America's Youth is Beginning a New Enlightenment

This fantastic speech was given by the high school valedictorian at her high school graduation (click here for link). America's youth is beginning to stir from a century-long slumber. The sooner, the better!

Tom Campbell Supports HR 1207, Audit the Fed Bill

The Clover Helix
www.thecloverhelix.blogspot.com
Friday, May 28, 2010

I received the following e-mail from Tom Campbell regarding HR 1207, Audit the Fed Bill:

I have long supported an audit of the Federal Reserve. When I was in Congress, I was an original co-sponsor of Congressman Ron Paul's bill to do that. Please feel free to check with him about my consistent support on this issue.

Again, thank you for contacting me. If you haven’t already, I would like to invite you to visit my website at www.campbell.org where you can find my position statements under the “Issues” tab on my homepage.

Kindly,

Tom

America Has Forgotten Its Jeffersonian Roots: The Principles of Rand Paul

The Clover Helix
www.thecloverhelix.blogspot.com
Monday, May 24, 2010

“I think this is the most extraordinary collection of talent, of human knowledge, that has ever been gathered together at the White House with the possible exception of when Thomas Jefferson dined alone." John F. Kennedy, Describing a dinner for Nobel Prize winners, 1962

It is well known that Thomas Jefferson believed in small government principles and put a premium on the natural, or inalienable, rights of the individual. Jefferson explicitly expressed these views in the Declaration of Independence and in many of his other writings. He believed that the United States should keep federal regulation and taxation to a minimum because these hindered the natural right of the individual to enjoy the fruits of their labor. Jefferson was a classical libertarian thinker in every sense of the word. As such, he vehemently opposed centralized economic and social planning in all levels of government which kept him at odds with his political opponent and Federalist Party founder, Alexander Hamilton. Hamilton believed in a large, powerful central government complete with a central bank and wasn't opposed to finding constitutional loopholes to achieve a political or social goal.

In many ways, libertarian views on government were destroyed by the American Civil War as the Hamiltonian North had defeated the Jeffersonian South. The modern belief by many that the war was fought to counter slavery is a false view as can be easily documented by the writings of the southerners who ceceded and the northerners who opposed them, though the ending of slavery in America was one of the positive outcomes. Rather, the war was executed to settle the philosophical conflict between Jefferson and Hamilton that America hed inherited from the revolution, and in 1865 the Hamiltonians prevailed mililitarily. By the end of World War II, the last vestiges of Jefferson's America were swept away.

After the Civil War, the American political system then evolved into opposing Hamiltonian views that persist in the modern Democratic and Republican parties. Both modern parties advocate social and economic policies that are centered on a massive Federal government with the rights of the States and the individual citizen subordinated. Such a political system would be anathema to Jefferson who believed that government existed in opposition to freedom. Though the Democrats were founded by Jefferson, they no longer support any of the positions for which he advocated and have virtually no intellectual ties to him.

Though libertarianism has survived in many intellectual spheres, most notably economics (e.g., Ludwig von Mises, Friedrich von Hayek, and many others), it has foundered in politics. Jefferson's views would seem extreme to most Americans today, probably just as they sounded extreme to the ears of Alexander Hamilton and his Federalist Party. Jefferson was opposed to a large military, central banking, foreign entanglements, imperialism, publicly-funded mandatory education, or centralized wealth redistribution. Rather, he believed that individuals had a better ability to determine what was best for themselves without governmental interference and in doing so establish a stronger and freer country from the bottom up. Today's publicly-educated schoolchildren are less educated than home-schooled children were 150 years ago (or even today), central bankers have debased the dollar by 98%, and the military is currently in over 100 countries; some of Jefferson's worst fears realized. Is it logical to excuse Jefferson's philosophies as being out of touch? Are Americans too immersed and dependent on Hamiltonian governance to see the libertarian viewpoint on issues?

"A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government." -Thomas Jefferson

Kentucky Senate Candidate Dr. Rand Paul, a conservative libertarian running as a Republican, has drawn the ire of the national media because he suggested that one section of the Civil Rights Act of 1964 out of ten may have overstepped the Constitution. The argument he posed was a Jeffersonian one: The Constitution does not allow the Federal Government to pass laws regulating private property; such laws are reserved to the several states and citizens per the 10th amendment. Local control of property and financial assets were a basic tenant of Jeffersonian America and in no way did Dr. Paul say that he opposed the spirit of the legislation. However, what the media reported was that Dr. Paul supported re-segregating private property that allowed public access, such as restaurants and banks. His Democratic opponent, Kentucky Attorney General Jack Conway, even went so far as to say the Rand Paul was in support of repealing the Civil Rights Act of 1964. "An enemy generally believes and says what he wishes" Jefferson once said.

Clearly, for Dr. Paul the subject was never about racial inequality but rather about the application of the Constitution to modern issues and stopping government's incremental encroachment on individual rights. He suggested that libertarian solutions can be applied to even the toughest social issues, such as racism, and that we need not violate the Constitution to solve our nation's ills. But today the Jeffersonian argument is unintelligible to the Hamiltonian ear and Dr. Paul can expect a lot more political grief simply for being a conservative Jeffersonian.

Today, the Jeffersonian philosophy is being resurrected in opposition to increased centralized governance and the Hamiltonian establishment is fighting back against these "extremist" or "kooky" views. The writings of Jefferson and Thomas Paine are once again en vogue, and the heroes of past American libertarianism, such as Andrew Jackson, are being rediscovered. The modern libertarian is well-educated, well-funded, and highly informed on the issues, past and present. Perhaps the Jeffersonian view of America can be resurrected after all. If so, the country will be better for it.

Investment Bank Mutual Fund Fees Destroy their Client's Capital

The Clover Helix
www.thecloverhelix.blogspot.com
Thursday, February 25, 2010

In an early attempt to prepare for my own retirement I came to the inevitable conclusion that mutual fund fees, if left unchecked, can utterly destroy retirement savings. I’m sharing my experience here as many others may be unwittingly experiencing the same ordeal that I endured when it came to mutual fund investing for my personal retirement. If the true story I present here sounds like your own then take heed and make quick changes!

In 2002, I opened up a Roth IRA with Washington Mutual’s (WAMU) Investment Services Division and invested $3,000 in their family of mutual funds. I selected Washington Mutual because I had been banking with them for over four years and I knew every person at my home branch by their first name. In 2005, I took out $1,700 to purchase a home and left the remaining $1,300 in the account untouched until 2010 when I finally moved this small IRA (by which time Washington Mutual had been purchased by JP Morgan Chase aka JPMC) over to Vanguard. However, when I transferred the account to Vanguard, I found that only $975 of the original $1,300 remained resulting in a net loss of 25% over the eight year period. Where had the missing money gone?

During it’s time in the IRA, the money had been invested in a mid-cap domestic equity mutual fund that had attained only very meager positive returns and the value of the fund should have increased to about $1,535. After some number crunching I discovered the true culprit was my own trusted investment bank skimming off large fees from my tiny account.

It turns out that mutual funds have a lot of fees that are not always disclosed right up front. The mutual fund I purchased had a five percent sales fee or load that was paid to the investment bank over a five year period costing me $65 right at the start. I also paid the management fees for the fund amounting to about 1.2% per year over eight years resulting in another $125 in fees. Additionally, I paid a 0.25% annual 12B-1 fee so that the mutual fund could advertise their services to new clients costing me yet another $26 bringing the total so far to $216 over eight years; but we aren’t done yet. Because my account was worth less than $10,000 I was charged an annual account maintenance fee of $30 tacking on yet another $240 over eight years. In my disgust, I finally transferred the IRA to Vanguard, a true super-hero in investment banking, to get away from the oppressive fee structure that my IRA had been subjected to. However, upon closing the account at JPMC I was subjected to another $30 account maintenance fee for the upcoming year and, perhaps the most insulting of all, a punitive $75 account closure fee. The grand total I paid to JPMC to house a $1,300 IRA over eight years: $560.

Interestingly, these figures suggest that the fund had actually been profitable to me as my balance of $975 plus $560 in fees minus my initial $1,300 would imply that I had made a profit of $235 for a gross return of 18%. In fact this positive investment return is reported to the fund’s investors as an eight-year return implying that this fund would ave been a good investment in an otherwise down market. Fortunately the mutual fund was housed in a tax-free account or else I would have been subjected to a capital gains tax on the $235 of supposed profit making my losses even worse!

In short, had I simply invested the money in a savings account yielding just 1% I would have easily outperformed the WAMU/JPMC mutual fund and not paid a nickel in fees.

Sound Money: Origins and True Value of the American Dollar

The Clover Helix
www.thecloverhelix.blogspot.com
Wednesday, February 24, 2010

Prior to the American Revolutionary War the money supply used by the British colonies in North America was a hodge-podge of gold and silver coins originating from Spain, England, France, and Germany and their territorial possessions. In the western colonies, even wampum was used. Because of Spain’s ownership of vast silver deposits in South America and Mexico, the Spanish Milled Dollar or “Piece of Eight”, was by far the most common coin in circulation and came to serve as the world’s first reserve currency. A reserve currency is a currency universally accepted for settlement of international trade and debt accounts. Today, the world’s reserve currency is the U.S. dollar.

To understand the heritage of the U.S. dollar we must understand the history of the Spanish Milled Dollar. The Spanish dollar concept was based upon the successful German thaler (from whence we get the word “dollar”), a popular coin containing 0.88 troy oz of silver first produced in 1524. The thaler’s success was only undermined by its limited production and later debasements. Soon after, the Spanish government began issuing dollar coins of their own. Upon establishing colonies in America, Spanish dollars were soon being issued en masse from Mexican and Peruvian mints, and the slightly smaller coin (weighing 27.064 grams and containing 0.786 oz troy of silver) became universally accepted due to its purity and reliability. Conveniently, a working man’s daily wage usually came to about one Spanish dollar per day and the 9.72% base metal content made the coin strong enough to handle day-to-day transactions. It could be easily subdivided into smaller denominations by literally chopping the coin into as many as eight pieces called bits (hence “Piece of Eight”). Because of its abundance, convenience, and reliability, the Spanish Milled Dollar became the international monetary standard and these coins flowed into American markets in exchange for cotton, tobacco, and other raw materials. Though English currency involving shillings and pounds were also circulated, it was clearly secondary to these Spanish coins in the American colonial economy.

During the American Revolution, the English naval blockade virtually eliminated American trade from international markets making access to coins, credit, and war materials tenuous at best, impossible at worst. That is why the naval victories of Captain John Paul Jones and the privateers were crucial as they boosted moral for the revolutionaries who were being economically strangled. Eventually the cash-starved colonies resorted to issuing paper “continental” currency, which functioned as interest-free IOUs denominated in Spanish Milled Dollars, to fund the war effort. As the war went on, these “continentals” were printed until hyperinflation and economic collapse set in. The continental currency was never honored and personal savings were wiped out. After the war had ended (via crucial French financial and military support), American trade resumed and Spanish Milled Dollars began flowing into the new American republic. The large account surpluses enjoyed by the new American economy allowed for a quick repayment of international war debts (owed mainly to France) by the United States. Naturally, these debts were paid for in Spanish dollars.

The American experience with the continental currency revealed to the founding fathers the perils of counterparty risk. When evaluating a security such as a bond or stock obligation, the value of that security is based upon the ability of the issuing party to perform the promised obligation. The continental currency lost all of its value because the issuing authority (in this case the Continental Congress) had no way to make good on the debt except by printing even more paper currency. In the end, only people holding gold and silver coins had retained their savings while the rest of the population lost everything. This is because there is no counterparty risk with respect to precious metals; gold and silver has value that is not dependent upon another party fulfilling a financial obligation. Therefore, the new American currency was not to be subjected to any form of counterparty risk.

The leaders of the new Republic learned important lessons concerning counterparty risk and decided to outlaw the issuance of paper money, called by the U.S. Constitution bills of credit (Article I, Section 10). The U.S. Constitution also provided the Congress with the power “to coin Money; and regulate the Value thereof, and of foreign Coin” (Article I, Section 8). Though the type of coin (or monetary unit) to be produced under the new constitution is not explicitly stated in Article I, Section 10, the language of Article 1, Section 9 uses the term “dollars”. In 1787, the only dollars present in America were Spanish Milled Dollars and we can infer that it was to these coins that the founding fathers were referring. Because Spanish dollars lack counterparty risk, the American economy would become as solid as the gold and silver that stood behind it. In fact, Article 1, Section 10 states that only gold and silver coin were lawful for payment of public debts, a provision that is still in effect today.

In 1794, the newly-created Philadelphia mint issued the first American silver dollars. These coins, as established by Congress, contained 0.774 oz troy of silver (versus 0.786 for the Spanish dollar) and the employees of the mint were threatened with penalty of death if they were dishonest in producing the new American coinage. As American economic influence advanced around the hemisphere, American dollars gained in popularity and traded at equal value (par) with the Spanish Milled Dollar in international markets, especially in the Caribbean. When Mexico became independent from Spain and introduced the Mexican Dollar or “Peso” in 1821 at par value with both the Spanish and American dollars, it became clear that the new international dollar standard was here to stay. Even the large European 5-Franc coin was largely modeled on the dollar. The weight and purity of the American dollar remained unchanged until 1935 when American silver dollars were discontinued, and in 1965 the last American silver coins (half, quarter, and tenth dollars) were replaced by copper-nickel fiat substitutes. American silver certificates, or paper money backed by silver dollar coins, freely circulated until 1964.

For large transactions, gold coins were the preferred medium of exchange. The value of silver relative to gold was established by Congress at 16:1. Therefore, a U.S. gold dollar weighed a minuscule 0.048 oz troy but the famous $20 double eagle coin weighed in at a whopping 0.97 oz troy. Gold certificates were circulated alongside silver certificates until 1933 when the gold backing of the domestic currency was abruptly removed by presidential executive order. In 1971, the dollar ceased to be convertible into gold for international transactions.

The constitutional recognition of bimetallism (gold and silver both being legal tender) created many problems for the nation’s money supply as the abundances of these two metals fluctuated with respect to each other while their values were legally fixed. Despite these problems, the gold and silver standards kept the value of the dollar stable and kept counterparty risk out of the money supply (except during the American Civil War). Hence the U.S. dollar was defined by Congress as equal to 0.774 oz troy of silver for 189 years of our 233 year history and the purchasing power of the dollar remained steady until 1965.

Since the introduction of fiat paper money the value of the dollar has plummeted. Assuming a silver price of $16 per oz troy, the dollar has lost over 92% of its purchasing power since 1965. In terms of gold (assuming a gold price of $1100 per oz troy) the dollar has lost 98% of its purchasing power since 1933, with almost all of that loss occurring after 1971. This type of inflation was one of the major issues that our founding fathers sought to prevent. It seems that we are destined to relearn their lessons as we continue to print ever more paper dollars to settle our mushrooming personal and public debts.