Monday, November 08, 2004

Dissolve Your Town, Lower Your Property Taxes

Welcome to what used to be Centerville
What's in a name? Not much in some Maine towns
By Roger O’Neil

THE TOWN FORMERLY KNOWN AS CENTERVILLE, Maine - Mention Maine and most people think of autumn leaves. But the fall foliage masks a troubled landscape.

In Cooper, Maine, citizens say they want to dissolve their town to lower taxes. Going out of business appeals to small places like Cooper, where only 145 people live. With no jobs and an aging population, the tax base is shrinking even though the costs of government keep rising.

"It just got to be more than we could handle," says Sue Dorsey.

Dorsey says that's why the 26 residents of Centerville let the state take over their affairs — everything from education to snow removal.

"There was more to do and less people that wanted to do it," says Dorsey.

Centerville not only locked the door to city hall, it sold it for $3,500.

Since 1980, nine towns in Maine have ceased to be. And more are talking about it. A huge area — half the state — is now part of what's called "the unorganized territory," where there's no local government.

Read the whole story on

Saturday, November 06, 2004

The Frogs Asking for a King


[G]rieved at having no established Ruler, sent ambassadors to Jupiter entreating for a King. Perceiving their simplicity, he cast down a huge log into the lake. The Frogs were terrified at the splash occasioned by its fall and hid themselves in the depths of the pool. But as soon as they realized that the huge log was motionless, they swam again to the top of the water, dismissed their fears, climbed up, and began squatting on it in contempt. After some time they began to think themselves ill-treated in the appointment of so inert a Ruler, and sent a second deputation to Jupiter to pray that he would set over them another sovereign. He then gave them an Eel to govern them. When the Frogs discovered his easy good nature, they sent yet a third time to Jupiter to beg him to choose for them still another King. Jupiter, displeased with all their complaints, sent a Heron, who preyed upon the Frogs day by day till there were none left to croak upon the lake.

More of Aesop's Fables.

Tuesday, November 02, 2004

Public Service Announcement

G-Mail Accounts "Wide Open To Exploit"

By John Leyden

Google's high profile webmail service, Gmail, is vulnerable to a security exploit that might allow hackers full access to a user's email account simply by knowing the user name, according to reports.

The security flaw allows full access to users' accounts, with no need of a password, Israeli news site Nana says . Using a hex-encoded XSS link, the victim's cookie file can be stolen by a hacker, who can later use it to identify himself to Gmail as the original owner of an email account, regardless of whether or not the password is subsequently changed...

Read the article at The Guardian.

Monday, November 01, 2004

Politics of a Light Bulb

Q: How many members of the Bush Administration are needed to change a light bulb? (10)

1. One to deny that a light bulb needs to be changed.
2. One to attack the patriotism of anyone who says the light bulb needs to be changed.
3. One to blame Clinton for burning out the light bulb.
4. One to tell the nations of the world that they are either "for" changing the light bulb or "for" darkness.
5. One to give a billion dollar no-bid contract to Haliburton for the new light bulb.
6. One to arrange a photograph of Bush, dressed as a janitor, standing on a step ladder under the banner: "Lightbulb Change Accomplished".
7. One administration insider to resign and write a book documenting in detail how Bush was literally in the dark.
8. One to viciously smear #7.
9. One surrogate to campaign on TV and at rallies on how George Bush has had a strong light-bulb-changing policy all along.
10. And finally, one to confuse Americans about the difference between screwing a light bulb and screwing the country.

And, in the name of equal time...

How many members of the John Kerry team does it take to change a lightbulb? (14)

1. One to write about how John Kerry bravely changed light bulbs in the face of the enemy in Vietnam.
2. One to write good copy for journalists about how important light bulb changing is for the future of the country.
3. One to say that the Bush Administration has screwed every lightbulb that ever came along.
4. One to go out a look for a light bulb as ordered by John Kerry.
5. One to go out and cancel the guy looking for a light bulb because John Kerry realizes that what is really needed is a study on light bulbs and the environment.
6. One to go out and poll black voters on how the light bulb being out affects their lives.
7. One to go out and cancel the black vote poll because John Kerry realizes that Hispanics are more likely to be put out by the lack of a working light bulb.
8. One to begin the study of the light bulb and the environment.
9. One to go out and cancel the environmental assessment study because it might conflict with the version of Vietnam history purported by #1.
10. One to tell the media how garbage from Canada is the reason why the lightbulb burnt out. 11. One to run out and cancel the press conference by #10 and hold another press conference outlining the problems with light bulb replacement in the wake of the war in Iraq.
12. One to organize a Global Test for the accomplishment of the light bulb screwing, according to other nations.
13. One to write a speech for John Kerry attempting to clear up his voting records in the Senate for and against light bulbs.
14. One to tell John Kerry which way he should jump on this whole sordid light bulb issue.

Isn't politics grand?

Interview with Marc Faber by Jim Puplava

An excellent interview. The audio is available at Financial Sense Online's Ask the Experts.

Joining me on the program this week is Dr. Marc Faber. He is editor of The Boom, Doom & Gloom Report. He is also the author of a new book called, Tomorrow’s Gold—Asia’s Age of Discovery. Dr. Faber studied economics at the University of Zurich and at the age of 24, obtained a PhD in Economics magna cum laude. Between 1970 and 1978 Dr. Faber worked for White Weld & Company. Since 1973 he has lived in Hong Kong. In June in 1990, he set up his own business, Marc Faber Limited, which acts as an investment advisor, a fund manager and broker/dealer. Dr. Faber publishes a widely read monthly investment newsletter, The Boom, Doom & Gloom Report.

Doctor, let’s talk about your new book, Tomorrow’s Gold. In the 1990s, a lot of economists, analysts and politicians proclaimed that the business cycle was dead. In fact, as we have seen, we had a booming economy in America, we were in a new era, a new paradigm, but a lot of this is attributed to too much credit, which has fuelled a speculative boom, and which is behind much of today’s current economic malaise.

DR. MARC FABER: Thank you very much for having me on your program. This is absolutely correct, that in the 1990s, debt growth vastly exceeded economic growth in nominal terms. Not just in the US, but also outside the United States. What happened is that the Debt to GDP Ratio increased everywhere very substantially. In the United States, the nominal GDP between 1997 and 2001 increased by $1.7 trillion, at the same time, non-financial, non-federal debt increased by $4.5 trillion and financial by $3.9 trillion. In other words, in order to generate one dollar of GDP growth, you created $4.8 dollars of new debt.

JIM PUPLAVA: Let’s talk about the key or central thesis behind Tomorrow’s Gold. What are the central elements that you are writing about in this book?

DR. FABER: I think that in the late 1990s, people became upset with watching the stock market and the financial markets in general on a day by day or minute by minute basis and they were glued on their Bloomberg machines, or on the on-line trading accounts, or on CNBC. Whereas my major thing is that basically in the last 30 years, with very few investments decisions, you could have done very well. You could have bought gold at $34 an ounce in 1970 and at the same time, oil for $1.30 per barrel. You could have gone on a holiday and sold it in 1980, gold at $850, and oil at close to $50.00 a barrel. You could have worked for one week and figured out investing in Japan as the best alternative. Then you could have bought Japanese stocks and sold them in 1990, ten years later with a seven-fold gain. Then, you could have worked another week and decided that everyone was optimistic in Asia, but decided there was an under-valuation in US equities. And then you could have bought the S&P 500 or ideally the NASDAQ and sold it again ten years later in March 2000, with a gain of 10-15 fold. In other words, an investor who is seriously eager to make money, he doesn’t have to watch the markets everyday. He just has to make once in a while, a good investment decision on the trends that will last for a number of years.

JIM PUPLAVA: You know there is a similarity to this viewpoint to those investment views of Warren Buffett. Warren Buffett seeks good investment opportunities and has the insight to buy low, and hold for long periods of time, which has made him one of the wealthiest men in the world.

DR. FABER: I think that is definitely correct. The problem is, if I get the clients today and let’s say I buy in something. The markets around the world rise by 20% and his investment doesn’t go up in a year’s time. He would say, “You bought the wrong thing.” People are very short-term oriented at this time. I bought Taiwanese and South Korean stocks in 1978, but they didn’t move up until 1985 at the time when the US markets, between 1982 and 1985 have doubled and Japan had tripled. Well, an investor would have said, “Well, Marc, you are totally wrong about investing in these countries. Everything is moving up, except your stocks.”

The fact is that between 1985 and 1990 the Taiwanese market was up 25 times and the South Korean market up 10 times. In other words, as an investor, people have to learn to be patient—more so than they have been. In other words, they give money to hedge funds and they expect the hedge funds to be up 10% in three months. They buy stocks on the recommendation of a broker and they expect it to be up 20% in six months. This doesn’t happen in the long run. It may happen from time to time. But long-term, the people I know who became rich, the rich families in the world, they usually had long-term investment horizons.

JIM PUPLAVA: This is surprising, not only in terms of your perspective on this and recognizing that is how real wealth is built, but I am always fascinated, Doctor, that many have not studied this principle, developed also by Warren Buffett. How he applies this is with patience. During the tech boom, he was criticized that he had lost his touch, but he still remains one of the wealthiest men in the world. I want to move on to your perspective on economics.

DR. FABER: May I interrupt for a moment? I think it is very important for you to understand as an investor, that if you look at Michael Schumacher, he drives a car the way you and I cannot drive. The same way there are some professionals in the investment field that can make a lot of money by trading securities because they have superior knowledge and superior skills. Now, nobody would try to drive his car the way Michael Shumaker drives, but in the investment world, 90% of the people think they can be as good as George Soros, or Julian Robertson and all the superstars. We have to distinguish between very few people who are superstars, like Andre Agassi in tennis, Michael Schumacher in driving and Warren Buffett, George Soros, or Julian Robertson in investing. The average person cannot perform as well as these people. Therefore, for the average person, preservation of capital should be far more important than aiming at making 100% per annum. As a result of that, I would say that if I look around the world, most people that invested in real estate and didn’t borrow money, they have done relatively well, because a lot of wealth is concentrated in real estate, simply because these people didn’t do anything more stupid.

JIM PUPLAVA: You make a very valid point and I think it is something that is often lost. Going back to your theme, if you can discover a simple theme, stay with it and hold onto it, you would have made a lot more money. I just want to relate that to many of our listeners, who think back to the tech bubble in the 1990s. Had you bought tech stocks in 1990, 1991 and 1992, whether it was Dell, Intel, Microsoft, even a Cisco, you would have done far better had you sat and held them for the next decade than you would have by trading in them.

DR. FABER: Yes, exactly.

JIM PUPLAVA: I want to move on to your views or your perspective on economics. You approach the framework of analysis of looking at economies from the Austrian School of thought. I wonder if you might explain that.

DR. FABER: First of all, I think it is unfortunate that in the last 10 to 20 years, the world has kind of moved to the American soul. That is if you ease monetary conditions, if you print money, you can solve all the problems of the world. If that was mainly true, Latin America would have become the richest continent on earth simply because they have been masters at printing money and at creating at the result of that hyperinflation. By printing money, you don’t generate economic growth. Temporarily, you can generate continuation of spending patterns.

I will give an example. Since January 3, 2001, the Fed Fund rates were cut massively and the Federal Reserve eased monetary conditions massively. We had very strong debt growth. What this meant was that spending and borrowing in the US went up, but industrial production was flat. Industrial production increased in China, Vietnam and other Asian countries. In China, industrial production was up 19% last year. Exports were up 22%.

In other words, what you do in America is you borrow more money, you spend more money, but the production is somewhere else. And as a result of that, we have growing trade and currency account deficits. In other words, there is a shift of wealth to the Far East as a result of these qualities. In the Austrian School of Economy, they look at the world differently. They recognize that there are business cycles. If there is a new invention, if there is a new discovery of a mine, if there are innovations, then it brings about a capital spending boom, because everyone wants to capitalize on the promised higher profit opportunity. Therefore, you get into boom conditions, which leads to over-capacity, which leads to a price collapse as a result of the profit expectations being disappointed. That is the natural downturn following a boom. The downturn is very important because it cleans out the excesses of the upturn.

But in the American school, the downturn is postponed through monetary measure. In other words, the capacity that never gets cut back, because if you ease massively, you don’t create an environment of the survival of the fittest, but you create an environment of the survival of the weakest. Even the weak market participants, continue to produce, especially if they go into Chapter 11, because then they don’t have to pay any debt payments, and therefore, they can undercut the other. That is why the American school, in my opinion, in the current situation, has policies that will then lead to a prolonged recession at the later stage.

JIM PUPLAVA: Would you think this kind of thinking persists on Washington and Wall Street? One exercise I like to go through at the beginning of the year is to take all the investments predictions and economic predictions that all the major magazines and publications publish. Most of the time they are wrong. Wall Street has been predicting a second-half recovery in the US for the fourth consecutive year.

DR. FABER: It also depends how you define economic growth. I would say the interpretation of statistics is very difficult. Let’s say you take a computer manufacturer. They sell this year 1,000 computers at $1,000. In other words, the turnover is a million dollars. And the next year, they sell 2,000 computers at $500 because prices eased. How do you measure growth? In dollar terms, 2,000 computers at $500 are equal to 1,000 computers at $1,000. In other words, sales growth is zero. That is essentially measured in GDP figures. In terms of units, you have doubled the output and therefore there has been, in unit terms, 100% increase. How do you measure that? So, the measurement of statistics is very difficult, equally.

If you have an economy, where suddenly the central bank sends a check to every citizen of say $10,000, this of course leads to higher spending, temporarily. All I want to say is there are two different types of growth. Growth that is generated by additional borrowing that exceeds nominal GDP growth—a growth that in my opinion is not sustainable in the long run. Or, you have growth generated by people having a high savings rate, and savings are then channeled into investments and into the construction of additional factories, buildings, highways and so-forth. That makes the economy more efficient in the production of goods and services. In the case of the US, the problem is all the growth in the last few years was generated by additional borrowing.

JIM PUPLAVA: You quote in your book from Friedrich Hayek, who made the statement, “The more the State plans, the more difficult planning becomes for the individual.” Why is that?

DR. FABER: I think if you look at the history of the last 100 years, what is very clear is the Socialist and Communist ideology where everything is owned by the State. The State plans how much is being produced, how much is being consumed, and how goods and services are being distributed within the economic system. I may add that planning economies have all the tools available to do that properly, and yet they miserably failed.

In the Western systems, we have the market economy and the capitalistic systems, which work reasonably well. In the last 15-20 years, the view has come up that the Central Bank can steer the economy forward and backward, through monetary means. Unlike the planning economies of the Socialist and Communist countries, they only have one tool available. Yet people believe in Alan Greenspan, the way they believe as Christians in Jesus Christ, as Muslims in Mohammad. This is wrong. The power of the Central Bank is very limited. In my opinion, the world would be better off if there were no Central Banks around.

The complete interview transcript is available at Financial Sense Online.

The Fast Food Fallacy

If people need evidence that blaming the company that makes the food you consume for your own ill-health does not make much sense:

The Super Size Con - A response to Morgan Spurlock's documentary Super Size Me.

Here is an article on the site reporting on two more experiments where the folks actually lowered their weight and one was able to reduce her blood cholestertol level.

Also, Chazz Weaver has started Truth In Fitness in "response to what [he] saw as a rising tide of obesity in our country and a corresponding refusal to acknowledge its root cause—the choices that people make. " He was also prompted by the Spurlock documentary and began his own McDonald's diet with a different result.

My thanks to AnarCapLib for the heads up.