'Everyone is on the edge of his seat.
Except for us. We fell off years ago'.
- Bill Bonner, 13th September

It's been a crucial two weeks. Germany's constitutional court ruled that the European bailout fund is legal. Ben Bernanke, Mario Draghi and Masaaki Shirakawa fiddled with the money supply in America, Europe and Japan. The result was impressive. Not much happened.

That about sums up the last few years, too. The most tumultuous economic times we've seen for decades globally and nothing much happens in Australian asset markets.

It doesn't matter whether you use a 1 year, 5 year, or 10 year chart, the Aussie stock market has been in the doldrums. Here's the last four years of going nowhere:

ASX200 4 Year Chart

Source: Yahoo Finance

So much for diversification and index investing. If you picked your stocks carefully and reinvested dividends, you might have done ok.

Adding insult to injury, the Aussie dollar has absorbed the supposedly positive effects of money printing around the world. It remains very high, keeping a lid on the Australian stock market. While US stocks rally to 2007 highs, their Australian cousins remain in no-man's land.

In the face of all this, your best investment option has been to go on holiday overseas to take advantage of the high dollar. But be careful where you go. Our clandestine roving reporter in Europe has this to report:

'I'm in Athens at the moment. So much graffiti and a lot of apartments are empty. A lot of the people in Athens work for nothing just so they have a job when the economy picks up. On the islands you wouldn't know there was a problem with the economy.'

Economic reality has been rampaging through people's personal lives everywhere other than Australia. American median income is back to 1995 levels. European unemployment is at depression levels. Japanese elderly are resorting to shoplifting for food and a cheap thrill.

In the face of all this ridiculous economic and financial news, it's time to discuss something more serious.

The Real Threat to Your Wealth

It's all well and good to try and grow your wealth using assets like shares and property. But what if the government is going about ruining what that wealth really means? What if you can't enjoy your wealth the way you want to because the government interferes? What if government policies affect your quality of life in ways your wealth cannot offset?

Back when prohibition was enacted in many places around the world, your average man was turned into a criminal. Smokers today are ostracised from social settings by law. And taxes on many guilty pleasures make them more guilty than pleasurable. You can't fish, sail, swim, build or shoot as you please, even on your own land.

It's pretty tough to come up with solutions for enjoying life in the face of a government trying to stop you. We're working on some at the moment. And Kris Sayce, editor of the Australian Small Cap Investigator, is preparing for the launch of an entire new eletter dedicated to something similar. All we really know so far is that he got fined for jaywalking outside our office. Now he's all fired up and has decided to make the new eletter free.

While we wait for the newsletter launch, let's go through some ways the government is busy ruining your lifestyle:

Compliance

Not only does the government come up with stupid policies and schemes, it forces you to comply with them. And that is a direct cost to your quality of life. Here are some examples from home and elsewhere:

  • You can't cross the road where you want to.
  • You can't drink in public places.
  • Australia's tax legislation is the largest piece of legislation in the world.
  • It will take Americans 80 million hours of compliance work to comply with Obamacare. Those who have taken the plunge already worked out it is cheaper to pay the fine for not complying than complying.

So what happens when we don't comply with stupid government rules? Well, if you abolish road rules it makes traffic safer and more efficient. At least two trials have proven it so far.

X is Dangerous

The idea that dangerous things must be banned, or restricted, is a government favourite. The cigarette industry has been the recent victim of this idea. But cars do damage too. So do kitchen knives. In fact, just about everything can give you cancer these days. If you believe the studies, that is.

When the government bans things because they are dangerous, it hands them over to the black market. Prohibition tore communities apart, as does the drug war today. But the black market is very efficient too. Many people claim drugs are more available than alcohol in American schools.

Occasionally, the government gets some positive effects out of their stupid policies. Like the attempt to tackle obesity at the Australian Tax Office. The pen pushers will get some exercise out of their latest cigarette clampdown:

'Tax commissioner Michael D'Ascenzo says he is "looking forward to donning a pair of galoshes to help the team out" as they help squelch and squash hundreds of millions of unsold branded cigarettes when plain packaging begins. "Between October and December 2012, there will be up to 100 cubic metres a day being destroyed, which means squelched and squashed and graded into landfill," Mr D'Ascenzo said in his internal weekly column. "For smokers, it will be approximately 540 million cigarettes destroyed as each stick is individually branded."'

Notice the language. We know how many cigarettes will be destroyed 'for smokers'. But we're not sure how many cigarettes will be destroyed 'for non smokers'.

Protect the X

Government policies to protect things backfire in ways that require another policy to deal with. The cane toad is a good example. The government's favourite fuel policy to protect the environment is even more instructive. All around the world, subsidies, tax cuts and research grants were dished out to support the use of ethanol as fuel. Australia's policies included a bounty, excise, exemption and subsidy. Here's the impressive result:

'A report by Dr. Indur Goklany, writing in the Journal of American Physicians and Surgeons (Volume 16 Number 1, Spring 2011), estimates that at least 192,000 excess deaths and 6.7 million additional Disability-Adjusted Life Years lost to disease have been caused by using food crops to make ethanol for fuel. These deaths have been mainly in third world countries where the rise in price of food staples or the loss of availability of food puts people over the edge.'

Oops.

If you've been doing your bit for the environment at the petrol pump, you are now a murderer on the side as well. Ok, we'll downgrade it to manslaughter. The EU is in the process of limiting the use of ethanol in fuel. A few thousand deaths are reasonable, but not 192,000. Probably because the ethanol industry is worth 17 billion euro a year. Just imagine the lobbying.

But it's too late. People in Africa need food!

Aid and welfare

The welfare mob is the same globally. It doesn't matter whether they're in a rich country or a poor country.

In Africa, development aid in the form of cash was given to malnourished people. They bought TVs with the cash. So the development economists came up with the ingenious idea of giving them food directly. They sold the food and bought TVs with the cash. So the development economists came up with another idea, by which time the local farmers had gone bankrupt because of all the food provided to the local area by aid programs.

In Germany, welfare recipients are getting around laws restricting what they can buy with their welfare cheques in a clever way. They buy mineral water, send it down the drain outside the shop, go back into the shop, collect the cash refund given for bottles, and spend that cash on, you guessed it, cigarettes.

In America, people use government provided food stamps for all sorts of questionable consumption items. But our favourite welfare trend from the new world is keeping dead people in your home to collect their social security cheque. In one case, a full on mummification featured.

Science Proves

Possibly the worst government intervention is one that seems scientifically justified. That's because science, politics and government policy never combine to bring a good result. Not that the government even cares about the expected result in the first place:

  • The Australian headline: 'Government Subverts cost benefit analysis of its legislation'
  • The Productivity Commission: 'The number of proposals with highly significant impacts that are either exempted from RIA [Regulatory Impact Analysis] processes or not rigorously analysed is a major concern.'

And we're in a pessimistic mood about science again after listening to this podcast. The transcript hasn't been posted yet, but here is the gist: Most studies are utter rubbish. So you ethanol users might not have killed anyone after all.

At this point, we don't know what's worse. Science tainted by politics or politics tainted by so called science. Your average Joe is well informed though. Commenting on a study which revealed that a barbeque pollutes more than a truck, one incredibly intelligent individual said this:

' "Either way, we're living in a world (where) we're still going through pollution. But the difference is we are getting some type of benefit from (the burger)," said Maria Segura.'

Yes, trucks do not provide a benefit.

In a true democracy, such people are unable to find the polling booth to vote. But in Australia we force them to vote anyway.

Until then,

Nickolai Hubble.
The Daily Reckoning Weekend Edition