Here is the video

The facts surrounding this discussion are that the United States became a world superpower with an average 40% protective tariff. Since moving away from tariff based funding of government and Hamiltonian (American) protectionism, we have seen periods of massive unemployment, real wage destruction, the elimination of entire industries, budget deficits, trade deficits, and massive foreign ownership of American real estate, businesses, and government debt.

What is so interesting here is that this discussion is another example of the DOGMA of free trade ideology. The folks advocating free trade approach it as a religion. They have no need to have recourse to facts, reason, or history.

Buchanan does a good job of pointing out that the religious free traders on CNBC (like Larry Kudlow) concern themselves with non-sequitor financial statistics that can be twisted to imply economic growth is far greater than it actually is while ignoring the facts.

It should be noted that China is growing at an all time record and the United States is struggling to avoid all out credit market collapse. If protectionism doesn't work, why is it that the United States grew under protectionism, is failing under free trade, and now China is in a period of explosive growth while they protect their market (using a combination of currency manipulation and protective tariffs).

First, the deal is important because it will give manufacturers in the United States the ability to export to Peru. Let's analyze this idea for a moment. If exporting to the rest of the world is the goal of free trade agreements, free trade has failed miserably. While nominal exports have certainly increased, marginal exports have decreased dramatically. We are importing more than we are exporting year after year in our increasingly open market system, and the number has been growing, last year reaching a $750 billion trade deficit. One definition of insanity is that an insane person continues to do the same thing (in this case, expanding free trade), while expecting different results. So if exports are thought to grow the economy (although economic science teaches that the purpose of exports are to clear overproduction, and that overproduction is by definition malinvestment) then our open markets are growing the economies of other nations, like Peru and China (a nation which maintains an 11% GDP growth, for example). Further, why would we expect exports to Peru to grow any time in the near future? The per capita GDP in Peru is about $6,600. What can we export to Peruvians that they will be able to afford? Clearly the intention is to maximize corporate profits by pirating labor (labor arbitrage; use of labor OUTSIDE the economic system at a lower cost and sell your products INSIDE the economic system of the United States). Further, we know that the intention of these agreements is political, which Bush admits.

The second major reason for free trade agreements, according to President Bush's speech is to spread democracy and create increased international cooperation. This is really a thinly veiled announcement that free trade does exactly what Frederic Bastiat said it would do; over time create an "ecunmenical, indissoluble, union of the peoples of the world"; a one world market which leads to a one world government. Truly, when the Articles of Confederation were done away with and a single market created in the 13 colonies under the Constitution, an indissoluble union of the peoples of the colonies was formed. As the boundaries of free trade are the boundaries of the division of labor (one of the four requirements for a market economic system), whenever the United States enters into a free trade agreement we enter into a process of creating a shared market and a shared system. The influence on our political process of foreign ownership of U.S. corporations, non profit entities, securities, and debt instruments creates domestic institutions with international / multinational goals and agendas. This leads to frustrating political consequences, such as a Senate intent on passing amnesty, expanding guest worker programs, and maintaining as little border security as possible. Let us not forget that a Senate candidate, having a huge geographic area and large electorate to campaign to, is the most dependent on campaign funds, much of which comes from PACs and large donors to the political parties (in other words, corporate money). One member of the Senate, Max Baucus seems to agree, saying that the deal will create a blueprint for "how our trade agreements can export our products and fundamental values." Too bad we import so much more than we export; I wonder if Senator Baucus would like us to import the values of Communists in China, and an authoritarian dictatorship from Columbia (an agreement with whom will be discussed soon).

Why would we also assume that if free trade with Peru, for example, will allow us to influence their political process to a more open and democratic system, that it will not also allow them to influence our political process to a more socialistic command economy? Is this not exactly what we see happening? Is this process not expanding and accelerating?

Wayne Bereman
The American Protectionist Society
www.americanprotectionist.com

If the "global economy" is working so well, how is it possible that Americans are losing control of American business itself? Readers of this blog remember that we predicted this long ago: there were two possible results from this credit crisis on Wall Street. We have bank failures and depression, or we sell our banks to foreigners.

Globalization has one goal at its core: a world system of interdependence. The United States was formed with exactly the opposite goal: an independent nation. Return to economic science for a moment. There are only a few things that foreign holders of U.S. dollars can do with them. They can "re-invest" them in the United States or they can hold them (which is worthless as they can only be spent here). The "re-investment" of those dollars results in the following: foreigners owning U.S. companies, U.S. real estate, or U.S. debt (usually federal budget debt; the amount of foreign controlled U.S. dollars has been a catalyst for budget deficits for years).

So we ask the question: as foreigners take a larger and larger piece of the United States and United States Corporate interests, what will be the political result for the United States? When Citigroup next donates to a non-profit cause with political goals, is it likely that they will choose a nationalist cause, or an internationalist one? When executives at Citigroup speak out or donate personally to political candidates and causes, is it likely they would support U.S. causes, or internationalist causes? This is how it happens. Increased foreign ownership of important and influential American assets creates interdependence and a skewed political process.

Sometimes members will email us, frustrated that our "leaders" (particularly in the Senate, where campaign cash is the most important ingredient of success) are reluctant to support our national interests; instead preferring free trade, open borders, international government, and corporate interests. This is why, and this is how it happens. No sober political observer today would attempt to deny the vast influence of money and corporations in our political process. And when those corporations are multi-national in their production process (although often not in their retail sales), and owned by various international investors; what cause will they champion?

The key to reclaiming our independent United States, indeed the ONLY way to reclaim it, is to return to what built it: a protected national free market economic system designed to achieve the goals of the declaration of independence. We should be peaceful in our nature, humble in our foreign policy, neutral in foreign conflicts, self sufficient in our economic system (with ALL industries thriving, including energy and manufacturing), trading with all (on a level playing field, with a tariff to fund government and protect our SYSTEM), and independent and strong.

Under protectionism the United States became the most powerful nation in the history of the world, with wage rates and standards of living that towered over the rest of the world. We were once the world's largest creditor nation, and our currency was sought as the most safe and secure investment that anyone could make. Now our dollar is on an extended decline; its status as the world's reserve currency in doubt. We are now the world's largest debtor nation (in fact, we achieved that status under Reagan's tenure). Our current rade deficit is at a nightmarish level over $700 billion per year. Our elected officials have been compromised by foreign interests and agendas. Our market economy is unprotected from the influence of foreign dictators, communists, fascists, and the like. Our borders are equally unguarded and many of our own politicians are seeking to advance the cause of amnesty for illegals.

The solution is available to us, and NOW is the time to implement it; we need tariff protection.

Free trade in its current form is basically a shared global division of labor, one of the four components of a global free market economy. Prior to the 1970's the United States had a more or less fully formed free market economy that was protected from foreign interference. Now it has been decided that we should be the catalyst for a global system whereby wage rates and standards of living are equalized world wide (which obviously requires the destruction of the tremendous wage rate and standard of living advantage that the United States had). In a free market corporations tend to locate production where labor is the least expensive. In this way, over time, within a free market economic system wage rates and standards of living will tend to equalize. Even the free traders cannot refute this; it's their great economists, such as Von Mises that presented the reasoning that proves these sorts of free market operations. But now we have decided, through free trade, to join in a division of labor with the Chinese, Mexico, Canada, much of Europe, and other areas with more to come. Thus, corporations now tend to locate their production in those areas where wage rates and standards of living are the lowest; which will tend to stagnate the United States and exploit developing nations. Corporations sell their products in the United States consumer market and reap windfall profits. (check out the corporate profits graph produced by the Council of Economic Advisors if you have any doubt). Then check out the 11% GDP growth in China, for example.

Soon we will be releasing research showing the tremendous real wage losses the United States has endured.

So the question is: what is the doublespeak? Well, all the time claiming that free trade has increased (nominal) exports (they never SAY nominal; but that's what they mean), the free traders then ignore the growing trade deficit and claim that we need a strong dollar. Hank Paulson, the Secretary of the Treasury, said today that "... I believe our economy will continue to grow and our long-term economic strength will be reflected in our currency markets." If the dollar will be increasing and that will be the reflection of our economic strength, will he then admit that we have been extremely weak since NAFTA and normalized trade with China came about? We sincerely doubt he would be so honest.

But one of the hurdles to a rapid breakdown of United States sovereignty is financial: the dollar was worth way more than the other two currencies (the Canadian dollar and the Mexican Peso). No more. Today the Canadian Dollar has caught up, and NAFTA has achieved a major goal: currency parity between the United States and Canada.

Here at The American Protectionist Society, we often like to call upon the work of some of the great free market economists to explain these sorts of events. The free trade internationalists like to use these same sources to promote free trade, but we've discovered that few have truly studied and understand what great economic theorists like Adam Smith and Ludwig Von Mises actually said (because they have accepted Riccardo's comparative advantage without questioning it, and have thus accepted free trade without questioning it. If they were intellectually honest, instead of reasoning from the conclusion of free trade they would see what we know to be true). Von Mises, for example, very clearly explained that in a market system, which includes a shared division of labor (which is what a "free trade zone" actually is; a division of labor), there will eventually be equalized wage rates and standards of living. Within this zone, currencies that are permitted to float will eventually equalize as well. As the United States endures the long process of reduced wage rates and standards of living, growth in Mexico and Canada accelerate. This is the short, fundamental economic explanation for the equalization of currency values.

Note of course that our trade deals with China would also result in the same, but that the Chinese are making the problem even worse by not allowing the increase in value of their currency. This just accelerates the damage even more. And although the Bush's and Paulson's of the world recognize at least THIS reality; they are completely unwilling to call for trade protection; NOT because they truly believe protection would harm the nation (they know better than that!), but because they support international interdependence as a POLITICAL goal (which benefits multi-national corporations and will eventually create a world government at the behest of these oligarchs).

So the Fed made their decision, they lowered the discount rate a few weeks back, bought mortgage securities on short term contracts to prevent a panic, and yesterday they cut the federal funds target rate by 50 basis points. Some Wall Street analysts are today arguing that the Fed is in panic mode. We think they might be, but for a different reason than most.

As I write this, the dollar is at an all time low compared the Euro. Oil is at $82 a barrel and going higher. Gold is at a 25 year high. Job growth is a thing of the past. The availability of credit is at an all time low. Our current account and trade deficits are at alarming highs. Our federal budget deficit is near its high and still at appalling levels. And Wall Street thinks that the Chinese can single handedly destroy our economic system by dumping the enormous stockpiles of dollars and dollar denominated assets they hold as a result of our tremendous trade imbalance. And worst of all, real wages (wages as a percentage of GDP) has been falling for 35 years. Finally, our infrastructure is crumbling, social security is in crisis mode, and our health care system is falling apart. Things are great in our free trade economy.

The Fed knows all of this. But because of their strident internationalist / free trade philosophy, they can't or won't come out and call for a tariff to create an incentive for capital investment in the United States. Instead, they prefer capital investment in China, with China's "investment in America" being the purchase of our ballooning federal budget deficit, stocks, real estate, and corporate bonds. The big lie is that a trade imbalance creates foreign investment; it creates foreign ownership of debt. When we sustain huge trade imbalances, we create are effectively using a credit card to finance consumption of products whose production benefits a foreign nation's system. By creating a shared division of labor with communists, socialists, and other undesirables around the world, we have allowed a giant "institutional interference" which destroys and distorts the American free market, and with it destroys jobs, credit, and lives.

The Fed, although they will not admit all this, certainly know that our trade imbalance must be addressed. But because of the *political control that multi-national corporations have in DC; they can't say it. In fact, many at the Fed are probably philosophical free trade internationalists that desire a world system and want to destroy American sovereignty anyway (a la the European Union and the coming North American Union, already in the works).

If free trade is supposed to create efficiencies, the efficiencies are only realized by the outsourcers of the jobs, and they are reflected in their stock prices (the reason the Dow is so high; cheaper labor and lower corporate taxes which created higher margins and fueled corporate profits; but in no way does a higher Dow help an unskilled laborer whose job was just outsourced, who cannot get a mortgage, and who has no money to invest in stock to realize trading gains or dividends). If free trade increases exports (and it does), the gains are only *nominal gains, and history has shown that the increase in imports always outpaces any increases in exports. All we become is more interdependent, but there is no economic gain for Americans.

We maintain that there is one and only one solution to this problem. We return to the roots of free market economics and enact those policies that will encourage domestic capital investment for domestic consumption (according to Von Mises; THE driver of increased wages and standards of living). We remember that Smith taught us all that domestic production for domestic consumption employs twice the amount of labor that domestic consumption of foreign production employs. In short; we return to a tariff based, protected free market economy, free of foreign entanglements and institutional foreign interference. We peacefully trade on a level playing field and slowly rebuild what was built under 160 years of protectionism. It's time to WAKE UP and smell the coffee. Free trade has failed to produce the promised economic gains; and in fact has resulted only in political change which is destroying our independence.

It's bad enough that our Senate is focusing its time on foreign aid with all of the problems facing our country. They want to solve the world's problems before addressing our own. But it's very clear that even those Americans that support abortion 'rights' as a form of birth control do not probably want to pay for it with tax dollars, and they almost certainly don't want to pay for it for foreigners.

It also illustrates the painfully lacking political savy of Senate Democrats, who may now be giving President Bush an opportunity to veto the bill and regain support from some of the millions of Republicans that have abandoned him because of his refusal to protect our borders, his free trade ideology, and his support of the massive amnesty bill.

But here are a few of the dozens of questions that they never answer (and cannot answer honestly and maintain their position).

You should use these fun little questions when you run into a smug free trader full of libertarian and anarchist rhetoric. Believe me, they won't have a clue what to say.

1. If by dismantling trade protections of industries that you deem to be undesirable because of a perceived comparative disadvantage, how can you maintain that you support personal freedom?

The truth is, when the President and Congress decide to stop protecting the textile industry, for example, they are choosing it for elimination. Now the freedom of Americans to choose to work in textiles is gone, because we are going to consume only foreign made textiles (based on comparative advantage theory, countries should specialize in certain industries and eliminate others, based on internal efficiency rankings - not efficiency rankings compared to other countries. In other words, every nation has a comparative disadvantage by definition)

2. How can you, a free trader, claim to support free markets when you adversely select certain industries to protect and others to eliminate? Shouldn't you protect or not protect all industries the same way and let the free market decide which firms will survive?

A true "free trader" wants a shared division of labor with the entire world, and would answer this question with the systematic tear down of all trade restrictions. But these same people, if they are honest and consistent, will also tell you that they do not believe in borders, nationalism, or in many cases any kind of government. The free trade philosophy encompasses eliminating all protections of a nation, not just economic.

In the case of these modern day "free traders" you see them choosing to outsource manufacturing by eliminating tariffs on manufactured products, but keeping other tariffs in place to slow down the dramatic pain that outsourcing brings about. They talk about a "gradual shift" to a "service economy". They are replacing highly productive manufacturing jobs with waiters, government, health care and legal. Even financial services appear to be excluded from their definition of a "service economy", as thousands of financial jobs are flying overseas.

3. If a nation is at a comparative disadvantage in a given industry, how can they possibly regain an advantage later, after the industry is nearly or completely outsourced?

Consider that for a minute. Once we decide to abandon trade protection of the auto industry, for example, we see a gradual destruction of the domestic auto makers. Once they are gone, how can we come back to that market? The auto industry will be gone, or so small that it will be tremendously inefficient. There will be fewer automakers globally, and they will have massive advantages through built up capital investments. In fact, free trade policy eventually leads to monopoly; one firm producing the world's supply of a given product.

4. How can free trade result in anything other than interdependency, if we are to completely outsource entire industries based on comparative advantage?

If we stop making cars, tanks, bombs, guns, and other relatively inefficient products, are we not dependent upon other nations for our national defense? If we stop producing food, are we not dependent upon other nations for our survival as human beings? These are dramatic illustrations, but they are the reality of the flawed theory of comparative advantage, upon which our trade policy is built.

5. How can protectionism result in anything but independence, if we are to protect all industries from unfair foreign interference, and maintain our absolute advantages in all industries?

With protected trade, there could never be a time that we would not have the ability to produce everything we need to survive. It was under these conditions that the United States became the most free, most independent, and most powerful nation in the history of the world. Why would we want to change all that, even if it DID mean cheaper imports (which it does not)?

6. What is the definition of a free market economic system?

This is a favorite of mine. I've had PhD's that answer this wrongly or evasively. The most complete definition of the free market economic system comes from free market economist Ludwig Von Mises of the Austrian School, and all truly learned free traders will agree that he is their hero. So we will utilize his definition. If they answer anything other than this, call them on it.

1. A single division of labor, and the subsequent free exchanges within (hence their free trade theory. but note that where the tariffs are not, the division of labor is; in other words, the tariff defines the physical boundaries of the free market. in other words, a protected free market economy is still a free market economy, it just isn't part of a single global system)

2. A single coersive government to adjudicate disputes and ensure orderly market operations (hence the multi-national government organizations and the desire to tear down nationalism. re: the European Union and the push now for a North American Union)

3. private property; aka the private ownership of the means of production.

4. absence of institutional interferences, usually government interferences. (there are many of these in the U.S., but there used to be far less. the free trade crowd has been less successful in dismantling government interference in the market place than they have been in establishing free trade agreements. but note that to eliminate governmental interference you must have single government. When the Chinese subsidize an industry and dump that product in the U.S. an institutional interference is created. The tariff protects the market from the interference, but without a tariff or other restriction on trade, there is a destruction of free market operations. where are the free market folks on this issue?! they should be up in arms, but their true agenda betrays them, as they do not want to do anything that would cause the United States to protect its market system and redefine the division of labor as it was initially defined; by the borders of this country)

Lead poisoning is very serious. It can lead to insanity. It creates developmental problems and retardation. It is a known cause of attention deficit disorder. At high enough levels, lead poisoning leads to seisures, coma and death. It is rarely diagnosed because symptoms do not appear until it is too late.

Assuming for a moment that these toys are cheaper for consumers (when in fact they are only cheaper for the producer), would it be worth it to import rather than produce our toys domestically? Is the perceived savings of a few lousy dollars worth poisoning our children?

For the Chinese producer, it's all about money and jobs. They aren't selling these toys to their countrymen, they are produced 100% for export. When they cut corners and use cheaper poisonous paint, they are not poisoning their countrymen, only some nameless, faceless Americans thousands of miles away, who they probably hate and resent in the first place!

It's time for Americans to do with their consumer dollars what the government will not do; protect our kids. This Christmas, we should buy only American made toys where we have far more assurance that we are getting a safe product. In fact, going a step further, we should refuse to buy toys, even if made here, if the company selling the toys imports other products. The consumer can slow down this disaster by giving corporations a reason to produce their products here, and to produce safe products.

If the government will not take away the incentive to use pirated foreign labor by simply taxing the imports, perhaps the consumer can still have some say in the matter.

1. Bush's Presidency and candidacy included plans to expand homeownership, especially in minority communities. This is the administration signaling and encouraging the subprime lending business.

2. Bush's open borders policy is to expand illegal immigration by rewarding it with amnesty, and to expand guest workers to increase the labor supply, depressing wages in lower income communities, especially for minorities.

3. Bush's foreign policy is to spend billions in a war in Iraq, creating the largest budget deficits in history.

4. Bush's economic policy is to outsource labor by expanding free trade agreements, reducing the number of jobs available to unskilled labor and reducing wages, replacing these jobs with "a transition to a service economy" (translation: retail cashiers and waiters).

5. Bush's policy is further to devalue the dollar (making imports from these foreign free trade partners more expensive).

So what happened? Subprime borrowers who have lost their jobs to foreign competition are defaulting on their loans. Investment banks, concerned with rising delinquency rates stopped funding the warehouse lines of subprime lenders causing failures at dozens, including New Century and OwnIt. Hedge funds that were deeply invested in mortgage securities started to fail and Wall Street panicked. Stocks dropped and the wealthy investors that elected President Bush started to feel the pain. All those corporate tax cuts and record high corporate profits were not enough to keep these folks happy. The Dow must continue upward as well.

Bush's response? The taxpayer will bail it out. Bush is announcing today plans for FHA, backed by taxpayers, to give grants and reduce underwriting guidelines. In effect, the Federal Government will become the nation's subprime lender!

It's all part of this fictitious economy that Bush and his free trade buddies have been touting. They actually seem to believe that they can reduce wages and outsource the jobs of millions of middle class consumers, and yet their consumption will not slow down, and they will not default on their home loans.

In fact, it's not just subprime that is hurting, it's the entire mortgage finance business. Countrywide has signaled that their A paper (conforming) loans are seeing increasing defaults as well.

The Bush administration's policies are completely counterituitive and are resulting in more government intervention in the market, and more socialism. This is not a free market Presidency in any way.

Never did Bush propose improving the job market for unskilled or lower wage classes. Never has he promoted any meaningful protection of labor (which also protects the entire economy, including consumers) by promoting fair trade. Instead, he'll just expand government and put a band aid on the problem.

The Mayor of Newark, in our view a complete fraud, reportedly made a promise to make "public safety" his "top priority". How can public safety be a top priority in a city that invites law breakers to have sanctuary? What would a person expect to see happen?

The three college students were lined up against a wall and shot in the head from close range. They were executed. A fourth student was shot in the head as well, but amazingly lived.

The illegal aliens suspected in the crime are thought to be members of a brutal El Salvadoran gang.

Every politician in that town that voted for or supported the making of that town into a sanctuary city is, in our view, culpable in this event and owes the families of the victims an immeasurable debt, and a personal, public apology.

It's time to stop playing "footsy" with this asinine nonsense of sanctuary cities. This is the price that this nation will pay on its decline from world power to member state of a global system. We tear down our economic protections, we reason from the conclusion of a world market, we tear down our border security, and we think that somehow the problems that have plagued the rest of the world will not happen here? The general philosophy of free trade, which includes the free movement of people and the tearing down of "arbitrary barriers" like borders and nationalism, is precisely the cause of our declining civilization.

Is this what Robert Pastor has in mind when he says we should start thinking like "North American Citizens" instead of United States Citizens? Is this the sort of security we can expect under the SPP and North American Union when we stop patrolling our border and start defending Mexico's southern border (if we are to believe that we would even attempt border security there).

Get real and take action! It's time for Americans to stand up for their country and shut down this nonsense of a North American Community, unpatrolled borders, free trade, and interdependence. It's time for us to be a strong nation again that defends itself from foreign invasion and economic warfare. Anything less and we should simply expect more and more stories like the one above, as we become just another region of a global system plagued by crime, poverty, and social disorder.

On today's show Wayne will discuss the subprime credit market meltdown, it's causes, proposed solutions, and the effects it could have on our overall economy.

Also, Wayne and Paul will discuss the SPP, North American Union, and attempts to achieve regional and global government.

You won't want to miss it.

Tune in at www.rightalk.com and click on The Schiffer Report today at 2p, and for the next 24 hours.

Credit Crunch
The repricing of collatoralized risk is hitting credit markets hard. Lenders are tightening underwriting standards, and NOT just in subprime, but on prime loans as well. Every borrower is going to feel the pinch, and millions of people that qualified for loans yesterday do not qualify today, and will not qualify for some time to come.

So what, you say? There are millions of folks holding risky Adjustable Rate Mortgages and Option ARMs (which allow negative amortization) that will not be able to refinance now. That means that when their payments increase from say, 5% to 8%, or from 8% to 12% (we're not exaggerating these adjustments), with another 1% adjustment every 6 months thereafter, millions of Americans will have no money to spend on the types of conspicuous consumption that they have been for the last 10 years. All of their money will be sunk into their homes. And those folks that qualified for these loans at 55% DTI (debt to income, based on *gross income figures and sometimes No Income Verification loans) will be in foreclosure. They'll squat for 6 months and then they'll rent a lower priced home or apartment.

Home values will drop more rapidly than we've seen up to this point, and the spending of our equity will vanish. Already the market for Home Equity Lines of Credit is vanishing. These factors will slow spending tremendously. Slow down the consumer, and you slow down the economy.

This decline in credit availability and increase in debt service payments being made by consumers will take effect and increase in intensity gradually over time. We frankly expect a lot of analysts to completely miss the boat on this one, and in six months they'll be scratching their head wondering "where did the consumer go"? Even Wal Mart and Home Depot have now announced that they agree with us, that spending will decrease because of the 'housing slump'.

The Declining Dollar
This nation is addicted to foreign made products. In fact, for many products, there is little or no domestic producers left. As the dollar declines in value these imports become more expensive. This will drive inflation and further reduce consumer spending power.

Inflation
Today's Producer Price Index, a leading indicator of inflation, was unexpectedly strong. As producer prices increase, consumer prices will see a short term spike as well as businesses attempt to maintain margins. Of course, over the longer run producers will simply stop producing if prices rise too high to be profitable, but in the short run you will see inflationary pressures.

The Federal Reserve Bank still considers inflation to be their primary concern going forward, and they are resistant to lower interest rates. All this, and we have very high energy prices which have been a drag on economic growth for some time. A drop in crude prices last week promised some relief, but it appears to have reversed course.

Can anyone say "stagflation"?

Terrorist Threats
The Al Quada camps are empty, which has lead pundits and bloggers to speculate about another attack. Our own Director of Homeland Security says he has a "gut feeling" that an attack will occur this summer (read: now). These fears will tend to slow growth as folks increase their savings in case of emergency. Consumer confidence is still fairly high, but we need to see the new numbers as this credit crunch starts to take effect. If a major attack takes place, all bets are off. Our fragile financial system could go into a complete tailspin, and consumer confidence will probably drop to nil.

Taxes
The Democrats now control Congress, and they are likely to start attacking various segments of the tax code looking for ways to balance the budget (a noble cause, balancing a budget; too bad they won't cut spending to get it done instead). Tax increases will further slow growth, although we suspect the Democrats will be targetting dividends, private equity and the high end of the tax brackets that got so much relief from Bush. But in the end, we doubt Bush has the clout to combat the Democrats in Congress; he couldn't even get his big leftist legislation known as the "grand immigration comprimise" passed. With Bush's approval ratings in the tank, Congress will be able to flex a little more muscle, and with so many liberal Republicans in the Senate, we think taxes are going up before they come down.

Going Forward
The bears, ourselves included, might prove to be roaring a bit too loudly; there are some band aids that could provide short term relief and continue to keep our fictional economy going, but there is going to be pain for the working class and middle class, as their debt service becomes expensive and inflation grabs up more of their bottome line. The gap between the upper and lower class will be widening going forward unless someone institutes some protection of labor.

In economics there are three components; land, labor and capital. Everyone protects capital in the form of international intellectual property laws, anti-nationalization of foreign investment insurance funds, and of course the elimination of national boundaries (known as free trade) which make the investment of domestic capital in foreign nations profitable. But who is protecting labor? Labor is being pirated by the Chinese in the same way they pirate brand named Prada bags and ship cheap copies back to us. Protectionism doesn't simply protect the domestic manufacturer. That's nothing but a red herring. Protectionism protects the entire market system and the sovereignty of the nation, including capital AND labor.

We are now reaping the rewards of our immoral and out of control pursuit of greed (and you thought that all stopped in the '80s?). Our government, under the false belief (or the outright deception) that free trade will enrich this country by providing "foreign capital investment" and "lower prices", has been pursuing unilateral open markets and failing to even enforce the provisions of the already disastrous treaties like NAFTA. In truth, the whole movement is just a way to turn the American oligarchs into global oligarchs, combine the world into an "indissoluble, ecumenical union of the peoples of the world" (Bastiat again) and create global interdependence and one world government.

But can anyone not see that it's totally immoral for government to knowingly create an economy that is driven by borrowing for current consumption, which is paid back by future production? (free trade, for the more developed consumer nation that has absolute advantages, is like spending beyond your means on a credit card). Can anyone truly not acknowledge that our enormous government debts which will be paid back by our children are immoral? This isn't simply a question of economics or politics; it's a moral question.

But like any organization, over time, the attitudes and values of the leadership will permeate the entire organization. Our nation is no different. When the people observe the conspicuous overconsumption of government, they engage in the same themselves. Whent he people see the system going deeply into debt, they will do it personally.

It should not be surprising that we are in this mess. Our credit markets are in complete turmoil and the ability of the people to use their home as an ATM machine is ending. For growing millions of Americans home ownership is now impossible and will be for decades. Values of homes will continue to fall, and now they will fall more rapidly than ever. Our budget deficits will baloon as government has to print money to bail out the system, adding to the safety nets (but note that they'll put a net under Wall Street before Main Street).

Just remember that we told you first that this destruction is caused by the immoral philosophy of free trade globalism, which is based on out of control greed and lust for global power. It's a philosophy foreign to the American system and the American experiment. This country was built on protectionism and is being destroyed by free trade globalism.

Maybe you heard it here first.

But listen carefully to the arguments being made by these dogmatic free traders. In their argument is PROOF that protectionism is the only system that can protect American independence, and that the philosophy of free trade has made this goal nearly impossible to maintain.

The free traders, all of them up in arms, whining and gnashing their teeth on CNBC (most of them personally tied to firms that directly profit from currency exchange and trade finance), are all arguing that the Chinese could single handedly destroy the value of the American Dollar. They are all admitting that the Chinese have accumulated massive amounts of American capital, and are holding it (rather than buy all of our now questionable mortgage and corporate debt, and unable to invest all of it in government debt). Should they decide to dump this currency in response to our Congress enforcing trade agreements or altering the exchange rate of the Yuan (a Constitutional function of Congress, lest we all forget) it is being said that they could unravel the U.S. economy. Free trade has created such interdependence that Americans are no longer in control of their own economy. We have lost our self determination. Our Declaration of Independence is being declared dead on Wall Street, and it's being publicized hourly on CNBC.

For weeks, the solution being posited by Wall Street to our CDO credit crunch and the possible bank failures and stock market crash in financial stocks is to encourage the Chinese to come in and buy Citigroup or JPMChase or some similar big U.S. bank to create confidence that we'll survive the spiral of faltering confidence in U.S. debt instruments.

The trade war, should it occur, would stop the massive labor arbitrage, windfall corporate profits, outsourcing of our manufacturing base, and put a nail in the coffin of world government through world economic interdependence. This threatens Wall Street because the oligarchs that have reformed in this country are in the process of becoming global oligarchs. It threatens DC because the goal of a single world system with a Bush or Clinton running the whole show cannot be achieved if the United States were to assert economic (and thus political) nationalism.

In fact, a trade war would encourage U.S. holders of capital to invest it domestically. American jobs would be created and wages would increase. The tariffs collected on Chinese imports would eliminate our budget deficit. Some companies on Wall Street would thrive, some would falter, some would restructure, and some would fail, but so goes the stock market every day anyway! As the U.S. would begin to be recapitalized, our wage rates and standards of living would increase (this is STRAIGHT out of Austrian theory, which the free traders claim to have read and understand; too bad they didn't pick up the few but obvious contradictions that exist within Austrian theory).

Listen carefully to what is being said as the strident opposition to American economic nationalism starts whipping the media into an anti-protectionist frenzy. They are proving our points every day.