Ethel the Blog

Roger Roots (via Undernews describes how our Constitutional rights have been fading for quite some time, although the pace has significantly picked up over the last 8 years. One would think that the original intent crowd would be concerned about this, although they’re probably a little busy right now what with figuring out how to reverse their wholehearted concurrence with Dick Cheney’s theories of supreme executive power.

Historians of Soviet Russia occasionally note that the communist workers paradise was originally intended to adhere to a written constitution that expressly guaranteed freedoms such as speech, press and assembly. In practice, however, none of the freedoms guaranteed in the Soviet constitution were recognized in the country s legal system, and millions of dissenters and suspected dissenters were imprisoned or killed for disagreeing with the commissars of the state.The United States Constitution, by contrast, is thought to be in good standing. Yet there are numerous provisions of the U.S. Constitution that are never enforced. These provisions, analogous to dead letters in the U.S. Postal System, are either totally ignored by federal judges or given such a narrow construction that they might as well not exist. As columnist and curmudgeon Joseph Sobran has written, the Supreme Court has, in essence, exercised a “line-item veto” over the document, totally ignoring provisions that interfere with the justices national vision or social objectives.

When the Supreme Court switched to discretionary certiorari in 1925 (thus allowing the court to pick and choose its own docket), the Court paved the way for a highly selective treatment of the Constitution. While some constitutional provisions (e.g., the First Amendment and the Fourth Amendment) are routinely accorded Supreme Court consideration, many others are almost completely ignored.

It can hardly be a coincidence that all of the dead letters happen to place limitations on the scope and power of government. In contrast, the few provisions of the Constitution granting powers to government have been interpreted expansively. The clause giving Congress power to regulate interstate commerce, for example, has been interpreted by the courts to allow Congress to imprison people for acts that can be linked to either commerce or interstate activities only by a tenuous series of conceptual inferences.

There are even provisions which were included in the Constitution to limit government but which have now been interpreted to empower government. The Takings Clause, which states that no person shall be deprived of property “without due process of law; nor shall private property be taken for public use, without just compensation,” was recently construed by the Supreme Court to give government at all levels near carte blanche power over all property. In a 2005 decision entitled Kelo v. City of New London, the Court reinterpreted the phrase “for public use” to mean for whatever use any government desires including private use.

Similarly, the Fifth Amendment Grand Jury clause was placed in the Constitution in order to limit government but has now been interpreted in a way that empowers government. As the criminal law grew more complicated during the 1800s, courts began allowing public prosecutors to appear and discuss cases before grand juries (a practice strictly forbidden at the time of the Founding). This became embedded in grand jury practice by the 1900s. Today s Federal Rules of Criminal Procedure state that prosecutors may be present before grand juries at all times and prohibit grand jurors from issuing independent presentments.

There is nothing new about this insidious trend. The Necessary and Proper clause was originally intended to bind Congress to legislating only in ways that were “necessary” to carry out the few limited powers the national government had been granted. By the early nineteenth century, however, the Supreme Court had already interpreted “necessary and proper” to mean only “proper” in the eyes of the government. As Jefferson observed, “[t]he natural progress of things is for liberty to yield and government to gain ground.”

Courts have increasingly subjected all rights mentioned in the Constitution to balancing tests, meaning that rights have become mere interests to be balanced against the (always pressing) interests of government. Thus, it is asserted that “no rights are absolute” and that courts may deny the application of a right where “the Government s regulatory interest in community safety . . . outweigh[s] an individual s liberty interest.” However, the Supreme Court has abandoned any pretense of balancing tests with regard to governmental powers (such as those found in the Tax Clause or the Spending Clause), for which the Constitution s provisions are described as plenary .

Some rights enshrined in the Constitution are rendered dead by the lack of any remedy to enforce them. For example, in 1974, the Supreme Court held that no taxpayer ever has standing to challenge the secret budget of the CIA (which clearly violates Article 1 s requirement that “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by law; and a regular Statement and Account . . . of all public Money shall be published”).

Finally, there are newly invented “maxims” of law that have crept into modern jurisprudence by means of pronouncements that they are long-recognized. One such so-called maxim originated with Justice Stone s “Footnote Four” in the 1938 case of United States v. Carolene Products Company. Justice Stone proclaimed that most congressional enactments are “presumed constitutional” and will be struck down only if they blatantly contradict explicit constitutional protections. Stone s “presumption of validity” has been cited in dozens if not hundreds of appellate decisions to turn away constitutional challenges. . .

A list of other recently invented “maxims” would include (1) Justice Robert H. Jackson s proclamation in 1949 that the Constitution is not a “suicide pact” (i.e., it should never be interpreted to mean the government is not always in control), and (2) the doctrine of “harmless error” (invented in 1967 in Chapman v. California) by which an appellate court may concede a constitutional violation but uphold a criminal conviction by proclaiming that the defendant would have been convicted even if the Constitution had been followed. There are also insidious doctrines such as “sovereign immunity” (which allows government agents to escape liability for illegal acts on the ground that they are with the government) and the “state secrets” doctrine (which deprives citizens of any redress by the assertion that proof of a constitutional violation would expose intelligence sources or methods), which are found nowhere in the text or the original understanding of the Constitution.

Of course, liberty dies incrementally, and the leviathanic government we see today took generations to bring about. It has been largely forgotten that the prohibition of intrastate liquor sales in the early twentieth century required a constitutional amendment (the Eighteenth) because policymakers and judges recognized that Congress had no constitutional authority to regulate intrastate sales of any commodity. The Supreme Court even wrote in a 1932 decision that “sales of [ ] forbidden drugs qua sales” was “a matter entirely beyond the authority of Congress.” The recent Gonzales v. Raich decision (upholding federal drugs laws as trumping California s medical marijuana protections) highlights the fact that recent generations of Supreme Court justices have amended the Constitution without formal process.

A list of constitutional dead letters follows below. I honestly don t know what weight to give some of the Bush Administration s “unitary executive” practices such as its warrantless domestic eavesdropping and treatment of detainees at Guantanamo Bay, which amount to complete abdications of the procedural rights laid out in the 4th, 5th, 6th and 8th Amendments. (If such matters are considered, it becomes arguable that the entirety of the Bill of Rights is a dead letter even if some of the rights are partially recognized for some people.) The list enumerated below, to paraphrase the dead-lettered Ninth Amendment, should not be considered all-inclusive, and there are, no doubt, other dead-lettered constitutional provisions I have neglected to identify.

- The House origination clause requiring that all “Bills for raising Revenue shall originate in the House of Representatives,” has been rendered a dead letter by neglect. As Congressman Ron Paul has pointed out, the 2008 bank bailout bill with all its tax implications was deliberately introduced in the Senate after House members rejected it a plain violation of this clause. Similar practices have gone on for many years.

- The congressional declaration of war clause. No “war” in the constitutional sense has been declared since 1941, although the executive branch has engaged in numerous undeclared wars and military escapades around the globe.

- The public accounting clause. As already discussed, the secret budget of the CIA is in plain conflict with Article I of the Constitution . . .

The Legal Tender Clause, prohibiting states from making “any Thing but gold and silver Coin a Tender in Payment of Debts.” The application of the Federal Reserve Act and many other statutes and executive orders are in plain violation of this clause. State and Federal governments demand and provide payment in paper currencies that are unbacked by any precious metals.

The prohibition against bills of attainder, which was supposed to ensure that no one could ever be punished by the legislature has been addressed only four times by the Supreme Court. Congress regularly enacts new laws placing extrajudicial punishments on various groups (felons, convicted sex offenders, disfavored corporations such as Wal-Mart, and even entire industries (e.g., “Big Tobacco”)).

- The Contract Clause, prohibiting states from impairing contractual obligations. Long dead and buried. Today the federal courts uphold wage, work, production, pricing, licensing and advertising regulations of every manner, irrespective of the Contract Clause.

The Second Amendment right to bear arms. Despite the recent Heller decision (which issued a “landmark” ruling that the Amendment protects an individual right), there are still thousands of felons and other persons in federal prison for the mere possession of firearms. No defendant has ever been released from prison or cleared of gun charges in federal court on account of judges recognizing the right to bear arms. The gist of the Heller decision is that the Amendment protects a “reasonable” right to bear government-approved arms so long as you are government-approved. Of course, such a limited and conditional reading of the Second Amendment renders it a dead letter. The leaders of the American Revolution were themselves accused (and some convicted) felons, and several were notorious criminals (e.g., John Hancock, an accused tax evader and smuggler; John Paul Jones, a twice-indicted murderer who adopted his name as an alias to avoid arrest).

The Fifth Amendment Grand Jury clause. While federal grand juries do still exist, they are now wholly subject to the control of federal prosecutors the very persons the Clause was intended to limit. The grand juries known to the Framers were civilian institutions that acted independently of prosecutors, could investigate prosecutors, and could indict prosecutors. Today, prosecutors dispense all evidence, witnesses and testimony to the grand jurors, who then retire to a deliberation room to vote on whether to approve the prosecutors wishes. (A “no” vote will just mean that the prosecutors will coerce another grand jury to vote on the same case.)

The Fifth Amendment Double Jeopardy clause. Today, the federal government commonly charges defendants who have been previously charged with essentially the same offense in state court (and vice versa). This usually happens after an acquittal or a “light” sentence in the first prosecution. Because Congress has federalized almost every state crime over the past four decades (something the Founders could never have imagined), federal and state prosecutors are able to get two bites at the apple despite the double jeopardy clause.

The Sixth Amendment right to jury trial in criminal cases. My inclusion of this one may puzzle some readers, because thousands of jury trials take place in American courtrooms annually. But the right to jury trial has been stripped for the vast majority of criminal prosecutions. Supreme Court rulings beginning in the late 1800s confined this right to cases of “serious” rather than “petty” crimes (i.e., punishable by less than six months imprisonment). This distinction exists nowhere in constitutional text, which explicitly guarantees a jury trial “in all criminal prosecutions ” and for “all crimes.” The change has allowed government to impose its will on the populace with far greater efficiency. Justices Black and Douglas observed in a 1970 concurrence that their colleagues on the Supreme Court had effectively amended the Constitution by applying a balancing test and that “those who wrote and adopted our Constitution and Bill of Rights engaged in all the balancing necessary. They decided that the value of a jury trial far outweighed its costs for ” all crimes” and “in all criminal prosecutions.”

Of course, plea bargains have replaced jury trials in most “serious” cases, allowing government to prosecute and imprison a far higher proportion of the American population than the Framers could have anticipated. And even where defendants take their charges to trial, they are tried before emasculated juries that are ordered to follow the judges interpretations of the Constitution and the laws. The Founders would have condemned this wholesale takeover of juries by modern judges.

The Sixth Amendment vicinage clause (requiring an “impartial jury of the State and district wherein the crime shall have been committed”). In practice today, most federal court proceedings have been centralized into the largest urban areas of each federal court district, leaving rural defendants in many cases to face trials before urban juries drawn from jury districts that do not include the scene(s) of the alleged offense(s).

The Seventh Amendment right to jury trial in civil cases where the amount in controversy exceeds twenty dollars ($20). The eternal drive of government officials at every level to collect petty duties, traffic and parking tickets, fees and other tributes has necessitated that they circumvent the plain language of the Seventh Amendment. Today the Seventh Amendment is one of three articles in the Bill of Rights not incorporated into state court practice by the Fourteenth Amendment. Even in federal courts, the civil remedies mandated by the Seventh Amendment are painted into an extremely narrow corner.

The Ninth Amendment protection of other “rights retained by the people.” As already discussed, this important provision, insisted upon by the Anti-Federalists in 1791, has been dead-lettered by a combination of judicial doctrines, maxims and sophistries that in essence leave the people with few or no reserved rights.

The Tenth Amendment. At the heart of the Supreme Court’s dead letter file is the abandonment of federalism in order to create a centralized regime run from Washington. Under the Founders intent, of course, each state was to retain its own sovereignty while the federal government was to act as the states mutual delegate in matters of foreign and interstate affairs. The absence of this rule in the pre-amendment Constitution precipitated massive resistance across the colonies. Yet today the federal courts regard the Tenth Amendment as a quaint “truism” a mere statement that the States get to keep whatever jurisdiction is not overtaken by the federal government.

The Fourteenth Amendment Privileges and Immunities clause, which was intended to require states to recognize legal rights recognized by the federal government and other states, was mostly dead-lettered in 1873 in The Slaughterhouse Cases, in which the Supreme Court held the provision applied primarily to freed slaves. In recent decades, courts have looked to the Fourteenth Amendment Due Process clause to replace the dead-lettered Privileges and Immunities clause.

The Twenty-Seventh Amendment, which requires that “No law varying the compensation for the services of the Senators and Representatives shall take effect until an election of Representatives shall have intervened,” has been rendered a dead letter by means of the Supreme Court s “standing” jurisprudence.

I was pleased to find a piece about Farley Mowat written by Paul Watson. The Canuck’s told me many fun stories about Mowat over the years, as well as about Conrad Black. Basically, anyone who Black goes out of his way to try to destroy is someone well worth knowing.

Farley Mowat has written his last book. Well maybe. At 87, he says that writing is like breathing and Farley is very much still breathing so I’m not so sure that Otherwise will be his last book.He does insist it will be the last book he goes on a promotion tour with. And he continues to write every day, tapping out the words on an old 1910 Underwood. (Where he finds those ribbons is a mystery.)

Farley Mowat is considered the greatest living Canadian writer today and his 40 books have made him a legend and a national literary treasure. His book Sea of Slaughter illustrates the 500 years of exploitation that decimated life in the oceans of the North Atlantic. It was such a damning expose that Farley was prohibited from doing a book tour in the United States which led to his writing the book My Discovery of America.

“Otherwise” deals with the years of Farley’s life between 1937 and 1948. The book, based largely on his meticulously detailed journals is part of an “autobiographical experiment” to retrace those formative years that helped determine the path his life would take.

“I’ve gone back and relived my life through my journals mostly, and what memories are still available to me in my antiquated state, in an attempt to discover who and what I was and why I lived the life I have,” Farley says.

Much of the book focuses on the period after he returned from World War II in Europe and was attempting to focus on a path for his life.

“And this I was helped to achieve by the animals I was encountering,” Mowat says. “I went to the Arctic and I was meeting wolves and caribou and all sorts of other animals and they helped me find myself — re-establish a feeling of worthiness of existence, and that’s really what the book is all about.”

Farley has long referred to the non-human world as the “Others” and he like I, believe that the others are far wiser than we humans.

I have known Farley as a friend for over 25 years and it has always been one of the great honours in my life to have a friend who was such an inspiration to me when I was in High School. His book Never Cry Wolf was required reading in Grade Ten. Since then he has written the forward to my book Seal Wars and has served as our International Chair.

In response to media reports that this may be Farley’s last book, he said “Writing is my function — it’s the only function I’ve got that really works and has worked for the last 50 years,” Mowat says. “I would be a fool to give it up, so I will continue to write, but whether I publish or not, it remains very much in the air. I am not anxious at all to publish any more books.”

Farley has an enormous sense of humor, a characteristic absolutely essential if you choose to side with the others against arrogance of humanity.

A few years ago Media magnate Conrad Black, the Rupert Murdoch of the Great White North attempted to expose Farley as a fraud in the pages of the intellectual literary magazine Saturday Night that Black had purchased and then degraded.

The author John Goddard who was more hitman than writer, savaged Farley and called him “Hardly Know-it”. His big expose with a cover depicting Farley with a Pinocchio nose was to suggest hat Farley was not telling the truth in the pages of his books. “He makes things up and fabricates and exaggerates his stories,” according to the writer.

Farley defused the entire scandal by simply pointing out that he was a story teller and a writer of fiction. He uses fiction to convey ideas and when he writes non-fiction it is non-fiction but Goddard made the mistake of suggesting that Farley’s fiction books were non-fiction.

In the end, Farley was exonerated and acclaimed, Goddard was dismissed as a hired poison pen and Conrad Black, well Mr. Black is serving time in prison for bribery and fraud in the United States.

I was very touched when Farley in a CTV interview on the morning of November 3rd said that his proudest achievement has little to do with his books.

At the top of the list, he said, is the fact that the Sea Shepherd Conservation Society has named their ship — one which intervenes to protect seals and whales from illegal hunting — after him.

“She single-handedly, with her crew of volunteers, engages the whole of the commercial whaling fleet of the world and has done for 20 years,” Mowat says. “She engages those who are trying to exploit the seal populations and she fights for the survival of life in the seas, and to have my name on the bow and stern is one of, if not the greatest, compliment ever paid to me.”

The honour is of course ours. To have Farley’s name on the bow of our ship is something all of us in Sea Shepherd are very proud of.

Pam Martens further describes the mendacity of both those doing the bailing and those receiving the bales. In return for a couple of trillion bucks worth of taxpayer dollars, the taxpayer is being told to piss off by the Scrooge McDucks swimming in their money pits. I’m off to peruse my DIY guillotine plans, so here’s Pam:

Purge your mind for a moment about everything you’ve heard and read in the last decade about investing on Wall Street and think about the following business model:You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you “stay invested for the long haul” you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don’t have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.

Now consider how Wikipedia describes a Ponzi scheme:

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi…One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time…The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the ‘assets’ that should exist do not.”

Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).

We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint.

But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place. Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.

Fortunately for American taxpayers, Bloomberg News has some inquiring minds, even if our Congress and prosecutors don’t. On May 20, 2008, Bloomberg News reporter, Mark Pittman, filed a Freedom of Information Act request (FOIA) with the Federal Reserve asking for detailed information relevant to whom the central bank was giving these massive loans and precisely what securities these firms were posting as collateral. Bloomberg also wanted details on “contracts with outside entities that show the employees or entities being used to price the Relevant Securities and to conduct the process of lending.” Heretofore, our opaque central bank had been mum on all points.

By law, the Federal Reserve had until June 18, 2008 to answer the FOIA request. Here’s what happened instead, according to the Bloomberg lawsuit: On June 19, 2008, the Fed invoked its right to extend the response time to July 3, 2008. On July 8, 2008, the Fed called Bloomberg News to say it was processing the request. The Fed rang up Bloomberg again on August 15, 2008, wherein Alison Thro, Senior Counsel and another employee, Pam Wilson, informed the business wire service that their request was going to be denied by the end of September 2008. No further response of any kind was received, including the denial. On November 7, 2008, Bloomberg News slapped a federal lawsuit on the Board of Governors of the Federal Reserve, asserting the following:

“The government documents that Bloomberg seeks are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression. The effect of that crisis on the American public has been and will continue to be devastating. Hundreds of corporations are announcing layoffs in response to the crisis, and the economy was the top issue for many Americans in the recent elections. In response to the crisis, the Fed has vastly expanded its lending programs to private financial institutions. To obtain access to this public money and to safeguard the taxpayers’ interests, borrowers are required to post collateral. Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed’s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom.”

As evidence that Bloomberg News is not engaging in hyperbole when it uses the word “cataclysmic” in a Federal court filing, consider the following price movements of some of these giant financial institutions. (All current prices are intraday on November 12, 2008):

American International Group (AIG): Currently $2.16; in May 2007, $72.00

Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing; share price in April 2007, $159

Fannie Mae: Currently 65 cents; in June 2007 $69.00

Freddie Mac: Currently 79 cents; in May 2007 $67.00

Lehman Brothers: Currently 6 cents; in February 2007, $85.00

What all of the companies in this article have in common is that they were writing secret contracts called Credit Default Swaps (CDS) on each other and/or between each other. These are not the credit default swaps recently disclosed by the Depository Trust and Clearing Corporation (DTCC). These are the contracts that still live in darkness and are at the root of why the Wall Street banks won’t lend to each other and why their share prices are melting faster than a snow cone in July.

A Credit Default Swap can be used by a bank to hedge against default on loans it has made by buying a type of insurance from another party. The buyer pays a premium upfront and annually and the seller pays the face amount of the insurance in the event of default. In the last few years, however, the contracts have been increasingly used to speculate on defaults when the buyer of the CDS has no exposure to the firm or underlying debt instruments. The CDS contracts outstanding now total somewhere between $34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness. It is also quite likely that none of the firms that agreed to pay the hundreds of billions in insurance, such as AIG, have the money to do so. It is also quite likely that were these hedges shown to be uncollectible hedges, massive amounts of new capital would be needed by the big Wall Street firms and some would be deemed insolvent.

Until Congress holds serious investigations and hearings, the U.S. taxpayer may be funding little more than Ponzi schemes while companies that provide real products and services, legitimate jobs and contributions to the economy are left to fail.

I briefly considered watching the dung-flinging hacks on Fox on election night so I could delight in the weeping and gnashing of teeth I would undoubtedly see once the inevitable unfolded, but I decided against it. I flipped over to the Animal Channel, hoping they were doing for election night what they do for the Super Bowl every year - providing an alternative in the form of a bunch of dogs sniffing each other’s bums and generally running around and having a good time - but there was no such luck. I was secretly hoping they’d do something really clever like have a room full of dung-flinging chimps, which I could have watched for hours as a fascinating alternative to journalist and political hacks babbling the sort of self-involved babble that dominates the airwaves these days. I ended up watching CNN at a party at a neighbor’s house where I happily boozed it up until the wee hours.

It turns out that Mark Ames took one for the team, doing the yeoman’s work of abusing his eyes and brain by watching Fox on election night so we wouldn’t have to. In a fascinating piece, he discovers that while the rubes, knuckle-draggers, mouth-breathers, and various other ne’er-do-wells are indeed howling at the moon, the demagogues who’ve been whipping them into a frenzy for the last couple of decades are - to borrow a word from Will Ferrell - adopting a new strategery.

The first polls had just closed when the Republican Right’s “Agony of Defeat” moment arrived. It was just after 8 p.m. — right as Fox’s “America’s Election HQ” show returned from a commercial break, and Brit Hume welcomed viewers back to his “Fair and Balanced” network.But something wasn’t right: There was a strange lack of background banter, none of the golf-buddy joshing that comes with overconfidence. There was just Bergman-esque silence between every one of Brit Hume’s dramatic pauses. The Fox cameras wandered over an incredible scene: the cream of right-wing/neocon punditry — William Kristol, Fred Barnes and Mort Kondracke — were caught slumped in their chairs during the commercial break, deep in a state of hopelessness and depression. They didn’t see the camera train on them, or maybe they were incapable of faking it, as if they’d been on a three-day Ecstasy roll at Burning Man, and now they were paying the horrible serotonin-deprived price. Kristol looked like he was suffering the worst: He was slouched over the table, his grotesque Stewie-shaped head sulking down to his navel, his glazed eyes staring down at the floor. He strained to lift his head when Hume called on him to comment — and when Kristol spoke, it was in a raspy, slow voice, not his usual smirking, energetic arrogance. To quote a sympathetic right-wing blogger, “Will Collier e-mails to tell me that he hasn’t seen Bill Kristol look this bad since his man McCain get stomped in S.C. by Bush in 2000.”

I started my Fox News Election Day Agony Watch at 6:30 a.m. I was expecting a lot of last-minute shrieking about voter fraud, ACORN and Barack Hussein Osama terrorist-mongering, the climax to a vicious campaign that Fox had been promoting over the previous month or two, but what was so strange that day was the relatively subdued, quasi-civil tone that Fox was taking. They pushed those buttons on Election Day, but only halfheartedly. You’d have to have watched a lot of Fox News — which I have, out of morbid curiosity — to detect the tonal shift on Nov. 4. It was as if they had decided to pull their punches. Before the polls opened, Ann Coulter appeared for a few minutes to riff against the liberals, but the 47-year-old MILF-wannabe looked oddly desperate in her mini-miniskirt and knee-high boots, as if she stole her imaginary teenage daughter’s clubbing outfit and wanted to show it off. The effect was wrong, a desperate eccentricity, like a neocon Michael Jackson.

What was going on? It was as if the Fox News execs were nervous, so they came up with a Plan B approach. Gone was the usual mob-incitement chest-beating that has made Fox News such a hit in Middle America. It seems that the craftier vanguard of the Republican right-wing mob got together and decided that this was the craftiest position to adopt. Just before the elections, Kristol published a New York Times column that threw his entire 20-year divide-and-quagmire playbook out the window in favor of a new pseudo-gracious “hey, we’re all friends, liberals and conservatives, and isn’t it a wonderful country we live in?” mantra.

The Fox execs also did their best to affect a civil, gracious tone. That’s why watching the Fox News agony-of-defeat spectacle was more subtle than I’d expected: The mob leaders had decided to abandon the mob — meaning if I wanted to get a glimpse into the raw screeching agony that the right wing really feels when the camera is turned off, I would have to head into the blog world, where they could squeal their lungs out in safe anonymity. The “patriots” at Freerepublic.com, which boasts millions of visitors, went through at least four rapid stages of decline on Election Day: first, hope; then utter shock at the realization of defeat; then outrage and a sense of betrayal; and finally a retreat into Christian prayer and empty threats of Red Dawn armed insurrection. The Freepers aren’t just outraged at Obama and the communist-Islamo-terrorists taking over the White House; they are also outraged at the Republican Party that “betrayed” them, outraged at the American population that proved to be nothing but brainwashed “sheeple” (someone named kimchilover wrote, “For the first time, in my adult life, I am ashamed of my country … my little take on Michelle’s sentiments”), and even outraged at, yes, Fox News, which they quickly sensed was abandoning them. Many couldn’t make sense of being abandoned by Fox. As one commenter wrote, “Watch Fox with the sound off and you will be LESS aggravated.”

…

Like the much more numerous Freepers, the mob at Pajamas Media is outraged because they have been betrayed. It’s not just that the liberals betrayed them, but that the leaders they’d followed — Fox News, right-wing bloggers, and the Republican elite who have been mobilizing their pitchfork fury — now find their savagery a liability, and they’re abandoning them. It’s the fury of having been played for a sucker — and the “real American” mob has been played for the biggest sucker in American history, as is clear from their sense of abandonment.

It is an incredible spectacle to behold: the Republican elite abandoning a 20-year narrative at the snap of a finger just to make sure that it is positioned well in the new Obama dynamic. The Republican elite has clearly decided that the “Real America” mob it had exploited had become a liability, but still it’s amazing how seamlessly and quickly it can throw its own audience overboard. Witness the smear campaign against the right-wing mob’s heroine, Sarah Palin, who is now being taken down by none other than Bill O’Reilly.

The right-wing mob’s sense of rage and betrayal from all this is so great that over at FreeRepublic you can read, for the first time I can recall, hatred against Jews, whose electoral support for Obama poured salt on the Freepers’ wounds. Read the comments to a posting the day after the election titled “Obama Receives 77% of Jewish Vote — More Than Kerry,” such as this: “I have always supported Israel and the Jewish people — NO MORE — if Iran throws a few missiles their way — too bad! I don’t care anymore!”

As for me, I couldn’t pass up the opportunity to gloat and twist the knife, after all the destruction they’ve wreaked on America and the world. So I created a Bugs Bunny character named “Josh” to dance a virtual dirty chicken all over Pajamas Media’s comment section end zone, stirring up the chimps into a frenzy of shrieking. There’s nothing a Republican hates more than being called a “loser,” in case you’re wondering.

All in all, Nov. 4 was a great day for us warm-blooded animals. Nov. 4 delivered not only hope, but satisfying comedy, as we could watch millions of Dean Wormers and Neidermeyers howling in right-wing rage. But Fox’s sly response shows that the smarter ones are already strategizing, and that the split in the Republican Party between the crafty elite and the flesh-eating zombies who until now served as its base means that there’s plenty more comic entertainment and gloating to come.

The War Nerd summarizes the Bush “legacy” as well as it can be done until someone beats all the facts out of the perpetrators once they’ve been relocated to Gitmo. I’ll be rereading this around January 20th as an antidote to the Aegean stablesworth of fawning, sycophantic stool that’s going to be pinched off by the mainstream media as the boob who makes Warren G. Harding and Calvin Coolidge look Lincolnesque slinks back to Crawford for an ill-deserved comfortable retirement - in stark contrast to the grim future faced by those financially devastated by the mendacious schemes of the Smirking Chimp and his cronies.

What George W. Bush loved best about his job was being a war president. Playing war, that is, as opposed to making war like a grown-up. Remember him strutting onto that carrier in his little flight jacket? You never saw Eisenhower, a real general, playing out his martial fantasies this way. You can take the drink out of the drunk, but you can’t take the swagger out of a fool.Compare Bush’s eight years to Clinton’s, and you see how much he loved to play the soldier. No one expected that from a Republican: Reagan and Bush senior were cautious about betting America’s chips. Liberals used to make fun of Reagan for picking on tiny helpless nations that couldn’t fight back. Now they are remembering with pure nostalgia Reagan’s invasion of Grenada, air raids on Libya, and even our 1984 withdrawal from Beirut.

We’ll never know how far W. would have gone to find himself a war because he had all he needed delivered by air on Sept. 11, 2001. Remember how people felt in those days? A friend of mine said, “It was like the aliens had invaded.”

We needed our president to be a hero and made him into one, even though it was obvious he wasn’t up to the job. He didn’t take the first plane to Manhattan, stand there and say, “We’re coming for you bastards!” Instead he sat in a roomful of children, reading The Pet Goat, then dropped off the radar for hours before his handlers got him ready.

Maybe there’s a lesson here: if the president doesn’t cut it in a crisis, we’re better off admitting that to ourselves and telling him so instead of pretending he’s a great leader. When you make a weakling into a hero, you give him a lot of power. If we’d kept our eyes open and faced the fact that Bush reacted badly to 9/11, we might have been able to ask for a little more detail about his big plans.

Those came courtesy of Cheney and his neocon punks. What a crew these guys were! Like their boss, they were also woofers, boasters—but of a different variety. Dubya was your standard frat boy loudmouth, but Cheney, with his talk about “working the dark side,” was more like the ultimate Dungeons and Dragons nerd. And you couldn’t ask Hollywood to serve up a goofier selection of dorks than his neocon staffers, who drifted from the universities to D.C. the way has-been pop singers switch to country and western to leech off a new bunch of suckers.

On the one hand, they were scared to death of Arabs and hated all Muslims. On the other, they were convinced that every Muslim on the planet really wanted, deep in his heart, to be magically turned into an Ohio Republican. That was their theory: take an anti-American Arab country, add an invading army, and voila! a nice fluffy democracy soufflé.

So we poured American blood and treasure into the Iraqi dust to prove the half-baked theories of a bunch of tenth-rate professors. The most expensive experiment in the history of the world, all to learn something any 10-year-old could have told them: people don’t take to foreign troops on their streets, and not everybody wants to be like us. You know those Ig-Nobel awards they hand out to the dumbest science projects of the year? The Iraq invasion is the all-time winner. Retire the trophy with the names of the winning team: Bush, Cheney, Kristol, Wolfowitz, Feith.

But first came Afghanistan—“the graveyard of empires.” Every military-history wannabe was conjuring the ghosts of that Victorian British army slaughtered by the Afghans, along with all the propaganda we’d been pushing about the invincible mujahedeen who’d driven out the Soviets. Looking back, what they had routed was a dying Soviet state, and they didn’t even manage to do that until we took the risk of giving them Stinger anti-aircraft missiles. But all the pundits’ knees were shaking about going into the Afghan haunted house.

We started slow, the way American armies tend to do, taking a while to limber up. There were weeks of bombing the Shomali Plain to no visible effect and a Special Forces raid on Mullah Omar’s compound that was more “Naked Gun” than “Top Gun.” Then Mazar-i-Sharif in the north fell suddenly, and it turned into the kind of war that Northern Alliance fighters and fighter-bomber pilots both love: hunting down a fleeing enemy.

The campaign went so well, so fast, that it taught Bush and Cheney the wrong lessons. They started exporting democracy to Afghanistan, even hiring a local Pashtun girl to read the Kabul evening news. When you tell a big, backwards tribe like the Pashtun that you’re going to turn their whole world upside down for them, you shouldn’t expect them to be grateful. But we did, setting ourselves up for a whole lot of trouble later on.

Worse yet, Bush’s people figured that since Afghanistan, the tough nut, cracked so easily, their pet project, a second Iraq invasion, would be a cakewalk. This time they would do it right, occupying the Iraqi cities instead of just crushing Saddam’s army and withdrawing like Bush senior did.

Nobody wants to recall what Americans believed back then. That’s OK: I’ll remember it. People thought that Saddam was “connected to” 9/11, and his agents were going to poison our water, nuke our cities, and gas our subways. At least they claimed to believe all that unlikely James Bond stuff. I don’t think they really did. There was just so much revenge momentum after 9/11 that it had to burst out somewhere. Everybody wanted payback. It’s natural. But most of the time, in your average democracy, cooler heads are in charge. Not this time. Bush and his team were foaming at the mouth far more than the average citizen. It was like a crazed sheriff trying to talk a lukewarm mob into a lynching frenzy. With the help of people who should have known better—I’m looking at you, Colin Powell—he got his way.

That, in the short version, is why George W. Bush is about to leave office the most unpopular American president in history. You can spin Iraq a hundred different ways, but it still comes up bad news because once the dust settles, the Iranians are in control of the whole region, and they didn’t have to fire a shot. We destroyed their old rival for them.

It’s a simple story: we crushed Saddam’s army, occupied the cities, and then acted like the whole country would turn itself into a neocon fantasyland. Paul Bremer’s cult kids were talking tax reform while the Iraqi army they had sent home unemployed was busy digging up the weapons they had buried in their yards. Bush’s counterinsurgency policy was pretending there was no insurgency then pretending it was just Saddam’s “deadenders.” When Saddam’s capture at the end of 2003 didn’t slow the insurgency, Bush’s defenders stopped acting like they knew what was going on and just settled for blaming the Iranians—as if it was a nasty surprise that Iran, the country that openly hates America most in the whole world, might get involved in anti-American operations when we occupied Iraq right next door.

People ask what our counterinsurgency strategy was before the surge. Easy: we had none. We were doing nothing but offering the insurgents moving targets. A standard operation for the occupation force in those dark days was patrolling through an alien Sunni neighborhood, waiting for an IED to go off under the lead vehicle or for an RPG or small-arms ambush. When that happens, conventional forces have a grim choice: do nothing, withdrawing while the locals snicker at your dead and wounded, or open fire on everyone in sight. Either way, the insurgents win. If you withdraw, they’ve hit you with impunity and gained respect in the neighborhood. If you open fire on the slums, you kill civilians and make enemies.

Effective counterinsurgency means not relying on massive firepower the way conventional forces are trained to do. The idea is not to fire until you know exactly who you’re up against. It’s the opposite of shock and awe. It’s discipline and patience. Gen. David Petraeus implemented a set of reforms usually called the surge, though they were about tactics more than reinforcements. All he really did was initiate overdue standard counterinsurgency doctrine. He integrated U.S. units with Iraqi forces then sent them out into the neighborhoods. You can’t run any kind of counterinsurgency plan without good street-level intelligence, but Bush’s people wouldn’t admit that there was an insurgency, so they wouldn’t commit to learning about it. Their style was to ignore it and hope it would go away.

That’s why Afghanistan went well in the early stages: we didn’t go in trying to turn the Afghans into democrats, but trying to crush the Taliban and al-Qaeda. In Iraq, Bush was dreaming from the start, so the whole effort was doomed.

The surge worked about as well as any good counterinsurgency effort could. We know a little about the enemy now, and there’s less violence because all the neighborhoods had already been ethnically cleansed. Baghdad is now a Shi’ite city. There are a few Sunni enclaves, but the Shia rule the city and the country, with the Kurds fortifying themselves up north and wishing they could saw their territory off and relocate it somewhere in mid-ocean.

That’s what Bush’s trillion-dollar investment in Iraq has bought. Meanwhile, if you look at the rest of the world map, you get a real shock. Regions like Latin America and Central Asia that eight years ago were American protectorates in all but name have turned against us while we were distracted with Iraq. Many times, the real winners are countries that manage to stay out of a war, the way England benefited by not getting sucked into the Thirty Years’ War. Iran is much stronger now, and so is Russia. The Russians, who seemed to be in their “throes” when Clinton left office, just slapped down Georgia, one of our few remaining allies among the old Soviet states, and there wasn’t a thing we could do but grumble.

It’s no puzzle: we pretended a goon was a hero, let him play out his foolish fantasies about remaking the Middle East, and wasted our strength on a losing effort while the rest of the world drifted out of our power. Our leader was a laughingstock around globe, and he made America the butt of the world’s contempt. But Bush got his wish—he was a war president and then some. The rest of us were the casualties.

I can always count on Chris Floyd for some corking good fire and brimstone that’ll get me off my lazy ass and back to heating up that barrel of tar. On a not unrelated note, I noticed yesterday that the local bank fascists had raised their ATM fee from $2 to $3, undoubtedly to finance their next working vacation at Club Med where they can relax, unwind and think of clever financial ideas like raising ATM fees.

Perhaps the most striking fact revealed by the global financial crash — or rather, by the reaction to it — is the staggering, astonishing, gargantuan amount of money that the governments of the world have at their command.In just a matter of days, we have seen literally trillions of dollars offered to the financial services sector by national treasuries and central banks across the globe. Britain alone has put $1 trillion at the disposal of the bankers, traders, lenders and speculators; and this has been surpassed by the total package of public money that Washington is shoveling into the financial furnaces of Wall Street and the banks. These radical efforts are being replicated on a slightly smaller scale in France, Germany, Italy, Russia and many other countries.

The effectiveness of this unprecedented transfer of wealth from ordinary citizens to the top tiers of the business world remains to be seen. It will certainly insulate the very rich from the consequences of their own greed and folly and fraud; but it is not at all clear how much these measures will shield the vast majority of people from the catastrophe that has been visited upon them by the elite.

But putting aside for a moment the actual intent, details and results of the global bailout offers, it is their very extent that shocks, and shows — in a stark, harsh, all-revealing light — the brutal disdain with which the national governments of the world’s “leading democracies” have treated their own citizens for decades.

Beginning with Margaret Thatcher’s election in 1979, government after government — and party after party — fell to the onslaught of an extremist faith: the narrow, blinkered fundamentalism of the “Chicago School.” Epitomized by its patron saint, Milton Friedman, the rigid doctrine held that an unregulated market would always “correct” itself, because its workings are based on entirely rational and quantifiable principles. This was of course an absurdly reductive and savagely ignorant view of history, money and human nature; but because it flattered the rich and powerful, offering an “intellectual” justification for rapacious greed and ever-widening economic and social inequality, it was adopted as holy writ by the elite and promulgated as public policy.

This radical cult — a kind of Bolshevism from above — took its strongest hold in the United States and Britain, and was then imposed on many weaker nations through the IMF-led “Washington Consensus” (more aptly named by Naomi Klein as the “Shock Doctrine”), with devastating and deadly results. (As in Yeltsin’s Russia, for example, where life expectancy dropped precipitously and millions of people died premature deaths from poverty, illness, and despair.)

According to the cult, not only were markets to be freed from the constraints placed on them after the world-shattering effects of the Great Depression, but all public spending was to be slashed ruthlessly to the bone. (Although exceptions were always made for the Pentagon war machine.) After all, every dollar spent by a public entity on public services and amenities was a dollar taken away from the private wheeler-dealers who could more usefully employ it in increasing the wealth of the elite — who would then allow some of their vast profits to “trickle down” to the lower orders.

This was the cult that captured the governments of the United States and Britain (among others), as well as the Republican and Democratic parties, and the Conservative and Labour parties as well. And for almost thirty years, its ruthless doctrines have been put into practice. Regulation and oversight of financial markets were systematically stripped away or rendered toothless. Essential public services were sold off, for chump change, to corporate interests. Public spending on anything other than making war, threatening war and profiting from war was pared back or eliminated. Such public spending that did remain was forever under threat and derided, like the remnants of some pagan faith surviving in isolated backwaters.

Year after year, the ordinary citizens were told by their governments: we have no money to spend on your needs, on your communities, on your infrastructure, on your health, on your children, on your environment, on your quality of life. We can’t do those kinds of things any more.

Of course, when talking amongst themselves, or with the believers in the think tanks, boardrooms — and editorial offices — the cultists would speak more plainly: we don’t do those things anymore because we shouldn’t do them, we don’t want to do them, they are wrong, they are evil, they are outside the faith. But for the hoi polloi, the line was usually something like this: Budgets are tight, we must balance them (for a “balanced budget” is a core doctrine of the cult), we just can’t afford all these luxuries, sorry about that.

But now, as the emptiness and falsity of the Chicago cargo cult stands nakedly revealed, even to some of its most faithful and fanatical adherents, we can see that this 30-year mantra by our governments has been a deliberate and outright lie. The money was there — billions and billions and billions of dollars of it, trillions of dollars of it. We can see it before our very eyes today — being whisked away from our public treasuries and showered upon the banks and the brokerages.

The Canuck - busy for once on something other than luring polar bears into his basement “laboratory” - also sends me a bit from Harry Koza, a senior Canadian markets analyst at Thomson Reuters and a columnist for GlobeinvestorGOLD.com. I’m not sure if he’s also a senior analyst on the Daily Show, but he offers some interesting insights into various financial shenanigans. I’m holding to my position that there’s nothing about this crisis that can’t be ameliorated via the careful ministrations of Dr. Tar and Professor Feather.

Gee, everybody is kvetching over mark-to-market rules these days. Bill Gross (the King of Bonds) thinks the mark-to-market (M2M) rules need to be scrapped. So does the American Banking Association. Securities and Exchange Commission chairman Christopher Cox says the M2M rules - or fair value accounting, as the practice is more properly known, at least off the trading desk - need “further work.”Maybe I’m being cynical (I prefer to call it merely being observant), but it seems to me that all the critics of M2M have an axe, as they say on the bond desk - they’re talking their positions.

Can’t blame ‘em, really. Being long a bunch of radioactive crapola that you can’t sell except maybe for cents-on-the-dollar to some vulture, er, distressed-investment specialist, and being forced to mark it on your books at that price instead of the price that your high-tech black box model says it is worth can’t be much fun. It’s especially unpleasant when, after marking it to market, you have to take big fat writedowns and the next thing you know your stock options are worthless and nobody’s getting a bonus this year. Dudes, that’s harsh.

But, they all protest, these are actually really pretty good assets, or at least not necessarily completely riddled with subprime slime. And hey, they may even be worth par some day, albeit on a suitably geological time scale - you know, like the amount of time between Maple Leaf Stanley Cup wins. So making us mark them to market right now when prices are a wee bit depressed is a very bad thing, as it requires us to take big honking writedowns and forces us to go out and raise new capital at rates that would have given us all conniptions a few years ago.

So the opponents of fair value accounting naturally want the rules eliminated, or at least, relaxed, and they want the regulators to use “forbearance,” which is weasel-speak for nudge-nudge, wink-wink, “no dodgy assets on display here, folks.”

And they wonder why banks still won’t lend to each other and we need still more bailout plans with more letters of the alphabet than a can of Campbell’s soup.

Fans of M2M say the practice means more transparency for investors. The Federal Deposit Insurance Corp., nervously eyeing the dozens of other U.S. banks circling the drain and itself already in need of a big capital injection after taking over IndyMac, says M2M is making things worse by exacerbating the meltdown of the financial system. It indisputably is - although the FDIC is also doing a Roger Daltry here, talkin’ ’bout its p-p-p-position: The more writedowns, the more it costs the FDIC to bail out depositors at the stricken banks. No more M2M, no more writedowns.

That’d be fair enough if it was a case of no more M2M and no more writedowns obviating the need for further bailouts, but it isn’t. No more M2M plus government bailouts is having your cake and eating it, too.

I think that not requiring banks to use M2M any more, but rather letting them value their assets at whatever price is necessary to maintain the mirage of solvency, isn’t a very good idea. It’s like switching from mark-to-market to mark-to-mendacity. Banks don’t need less transparency, they need more. You think there are problems in the interbank funding market now, just try scrapping M2M: Libor will be back above 4 per cent faster than a politician on a dumb idea.

Inevitably, though, something will be done about fair value accounting; most likely, I think, something in the “forbearance” department. This strikes me as rather ironic, given the hue and cry from regulators and politicians these days for more financial regulation.

Even Alan Greenspan was doing the mea culpa thing the other day, blaming the mess on a lack of adequate regulation. Of course, the Maestro is talking his position, too - he doesn’t want the blame to fall on the guy who cut interest rates to 1 per cent and kept them there for a year, which sparked the debt orgy in the first place.

That’s just the ticket. We’ll have lots more regulation, and lots more regulators. Of course, the regulators will be willfully blind with respect to bank balance sheet asset valuations, which doubtless will work a treat to help restore investor confidence.

But what really sticks in my craw is that none of the people moaning about M2M had even the slightest problem with it while the debt bubble was inflating. No, back then, everybody loved M2M, mark-to-market was everybody’s best friend. Every day, they’d mark their holdings to market at ever higher and higher prices (house prices never go down, y’see), inflating their balance sheets and allowing them to strap on even more leverage, in the process inflating profits and goosing their bonuses to levels that would have made even Gordon Gecko blush.

Yes, everybody loved M2M on the way up. And it eventually allowed them to accomplish what Archimedes first postulated more than 2,000 years ago but could never achieve - they finally got enough leverage to move the world.

The Canuck sends me me this bit from Avner Mandelman, who runs an investment company. It’s dated Nov. 8, 2008. Being a gold advocate, he puts the Chinese economic problems in the context of their posited future effect on gold prices. But even if you’re unconcerned about the shiny stuff, it’s a sobering read. Luckily I’ve got my anti-sober medication handy.

A few months ago, amidst comfy consensus that China’s prospects are rosy, this column noted that the country is really a bubble. This contrary opinion generated much e-mail flack. But then, an e-mail arrived from a Canadian engineer in China whose team had just finished a government project in a town so small that (in the guy’s words), “dogs were chasing chickens down the street.”

Despite the town’s size, it sported dozens of condo towers and a posh hotel. And so, to celebrate the completion of the project, the Canadians went to dinner at the hotel’s restaurant with the local bigwig (the son of an army general), who, by the way, also owned the hotel and condos.

They were the only diners present - the hotel was empty and dark, the condos emptier and darker. But there were lots of staff members, and during dinner the bigwig kept complaining that the Beijing bank that lent him the construction money was suddenly demanding interest. The cheek! How could one keep restive peasants employed if one had to pay interest?

My e-mailer noted wryly that all over China there are many such empty hotels and condos - and factories too - built with loans to the well-connected and intended to maintain employment, but also (allegedly) to allow loyal bigwigs to enrich themselves.

The economic value of such enterprises is, of course, zip, yet the “loans” are carried on the books of Chinese banks as good ones - just like U.S. mortgages to shirtless Joes and Janes were carried on Freddie Mac’s and Fannie Mae’s books before the mortgage corporations blew up. And, yes, just like loans to Sony or Sumitomo were carried by Japanese banks in the 1990s before the Japanese economy blew up.

And, similarly again, just as everyone in Congress knew that Freddie and Fannie would soon come to grief - or just as everyone in Japan in the ’90s knew that most corporate loans were unpayable - the same is known in today’s China. Yet most China bulls in the West maintain that the country’s growth has merely slowed temporarily and will soon resume.

Will it? Not according to my informants. China, they insist, is like Japan of the ’90s times three; it is Nortel writ large, maybe even Russia before the 1988 upheaval. You think this is extreme? Think again. Just last week Chinese Premier Wen Jiabao finally admitted that slow growth could risk “social stability.” Slow growth? How about no growth? Or even negative growth? It’s coming, and here’s why.

You see, China, like Nortel and Japan and Soviet Russia, has been selling most things below true cost - which is the direct cost of production plus the cost of capital - and thus lost money on much of what it produced, and so destroyed much of its capital. A company that does so must eventually lay off workers and go bust. China, in my opinion, now faces similar risks, which Mr. Wen finally admitted.

Why does China sell below true cost? Because it is a dictatorship that wants to keep its restive people employed, and so, like (democratic) Japan before it, it keeps throwing good savings at bogus products. I say bogus because if you sell below true cost you create fictitious demand that otherwise wouldn’t be there had the product been priced realistically. Thus the large factory you built to satisfy the goosed-up demand cannot be rebuilt once it wears out because you didn’t include depreciation in the product’s price.

Say you charged a mere $5 for a bottle of a 30-year-old Mouton Cadet because that’s the cost of the corkers’ wage, the bottle’s glass, the unfermented grape juices and the paper label, and charged nothing for the 30 years of fermentation in an air-conditioned cellar. You would, of course, sell a large number of $5 Moutons, but would go bust once you had to rebuild the cellar.

Just like Japan did when it sold transistors for pennies when they really cost dollars if Japan had included the cost of capital; or just like Nortel a few years ago, when it sold products obtained (or improved) through acquisitions, for prices that excluded the amortized cost of the acquisition, in effect treating capital as having little or no cost; and just like China today, which sells nearly everything at the “China Price” - the cost of labour plus (alleged) pay-offs to, for example, generals’ sons - while ignoring most capital costs because many loans do not have to be repaid. That’s why much of China’s manufacturing sector, although impressive to look at, is uneconomical, having been built to produce stuff that, were it priced to include the full cost of capital, might not have sold at all. For a while it worked - just like dot-coms or Japan or Russia - but now the party is over and China is about to meet the fate of all those who sell below true cost: mass layoffs, upheaval and perhaps a change of management.

Why should you care? Because of gold.

Recently gold has been very volatile, and could tack on $50, or even $100, in the short term. But longer term, if inflation - already quashed by Freddie and Fannie’s blow-up - is further squashed by China’s punctured bubble, gold is likely heading down.

Why? First, low inflation, even deflation, will lessen the need for inflation hedges. But second, and more crucial, as the West buys less of China’s more fully priced products, and as China’s cash needs escalate, its government, to feed the peasants and to maintain its power, will sell state assets - including gold. This, plus inflation, could push gold much lower than anyone thinks, perhaps to half its current price. How’s that for a real contrary opinion?