The Post-Crash Party Continues

By Bill Bonner

London, England

Gold took off yesterday…closing at $1020. Here at The Daily Reckoning, we’re impressed. But we’re not that impressed. Gold, of course, is half of our Trade of the Decade, which we announced almost 10 years ago. We’re bullish on the metal…have been for a very long time. But recent comments in this space have made readers wonder what the Hell is going on…so we will spend a few minutes clarifying.

First, we hope you bought gold many years ago. That would make it simpler. Then, we could say: hold! Gold is an antidote to paper. There is so much paper…and so much more apparently on the way…that the gold play seems like a winner. It’s a bet that the money system that has been around since August ’71 is going to fall apart.

We still think that is a good bet. Our Trade of the Decade remains. Buy gold on dips; sell stocks on rallies. We’ve done well with this trade; we’ll stick with it a bit longer.

But what if you don’t own gold? The yellow stuff is now over $1,000. In fact, it looks like $1,000 could be a new support level for the metal – with most of the support coming from the Chinese. China has relatively little gold in its central bank. It must see what we see – the weakness of the dollar and of the dollar-reserve monetary system. It must worry about the value of the $2 trillion or so it has in dollars. It must also wonder how it is going to run its economy if the dollar falls apart. American buyers were its consumers of first and last resort. To whom will China sell if its most important customers’ money becomes worthless?

Recent comments by a group of Chinese officials make it clear that they are thinking of these things…and that they have decided to add more gold to their reserves. In fact, all the central banks have become net buyers. No more selling off gold reserves. That is seen as a mug’s game – which it is. Replacing gold with paper? C’mon, what were they thinking?

So China is a buyer. Trouble is, it has to be a discreet buyer. It has too much money. It could cause the price to skyrocket overnight. Then, it would be paying too much. So, perhaps it does what we do – China buys on dips! For example, the order may have gone out: buy gold whenever the price goes below $1,000.

We don’t know what their buying strategy is…but the Chinese are probably going to be big buyers over the next few years.

Should you buy along with the Chinese? Should you compete with the Chinese for each ounce of gold that comes on the market?

Good question. Unfortunately, we don’t have a good answer. So let’s try a different question: Is gold going up or down?

The answer to that is simpler: gold is going up…then down…then up again. It is going up because the feds – including the feds in China – are encouraging speculation. Then, it is going down when the next phase of the bear market reasserts itself and the speculators run for cover. Then, it is going back up…much farther and faster…when the Fed becomes desperate and finally throw caution – and dollars – to the wind. We’re confident this last stage will arrive. Our hesitation is that it will take much longer than we expect. Gold may rise in a deflation…but it soars in a period of inflation. That period could be a long way off.

The feds can’t revive the consumer economy. Despite all you read…the consumer economy is probably going to limp along for many years. No boom in consumer spending = no inflation.

“US retail sales surge as economy strengthens,” announces a Reuters’ headline. Don’t believe it. Between the seasonal adjustments and the feds’ giveaways the retail sales numbers are meaningless. The real story is that there is little – or no – real organic improvement in the economy. The largest banks that get federal bailout money, for example, have actually reduced their lending for 6 months in a row.

But the feds can stimulate speculation. The dollar has become the ‘carry trade’ currency. The big players borrow in dollars…and use the money to speculate – against the dollar! They buy gold. They buy Brazilian bonds. They buy aluminum futures. They buy stocks.

The Dow rose 108 points yesterday. Oil rose over $72. Almost all commodities are up – except natural gas.

The post-crash party seems to be going well. It may continue. But the underlying problems of the real economy have not been corrected. They will rise up like zombies in a bad horror movie and bring the party to a close. Absent support from the Chinese, the price of gold will probably go down along with everything else. Which brings us back to the question we dodged.

“Dad, I made $2,000 just in the last couple of days…on that gold play I got in. But I’m nervous…should I sell it?”

Jules has graduated from college. He’s investing his meager savings, trying to put together a big enough stake so he can take a year off from work and concentrate on his career as a composer and performer.

“Jules…I don’t know,” began the answer. “But you’re a young guy. You can afford to speculate. If it goes your way, you make money. If it goes against you, you learn something…and you have plenty of time to recover.

“It looks to us as though this party is going to continue for a while. If I were you…I’d stick with it a while longer.”

Our advice to a man of 21 is not the same as our advice to a man of 60. The older man would get older advice:

“Gamble not thy whole wealth on the gold market,” we would say.

The older man needs gold. But he needs it as insurance…as a reserve against catastrophe…as a form of savings. The Fed has been negligent and derelict. It is not protecting America’s money and Americans’ wealth. The average fellow has to do it himself. He has to have reserves of his own…reserves of real money – gold.

He should buy. He should hold. He should buy the dips. But he should not speculate on higher prices…nor risk his wealth gambling in the gold market. Most likely, after this speculative boomlet, the price of gold will go down. How much? How far? For how long? Of course, we don’t know the answer to those questions.

We’re not buying now. But we already have our position in gold. We will add more – on the next big dip.

“Why capitalism fails” is the intriguing and misleading headline of an article in The Boston Globe. It is a reminder of the theories of Hyman Minsky, who pointed out the obvious: capitalism is inherently unstable…it proceeds in booms and busts…not steady, incremental growth. Of course, that is just the way it works – like nature herself. And that’s why people don’t like capitalism…they can’t control it. So, whenever a bust comes, they imagine that it has ‘failed’ or ‘broken down.’ Then, they propose ways to fix it.

“Since the global financial system started unraveling in dramatic fashion two years ago, distinguished economists have suffered a crisis of their own,” starts the article. “Ivy League professors who had trumpeted the dawn of a new era of stability have scrambled to explain how, exactly, the worst financial crisis since the Great Depression had ambushed their entire profession.

“Amid the hand-wringing and the self-flagellation, a few more cerebral commentators started to speak about the arrival of a ‘Minsky moment,’ and a growing number of insiders began to warn of a coming ‘Minsky meltdown.’

“‘Minsky’ was shorthand for Hyman Minsky, a hitherto obscure macroeconomist who died over a decade ago. Many economists had never heard of him when the crisis struck, and he remains a shadowy figure in the profession. But lately he has begun emerging as perhaps the most prescient big-picture thinker about what, exactly, we are going through.

“A contrarian amid the conformity of postwar America, an expert in the then-unfashionable subfields of finance and crisis, Minsky was one economist who saw what was coming. He predicted, decades ago, almost exactly the kind of meltdown that recently hammered the global economy.”

Economists went off their heads in the last few decades. They thought capitalism would make us all rich. And they thought capitalism automatically tended toward beneficent equilibrium.

Here at The Daily Reckoning, intuitively, we guessed the contrary. The system produces a kind of orderly chaos…in which the rich are frequently impoverished, the proud are humbled…and the goofballs who think capitalism fails inevitably make things worse.

Until tomorrow,

Tea Party Foul

Dan Gerstein

How Republicans missed a prime opportunity to re-connect with moderates.

Last week's tea parties achieved the dubious distinction, too common in today's politics, of being both over-hyped and under-reported. We know how many events were held, (roughly) how many people attended and, thanks to the trivial left-right squabble about the events' providence, who organized them.

But all too little scrutiny has been given to the tea-backers' core triumphal claims. Was this, in, fact something new? And did it have the makings of a true cross-cutting movement? Or was it, as some critics suggest, just another partisan, anti-government gripe session in populist packaging?

Unlike many of my Democratic friends, I did not pre-judge that central question. Indeed, as anyone who has read my complaints about how the bailouts have been handled can attest, I approached the tea parties sympathetic to at least some of the concerns participants said they were raising. And I was curious to see if the organizers would de-politicize their appeal and address the broad middle of the American electorate that is currently troubled, among other things, by the lack of transparency and accountability in TARP and other rescue plans and distressed by the debts we are racking up to pay for them.

Sadly, that's not what happened. For starters, despite pretending to be nonpartisan, the events were promoted and dominated mostly by Republicans and conservative ideologues; can you name one prominent Democrat who participated? Even worse, the blatantly one-sided messages delivered on stages and signs were often tinged with fringe, vituperative and even violent rhetoric, much of it targeted at President Obama.

In fact, after Texas Gov. Rick Perry's grossly irresponsible innuendo about secession, you might say there was more slime and treason than rhyme and reason to the protests.

But even if you stripped out the Hitler comparisons and "honk against Communism" greetings, and judged the tea parties based purely on the policy arguments they were trying to make, what came through was hardly the stuff of mass mobilization and political realignment at this moment of high economic anxiety and Obama popularity.

Indeed, the compelling critique that could have been made about crony capitalism still being abetted by both parties in Washington was drowned out by a bunch of incoherent, indiscriminate and tired tirades against government itself. They were straight out of the Republican platforms of the last 30 years, if not the John Birch handbook.

Incoherent is actually an understatement. The tea parties were all over the place in their complaints--they could not even agree about whether they were protesting taxation against representation or not. The only common thread I could ascertain was that this was tea for "too": taxes are too high; spending is too much; earmarks are too many; the deficit is too large; government is too big; and Obama is too liberal.

If you closed your eyes and just listened to the totality of the banality of the words, you would swear it was September of last year, the economy was still stable and Sarah Palin was speaking to a crowd of "real Americans."

Suffice it to say, all those "toos" are not new. And with all due respect to Karl Rove, who boasted that the tea parties represent a force that politicians ignore "at their peril," they are not the stirrings of a broad movement. They're just a mish-mash of misunderstandings of a shrinking conservative minority--about the import of the last election, the mood of the country now and our economic and budgetary needs going forward.

In particular, it's a clear misreading of the anger that's animating the bailout backlash, which, as the largely indifferent reaction among most moderate voters suggests, is a different animal than the simple- and narrow-minded anti-governmentalism of the right-wingers who seemed to hijack the tea parties.

To understand the depth of these misunderstandings, consider first the notion commonly expressed at these parties that Obama has executed some kind of coup--socialist or fascist, depending on your warped grasp of political theory. This argument was made perhaps most vividly by one of my fellow Forbes columnists, Peter Robinson, who last week compared Obama to King George III. Robinson's main evidence that the president is abusing power? Obama and his party now control the executive and legislative branches and are adopting policies he disagrees with. (I am not exaggerating.)

Maybe it's time for a basics civics lesson. American citizens don't vote for specific policies when they go to the polls, they vote for a candidate, who often must adopt programs they never campaigned on to--gasp--adapt to changing circumstances. But most Republicans who are exploiting the tea parties for their own ends know this, which is why they are guilty more of disingenuousness than cluelessness. There may be a difference of degree in Obama's stimulus plan and the rest of his recovery plans, and a sizable one in some cases, but not a difference in kind. Obama clearly ran--and won--on an agenda of activist government.

That's what is really bugging the anti-government conservatives. It's not that Obama is pulling a fast one. It's that he is doing just what he said he would--and the clear majority of Americans approve of his approach. Most polls still show Obama's approval rating running about 10 points ahead of his Election Day percentage, when he won the highest percentage of self-identified moderates (60%) since the inception of exit polls in 1976, and his numbers with independents are holding firm at that level. Even more problematic for the right is a Gallup survey released last week around Tax Day that found 48% of Americans say the amount of taxes they pay is about right, the highest positive response in 53 years.

That's not to say, though, that many Americans across the spectrum--including many Obama supporters like me--don't share some of the tea-backers' concerns about spending and debt. But their objections are more practical than philosophical. They don't reflexively think of government spending as pork or waste; they value investments in growth but they object to non-stimulative earmarks and special-interest payoffs.

They want Washington to lower health care costs, but are worried about the fiscal impact a new $600 billion plan will have on top of all the recovery funds that are already out the door. They know GM going belly up could result in a million lost jobs at the worst possible time, but they oppose using their tax dollars to subsidize more failure.

The tea-backers badly miscalculated in not speaking to these swing voters--particularly the large swath that is not anti-Obama or anti-government per se but aggrieved by bailout bonuses and other indicators that our economic system is still rigged. Instead, the tea-backers often opted for extreme, exclusive and ultimately incongruous messages like "taxation is piracy" and "debt is slavery" (two common sentiments plastered on signs). How seriously can you take anyone complaining about debts and deficits at this moment when his primary solution is to lower tax rates beyond the Bush levels and starve the government of revenue?

That points to arguably the most obvious misunderstanding of the parties. Many tea-backers can't seem to grasp basic budget math. They have bought into the myth that pork is the primary source of red ink, and if we just cut out those damn earmarks and feel-good liberal programs we'll be back in the black. But that's just avoiding some hard realities.

Even if we held nondefense discretionary spending flat for the next five years--a dubious economic strategy with the country on the brink of a depression--the massive deficits the Republicans ran up under Bush (without being tea-bagged) would continue to grow substantially. (And that's without the $3.6 trillion in new tax cuts that the Senate Republicans cynically proposed as an alternative stimulus plan.)

Why is that? Because the prime drivers of government growth--and our structural deficit--are Medicare, Social Security, Medicaid and defense. While discretionary spending actually declined, from 44% to 38% of the budget over the last 20 years--and it is expected to fall to 29% under the Obama budget by 2019--those four major programs consumed 62% of the budget last year.

Today we're spending $425 billion on Medicare, $259 billion on Medicaid, $662 billion on Social Security and $666 billion on defense (as well as $253 billion for interest on the debt). All of these numbers will increase over the next five years as more baby boomers retire, health care costs continue to rise and the defense budget grows. We're looking at allocating totals of about $3.8 trillion for Social Security, $2.6 trillion for Medicare, $1.5 trillion for Medicaid and $3.1 trillion for defense.

To be fair, earmarks are a real issue, in large part because of their symbolism. And I thought Republicans were right (albeit hypocritical) to ding the president for not vetoing the omnibus spending bill for this fiscal year that was loaded with them. But it's just not credible to suggest they are the heart of our fiscal problem. Not when they amount to about to 1% of the budget. Not when you are ignoring the highly popular entitlement programs, which are projecting a $50 trillion unfunded liability over the next generation. And not when most Republicans are ducking some of the tough spending cuts Obama is now actually proposing in order to pay for his recovery plans, like limits on the crop subsidies to wealthy farmers and (as I wrote about last week) student loan subsidies to free-riding banks.

In light of all this, it is not surprising that the tea parties were unable to parlay their considerable media attention into meaningful political traction. In most cases, they were not speaking truth to power but instead peddling politically comforting fictions.

In fact, they couldn't even stay true to their genesis story. CNBC reporter Rick Santelli supposedly inspired the tea party movement with his rant about Obama's mortgage rescue plan, but his main beef was about fairness and accountability, not taxing and spending. He was railing against relief going to irresponsible buyers, not against government mortgage relief itself. But that distinction was lost at the tea parties--along with most cross-partisan credibility.

Mostly, the Republicans and their fiscally conservative base lost a prime opportunity to repair their image and reconnect with the middle-class voters who abandoned them in the last two elections. Many of those voters were open to and ready for a new, inclusive and relevant message from the opposition party. What they got were the last gasps of the dying Reagan Revolution and its obsolete economic agenda.

Dan Gerstein, a political communications consultant and commentator based in New York, is the founder and president of Gotham Ghostwriters. He formerly served as communications director to Sen. Joe Lieberman, D-Conn., and as a senior advisor on his vice presidential and presidential campaigns. He writes a weekly column for Forbes.

TEA PARTY

Tax Tea Party Time?

Bruce Bartlett

Higher taxes may not be as bad as they seem.

Next week is April 15, the day when most Americans have to file their federal income tax returns. To protest the allegedly high level of taxation in the United States, various right-wing groups are organizing tea parties around the country in the spirit of the Boston Tea Party of 1773.

The irony of these protests is that federal revenues as a share of the gross domestic product will be lower this year than any year since 1950. According to the Congressional Budget Office, the federal government will take only 15.5% of GDP in taxes this year, compared to 17.7% last year, 18.8% in 2007 and 20.9% in 2000.

The truth is that the U.S. is a relatively low-tax country no matter how you slice the data. The following tables illustrate this fact by comparing the U.S. to other members of the Organization for Economic Cooperation and Development, a Paris-based research organization.

As Table 1 shows, total taxation (federal, state and local) amounted to 28% of the GDP in the U.S. in 2006. Only four of the 30 OECD countries had a lower tax ratio. Taxes averaged 35.9% for the OECD as a whole and 38% in Europe. Citizens of Denmark and Sweden paid very close to 50% of their total income in taxes.

Table 1: Total Taxes as a Share of GDP, 2006

Denmark	49.1	U.K.	37.1	Ireland	31.9
Sweden	49.1	Hungary	37.1	Greece	31.3
Belgium	44.5	Czech Rep.	36.9	Australia	30.6
France	44.2	N.Z.	36.7	Slovak Rep.	29.8
Norway	43.9	Spain	36.6	Switzerland	29.6
Finland	43.5	Luxembourg	35.9	U.S.	28.0
Italy	42.1	Portugal	35.7	Japan	27.9
Austria	41.7	Germany	35.6	Korea	26.8
Iceland	41.5	Poland	33.5	Turkey	24.5
Netherlands	39.3	Canada	33.3	Mexico	20.6

Source: OECD

There's a stronger case for the U.S. being a high tax country when looking at the top statutory tax rate on labor income. The OECD calculated the U.S. rate at 41.4% in 2007. As Table 2 shows, this put America right in the middle of the distribution despite a reduction in the top rate from 46.7% in 2000. The reason is that 19 OECD countries have reduced their top rate since 2000; only 3 have increased it.

Of course, the top rate applies only to those with very high incomes. According to the OECD, one would need to make almost 9 times the average worker's wage to pay the top rate in the U.S. In most OECD countries one hits the top rate at an income barely above that of the average worker, which puts workers in other countries in much higher tax brackets than those in the U.S.

Table 2: Top Statutory Income Tax Rate, 2007/2000

Denmark	59.7/59.7	Canada	46.4/46.4	U.K.	40.0/40.0
Sweden	56.5/55.4	Italy	44.9/46.4	N.Z.	39.0/39.0
Belgium	53.5/63.9	Spain	43.0/48.0	Luxembourg	38.9/47.1
Netherlands	52.0/60.0	Switzerland	42.1/43.2	Korea	38.5/44.0
Finland	50.5/55.2	Portugal	42.0/35.0	Hungary	36.0/40.0
Austria	50.0/45.0	U.S.	41.4/46.7	Iceland	35.7/45.4
Japan	50.0/50.0	Ireland	41.0/44.0	Turkey	35.6/35.6
France	47.8/53.3	Greece	40.0/45.0	Czech Rep.	32.0/32.0
Germany	47.5/53.8	Norway	40.0/47.5	Mexico	28.0/40.0
Australia	46.5/48.5	Poland	40.0/40.0	Slovak Rep.	19.0/35.0

Source: OECD

Table 3 presents effective tax rates for an average one-earner couple with two children. It shows American workers paying 11.8% of their income in taxes in 2007. Only five countries had lower tax rates. The average for all OECD countries was 21%--almost twice the rate paid by American workers.

One may wonder how working people manage to pay so much in taxes in other countries. The answer is that they get a lot back from the government in other ways. For example, most other countries have a broad system of family allowances that come in the form of cash payments to virtually all families regardless of income.

Table 3: Personal Income Tax Rate on an Average Worker, 2007

Hungary	38.7	U.K.	25.4	Luxembourg	15.3
Denmark	35.8	Poland	24.7	Portugal	14.8
Austria	31.8	Germany	23.9	Iceland	14.4
Netherlands	31.7	Australia	23.4	Spain	12.4
Belgium	30.6	France	21.9	U.S.	11.8
Turkey	30.3	N.Z.	21.5	Czech Rep.	10.8
Finland	30.1	Italy	20.4	Slovak Rep.	9.7
Sweden	27.6	Canada	16.9	Korea	9.5
Norway	27.1	Switzerland	16.5	Ireland	5.9
Greece	26.5	Japan	16.3	Mexico	5.2

Source: OECD

When these cash payments are deducted from taxes, the effect is to substantially reduce the effective tax rate in almost every OECD country. As Table 4 shows, in many cases the impact of cash allowances is dramatic. The effective tax rate falls to just 2.8% from 21.5% in New Zealand, and in Ireland workers get back more than 200% of their tax payments.

Another way that workers in other countries benefit is in having almost all of their basic health care expenses covered by the government. According to the OECD, 19 of its 30 member countries cover 100% of health care costs, and another eight cover more than 89% of costs. Of the three remaining countries, Turkey covers two-thirds of health expenses, and Mexico pays for half.

In the U.S., however, the government covered only 27.4% of health costs in 2006. And almost all of that went either to the elderly in the form of Medicare or the poor in the form of Medicaid. The American average worker either had to pay for his own insurance in the form of deductions from his pay or go without.

In 2008, employer-provided health insurance reduced the cash wages of American workers by 7.9%, according to the Bureau of Labor Statistics. If businesses didn't have to pay for health insurance, they could afford to pay their workers 7.9% more and be no worse off. If workers paid 7.9% more of their income in taxes to pay for national health insurance, they would also be no worse off.

To a large extent, this is exactly what happens in other countries. Workers see the higher taxes they pay the same way Americans view the deduction from their pay for health insurance--not as money down a rat hole, but as the payment for a tangible benefit.

This isn't necessarily an argument for national health insurance. There are lots of reasons why it may be preferable to maintain the largely private health system we have in America. No one thinks it would be a good idea to pay higher taxes in return for having the federal government provide us with food. Variety and quality would undoubtedly suffer a great deal. The same would be true if the federal government took over the provision of health care.

The point is that one can't look just at the taxes people pay here or elsewhere without looking at what they get in return. It doesn't automatically follow that the places with the lowest taxes are the best places to live and work. This is obvious when we think about where to buy a house. We always look at the quality of local schools as a major factor and are willing to pay higher property taxes in return for good schools. The same is true at the national level as well. Higher taxes may pay for services that people value and thus are not as burdensome as they might appear at first glance.

Table 4: Income Tax Rate Less Cash Transfers, 2007

Turkey	30.3	U.K.	20.6	Australia	10.0
Denmark	29.3	Austria	19.8	Korea	9.5
Netherlands	26.9	Sweden	19.8	Switzerland	9.3
Greece	26.5	France	17.5	Iceland	6.7
Poland	24.7	Japan	13.9	Mexico	5.2
Hungary	24.4	Italy	12.5	Slovak Rep.	4.4
Germany	23.9	Spain	12.4	N.Z.	2.8
Finland	22.9	U.S.	11.8	Luxembourg	2.8
Belgium	22.4	Canada	10.6	Czech Rep.	-6.3
Norway	21.5	Portugal	10.3	Ireland	-12.0

The Protest Party Gets Started at the London G20

The Protest Party Gets Started at the London G20

At least the protesters are united — which is more than can be said for the world leaders.

by Mike McNally

Leaders from around the world have converged on London to have their photos taken with Barack Obama and, for a few hours between lunch and breakfast at tomorrow’s G20 meeting, will pay lip service to the task of tackling the global financial crisis.

Protesters equally cosmopolitan in origin and even more diverse in terms of their grievances have already turned up. At the protests, the Free Palestine crowd rubs shoulders with the anarchists, the British Muslim Initiative marches in lock-step with groups calling for the lynching of bankers, and global warming alarmists link arms with members of the Stop the War coalition.

President Obama won’t have seen such an ill-informed, self-righteous, and hysterical mob since his election night rally in Chicago. The headless chickens are coming home to roost.

But at least the protesters are, in some vague sense, united, which is more than can be said for the world leaders. France and Germany are leading opposition to calls by Obama and British PM Gordon Brown for increased public spending, and French President Nicolas Sarkozy has threatened to walk out of the summit if the U.S. and Britain don’t agree to his demands for tougher global financial regulations.

The summit will produce no “breakthroughs” or agreements of substance. It’s little more than a vanity project for Gordon Brown — one which is costing the British taxpayers somewhere in the region of £20 million pounds, with £7 million being spent on policing. But while precious little will be happening inside the ExCel Centre in London’s Docklands, outside the fortified “Green Zone” there will be two days of marches, sit-ins, and rallies galore. And just as at previous gatherings of world leaders from Seattle to Genoa, expect the violence, vandalism, and mayhem.

Much of the anger is directed at bankers — so much so that financial workers in London’s financial district are being advised to “dress down” and avoid unnecessary travel. But while bankers have certainly done plenty to make people angry of late, the ringleaders of the violence that will inevitably transpire don’t need an excuse to throw a brick through the window of Starbucks. This will be violence for the sake of violence, fueled by class-hatred, envy, alcohol, and drugs.

Leading the assault on the barricades and the police will be a hard-core hell-bent on violence and with little in the way of an ideology other than a desire to “smash the system,” while just behind the front lines will be the left-wing ideologues who are coordinating the “G20 Meltdown” protests. Their leaders include “academics” like Chris Knight, who has been suspended from the university where he teaches after suggesting that bankers should be hung from lampposts, and a former topless model turned white witch; their ideology is only slightly less incoherent than that of the anarchists.

The protests have already started, with gangs gathering outside banks to demand their “money back.” Given that many of those demonstrating are feckless dropouts who pay no taxes and have no savings or investments, it’s not clear exactly what money they want back or who has it. What they probably mean is “Give us lots of money for doing nothing,” but as slogans with which to start a revolution go, that one doesn’t really resonate.

Away from the violence, and wincing at the sound of each breaking window, will be a group best described as “the radical well-to-do” — comfortably off, well-educated, middle-class types. These people do at least have some savings to be concerned about, but they’re also stricken with guilt over their privileged lifestyles, and they’ve been whipped into a state of quivering indignation by vague concerns about “social justice,” “fairness,” and, of course, the ubiquitous fears over global warming.

This crowd spans the generations, from polite, elderly radicals trying to relive the glory days of the 1960s, to young, hopelessly spoiled, “trustafarians” (so named because they’re the offspring of well-off families whose “alternative” lifestyle is paid for by a trust fund), for whom there’s no greater thrill than being on the fringes of some authentically “edgy” social unrest. They might even throw the odd brick or two when they think no one is looking.

“Motley” doesn’t do this coalition justice. They are the violent, the thrill-seeking, the paranoid, the self-hating, the guilt-ridden, the naive, and the perpetually disappointed. And for the most part their causes are a similarly ragtag collection of alleged injustices, conspiracy theories, resentments, and hatreds. Still, this week at least, concerns about global warming and the war in Afghanistan are a sideshow to the main attraction: the demonization of the financial sector.

Peaceful protests over the financial crisis are perfectly justifiable, but such protests will be the exception rather than the rule. The more hardline elements who will be rampaging across London don’t need an excuse to cause trouble, and their ranks have been swelled, their anger fueled, and their actions given a veneer of respectability by the growing anger at financial institutions and their employees — anger which has been recklessly stoked by Obama, Brown, and their political allies.

The demonization process has followed a remarkably similar pattern in the U.S. and the UK, with politicians whipping up resentment against bankers in a bid to deflect attention from their own roles in bringing about the current crisis and from their ongoing incompetence and dishonesty. In America, Obama — who got elected in large part because of his ability to harness ignorance and a vague yearning for change — has led the Democrats’ efforts to turn the public against the financial sector, in particular against AIG and its bonus-collecting executives.

Intimidation and death threats ensued, and so effective have Obama’s tactics been that he’s thus far been able to ride out the revelations that his own Treasury secretary had known all along about AIG’s plans to pay the bonuses and that Senate Banking Committee chairman Chris Dodd had received tens of thousands of dollars in campaign donations from AIG executives. Meanwhile, as part of his broader strategy to foster an “us and them” mentality, Obama told Jay Leno that young people shouldn’t aspire to be investment bankers — this from a president whose chief of staff made $16 million doing that very job and who picked up $300,000 in loose change sitting on the board of Freddie Mac while it was embroiled in a massive accounting scandal. Here in the UK, for Obama and AIG read Gordon Brown and Sir Fred Goodwin, former chairman of collapsed bank RBS. There was widespread outrage when it emerged that Sir Fred was collecting a £700,000-a-year pension in spite of the failure of RBS; Brown demanded Sir Fred give back some of the money, but was embarrassed when it was revealed that his city minister, Lord Myners, had known of the pension arrangements. In a foretaste of the violence expected in London, vandals attacked Sir Fred’s home and car. It’s since emerged that Lord Myners, who has attacked bankers for their “greed,” made millions serving on the boards of hedge funds and other financial institutions before moving into politics.

And in a yest another scandal — one which is proving rather harder for the government to lay at the door of the financial sector — several of Brown’s senior Labor ministers have been accused of bending the rules on claiming expenses to a degree that would have Obama’s tax-cheating cabinet nominees shaking their heads in admiration.

Anger at those directly responsible for the current crisis is understandable, but those who protest against the excesses of the bankers might just as well rail against human nature. If a person is inclined towards greed, recklessness, and criminality then they will get away with whatever they’re allowed to get away with. It’s our politicians who are charged with ensuring that appropriate taxes are levied on high earners, than effective regulation is put in place, and that those who break the rules are caught and punished.

And that’s why Obama, Brown, and the rest are so keen that we continue to focus our anger on the bankers, while they attempt to clean up the mess they’ve made and cover their tracks. A few days ago Brown said he “understands” why people are demonstrating in the UK. Implicit in that remark is the suggestion that, while he might not condone such behavior, he also “understands” why some people might want to hurl rocks at policemen or set fire to the offices of financial companies.

Our politicians are desperately hoping that when we see footage of rioters smashing up central London we don’t make the connection between the violence and their own rhetoric and hypocrisy. But the truth is that the top bankers and the leading politicians are very often one and the same; they flit between the boardroom and the legislative chambers, enriching themselves in the private sector and looking after themselves and their friends from positions of political power.

While world leaders, as well as bankers, are being targeted by the protesters in London, the politicians have so far managed to channel much of the wider public resentment in the direction of the financial sector. Obama is doing a better job of this than Brown, who is on his way out whatever happens, but there are hints that buyer’s remorse is beginning to set in in Washington too.

For both leaders, a few broken windows and perhaps the odd cracked skull is a price well worth paying if they can keep the public from realizing who’s really responsible for the mess we’re in.