and passed by far the largest bailouts in US history (until OBAMA!).
• Free-Speech Zones. Originally a device for keeping war protesters away when Bush appeared on camera, they're now used to herd.
• The Patriot Act. This 132-page bill, presented for passage only 45 days after 9/11 (how is it possible to write something of that size and complexity in only 45 days?) basically allows the government to do whatever it wishes with its subjects. Warrantless searches. All kinds of communications monitoring. Greatly expanded asset forfeiture provisions.
• The War on Terror. The scope of the War on Drugs (which Bush also expanded) is exceeded only by the war on nobody in particular but on a tactic. It's become a cause of mass hysteria and an excuse for the government doing anything.
• Invasions of Afghanistan and Iraq. Bush started two completely pointless, counterproductive, and immensely expensive wars, neither of which has any prospect of ending anytime soon.
• Dept. of Homeland Security. This is the largest and most dangerous of all agencies, now with its own gigantic campus in Washington, DC. It will never go away and centralizes the functions of a police state.
• Guantanamo. Hundreds of individuals, most of them (like the Uighurs recently in the news) guilty only of being in the wrong place at the wrong time, are incarcerated for years. A precedent is set for anyone who is accused of being an "enemy combatant" to be completely deprived of any rights at all.
• Abu Ghraib and Torture. After imprisoning scores of thousands of foreign nationals, Bush made it a US policy to use torture to extract information, based on a suspicion or nothing but a guard's whim. This is certainly one of the most damaging things to the reputation of the US ever. It says to the world, "We stand for nothing."
• The No-Fly List. His administration has placed the names of over a million people on this list, and it's still growing at about 20,000 a month. I promise it will be used for other purposes in the future...
• The TSA. Somehow the Bush cabal found 50,000 middle-aged people who were willing to go through their fellow citizens' dirty laundry and take themselves quite seriously. God forbid you're not polite to them...
• Farm Subsidies. Farm subsidies are the antithesis of the free market. Rather than trying to abolish or cut them back, Bush signed a record $190 billion farm bill.
• Legislative Free Ride. And he vetoed less of what Congress did than any other president in history.

The only reason I can imagine why a person who is not "evil" (to use a word he favored), completely uninformed, or thoughtless would favor Bush is because he wasn't a Democrat. Not that there's any real difference between the two parties anymore...

As disastrous as he was, I rather hate to put him in competition for "worst president" in the company of Lincoln, McKinley, Wilson, the two Roosevelts, Truman, Johnson, and Nixon. He is simply too small a character - psychologically aberrant, ignorant, unintelligent, shallow, duplicitous, small-minded - to merit inclusion in any list. On second thought, looking over that list of his personal characteristics, he's probably most like FDR, except he lacked FDR's polish and rhetorical skills. I suspect he'll just fade away as a non-entity, recognized as an embarrassment. Not even worth the trouble of hanging by his heels from a lamppost, although Americans aren't (yet) accustomed to doing that to their leaders. Those who once supported him will, at least if they have any circumspection and intellectual honesty, feel shame at how dim they were to have been duped by a nobody.

The worst shame of Bush - worse than the spending, the new agencies, the torture, or the wars - is that he used so much pro-liberty and pro- free-market rhetoric in the very process of destroying those institutions. That makes his actions ten times worse than if an avowed socialist had done the same thing. People will blame the full suite of disasters Bush caused on the free market simply because Bush constantly said he believed in it.

And he's left OBAMA! with a fantastic starting point for what I expect to be even greater intrusions into your life and finances. Eventually, the Bush era will look like The Good Old Days. But only in the way that the Romans looked back with nostalgia on Tiberius and Claudius after they got Caligula. And then Nero. And then the first of many imperial coups and civil wars.

Regards,

Doug Casey
for The Daily Reckoning Australia

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• U.S. Presidential Election

"Your country needs YOU to work five years longer." And accept big cuts in health and education spending. And pay more taxes.

There is no mystery to this news item. You don't have to be a clairvoyant like Ben Bernanke to see that 1) living standards are certain to go down in England and America...and 2) governments will have to raise taxes and/or cut 'services.'

We have put the word 'services' in quotes because we don't you to get the wrong idea. Most government services are not services at all...but disservices.

Each year since the war, government budgets have gone up. Now, there are more people getting money from the government than there are taxpayers. And what do the taxpayers get for their money? Is the country really a better place than it was in the Eisenhower era? Are we better governed? Are we safer?

We are certainly better off in many ways...but all the ways we are better off are the result of technology and private innovation, usually in spite of government. A couple of inventions have made life much more agreeable. Air conditioning is a major boon to gracious living in the southern states. And the Internet - with free telephone service, via Skype - is another major boon.

And while we're on the topic of technological innovations, we'd like to alert our dear readers that the DR has entered the social media realm, by way of Twitter. Historians, economists, and contrarian investors alike use Twitter to communicate current information throughout the day that you may not find in our daily columns.

Of course, there are many innovations that are probably net negative too. Television, for example. It's brought entertainment and companionship to millions over the years. But it's also expanded popular, brain dead culture and disseminated propaganda. People seem stupider today than they did when we were young...TV is probably largely to blame.

But returning to the feds...

This year, the U.S. stopped being the United States of America. Yesterday, it was reported that the states now get most of their money from the feds.

"He who pays the piper calls the tune," is the old expression. The feds are paying the piper; the states have to dance to whatever tune they propose.

That's the end of the federal system...the end of the system announced in the U.S. Constitution...which was a union of sovereign states. Now, it's a fully centralized system...a popular democracy of the worse sort...in which celebrity hacks are elected and rule without any real shame or limit. Even Louis 14th, France's Sun King...an absolute monarch...knew he was subject as well as monarch. He was God's man on the throne of France. Now, America's leaders answer to no one...except the mob of TV-addled voters.

The song the feds are singing is a song of higher taxes...more regulation...bigger government budgets...and huge new deficits. The War on Capitalism will cost trillions. The direct costs - and the indirect cost of a battered, shackled, tortured market system - will have to be paid somehow. The good news is that citizens will get fewer services from their government. The bad news is that governments will reduce services in the worst possible way - firing teachers, rather than educational bureaucrats...filling holes in bank balance sheets, but failing to fill the potholes in the roads...and so forth.

And more bad news is that they will raise taxes...

Bill Bonner
for The Daily Reckoning Australia

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It is worth studying the 1907 panic. It was a global panic, though not the first panic to have a global character. The French Mississippi Bubble and the English South Sea Bubble both burst in 1720, and that was nearly two centuries before the panic of 1907. It was the last important financial crash to be stabilised by the actions of private bankers, in this case by J.P. Morgan himself. It led to the ratification in 1929 of the sixteenth amendment of the U.S. Constitution, which made a federal income tax constitutional. It also led to the creation of the Federal Reserve Board, therefore transferring the ultimate management of finance to the U.S. Government and to the Fed itself.

Mr. Vanderlip attributed the crash to the costs of wars and to the political vilification of the financial world by politicians and journalists. "We must run back to some of the roots to the terrific losses which the world's capital experienced as a result of the Boer War costing as it did one billion of dollars, the Japanese-Russian, which cost one and a quarter billions, and the losses of the San Francisco disaster (the earthquake) which footed another half billion. Here we have figures of nearly three billions of dollars directly lost to the world's capital."

Mr. Vanderlip also blamed the demand for capital which had resulted from the boom in American industry. "We have seen railroads and other corporations inexorably pushed to build new lines, to add to their equipment and to extend plant. But although the corporations were forced to make these expenditures by the demands which broadening industry and growing commerce made imperative, they became at last, owing to the exhaustion of the world's investment fund, unable to sell securities to provide money for their forced expenditures. They were unable to sell bonds, even though the security that was offered was wholly above criticism. The investment capital of the world became well nigh exhausted. That phase of the situation was by no means confined to America. It was international in its origin and world-wide in its effect."

Some of this we can easily recognise. Essentially it is a monetarist explanation, but seen from the point of view of the Gold Standard. There is a certain stock of money in the world, ultimately represented by gold coin or bullion, most of which is held in the banking system. The costs of war and earthquake have led to that stock being drawn down. Industrial demand has increased to the point at which there is a shortage of money relative to the demand for capital. This is not all that far from being an alternative way of describing what Irving Fisher called a process of "debt and deflation", or Joseph Schumpeter called "creative destruction". In both cases, money is seen as a real object. The world's limited monetary capital, seen as so many owners of gold, cannot simultaneously be spent on fighting the Russo-Japanese War and building an extension to an American railroad. Because money is limited by the quantity of gold, it imposes choices on Governments and on businessmen.

If one takes Irving Fisher's equation of exchange, in which mv = pt, one can see the choices that are actually available. m stands for money, and in a gold system it can only be increased by new mining or by melting down scrap. In practice gold convertibility makes the money supply a fixed factor.

v stands for velocity. This is the key variable now, and it was in 1907. The velocity of money depends on the level of confidence. When bankers believe that there are surplus available funds, the money markets run freely, and those businessmen who need funds can usually raise them without difficulty. When confidence is weak, velocity will be slow and funds will be scarce.

The other side of the equation is pt - prices and transactions. When money is in short supply, or velocity is slow, prices will be weak and transactions will be reduced in number.

We do not know how far practical bankers, like Mr. Vanderlip, thought in these monetarist terms, but clearly they had to assess the demand and supply of money. In seeking an explanation for 1907, Vanderlip recognises the psychological factor: "The financial crisis," he writes," has by no means been altogether a matter of money. It has, in large measure, been a matter of what was in men's minds."

In 2009, we have had similar experiences, in which real economic events interacted with human anxieties and expectations. All banking depends on confidence. So long as the expectation holds up, credit will be firm. Once expectation turns negative, then everyone becomes nervous of lending. In 1907, gold was the measure of confidence. I do not see what measure of confidence we can now rely on.

William Rees-Mogg
for The Daily Reckoning Austalia

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Yes, dear reader...here at The Daily Reckoning, we feel positively blessed. We are getting to see things we never thought we'd see: crash, depression, socialism, nationalizations...things that we'd read about in the history books. Things so preposterous, absurd and imbecilic that we never thought they'd be repeated...at least not in our lifetimes. We never imagined we see them in the 21st century...in the United States of America!

We used to laugh at foreign countries. They protected their auto industries...and paid fortunes for inferior cars. They pretended that their government hacks could do a better job of running an economy than hacks working for private industry. Their central banks printed money to try to boost domestic consumption. They meddled in markets. They fiddled their currency. Ha. Ha.

Other nations have taken over their car industries. That's what led to that marvelous breakthrough in automotive technology - the Trabant - for example. You remember the Trabant? We don't remember much about it. Except that it was a car so wonderful you had to wait many years to buy it. But this was in East Germany before the Wall fell. You had to wait many years to buy anything. And then, when the opportunity came...and the Wall came down...you could then buy a real car.

What did you do with Trabant? We don't know, but we remember reading stories about people who just left them on the street with the keys in the ignition...

But why shouldn't the feds be in the car business? It's right there in the U.S. Constitution, isn't it? The "Car Clause," as Byron King calls it: every American will have the "right to life, liberty and a four- door sedan." Heck, it's in the preamble too: "When in the course of human events, it becomes necessary to take over the automobile industry..."

Besides, the feds are already in the insurance business - big time. The U.S. government owns 80% of AIG. And we've seen what a great success they're making of it. And they've been in the passenger train business for a long time too. Amtrak has a franchise on what should be one of the most lucrative traffic corridors in the world - from Boston to Washington, DC. Somehow, the company keeps losing money.

But now the feds are taking over autos too. Rick Wagoner was forced out of GM on Sunday so that Obama can put his own man behind the wheel.

Said Obama: "It is my hope that the steps I am announcing today will go a long way toward answering many of the questions people may have about the future of GM and Chrysler. But just in case there are still nagging doubts, let me say it as plainly as I can - if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe. In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warranty."

How about that guarantee? Five years...fifty thousand miles...or until the Feds run out of money - whichever comes first.

The stock market didn't seem to care for it. Wagoner was probably an incompetent suit. His strategy wasn't working and the company seems headed to bankruptcy. But so what? In a free market economy, companies have the right to go broke, don't they? Then, their capital assets can be taken up by other businesses and put to better use. That's the way it's supposed to work. But now, everyone seems to have lost faith in the "market's self-healing power." So they've invited the quacks with their magic elixirs and miracle potions to have a try.

The Dow fell 254 points yesterday. Oil fell below $50. And gold dropped $7.

Goldman Sachs has changed its tune on gold. Instead of going over $1,000 as it had previously forecast, it now says it expects the price to average $930 this year.

Homebuilder Lennar said it lost $155 million in the first quarter.

And thousands of demonstrators are preparing to give the G20 a piece of their minds.

"Don't make the workers pay for the capitalists' mistakes," was on a poster we saw in Granada over the weekend. It's probably the gist of the complainers' gripe all over the world.

But that's where it gets funny, doesn't it? The protestors want the government to "do something." But what can it do, but interfere with free markets...and shift the burden of the losses from those who deserve them to those who don't?

More news from Addison in Charm City:

"They must know how it goes by now." Writes Addison in today's 5 Minute Forecast. "Change the rules, and the market tanks:

"We hit the finer points of the latest auto bailout yesterday. Now you see what the market had to think.

"Traders had a game plan for U.S. automakers (and all the industries that support them). The return to optimism over the last few weeks plus a 'no news is good news' vibe emanating from Detroit had bid up GM 100% from its recent low.

"Yesterday, after the government rewrote the playbook - again - GM crashed 30%."

Each weekday, Addison and Ian bring readers the The 5 Min Forecast - an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments - in five minutes or less.

And now more thoughts, insights and musings:

"This past winter, it seemed like all those decades of what the Austrian economists call malinvestment finally found a place in the light of day," says our intrepid correspondent, Byron King.

"But it's not as if the whole tale were some sort of state secret, like the Venona files at the National Security Agency or something. Really, the nation's industrial and productive decline was fairly clear all along if you knew what you were seeing. The problem has been hiding in plain sight since August 1971, when President Nixon killed any semblance of a gold-backed dollar.

"Or it's kind of like Peak Oil. M. King Hubbert drew the fundamental Peak Oil graph back in the 1950s. Heck, I heard Hubbert give his speech in fall 1977. I saw Peak Oil in action back when I was working at Gulf Oil Co. in the late 1970s. It was no shock to me, at least, when the world's crude oil output curve finally maxed out in 2006.

"What? Nobody told you that the crude curve maxed out? Hey, the world's marginal oil output is now mostly natural gas liquids. It means that we're blowing down the gas caps.

"It's why I like resource and energy companies. Companies that bring real stuff to the surface. It's why I'll keep writing about energy and resources in a publication like Energy & Scarcity Investor."

We were trying to imagine the car that General Motors/US Federal Government would come up with. Surely, it would have to be safe...and wheel chair accessible...and fuel-efficient. It would probably have to have warning lights telling you where to exit in case of emergency...and maybe some kind of GPS system for blind drivers.

The new government-run industry would probably have to abandon the assembly line; the idea would be to create as many jobs as possible. So workers would put the new cars together with old-fashioned screwdrivers and adjustable wrenches, stopping frequently for 'get out the vote' rallies and other consciousness-raising events. So, it would take months to produce a car...and you'd have to wait for a new one, just as they did in the old Soviet Union.

New cars could be designed by Congress like any other important piece of legislation. Onto a hefty chassis could be bolted hundreds of riders, amendments, exceptions and earmarks. Maybe a solar collector on the roof - made by a large campaign contributor in Atlanta? Maybe an extra steering wheel in case the driver has a sudden heart attack (helpfully suggested by a supplier of steering wheels...and put forward by his Senator). Maybe a smoke detector that automatically shuts down the engine if it senses the driver is having a cigarette, as earnestly proposed by the anti-smoking lobby.

And let's not talk about paint color. Color is a sensitive topic in America. Probably all the cars would have to be either desert beige...or even camouflage pattern so as to be useful for military transport in case the country is invaded.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

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