Let’s be honest with ourselves. I’m not even a President Trump apologist. I have a plurality of disagreements with President Trump on the issues. But I can clearly see the danger to our democratic system if Obama, Clinton, Mueller, Comey, McCabe, Clapper, Brennan, et al., evade justice. Any Republicans who aid and abet the aforementioned persons in evading justice are complicit and should be indicted as co-conspirators.
The issue was never Russian interference in the election. That was the cover story for Deep State interference in the election. The future of the electoral process is at stake. Failing to prosecute people who believe it’s acceptable to use the government to interfere with elections undermines the electoral process.
For anybody who’s not convinced, imagine if the Trump administration spied on and infiltrated the campaigns of political opponents, and then prosecuted lower level Clinton campaign staffers on technical violations of regulations, while leaving the mega criminals at the top free. People would rightfully be demanding Trump be impeached. Whether you are on the right or left, you should be appalled by the Mueller inquisition. You should be appalled that Obama, Clinton, Mueller, Comey, McCabe, Clapper, Brennan, et al., are free. And if Jeff Sessions refuses to do his job, then indict him, too.
I have a plurality of disagreements with President Trump. Simultaneously, I understand what a farce is the “Russian collusion” investigation. Robert Mueller has a very shady background. If only Mueller had spent as much time investigating 9/11 as he has fictional Russian election interference the United States might be a lot better off. Mueller is making Trump look appealing.
To some of my family members, economic discussions are little more than hieroglyphics. Explaining how loose monetary policy drives up prices, drives down rates of return, and begets economic problems sounds abstract, distant, and unimportant to our daily lives. This can beget the erroneous perception that I may be unconcerned about my fellow countrymen. Nothing could be farther from the truth.
Inflicting injury upon the economy necessarily inflicts injury upon people. I support free markets precisely because I care about people. It has been out of my love for humanity that I became determined to study and learn economics. For my understanding of Austrian economics, I’ve gained nothing financially. But I have gained the satisfaction of knowing I’m advocating ideas that will help create the maximum number of benefits for the maximum number of persons.
“The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing consequences of that not merely for one group, but for all groups.” -Henry Hazlitt
Far too often, politicians in Washington are plagued by myopia. Rising prices are not synonymous with economic growth, and falling prices are not synonymous with economic decline. Genuine economic growth tends to beget falling prices. Yet Senator Cortez Masto and her colleagues have supported government schemes to combat falling prices, i.e. price fixing. There’s a paradox in that politicians have sought to combat falling real estate prices while simultaneously complaining about a lack of affordable housing.
It’s the effort to prop up prices through stimulus that’s prevented the housing market from clearing. People have lost homes because homes are unaffordable, not because they are too cheap. Thus deflation is the cure, not the problem. What sense does it make to provide somebody with a cheaper mortgage — by interest rate manipulation through loose monetary policy at the FOMC — on a more expensive house that costs more to maintain? But that’s the aim of present policy. What sense does it make to stimulate more home building when housing isn’t clearing the market as is?
No matter which way the government inserts itself into the housing market, this diminishes the need for sellers to set prices pursuant to supply vs. demand (i.e. market-clearing prices). Whether the government buys up bad mortgages, bails out the homeowner or the bank, this interferes with the price mechanism. If we continue down the current policy path, one will have to be politically connected to get an “education,” a job, healthcare, and a house!
Suppose there’s a shop owner whose inventory is piling up because nobody can afford to pay for his prices. What does the shop owner have to do? Lower prices. But suppose the government inserts itself into the picture and subsidizes the shop owner. No longer is the shop owner’s sustenance dependent upon having to satisfy consumer demands, thus diminishing the need to set market-clearing prices. Within the construct of the unhampered free market there can’t be price gouging any more than there can be wage gouging, since vendors can’t short inventory at prices above what consumers are both willing and able to pay.
Let’s try another scenario. Suppose the government distributed “credits” or “vouchers” to this shop owner’s customers. This would be perceived as an “enlightened” form of welfare for the shop owner’s customers. However, this is yet a different way to subsidize the shop owner, by letting the shop owner sell at artificially high prices. A move like this prices the poorer non-recipients of “credits” or “vouchers” out of the marketplace. No surprise that education and healthcare — two of the most government subsidized cartels — have also had the highest levels of price inflation. This begets the erroneous perception that the problem is a dollar shortage for the one who didn’t receive “stimulus.”
It’s the subsidies and stimulus that have priced the poor out of the marketplace. Rather than understanding that it’s the “help” that has hurt us, the mistaken conclusion is that we need more subsidies and stimulus.
I’ve always said that, by rights, the impoverished belong to the free market movement. With the government as large as it is today, would it not be a fair assumption that many people who are poor are so precisely due to big government, whereas many people who are wealthy are so precisely due to big government? You see, big business uses big government to manipulate the marketplace on its behalf.
The flawed assumption made by some progressives is that big government is somehow less dangerous than big business. This begets the erroneous conclusion that the problem is an absence of regulation. It’s paramount to understand that we can’t regulate away insolvency. We can’t regulate away past mistakes. But we can regulate everybody except the big cartels out of existence.
Ludwig von Mises and Eugen von Bohm-Bawerk saliently articulated how labor can’t increase its share at the expense of capital. Nobody can argue against capital without arguing for a reduction in their own standard of living. Thus the problem for the progressive should not be with capital, per se, but that capital is so inaccessible to the common person.
Why is capital so inaccessible to the common person? Every tax, every regulation, every government program drives up the cost of capital. Politicians love this, because they get power. Big business loves this, because it creates barriers to competition. Big government creates monopolies, as a monopoly is a state of imperfect competition, and imperfect competition is begotten by government interference in the marketplace.
The situation with housing is no different than that of the shop owner I described above. In a market unhampered by government, sellers are sustained by selling inventory. When the government inserts itself into the picture, sellers are no longer dependent upon having to satisfy consumer demands by selling inventory. Sustenance is disconnected from the satisfaction of consumer demands. In the case of housing, the government and the Fed have subsidized the loan market to hold back inventory. See: https://www.sfgate.com/realestate/article/Banks-aren-t-reselling-many-foreclosed-homes-3165431.php
Simultaneously people are living in tents. The mission of politicians in Washington is literally to keep people homeless. Politicians are little more than kleptocrats masquerading as philanthropists. So long as the government keeps trying to prop up prices – as it has done with healthcare and education – housing will become increasingly unaffordable and the market won’t clear.
Anything that contributes to sticky prices and/or wages will prevent the market from clearing. Economic recovery rests upon a smooth-functioning price mechanism, where the market can discover real prices. How is Senator Cortez Masto or anybody else supposed to know what prices of everything are supposed to be? Would politicians mind telling me what housing prices are supposed to be? Should they be higher or lower? And if policy makers can’t answer this question, how can they possibly set sound policy?
DEBUNKING MYTHS & OFFERING THE SOLUTION
Myth: The problem is “toxic” assets (e.g. mortgage-backed securities) which have created systemic risk
When a hospital can’t collect payment, the hospital sells this debt to a collection agency. This doesn’t create booms and busts. The risk is asystemic unless the government bails out every debtor and/or creditor.
Myth: Present problems were caused by bad lending (i.e. sub-prime loans)
Promiscuous lending is a symptom — not a cause — of economic conditions. Take bad lending to its own logical conclusion: Creditors give away money as an act of charity, getting nothing in return. Does charity cause booms and busts? No. Promiscuous lending is a symptom of loose monetary policy at the Fed, which tricks the loan market into consummating unjustifiable loans.
It’s primarily through FOMC operations that interest rates are determined (until the Fed loses control, which will eventually happen). By expanding the money supply, this increases the supply of loanable funds, but without an expansion of genuine savings. In doing so, the loan market appears to be more solvent than it truly is, tricking the loan market into consummating unjustifiable loans. This artificially suppresses nominal interest rates below their natural level (i.e. where they should be pursuant to the true supply of savings). By expanding the money supply, this allows debtors/borrowers to pay creditors/lenders with devalued dollars, thus lowering the real rate of interest.
The essence of a credit transaction is an exchange of a present good for a future good. If there are no present goods (i.e. savings, which aren’t created on a printing press), then credit has to be curtailed. The problem in that case would not be a credit crunch, but a savings crunch. Investment can only come out of savings because producers must consume in order to sustain the process of production. In order for the baker to make more bread, the baker himself must eat. Thus somebody must forego present consumption in order to fund credit expansion.
The rate of interest is the discount rate of future goods against present goods. An example would be what an investor pays for a printing press. Suppose the printing press will generate $500,000 in net income throughout a ten-year life. The entrepreneur will certainly not bid up the price of the capital equipment to $500,000. The entrepreneur is willing to invest, say, $200,000 for the printing press and the vendor is willing to part ways with the printing press in exchange for an immediate $200,000. The entrepreneur and capital equipment vendor mutually settle upon $200,000 — a sum far less than the $500,000 — in exchange for the printing press.
How much present income (i.e. present goods) is an entrepreneur willing to invest in order to garner $500,000 in future net income (i.e. future goods) over a ten-year period? Reflected in the transaction is the rate of interest as determined by time preferences. Interest rates represent an agio on present goods since present goods are more valuable than are future goods. A person would rather eat an apple today than eat an apple ten years from now. Interest rates must be set pursuant to the true supply of savings and are determined by time preferences. If everybody wants to consume without saving, then interest rates must rise to reflect time preferences.
There is no right way to extend credit at negative real rates, which is a negative rate of return in real terms. It’s a calculus for the loan market to go bust. Any person, firm, or institution (e.g. government) that’s dependent upon inflationary credit expansion is, by definition, insolvent (i.e. a non-income generator). Failure has to be an option for bad business decisions. That’s the check on excessive risk taking.
Capital naturally gravitates to lower priced, higher-yield economies. It’s called arbitrage. Artificially low interest rates engenders capital outflow. Capital goes racing overseas. The problem isn’t a dollar shortage, but a dollar leakage. The dollars are out there; they’re just piled up in foreign reserves. The way to repatriate these dollars is for the Fed to tighten, interest rates rise, prices collapse to reflect wages, which will then beget capital inflow thus lowering the natural rate of interest. If I give you $10 in exchange for a book and you turn around and give me that $10 in exchange for a DVD, the real means of purchase for the book was the DVD and the real means of purchase for the DVD was the book. Increasing the quantity of dollars creates no benefit for the economy.
If the Fed tightens, while it’s true interest rates could gyrate upwards in the short term, the market wouldn’t take very long to append a deflation agio onto rates by lowering rates, since the real rate of return would come from an increase in the purchasing power of the dollar.
Myth: The FDIC is good for depositors
The FDIC offers deposit insurance for bank customers, which is really a backdoor way to bailout insolvent banks. Could you imagine being able to run a ponzi scheme (e.g. fractional-reserve banking), knowing that when your insolvency is exposed the government will pay off your customers (i.e. a de facto bailout of you)? This creates yet another layer of moral hazard on top of the central bank injecting “liquidity” into the loan market. Thus the FDIC’s true purpose is designed to keep the unsustainable intact.
Needing to insure bank deposits should raise questions in and of itself. Unlike natural disasters, economic risk can’t be pooled. It’s one thing to guarantee one’s solvency should they get wiped out due to, say, a flood. It’s quite another thing to guarantee solvency, per se. It’s impossible to insure against economic miscalculation and loss. In the insurance industry, this is referred to as speculative risk. If I were to go into business and you offered to insure me against business failure, by underwriting and assuming the risk, you become the true entrepreneur.
The FDIC (insolvent) is backed by the Treasury (insolvent) which is backed by the Federal Reserve (insolvent). The Federal Reserve is backed by a printing press, which is backed by the savings of Americans. Not only is the concept of insuring economic risk altogether chimerical, but there’s a reason why only a government-backed entity would offer insurance to banks. Inflationary credit expansion makes banks inherently insolvent. Demand deposits are payable on demand, while banks are lent long. Thus the time structure of assets and liabilities does not match.
At the end of the day, the FDIC/Treasury/Federal Reserve (all three of which are insolvent) can guarantee depositors pull money out of their bank, but there’s no guarantee of the currency’s value. By guaranteeing solvency, this places the currency’s value at risk. Deposits are guaranteed in nominal terms, but not in real terms.
By scrutinizing the role of the FDIC more closely, you should see that its entire purpose is keeping the good ole’ boy network intact, leaving Americans with nothing. If the free market were allowed to function, the government’s role would be limited to enforcing contracts. If homeowners default, the bank would foreclose. But if the bank defaults, the bank’s creditors – i.e. its depositors – would become receiver for the failed bank’s assets. Depositors should be senior to all other creditors. Thus, in the event of a bank run, depositors have the first legal claim to a bank’s housing inventory.
What does the insolvent FDIC do? If a bank fails, the FDIC sends in federal regulators to protect the bank’s assets from its depositors by becoming receiver for a failed bank’s assets. In many instances, the FDIC has arranged shotgun mergers with investment banks on Wall Street, turning investment banks into bank holding companies.
So we can see this sleight-of-hand trick, under the guise of protecting depositors, transfers real assets (i.e. housing inventories) from failed banks to Wall Street, while promising depositors nothing more than globs of Fed “liquidity.”
There’s no way the FDIC/Fed can guarantee the solvency of the banking system or depositors, which will destroy the currency, thus destroying the very depositors – i.e. anybody holding dollars – those institutions are supposedly designed to protect.
The solution, then, is to put a failed bank’s assets into the receivership of its depositors. Any other efforts to prop up the housing or bond market will prevent the market from clearing and block those who have already lost homes from ever regaining possession. We are now doing to the housing market the same thing that has already been done to healthcare and education.
I would submit to you that we would all be better off the less government intervenes in the marketplace, no matter how well intentioned is the intervention. The less politicians do, the better off we will all be. Politicians spend a great deal of time promising to fix problems that they created in the first place. The “fixes” beget more problems. Senator Cortez Masto is no exception. Everything Senator Cortez Masto has supported has made housing increasingly unaffordable.
For those who have lost homes: If you want to figure out how to get your homes back, then make an inquiry into where they’ve gone. The Fed is sitting on over $1.5 trillion worth of mortgage-backed securities. We can go a long way toward saving the dollar, creating affordable housing, and getting people back into homes if politicians like Senator Cortez Masto fight to compel the Fed to disgorge the mortgage-backed securities on its balance sheet. Any other plan will engender homeless people and peopleless homes, which is why Senator Cortez Masto is the wrong barrister with the wrong indictment of the wrong suspect.
Above is a photo of an x-ray of my shoulder. My shoulder was fused in 2007 and I have 12 screws in my shoulder. After 10 years, the resulting atrophy and asymmetry has caused creeping pain in the t-spine area of my back. I need to get surgery to have the hardware removed or a total shoulder replacement ASAP. In order to do that, I must raise funds for surgery. I ask everybody to donate whatever you can afford to my GoFundMe page and please share my GoFundMe page wherever you can. See: https://www.gofundme.com/shouldersurgeryfund
As one who served honorably on active duty in the Marine Corps infantry, I never anticipated back then that one day my conscience would compel me to call the government in Washington the largest and most criminal enterprise on earth.
The government in Washington has been managing a dollar standard system that’s based on a depreciating currency and negative real rates. As I’ve explained in previous commentaries, this means the economic pie is shrinking by way of policy. The War Party (aka armageddon lobby) has us quarreling over how to divide up pieces of a shrinking economic pie. And the government in Washington expects the rest of the world to roll over and play dead as it seeks to conquer and conscript other nations into this system?
Our top pursuit should be that of peace, and there be no war. Unfortunately, Trump’s victory was not a defeat for the War Party. The War Party’s propaganda machine is running at full throttle, concocting Russian guilt for events with absolutely no evidence. War may be inevitable at this point. If it is, and if people truly understood what was happening, they would understand that the survival of the West depends upon the rest of the world defeating the Murder Industrial Complex in Washington.
Rather than plagiarize myself, I will post the text from a commentary I wrote in 2011:
“The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing consequences of that not merely for one group, but for all groups.” -Henry Hazlitt
A SPECIFIC PLAN – THE ONLY PLAN – TO ENGENDER AN ECONOMIC RECOVERY WITHOUT HYPERINFLATING
Former Federal Reserve Chairman Paul Volcker, whom I have much respect for, pointed out that a 2% inflation rate means confiscating half of one generation’s wealth. In the end, he settled with price stability for the Fed’s mission. Far better than inflation targeting.
Federal Reserve Vice Chairman Donald Kohn promised that the Fed would turn off inflation if it happens (is the guy myopic, since it’s here already?). Ben Bernanke was talking about “green shoots” many months ago. Politicians were talking about a “glimmering of hope.” The Fed tells us it will stay loose until there’s an economic recovery, as though artificially low interest rates are therapeutic in nature. The parlance used engenders confusion, and it’s my purpose here to deconstruct a few fallacies.
Let’s start with this axiom: prevailing economic orthodoxy is wrong. If prevailing economic orthodoxy is so great, then how did the orthodox practitioners get us into this mess? Even I saw this one coming. See: http://libertyeconomics.com/be-afraid-of-the-dollar-not-gold/
What is it that we are all pursuing and seeking? The betterment of our lives (i.e. economic growth). When government officials and politicians speak of economic growth, they should be able to define the phrase. If they can’t define it, then they have no business talking about economic growth. So what is economic growth?
Wealth is that which satisfies demands. Inasmuch as businesses satisfy consumer demands, they are being productive. Within the construct of the unhampered market, productivity can be measured by income, since income is earned by satisfying consumer demands. The government, on the other hand, does not sustain itself by satisfying consumer demands (i.e. earning its income). The government uses the threat of violence, or actual violence, to obtain its revenue (i.e. compulsory taxation). Thus the government can’t get away with saying that the more it taxes and spends the more productive it’s becoming.
The technocrats had to invent a different excuse for government: its spending is productive! So government spending – as well as private sector spending – has been placed into the GDP. The kleptocracy tries to camouflage itself with Keynesian formulas (e.g. the “multiplier effect”).
Nevermind the fact that if the “multiplier effect” held truth, so long as nobody saved anything – meaning zero-liquidity preference, in which case we would have hyperinflation – the “multiplier” would be infinity!
If you look at the textbook definitions of economic growth, objectively, it’s defined as a rising GDP. A rising GDP means we are having “economic growth,” because the GDP supposedly measures “economic growth,” and “economic growth” is defined as a rising GDP. Do you see any tautology here whatsoever? Even I noticed the tautology all on my own without anybody to point it out to me in any book. This is “Mark original” analysis.
Before economic growth can possibly be measured, it must be defined. Defining economic growth as a rise in the very indicator that supposedly measures economic growth is self-evidently flawed. Look at it another way. Measuring wealth in terms of a depreciating currency is akin to changing around the definitions of inches and feet in order to say that a person is changing in size. If the technocrats and politicians in Washington can’t figure this one out, then everything is hopeless.
The simplest definition of economic growth is a lessening of the unsatisfaction of wants or demands. We are diverse, and our wants, or demands, are subjective. Politicians and econometricians are not psychics. There is no way to quantitatively measure economic growth. Even Alan Greenspan wrote a piece – even while maintaining the fiction that the Fed is blameless – in which he claimed the Fed is blameless because it’s impossible to model malinvestment. See: http://us.ft.com/ftgateway/superpage.ft?news_id=fto031620081437534087 If it’s impossible to model malinvestment, then it’s impossible to model economic growth.
Prevailing economic orthodoxy tells us that there are two kinds of GDP growth: nominal and real. This is where thinking on the subject becomes dubious at best. Real GDP growth is defined as nominal GDP growth discounted for inflation, which is determined by the unreliable GDP deflator (I won’t belabor the reasons why in this piece, but I have done so before and will do so again).
Let’s start with what should be a self-evident absolute: economic growth need not be discounted for inflation. Either we are having economic growth, or we aren’t. If the GDP must be discounted for an inflation component, then this means that some GDP growth is good, but other GDP growth is bad. But if the GDP is measuring the same thing(s) constantly, this makes little sense. Either the GDP measures economic growth and any rise in the GDP is good, or the GDP measures inflation and any rise in the GDP is bad. If the GDP can rise, but only in nominal terms, then this must mean that it can fall, but only in nominal terms.
When Fed officials and other D.C. technocrats speak of “economic growth,” they’re talking about rising prices in absolute terms, which is not inflation but the result of inflation (i.e. monetary expansion). If a person conflates rising prices with economic growth, they’re boxed into an awfully awkward position. The only way to have a fast economic recovery would be to have prices rise fast (i.e. hyperinflation).
Real economic growth engenders falling prices. Falling prices increases the ROR (rate of return) in real terms. I remember when I was growing up during the 1980s, and if I wanted to make a photocopy, I had to walk down to the drug store to use the big, bulky copy machine. If I had to send a fax, I went to Kinko’s, or another commercial location. At that time, nobody would have thought that the average household might have its very own fax/copy machine. Today, you can get an all-in-one for under $100. Who would have thought a century ago we would go from horses and buggies to automobiles?
Undoubtedly, this is a positive development. Albeit demand for the copy machine at Kinko’s and horses and buggies has dropped. But those things have been replaced by at-home copy machines and automobiles. This drop-off in demand for Kinko’s and horses and buggies would be detected by the GDP as economic decline. The political response would be to bailout Kinko’s and the horses and buggies industry, as though market share is supposed to remain static. One man’s loss of market share is another man’s gain of market share.
Conversely, if the western part of the United States went to war against the eastern part of the United States, the GDP could rise exponentially. But would that be a positive development for the economy? Hardly.
For the Fed to keep the price level the same in nominal terms requires inflation (i.e. an expansion of the money supply). Thus, even if prices were to remain stagnant, we can still be suffering from the effects of lost deflation. The question is: what would prices otherwise be absent central bank manipulation? We don’t know, but it’s safe to say prices would be a lot lower.
It’s the effort to prop up prices through stimulus that’s preventing the economic recovery. People are losing their homes because homes are unaffordable, not because they are too cheap. Thus deflation is the cure, not the problem. What sense does it make to provide somebody with a cheaper mortgage – by interest rate manipulation through loose monetary policy at the FOMC – on a more expensive house that costs more to maintain? But that is what present policy is aimed at pursuing. What sense does it make to stimulate more home building when housing isn’t clearing the market as is?
No matter which way the government inserts itself into the housing market, this diminishes the need for sellers to set prices pursuant to supply vs. demand (i.e. market-clearing prices). Whether the government buys up bad mortgages, bails out the homeowner or the bank, this interferes with the price mechanism. If we continue down the current policy path, one will have to be politically connected to get an “education,” get a job, get healthcare, and…get a house!
Suppose there’s a shop owner whose inventory is piling up because nobody can afford to pay for his prices. What does the shop owner have to do? Lower prices. But suppose the government inserts itself into the picture and subsidizes the shop owner. No longer is the shop owner’s sustenance dependent upon having to satisfy consumer demands, thus diminishing the need to set market-clearing prices. Within the construct of the unhampered free market there can’t be price gouging any more than there can be wage gouging, since vendors can’t short inventory at prices above what consumers are both willing and able to pay.
Let’s try another scenario. Suppose the government distributed “credits” or “vouchers” to this shop owner’s customers. This would be perceived as an “enlightened” form of welfare for the shop owner’s customers. However, this is yet a different way to subsidize the shop owner, by letting the shop owner sell at artificially high prices. A move like this prices the poorer, non-recipients of “credits” or “vouchers” out of the marketplace. No surprise that education and healthcare – two of the most government subsidized cartels – have also had the highest levels of price inflation. This begets the erroneous perception that the problem is a dollar shortage for the one who didn’t receive “stimulus.”
The mistaken conclusion is that we need these subsidies and stimulus rather than understanding that it’s the subsidies and stimulus pricing the little guy out of the marketplace. The poor person has been priced out of the marketplace. The problem isn’t a dollar shortage, but a dollar leakage thanks to promiscuous spending.
I’ve always said that, by rights, the impoverished belong to the free market movement. With the government as large as it is today, would it not be a fair assumption that many people who are poor are so precisely due to big government, whereas many people who are wealthy are so precisely due to big government? You see, big business uses big government to manipulate the marketplace on its behalf.
The flawed assumption made by some progressives is that big government is somehow less dangerous than big business. This begets the erroneous conclusion that the problem is an absence of regulation. It’s paramount to understand that we can’t regulate away insolvency. We can’t regulate away past mistakes. But we sure can regulate everybody except the big cartels out of existence.
Furthermore, it’s loose monetary policy that engenders speculation, as lenders/investors are compelled to hedge against a depreciating currency. Holding (i.e. investing in) dollars guarantees losses. Politicians have no right debasing the currency to then regulate away that behavior. The simple solution is to stop the printing press. Politicians have no right to punish us for their past transgressions through cumbersome regulations. The most efficient way to mitigate excessive risk taking is by letting the market set interest rates pursuant to the true supply of savings. Subsidizing risk taking while privatizing the profits is not a real free market. Size-capping should not be conflated with risk-capping.
Ludwig von Mises and Eugen von Bohm-Bawerk saliently articulated how labor can’t increase its share at the expense of capital. Nobody can argue against capital without arguing for a reduction in their own standard of living. Thus the problem for the progressive should not be with capital per se, but that capital is so inaccessible to the common person.
Why is capital so inaccessible to the common person? Every tax, every regulation, every government program drives up the cost of capital. Politicians love this, because they get power. Big business loves this, because it creates barriers to competition. Big government creates monopolies, as a monopoly is a state of imperfect competition, and imperfect competition is begotten by government interference in the marketplace.
The situation with housing is no different than that of the shop owner I described above. In a market unhampered by government, sellers are sustained by selling inventory. When the government inserts itself into the picture, sellers are no longer dependent upon having to satisfy consumer demands by selling inventory. Sustenance is disconnected from the satisfaction of consumer demands. In the case of housing, the government and the Fed are subsidizing the loan market to hold back inventory. See: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/08/MNL516UG90.DTL&type=realestate
Simultaneously people are living in tents. The mission of politicians in Washington is literally to keep people homeless. Do not let those kleptocrats masquerade as philanthropists. It’s not their money they’re spending; it’s your money they’re spending – and on themselves. So long as the government keeps trying to prop up prices, as it has done with healthcare and education, real estate won’t clear the market and we won’t have a recovery.
Economic recovery rests upon a smooth-functioning price mechanism, where the market can discover real prices. How is Ben Bernanke or anybody else supposed to know what prices of everything are supposed to be? Would politicians mind telling me what housing prices are supposed to be? How is it good to stimulate home building when there are homes on the market not clearing?
The pursuit of price stability means the Fed will constantly be chasing its own tail. The Fed doesn’t want to allow deflation, so it deliberately tries to create inflation. But then the Fed also promises to intervene if inflation surpasses some level that central planners supposedly have the wisdom to know is wrong. This makes no sense. It’s impossible for the Fed to fight both deflation and inflation. If inflation is good, then bring it on Zimbabwe-style. If inflation is bad, and must be turned off after it starts, then why start the inflation to begin with? In other words: central planners have promised to do an intervention on their own intervention.
If prices fall, this isn’t a bad thing. If we had propped up the economy of, say, 1900, we would still be riding around in horses and buggies. While Paul Volcker is right that expanding the money supply by 2% every year wipes out at least half of one generation’s wealth, the Fed should not be pursuing price stability. We should, instead, be concerned with monetary stability.
Inflation is not economic growth. Just as inflation begets a negative RRR (i.e. real rate of return), deflation begets a positive RRR. Falling prices means rising real incomes. No nation has ever succeeded in substituting a printing press for income-generating investment.
Our only ticket out of this mess is to stop the printing press, which will bring false economic activity to an end, allowing for what remains of the productive and profitable elements of the economy to lead us into an economic recovery. The government is leading us over a cliff. There can’t be a systemic collapse without a systemic cause. Until systemic changes are made to Washington (not the private sector), there will be no economic recovery.
DEBUNKING MYTHS & OFFERING THE SOLUTION
Myth: The problem is “toxic” assets (e.g. mortgage-backed securities) which have created systemic risk
When a hospital can’t collect payment, the hospital sells this debt to a collection agency. This doesn’t create booms and busts. The risk is asystemic unless the government bails out every debtor and/or creditor.
Myth: Present problems were caused by bad lending (i.e. sub-prime loans)
Promiscuous lending is a symptom – not a cause – of economic conditions. Take bad lending to its own logical conclusion: creditors give away money as an act of charity, getting nothing in return. Does charity cause booms and busts? No. Promiscuous lending is a symptom of loose monetary policy at the Fed, which tricks the loan market into consummating unjustifiable loans.
It’s primarily through FOMC operations that interest rates are determined (until the Fed loses control, which will eventually happen). By expanding the money supply, this increases the supply of loanable funds without an expansion of genuine savings. In doing so, the loan market appears to be more solvent than it truly is, tricking the loan market into consummating unjustifiable loans. This artificially suppresses nominal interest rates below their natural level (i.e. where they should be pursuant to the true supply of savings). By expanding the money supply, this allows debtors/borrowers to pay lenders/creditors with devalued dollars, thus lowering the real rate of interest.
A credit transaction involves trading present goods for future goods. If there are no present goods (i.e. savings, which aren’t created on a printing press), then credit has to be curtailed. The problem isn’t a credit crunch, but a savings crunch. Investment can only come out of savings because producers must consume in order to sustain the process of production. In order for the baker to make more bread, the baker himself must eat. Thus somebody must forego present consumption in order to fund credit expansion.
The rate of interest is the discount rate of future goods as against present goods. An example would be what an investor pays for a printing press. Suppose the printing press will generate five-hundred thousand dollars in net income throughout a ten-year life. The entrepreneur will certaintly not bid up the price of the capital equipment to five-hundred thousand dollars. The entrepreneur is willing to invest, say, fifty-thousand dollars for the printing press and the vendor is willing to part ways with the printing press in exchange for an immediate fifty-thousand dollars. The entrepreneur and capital equipment vendor mutually settle upon fifty-thousand dollars – a sum far less than the five-hundred thousand dollars – in exchange for the printing press.
How much present income (i.e. present goods) is an entrepreneur willing to invest in order to garner five-hundred thousand dollars in future net income (i.e. future goods) over a ten year period? Reflected in the transaction is the rate of interest as determined by time preferences. Interest rates represent an agio on present goods since present goods are more valuable than are future goods. A person would rather eat an apple today than eat an apple ten years from now. Interest rates must be set pursuant to the true supply of savings and are determined by time preferences. If everybody wants to consume without saving, then interest rates must rise to reflect time preferences.
There is no right way to extend credit at negative real rates, which is a negative rate of return in real terms. It’s a calculus for the loan market to go bust. Any person, firm, or institution (e.g. government) that’s dependent upon inflationary credit expansion is, by definition, insolvent (i.e. a non-income generator). Failure has to be an option for bad business decisions. That’s the check on excessive risk taking.
Capital naturally gravitates to lower priced, higher-yielding economies. It’s called arbitrage. Artificially low interest rates engenders capital outflow. Capital goes racing overseas. The problem isn’t a dollar shortage, but a dollar leakage. The dollars are out there; they’re just piled up in foreign reserves. The way to repatriate these dollars is for the Fed to tighten, interest rates rise, prices collapse to reflect wages, which will then beget capital inflow thus lowering the natural rate of interest. If I give you $10 in exchange for a book and you turn around and give me that $10 in exchange for a DVD, the real means of purchase for the book was the DVD and the real means of purchase for the DVD was the book. Increasing the quantity of dollars creates no benefit for the economy.
Myth: The FDIC is good for depositors
The FDIC offers deposit insurance for bank customers, which is really a backdoor way to bailout insolvent banks. Could you imagine being able to run a ponzi scheme (e.g. fractional-reserve banking), knowing that when your insolvency is exposed the government will pay off your customers (i.e. a de facto bailout of you)? This creates yet another layer of moral hazard on top of the central bank injecting “liquidity” into the loan market. Thus FDIC’s true purpose is designed to keep the unsustainable intact.
Needing to insure bank deposits should raise questions in and of itself. Unlike natural disasters, economic risk can’t be pooled. It’s one thing to guarantee one’s solvency should they get wiped out due to, say, a flood. It’s quite another thing to guarantee solvency, per se. It’s impossible to insure against economic miscalculation and loss. If I were to go into business and you offered to insure me against business failure, you become the true entrepreneur in the deal by underwriting/assuming risk.
The FDIC (insolvent) is backed by the Treasury (insolvent) which is backed by the Federal Reserve (insolvent). The Federal Reserve is backed by a printing press which is backed by the savings of Americans. Not only is the concept of insuring economic risk altogether chimerical, but there’s a reason why only a government-backed entity would offer insurance to banks. Inflationary credit expansion makes banks inherently insolvent. Demand deposits are payable on demand, while banks are lent long. Thus the time structure of assets and liabilities does not match.
At the end of the day, the FDIC/Treasury/Federal Reserve (all three of which are insolvent) can guarantee depositors pull money out of their bank, but there’s no guarantee of the currency’s value. By guaranteeing solvency, this inherently places the currency’s value at risk. Deposits are guaranteed in nominal terms, but not in real terms.
When one scrutinizes the role of the FDIC more closely, they can see that its entire purpose is keeping the good ole’ boy network intact, leaving Americans with nothing. If the free market were allowed to function, the government’s role would be limited to enforcing contracts. If homeowners default, the bank would foreclose. But if the bank defaults, the bank’s creditors – i.e. its depositors – would become receiver for the failed bank’s assets. Depositors should be senior to all other creditors. Thus, in the event of a bank run, depositors have the first legal claim to a bank’s housing inventory.
What does the insolvent FDIC do? If a bank fails, the FDIC sends in federal regulators to protect the bank’s assets from its depositors by becoming receiver for a failed bank’s assets. In many instances, the FDIC has arranged shotgun mergers with investment banks on Wall Street, turning investment banks into bank holding companies.
So we can see this sleight-of-hand trick – under the guise of protecting depositors – is designed to transfer real assets (i.e. housing inventories) from failed banks to Wall Street, while promising depositors nothing more than globs of Ben Bernanke’s “liquidity.”
There’s no way the FDIC/Fed can guarantee the solvency of the banking system or depositors, which will destroy the currency (measure purchasing power in terms of gold) thus destroying the very depositors (anybody holding dollars) those institutions are supposedly designed to protect.
The solution, then, is to put a failed bank’s assets into the receivership of its depositors. Any other efforts to prop up the housing and/or bond market will prevent the market from clearing and block those who have already lost homes from ever regaining possession. We are now doing to the housing market the same thing that has already been done to healthcare and education.
If you want to figure out how to get your homes back, then make an inquiry into where they’ve gone. The Fed is sitting on at least $1 trillion worth of Mortgage Backed Securities. We can go a long ways towards saving the dollar and getting people back into homes by having the Fed liquidate the MBS on its balance sheet.
In my estimation, any other plan will engender homeless people and peopleless homes.
I would submit to you that we would all be better off the less government intervenes in the marketplace, no matter how well intentioned is the intervention. The less politicians do, the better off we will all be. Politicians spend a great deal of time promising to fix problems that they created in the first place. The “fixes” create yet more problems. Senator Cortez Masto is no exception. Everything Senator Cortez Masto has supported has made housing unaffordable.
Since I wrote the above commentary, the Fed has increased the amount of MBS on its balance sheet, which now stands at over $1.5 trillion worth of MBS. If Senator Cortez Masto is sincere in wanting to create more affordable housing, then she should demand the Fed liquidate the MBS on its balance sheet. Compelling the federal government to liquidate its real estate would be very helpful as well. Senator Cortez Masto is the wrong barrister with the wrong indictment of the wrong suspect.
Let me preface this by warning everybody that the government in Washington exists to protect Alex Jones from his critics. I’ve learned that myself, as it is apparently a transgression to call for people to pray for Alex, that his eyes would be opened, as I did. Just a few days ago, Alex on his show spoke about “strafing” his opposition – literally. Listen to his show. I perceive that as somewhat of a threat. Welcome to the Alex Jones World Order. Several days ago – anterior to the faux news debate – Alex literally called for shutting down CNN. It’s Wolf Blitzer, not Alex Jones, helping us identify the torturers: http://www.cnn.com/2016/11/09/politics/tom-cotton-waterboarding-torture/ There’s no room for heterogeneous thought in the Alex Jones World Order. It’s an order that will have the government harass you for merely wanting to escape its reign of terror.
Alex Jones recently invited everybody to analyze faux news. In this commentary, I take up his challenge. Here’s Alex trying to recruit thousands of fellow thought police:
Alex spends time directing people’s anger towards Amy Schumer. Is Amy Schumer leaving the country? Isn’t she? Is Amy caught in a lie? It’s worse than tabloid politics because Amy Schumer isn’t even a politician. As Shakespeare said, be it thy course to busy giddy minds. This is distracting people with quarrels over transitory issues of little or no significance. Alex then talks about his favorite bogeyman – the abstraction called “globalism”. Waging a war on “globalism” will be as endless as is the war on “terrorism”. It’s all platitudes. While it’s true there are institutions of global governance that should be dismantled, President Obama’s warning against a “crude sort of nationalism” isn’t without merit. Opposing nationalism in no way implies support for “globalism”, nor does it validate anything Alex says. There’s nothing wrong with market globalism. As Frederic Bastiat said, if goods don’t cross borders, armies will.
Pursuant to Infowars, Ron Paul has even published a “hit list”. Yes. A “hit list” of people in the mainstream news. See: http://www.infowars.com/ron-paul-reveals-hit-list-of-alleged-fake-news-journalists/ Alex spoke very approvingly of the “hit list” in yesterday’s show. Does anybody know what a “hit list” means? To be clear, I’m not here to publish “hit lists”. I’m here to deconstruct faux news. Gentle reader, I couldn’t imagine what would happen to me if I published “hit lists”. Or what would be said about me if I endorsed the “hit list”? If I failed to do anything other than condemn it, as I do? Even condemning it will get me in trouble with somebody.
From a few days ago, here’s Alex Jones covering Steve Bannon’s recent interview:
This one clip alone of Alex should be sufficient to convince his most die-hard followers to do an about face. It’s a museum-quality piece. There’s an emergency, alright. Alex has gone completely off the deep end. Alex’s coverage is very peculiar. He excises some of the most consequential information. It becomes self-evident that Alex amalgamates germs of truth with lies, contorts and omits truth, in order to smuggle lies past his audience. The Alex Jones sashay: ignore the consequential while dwelling on the inconsequential. Notice who Alex recommends people read. It’s not Henry Hazlitt or Ludwig von Mises.
Here’s one huge gem that Alex conveniently excises from at least two days worth of interview coverage:
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” Bannon says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.” See: http://www.breitbart.com/big-government/2016/11/18/steve-bannon-vows-economic-nationalist-movement-white-house-exciting-1930s-greater-reagan-revolution/
Alex Jones and Donald Trump inform us that China – not the government in Washington – is the biggest “abuser” of the United States. Pursuant to Jones and Trump, the most devastating weapon China has in its arsenal is currency manipulation. In other words, pursuant to the protectionists, renminbi devaluation is tantamount to an attack on the United States. But are the protectionists right? Is the Sinophobia justified? Do they not understand that interest rates are artificial? Are Jones’s ideas anything but a menace to the national security of the United States?
Prevailing practitioners of economics tell us that inflation stimulates exports. They get the flow of capital inverted. Otherwise, pray tell, why wouldn’t Zimbabwe be the world’s leading exporter? Inflation inflicts injury upon the manufacturing base, engendering capital outflow and the destruction of jobs.
Not only has Zimbabwe not been the world’s leading exporter, below is a chart that shows what happens to the balance of trade in juxtaposition with inflation.
Contrary to prevailing economic orthodoxy, inflation is not export-friendly. Inflation nurtures dependence upon cheaper foreign markets to supply us with production (i.e. begets capital outflow). Capital outflow can be reversed by compelling the Fed to tighten. If the Fed tightens, interest rates rise, prices collapse to reflect wages, the market clears (only then does the economic recovery begin), and dollars that have accumulated in foreign reserves will coming flowing back into the domestic loan market, thus lowering the natural rate of interest. Anything that nurtures sticky prices and/or wages will prevent the market from clearing.
“The dollar rose against most major currencies on Thursday as a latest report showed U.S. trade deficit plunged in February,” pursuant to one news source.[1]
“The contraction in the deficit came with a big recession-driven fall in imports and an unexpected rebound in exports, the Commerce Department said overnight in the US,” pursuant to another news source.[2]
In July of 2008, the dollar went through a rally – albeit a pseudo-rally – marked by falling nominal prices. Although falling nominal prices is not deflation (i.e. the contraction of the money supply, which would be a healthy thing), that’s the definition of deflation pursuant to prevailing orthodoxy. When the dollar rally began, the trade deficit declined, due to both decreasing imports and increasing exports. In other words: the fall in the trade deficit had been accompanied by a dollar rally. What prevailing economic orthodoxy teaches regarding inflation’s impact on capital flows betrays this possibility.
In November of 2007, Ben Bernanke put on an exhibition of his confusion when he said that inflation is inconsequential for everything but imports.[3] He literally said that dollar devaluation raises prices of everything not denominated in dollars! As if the Fed creating inflation has nothing to do with bond prices. Apparently, Bernanke was blinded by prevailing orthodoxy, which tells us that inflation mitigates a negative balance of trade – another Keynesian apologia for inflation that needs to be buried.
On a peripheral note, Bernanke’s argument runs slightly afoul of prevailing orthodoxy. Prevailing orthodoxy tells us that inflation does raise prices for Americans, and that this magically lowers real prices for foreigners. If Bernanke can’t figure out that increasing the supply of dollars raises dollar-denominated prices, then the average person is hopeless for understanding the international trade cycle and how capital flows.
The decline in imports and rise in exports in juxtaposition with the short-lived dollar rally were not a fluke, nor is this inexplicable. The trade “deficit” is but a symptom of monetary policy. A trade “deficit” isn’t bad per se. A trade “deficit” between two countries is no worse than a trade “deficit” between two towns. The consequential part is if the trade “deficit” is due to something other than comparative advantage (e.g. inflation).
“Suppose four-fifths of all the money in GREAT BRITAIN to be annihilated in one night, and the nation reduced to the same condition, with regard to specie, as in the reigns of the HARRYS and EDWARDS, what would be the consequence? Must not the price of all labour and commodities sink in proportion, and every thing be sold as cheap as they were in those ages? What nation could then dispute with us in any foreign market, or pretend to navigate or to sell manufactures at the same price, which to us would afford sufficient profit? In how little time, therefore, must this bring back the money which we had lost, and raise us to the level of all the neighbouring nations? Where, after we have arrived, we immediately lose the advantage of the cheapness of labour and commodities; and the farther flowing in of money is stopped by our fulness and repletion.
“Again, suppose, that all the money of GREAT BRITAIN were multiplied fivefold in a night, must not the contrary effect follow? Must not all labour and commodities rise to such an exorbitant height, that no neighbouring nations could afford to buy from us; while their commodities, on the other hand, became comparatively so cheap, that, in spite of all the laws which could be formed, they would be run in upon us, and our money flow out; till we fall to a level with foreigners, and lose that great superiority of riches, which had laid us under such disadvantages?” -David Hume, Essays, Moral, Political, and Literary, 1752
What mainstream economists teach runs contrary to what David Hume taught us in 1752. Hume describes arbitrage. Prevailing economic orthodoxy inverts the international trade cycle. We are told that inflation mitigates the trade “deficit”. By inflating the money supply, dollars will become less attractive to foreigners. Thus, runs the argument, foreigners will follow by curtailing exports to the U.S. Somehow, domestic productivity will magically be increased, stimulating exports.
The genesis of this error is begotten by the underlying macroeconomic assumptions. Rather than using microeconomic principles to understand macroeconomic phenomenon, mainstream economics fragments microeconomics and macroeconomics into separate compartments. Macroeconomics then becomes myopic, by lopping individuals out of its paradigm. Myopic macroeconomics doesn’t consider individuals; it only considers aggregates.
Translated, the macroeconomic analysis is this: the country has dollars. If the country, or nation – or whatever aggregate you wish to use – decides to print more dollars, the country, or nation, isn’t going to refuse to use its own dollars. However, the country, or nation, of, say, France, being a different country, won’t like very much the devalued American dollar.
I guess we aren’t supposed to ask why both inflation and the trade “deficit” have risen in juxtaposition with one another. Sound economics gives us that answer. If inflation did mitigate a trade “deficit”, then one is boxed into the position of currency-devaluation wars. Inflation vs. counter-inflation vs. hyperinflation.
The economy is made up of individuals making choices in exchanges. When the government devalues the currency, this doesn’t only make dollars less attractive to individuals abroad, but also to individuals right here at home. This is reflected with higher prices. It isn’t about aggregates printing more money for use by aggregates.
Inflation (i.e. the creation of money ex nihilo) disconnects sustenance from the satisfaction of consumer demands, diminishing the need to set market clearing prices. Consequently, inflationary stimulus interferes with the price mechanism preventing prices from falling to reflect wages. The market fails to clear, thus derailing an economic recovery. With mass unemployment, the last thing that will rise will be wages. The domestic cost of production goes up. Thus, to reduce costs, capital flight takes place. Inflation actually increases the dependence upon cheaper foreign markets to supply us with production.
As David Hume saliently articulated in 1752, inflation makes not only the currency less attractive abroad, but also the higher-priced goods. It also makes the higher-priced goods less attractive right here at home. Using inflation to remedy a trade “deficit” is akin to breaking a leg to make yourself more competitive.
The short-lived – due to central bank intervention – dollar rally in 2008 was not the consequence of the declining trade deficit; it was the cause of the declining trade deficit. Everything denominated in dollars becomes cheaper. It shouldn’t take a genius to figure out that one doesn’t become more competitive by raising prices.
It’s impossible to devalue the dollar to manipulate exchange rates without impacting any other prices. It might be true that devaluing the dollar will enable renminbi holders to purchase a greater quantity of dollars, but it will require a greater quantity of dollars to purchase goods and services. Therefore, real prices haven’t been lowered for renminbi holders whatsoever.
If inflation actually mitigated a trade deficit, Zimbabwe would be one of the world’s leading exporters. Inflation doesn’t lower real prices for anybody. But even if inflation did mitigate a trade deficit by lowering real prices for foreigners, while making things more expensive for Americans, why would that be a good thing? Why should American economic policy be calculated to make things cheaper for foreigners and more expensive for Americans? Economic growth – which is not measured by the GDP – engenders falling prices, which is a good thing.
Inflationary stimulus has served one purpose: preventing prices from falling to reflect wages. The market then fails to clear. The real issue isn’t even the direction of nominal prices, but what prices would otherwise be absent central bank manipulation. Even if prices fall in nominal terms while wages fall much faster, then we’re still suffering from the consequences of inflation. We can be suffering from lost price deflation. Falling nominal prices engender rising real wages.
Inflationary policy by the FOMC suppresses nominal interest rates by increasing the supply of loanable funds, but without a genuine expansion of savings to fund investment. Investment can only come out of savings since producers must be able to consume in order to sustain the process of production. Deploying printing-press money (i.e. unearned income) transfers money away from producers and the process of production to consumers. Inflationary stimulus disconnects consumption from production, turning Say’s law upside down. Thus inflation not only drives capital overseas, but begets capital consumption. Inflation is injurious to the process of production.
Interest rates are more than the cost of money. The essence of a credit transaction is the exchange of present wealth for future wealth. Interest rates are the discount rate of future goods against present goods. That present goods are more valuable than are future goods is why machinery doesn’t get bid up to what it will net. It doesn’t make economic sense to spend $2,000 on a vending machine that will net $2,000 over its lifespan throughout several years. The market’s discounting of machinery and equipment based upon future returns is called originary interest.
Increasing the money supply tricks the loan market into consummating unjustifiable loans to non-credit worthy projects. That’s why malinvestment occurs and projects are halted midstream with the revelation of malinvestment. By allowing debtors to pay back creditors with devalued dollars, real interest rates are suppressed. There’s no right way for the loan market to extend credit at negative real rates, which is a negative ROR in real terms. That’s a calculus for the loan market to go bust as it did in 2008. See: http://www.federalreserve.gov/releases/h3/hist/h3hist1.htm [now the information must be downloaded]. Check out the early months of 2008. That’s not psychological and that’s not a matter of consumer confidence.
The long end of the curve is most sensitive to market forces while the short end of the curve is most sensitive to FOMC policy. If the Fed stays loose to prop up the bond market, this will undermine the very bond market the Fed is trying to prop up. Investors/lenders will account for the inflation risk by tacking an inflation agio onto the curve. Eventually, the Fed will lose control over the short end, too. Under the scenario where the Fed stays loose, there will be no floor underneath the dollar nor any roof on interest rates.
Already, central banks seem to be the only buyers for mispriced bonds. As the Fed stays loose to prop up the bond market, this undermines the bond market in real terms, since other asset classes rise much faster.
Under the scenario where the Fed props up the bond market indefinitely, both the bond market and the dollar collapse. Dollars will hit parity with bonds. The Fed will be left with $18.5 trillion plus – in nominal terms – worth of bonds on its balance sheet, and we will be left with both junk bonds and junk dollars. The dollar itself will go bankrupt. What should be the true par value (i.e. redemption value) of bonds? We don’t know, because the Fed has been propping up the bond market.
Under the scenario where the Fed tightens, the bond market will decline in nominal terms, but the dollar will be saved and what’s left of real bond values will be salvaged. Dollars won’t hit parity with bonds. Just like investors/lenders tack an inflation agio onto nominal rates, there could very well be a deflation agio. Nominal interest rates could be set very low with the real rate of return coming from an increase in the purchasing power of the dollar. The only way to save the dollar is to stop propping up the bond market.
Until the Fed is compelled to tighten, we won’t have an economic recovery. The loan market has to set interest rates pursuant to the true supply of savings. If interest rates were to hit, say, ten percent on the two-year with a $18.5 trillion national debt, do the math. The longer interest rates are artificially suppressed, the higher they will have to go in order to correct the imbalances in the economy.
By tightening sooner rather than later, this will not only allow the market to discover the natural rate of interest by letting interest rates rise, this will encourage capital inflow. Capital naturally gravitates towards cheaper, higher-yielding, more efficient economies. It’s called arbitrage. The Fed is waging an eternal struggle against arbitrage. The Fed, through its war on low prices, has made the United States more expensive and lower-yielding.
If a person, firm, or institution is dependent upon inflationary credit expansion for sustenance, that person, firm, or institution is – by definition – insolvent. Somebody or some institution (e.g. government) is spending beyond their/its means. As a nation, we have spent beyond our means. Expenditures exceed earnings and we depend on foreign markets to supply us with production. We don’t suffer from a dollar shortage, but from a dollar leakage.
Inflation is no substitute for income-generating investment. Inflation creates pseudo prices and pseudo rates of return. Presently, there’s no right way to invest in the U.S. economy. It’s error to conflate trading with investing. Buying and selling real estate is not investing. Buying and selling equities is not investing. I’ll draw the distinction between trading and investing. A trader buys and sells a particular asset based on nominal price movements. An investor buys and holds a particular asset based on returns from the underlying asset itself. In the case of real estate, that would be rents. In the case of equities, that would be dividends.
The problem isn’t a lack of regulatory oversight. One can’t regulate away past mistakes. Insolvency can’t be regulated away. The only solution is to force up interest rates, prices fall, dollars that have accumulated in foreign reserves will flow back into the domestic loan market, which will then beget a lower natural rate of interest. Any other solution will lead to the destruction of the currency, in which case everybody’s savings get wiped out. Loose monetary policy to prop up a spending orgy engenders capital outflow (i.e. begets outsourcing).
Inflation is a tax. There’s no objective difference between the government taking the money you have in your pocket and duplicating the money you have in your pocket, thus devaluing the purchasing power of what you have in your pocket. Even if prices don’t rise in nominal terms, the real issue is what prices would otherwise be absent central bank manipulation.
Furthermore, if one is going to hold the position that rising prices is synonymous with economic growth, then they’re boxed into advocating skyrocketing prices in order to have fast economic growth. The way to have fast economic growth under such a scenario would be to have prices rise fast. I believe there’s a term for that. It’s called hyperinflation. Who supports hyperinflation?
The only path to an economic recovery runs through monetary tightening by the Fed. Waiting until we have an economic recovery before tightening is a calculus to destroy the currency and the economy. When the currency collapses is impossible to predict, but the currency will eventually collapse if current policies aren’t abandoned. We can prevent this if we change policy. Absent dealing with monetary policy, no politician offers us an economic solution. Forcing up interest rates means Washington relinquishing power. If Donald Trump can get away with talking about China’s management of the renminbi, there’s no reason why discussing the Fed’s management of the dollar should be taboo.
By buying dollars, China has helped postpone the day of reckoning. Having the Fed stay loose and asking China to buy dollars in perpetuity is like asking China to commit national harakiri. Renminbi devaluation would actually be injurious to Chinese exporters. If China really wanted to give herself an advantage, she would cease inflating and decouple from the dollar. Our real economic adversary is not in Beijing, but in Washington. Blaming China for our own failing policies is misguided at best. The solution is to abandon our own failing policies.
Objectively, the protectionist complaint about jobs “going” to China and China “cheating” on trade can be reduced down to there’s a problem with China buying dollars. How, pray tell, are jobs “going” to China other than the fact that dollars are going to China? How and why, pray tell, do dollars go to China? The tea party looks to be Bushism plus protectionism, which actually makes Bushism look very appealing.
Jones and Trump say nothing about dollar devaluation. From what I can tell, they want the Fed to stay loose, but they don’t want China to buy dollars. Having the Fed stay loose in juxtaposition with protectionism is very dangerous. They are ignoring the underlying problem while advocating more intervention to try to mitigate the symptoms.
Let’s pretend Jones and Trump are both honest persons and are genuinely confused, rather than dishonest. Confusion begets error, and error begets error. As I’ve articulated, Jones and Trump invert the flow of capital. It seems like that might be the genesis of their error.
Prevailing economic orthodoxy tells us that dollar devaluation is good for exports. But it’s impossible to devalue the dollar to manipulate exchange rates without impacting any other prices. It might be true that devaluing the dollar will enable renminbi holders to purchase a greater quantity of dollars, but it will require a greater quantity of dollars to purchase goods and services in the United States. Therefore, real prices haven’t been lowered for renminbi holders whatsoever.
Now let’s switch around dollar and renminbi holders. It might be true that devaluaing the renminbi will enable dollar holders to purchase a greater quantity of renminbis, but it will require a greater quantity of renminbis to purchase goods and services in China. Therefore, real prices haven’t been lowered for dollar holders whatsoever.
Suppose the PBC stays tight while the Fed stays loose. That would create even more lopsided arbitrage opportunities, in which case capital will flee to China at an accelerated pace. The old axiom about buying low and selling high is true, except in the world of central banking and the bond market. Do we really expect China to buy dollars while the Fed stays loose in perpetuity? Far from China being an adversary, China has helped postpone the day of reckoning by buying dollars.
Suppose the PBC loosens. Far from giving Chinese exporters an advantage, it would actually give Chinese exporters a disadvantage. If the Fed stays loose, China’s best course of action for its own national interests would be to tighten and decouple from the dollar – not unpeg, but decouple. Should Washington have the exclusive right to “print” the world’s “gold”? Why would China permit this in perpetuity? The one advantage that Washington has is that no government on earth wishes to abide by the discipline of a gold standard.
Renegotiating trade deals – as bad as some of them are – won’t repatriate capital. China’s loose monetary policy is not what “takes” our jobs. It’s Washington’s loose monetary policy. Capital naturally gravitates to cheaper, higher-yielding economies. It’s called arbitrage. If China tightened, becoming cheaper, that would precipitate capital outflow to China.
The idea that we can repatriate capital by adjusting nominal tax rates in juxtaposition with the Fed staying loose is a delusion. Does scapegoating China for our economic problems make it more or less likely we can attract Chinese capital? If the desire is to repatriate capital, then Jones should be demanding the Fed tighten and force up interest rates. When the Fed ceases inflating, we are back on a gold standard, because the only new money would be created through mining (i.e. a market transaction). There’s no need to make the dollar convertible, nor would making the dollar convertible be desirable, since that would be a price control like any other.
Imposing further regulations, restrictions, and capital controls as a makeshift effort to remedy capital outflow is a dangerous prescription that will result in economic dislocations. We need a plan to repatriate capital, not trap in capital. No plan to repatriate capital has been offered. Let no amount of patriotic sloganeering disguise protectionism as anything other than corporatism. It’s not about protecting jobs, but restricting access to cheaper markets for the non-politically-connected. If we reject the laissez-faire arguments against capital controls today, the resulting chaos will be met with demands for tighter controls tomorrow. I’m compelled to conclude that Jones’s ideas are a menace to the national security of the United States.
Back to faux news. Bad ideas pose no threat except when welded with state power, which can be diminished vis-à-vis monetary tightening. The solution to faux news is not censorship. The solution is more speech. Truth exposes Alex. Is Infowars faux news? I’m not here to play defense for the mainstream media, but I can’t possibly think of Infowars as a credible news source. Not only was Prince murdered by illuminati music executives, he was also killed by chemtrails. See: http://www.infowars.com/special-report-was-prince-murdered-by-illuminati-record-execs/ and http://www.infowars.com/did-the-chemtrail-flu-kill-prince/ We don’t need censorship. We need monetary tightening. The wonderful thing is here’s empirical evidence enough to convince the most recalcitrant central planners of the urgent need for monetary tightening. Loose monetary policy has adversely impacted Infowars, as there appears to be an Infowars bubble. At the very least, perhaps we can nationalize Infowars and make it non-profit, to then dismantle the operation. Remember, Alex indicts the Fed not for creating inflation, but for being a “private, for profit” enterprise.
[3] – http://www.youtube.com/watch?v=nj9KHJRRUbQ – The consequential portion of the video is around the 5-minute mark. Inflation is not rising prices. To say so implies that rising prices are caused by rising prices. That contorts Irving Fisher’s own Quantity Theory of Money. Rising prices are the consequence of inflation, which is an expansion of the supply of money not redeemable in a fixed amount of specie. Prices could drop in nominal terms, yet prices could be too high in real terms. Falling nominal prices engenders rising real wages. We can still be suffering from inflation due to contortions in the price mechanism since prices remain higher than what they otherwise would be absent central bank policy.
The FBI “saved” us from the Russians who are supposedly coming for our ETFs. Evgeny Buryakov is a Russian banker who was arrested for being a spy. Allegedly, he was going to destabilize the United States through ETF trading. Believe it or not, this isn’t a slapstick comedy. See: http://www.etftrends.com/2015/01/russian-spies-like-etfs/
From what we know, there’s no way to tell whether or not the intention was to gather information for offensive purposes. It could have been for defensive purposes, to find out in what ways Russian ETFs could be targeted. See: http://web.archive.org/web/20161204051433/http://www.businessinsider.com/rsx-plunges-july-17-2014-7 It makes little sense to me that a Russian intelligence asset would be tasked with a mission nobody knew how to execute. It’s especially chimerical considering the fact that if Russia wanted to deal the ultimate black swan in retaliation for the economic sanctions imposed by the United States, she could do so easily by offsetting her long position in dollars (which Trump would like since he doesn’t like foreigners buying dollars). The problem in that case would not be Russia, but our flawed monetary system built on a fiat currency that functions insofar foreigners buy dollars in perpetuity (which Trump wants to curtail in the name of price fixing since arbitrage is a means by which market forces hold statist economies accountable).
It’s a matter of national security for us to determine what trade(s) can destabilize the market, yet nobody in Washington has done anything to help us in that effort. This makes politicians in Washington tacit supporters of espionage against the American people at the very least, pursuant to the government’s own calculus. Is it too many longs or shorts of calls or puts? If there are such trades, then those trades need to be proscribed so they wouldn’t be offered in the first place.
From my knowledge of the markets and trading, having held the Series 3 license, I know of no trade, or sequence of trades, that could be performed to manipulate or destabilize the market. That politicians are able to get away with scapegoating individual traders and speculators for causing market disturbances and recessions is something I find to be chimerical. For further information, see: http://libertyeconomics.com/senator-dean-hellers-swing-and-a-miss/
Think about the absurdity of the argument that tells us the government is just trying to fix the economy with its policies, while speculators cause crashes. Those greedy speculators deliberately trying to cause the economy, which they are participants of, to crash. Trading doesn’t determine economic conditions. Economic conditions determine trading.
The only organization with the power to manipulate the market is government. Politicians and bureaucrats are the only ones with the power and capability to manipulate the market and they do so as a matter of policy. If I am mistaken in my analysis, politicians don’t really have the power to manipulate the market while traders do, then don’t you, gentle reader, believe politicians would be resigning to seek greater power by trading ETFs?
Suppose I were tasked with destabilizing the market, here’s how I would do it:
[1] I would appoint a Federal Reserve Chairman who is really good at talking a lot while saying absolutely nothing of substance, able to convince the people that the Fed isn’t really creating inflation as it is creating inflation. That would be done by distracting people with talk of things like “slack.” Only in a very narrow sense is it true that unemployment can contain inflation. (Unemployment actually speeds up inflation.) If inflators in Congress and government lose their jobs that could certainly help contain inflation. The entire purpose of creating inflation is to keep the inflators employed while others lose jobs.
[2] I would create a huge national security state, financed through inflationary monetary policy which is injurious to the economy as a whole, in order to control the Congress so that the Congress keeps spending us into deeper and deeper bankruptcy which is the same goal that Osama bin Congress had. See: http://www.cnn.com/2004/WORLD/meast/11/01/binladen.tape/ There’s been a deafening silence on the mission overlap. I would refer to my efforts to bankrupt the country as stimulus. I would do my best to silence commentators who draw the nexus between economic liberty and civil liberty, and who propose that it’s impossible to bankrupt a people while preserving their liberty.
[3] I would want the Fed to do quantitative easing, which is a nice sounding euphemism for legalized counterfeiting, or debasing the currency. The practice is horrible for the economic wellbeing of the average American. I would demand the Fed bailout my cronies. I would cheer as the loan market goes bankrupt by extending credit at negative real rates. To this date, nobody has ever explained to me how it is the loan market can extend credit at negative real rates without becoming insolvent. I would laugh at Americans who believe they are becoming more prosperous because of higher nominal incomes in juxtaposition with higher prices.
[4] As the Fed is creating inflation, I would misdirect people into looking at the gerrymandered Consumer Price Index in order to measure inflation. As I deceived people into believing there is no inflation, that would cause firms to overestimate profits, consequently paying more in taxes to the government which would be very good to destabilize the economy.
[5] I would tax everything I could possibly tax through capital gains taxes, corporate income taxes, personal income taxes, an alternative minimum tax, and more. I would want a graduated income tax. I would fool the people into believing I am helping them through offers of tax rebates, tax credits, and vouchers (euphemism for subsidies) in juxtaposition with budget increases, pretending that’s lowering the tax burden.
[6] As firms are overestimating profits and going under because of my policies, I would blame economic downturns on business owners who do things like overestimate profits and direct my agents to arrest business owners for economic failure in an economy rigged through my own policies.
[7] I would lie the country into open ended wars without a finite enemy (e.g. warring against terror), telling the American people that I am saving them from some foreign enemy, while enriching myself and my cronies in the name of patriotism. Nothing wrecks a nation’s morality more so than remaining on a perpetual war footing.
[8] I would tell the people things like the Russians are coming, the Russians are coming! I would accuse Russians of trying to destabilize the economy through things like trading equities. I would try to instill as much fear of everything but government in the American people as I possibly could (this doesn’t apply to critics and opponents). I would tell the people that I must take away their freedoms to protect them from an enemy that hates their freedom.
[9] I would cheapen freedom by reducing it down to some form of hedonism by defining freedom as the right to have gay sex and get abortions so that the people believed they had freedom as I demolished due process and property rights. Undermining a people’s morality and demolishing the concept of moral absolutes also renders a people incapable of challenging government wrongdoing.
[10] I would help create even more economic problems for my own countrymen by imposing sanctions and trade restrictions on different countries like Russia. I would try to take my country into a huge war against a really big superpower which would really help me solidify control over the population.
[11] I would want Congress to pass as many laws as possible, criminalizing as many non criminal activities as they can get away with before the people finally say no more. That would allow me to jail whoever I wanted to jail. I would want Congress to regulate almost every activity there is so that I can target anybody I want. I would tell the people the more important something is, the more the government should be involved, rather than letting them figure out it should be the other way around.
[12] I would label my opponents and critics, anybody who knows what’s going on, as enemies of the state, terrorists, and/or mentally ill. Truth becomes a delusion in an empire of lies. Everything becomes a criminal activity and disagreement with that becomes tantamount to thought crime. I would also define truth telling and whistleblowing as treason and espionage. I would instill as much fear of the government in the aforementioned people as I possibly could.
[13] I would make people defenseless by enacting gun control. And as people became victims of individual criminals more and more as I destabilized the country, proving that government is incapable of protecting them, I would do my best to convince them that they need the government to protect them even as I was the one imposing victim disarmament schemes. At the same time I demonized guns for the general public, I would direct the government to arm itself to the teeth.
[14] I would inculcate people with allegiance to the government through propaganda in a government run education system. I would do my best to influence the media into promoting the idea that the government knows best and that people breathe courtesy of me.
To destabilize a country, I would seek to control and confiscate the people’s wealth through inflation, taxation and regulation. I would ape the government in Washington. Yes. Washington is full of people who make careers out of destabilizing the United States. If Russians really wanted to harm us, they would fund the campaigns of politicians. I say free the Russian “spy” and jail politicians in Washington. Come out with your hands up, politicians!
I’ve said before that people can criticize others and advocate changes which appear benign, but in reality the purpose is to thrust us deeper into a constitutional crisis. Rudy Giuliani fits that narrative exactly. After watching Rudy Giuliani’s most recent remarks in Reno, the title I feel that is most appropriate for him is Reichsführer-SS. I will explain.
Before Holocaust victims were sent to their deaths, their possessions would be confiscated. After death, gold would be extracted from teeth. Anything of value was to be sent to the Reich. In October of 1943, Heinrich Himmler gave a speech in Poznan before SS officers in which he declared war on “corruption” in the SS. Corruption was defined as an SS officer taking a bribe to let a prisoner escape, or keeping some of the stolen loot for himself rather than sending it to the Reich. SS officers who were caught would be prosecuted and punished severely.
When you think about the seriousness of the crime of the Holocaust, you can see the absurdity of the Hitler regime prosecuting SS officers for keeping stolen loot. The real reason for a criminal regime cracking down on small scale corruption was not because the regime cared about the victims, but to enhance the power of the regime. To the extent SS officers complied with orders to send stolen loot to the Reich, that benefited the criminal regime. To the extent SS officers deviated from policy, they became competitors with the regime by functioning as independent de facto tax collectors.
Applying Caesar’s observation on war, Lysander Spooner neatly distilled the genesis of the state. Any group of scoundrels, as Spooner saliently articulated, having money enough to start with, can form themselves as a state. Because with money they could hire agents. With agents they could steal more money. And so the first use the state always makes of its money is to hire agents to subdue and kill all those who refuse to give it more money.
The government doesn’t sustain itself by satisfying consumer demands, i.e. it doesn’t earn its income. The government sustains itself with compulsory taxation, i.e. it uses violence or the threat of violence to obtain its revenue. That’s why problems inhere with everything the government inserts itself into. It has nothing to do with personalities. It’s the nature of the state. (There’s no better way to crystallize this than to think about how free markets don’t create concentration camps. Nobody would patronize such a place. Governments create concentration camps.) You have to pay the government in order to remain free. If that isn’t the definition of a protection racket, gentle reader, then I don’t know what is.
People often times conflate the violence that ensues between warring tribes and warlords with anarchy. That is not anarchy. That’s the genesis of the state. It’s competing warlords fighting to obtain a territorial monopoly on the use of violence. Eventually, one of them prevails and becomes the government. At that time, their crimes are made legal. And because the violence is directed one way, vertically downwards, that’s called “order”.
Government is, to put it simply, the most powerful group of thugs with guns. The first documented political act that I can think of is when Cain murdered his brother Abel. I’m not saying the government doesn’t do anything good and there aren’t a lot of well meaning people in government. But the good government does in apprehending sporadic criminals is because if the government allowed people to behave the way it does with impunity then pretty soon a different government would replace it. The good government does is incidental to its primary function of maintaining a territorial monopoly on the use of violence.
If the government permitted its own minions to collect bribes its power would be diffused. If the government permitted anybody to steal with impunity, then before long there would be a new government. As we can see with the SS officers, their offense was not in harming people or even stealing, but in trying to compete with the Reich. Reichsführer-SS Himmler didn’t care about the Holocaust victims, just like Reichsführer-SS Giuliani doesn’t care about innocent detainees being tortured to death.
In Reno, Reichsführer-SS Giuliani boasted that he could successfully prosecute Hillary Clinton not for any of her matter of policy crimes, but for selling protection to UBS bank in Switzerland. This is the same Reichsführer-SS Giuliani who blamed Hillary Clinton for creating ISIS not because she actually helped create ISIS (like she did), but because of the alleged troop withdrawal from Iraq (there are troops in Iraq right now). Pursuant to Reichsführer-SS Giuliani’s calculus, criminal policies are not the crimes, but the efforts to circumvent criminal policies are the crimes.
Rather than plagiarize myself, I will post an excerpt from a previous commentary I wrote regarding Jesse Ventura’s anti-libertarian heresy on campaign finance. To make clear, I was still hoping he would run despite my disagreements. I can think of no better way to illustrate how the government’s war on corruption is corrupt. The trend is not for the government to administer justice but to drive up its cost (i.e. drive up the cost of a “bribe” or protection). My rule is to look for the means to further that trend in every political plan. And that’s why the government prosecutes people like the former police chief Willie Lovett, who deserves a Presidential Medal of Freedom.
Jesse Ventura recently posted a commentary about campaign expenditures. Somehow, campaign expenditures get morphed into both the cause of political crises and the crises itself. From that thought pattern, it then follows that curtailing and/or proscribing campaign expenditures is the way to remedy crises.
While Ventura lamented the First Amendment rights of protesters being curtailed, he simultaneously endorsed curtailing the First Amendment rights of campaign contributors and candidates. Hopefully I am able to draw the nexus between the First Amendment and campaign contributions for Jesse Ventura to see.
Newspapers can deputize their editorial boards to write up editorials in favor, or against, candidates. This amounts to nothing less than a campaign contribution. That doesn’t need to be reported as such. Worse yet, newspapers generally endorse candidates who wish to keep all of the other candidates in handcuffs with the very campaign regulations that newspapers are not bound by. Also, newspapers need not register as PACs, and they need not disclose subscriber lists.
Candidates are bound by disclosure laws, contribution limit laws, and so forth. Meanwhile, a newspaper can deputize its editors to endorse or oppose a candidate. That is, objectively, a campaign contribution. Should the political speech of newspapers be regulated? Should Jesse Ventura’s show be shut down? That would violate First Amendment rights. And so, too, do campaign finance regulations. Campaign finance regulations violate the First Amendment rights of candidates and PACs. So, let’s now see the nexus between the First Amendment rights of commentators and candidates.
About the only addition I could make to my previous commentary that I post below is that legalizing bribery on a blanket basis might actually diminish police brutality. Why? Police officers would feel much more beholden to the citizens whose generosity they rely upon. Before dismissing that argument, please read these two commentaries and consider two different cases involving police officers with different outcomes. In one case, a police officer didn’t arrest people for a victimless “offense” and received 7.5 years in prison. In another case, a police officer actually murdered a man for a victimless “offense” with impunity. See: http://libertyeconomics.com/supporting-the-police-who-enforce-sheldon-adelsons-racket/ and http://libertyeconomics.com/a-prediction-on-police-body-cameras/ Under the current system bribery is legal, but only for politicians. Politicians can bribe us with our own money, but we can’t bribe them with our own money.
Ask yourself why anybody would spend, as Ventura would say, “hundreds of millions of dollars” on elections. It’s being spent in the pursuit of power. The problem is the power. Donors are spending a record amount of money on protection from political candidates. And why is that? They are buying protection from a government that’s the biggest it has ever been. Big government creates demand for protection. The way to solve this is not to rein in campaign expenditures, but to rein in government power. It would be undesirable to rein in campaign expenditures while keeping government intact.
By advocating tighter campaign finance regulations – which Harry Reid advocates as well – Jesse Ventura plays right into the hands of the power brokers. What I found to be very amusing was seeing Reid go back to Washington arguing for tighter campaign finance regulations after the entire Whittemore thing came out. As if that was his way of “atoning” for his transgressions. But just think of the government as nothing but a gigantic conspiracy in restraint of trade. Not to claim accolades, but I wrote a great commentary in which I demolished Ventura’s position about as well as anybody could. It would be fun to debate Jesse Ventura on this issue.
From my commentary where I demolish Ventura’s position:
I will never forget the time when I was in Tijuana with a few other Marines in the 1990s. Tijuana wasn’t a place I went to often. It’s not the nicest place in the world and, sadly, that’s largely due to what Americans have helped do to the place. If you want to see what a total gun ban looks like, go to Tijuana.
I was with two other Marines. We had just left a bar and were outside. A Mexican national ran up to one of the Marines I was with and handed him a cup of beer. My Marine friend began to drink down the beer and as he was in the middle of doing so a Tijuana police officer came over and threatened my Marine friend with arrest for drinking a beer in public. That had to be the least of the problems going on in Tijuana at the time. We soon figured out why my friend was targeted.
The same Mexican national who handed my Marine friend the cup of beer appeared to “negotiate” with the police officer to not take my Marine friend to jail. The terms were my friend would hand over $20 to the police officer in order to evade arrest. My friend handed over the money which we noticed afterwards was split with the same Mexican national who handed my friend the cup of beer. In the end, we made it back just fine.
Of course that Tijuana police officer was abusing his authority and engaging in petty corruption. But you know what? The issue wasn’t the money he received to not arrest my friend for doing something so many others were doing. The issue wasn’t that he let my friend “walk”. Whenever I shared this story in the past, I would remind people that it’s not really a bad thing you can buy some justice in Mexico for twenty bucks. Cracking down on police officers who sell justice for twenty bucks will merely raise the cost of a bribe (i.e. justice).
Here in the United States you wouldn’t be able to buy justice like that. You would be arrested, hauled off to jail for a few days, miss work and maybe lose your job, and then get fined a few hundred dollars. After all of the other middle men in the criminal justice system get involved, the price of justice goes way up. I’m not one to say all police officers are anxious to use force, but it does seem nowadays like there’s a chance somebody might get tased over an offense like that. And people would go along with the narrative that’s real justice because the police officer strictly enforced all statutes and ordinances created by politicians.
This brings me to the case of Harvey Whittemore which I felt compelled to write about after seeing the front-running Democratic candidate for U.S. Senate in a different state promise to ban members of Congress from ever becoming lobbyists. The more I think about that, the more I get the proverbial butterflies. A proposal like that should send chills down everybody’s spine.
Think about this one. Harvey Whittemore has been prosecuted for skirting campaign finance laws. Is the United States any better off because of that? This should prompt questions. We ought to ask ourselves what, exactly, campaign finance laws beget? In my estimation, campaign finance laws are all about giving the government more power while also curtailing the ability of the people to influence that same government. It’s called power consolidation. Meanwhile, the crimes of the government continue to metastasize.
There’s a paradox in campaign finance laws. While it would be perfectly legal for a wealthy person to self-finance, donating, say, $500,000 to their own campaign, it becomes a crime to donate the same amount of money to another person’s campaign since it’s necessary to use strawman donors due to contribution limits. That wealthy person could run with those funds but they couldn’t use those same funds to help somebody else run. As if the government so cares about donors like Whittemore it had to create these laws to help level the playing field in their own favor.
Let’s take campaign finance laws to their logical conclusion: criminalize all campaign contributions. If all campaign contributions were criminalized, is that going to fix anything? No. The corporate media would have more power to determine the outcome of elections as people find themselves unable to support the candidates they want while the media continues to enjoy its First Amendment right to support and oppose candidates. If somebody wants to run for office they will need to be very wealthy so that they can self-finance. Campaign finance laws are most injurious to the poorer candidates who need to fundraise.
Campaign finance laws are also injurious to candidates who strive to follow the statutes, which places those candidates at a disadvantage compared to candidates who violate campaign finance statutes. In other words, it’s statutory law that created the very system to be gamed. Eliminating donors also centralizes the sources of campaign funding into fewer and fewer hands, compelling politicians to tap more establishment and elite sources of funding. That would beget politicians becoming more and more like carbon copies of one another.
Perhaps that’s why politicians in Nevada who are guilty of far greater crimes than Harvey Whittemore don’t oppose campaign finance laws and have said nothing in Whittemore’s defense. Politicians who even took Whittemore’s money. They’re indifferent to the corruption. What they like is the weaponization of laws, using them selectively to ensnare their political opponents and to remind people they have no business trying to buy some influence. Or maybe prosecutions of people like Whittemore are meant to send a signal to other donors that their contributions better not taper off or else they’re next.
The problem with Washington is not lobbyists per se. We should all be trying to lobby Washington. Restrictions on lobbying and lobbyists drive up the cost of lobbying, putting the less connected lobbyists out of business while also driving up premiums for the services offered by the more connected lobbyists. If we’re so worried about members of Congress being lobbied or becoming lobbyists, then why trust them as members of Congress? Why not just ban what members of Congress are doing to us through legislation and policy? Ban the federal government? Maybe people ought to recognize campaign finance laws were constructed by Congress to keep power entrenched. Which brings me to the real issue: government power.
It’s kind of like government run medicine. It’s inherently inefficient. The solution isn’t for Congress to exercise more oversight over the VA or to get better VA caseworkers. The solution is to get the government out of healthcare, and then veterans can’t be blackmailed with their healthcare. And then there’s no having to decide which candidate, which member of Congress, I must support in order to get the eczema treated.
When it comes to lobbying, I would make the point that if a lobbyist pays a politician $X to do XYZ on their behalf, it’s impossible to say who was bribing whom. Perhaps it’s the power-wielding politicians who play political games, who can threaten companies and people with sanctions, that are bribing people in order to sell their “protection”. Is the campaign contributor buying “protection” or is the politician buying campaign contributions with “protection” from the very schemes that politician creates? Let me distill this even more sharply, and this is “Mark original” writing. Are campaign contributions being used to buy favors or are favors being used to buy campaign contributions?
If you want to curtail lobbying, then curtail government power. It’s not that people try to influence power. It’s the power. The people who prosecuted Harvey Whittemore had the wrong person on the docket. Instead, it should be politicians who are prosecuted for what they are doing to the country as a matter of policy. This is why I’ve never written about alleged kickbacks and payoffs to Reid in exchange for him to do somebody a favor. If Reid can help somebody in exchange for some kind of compensation – no matter how in violation of a statute it might be – it could actually be in the pursuit of true justice. The issue isn’t Reid personally or individually. The real issue is the entire system – a system Reid supports. That’s what makes Harry Reid a criminal.
If you believe that politicians should run everything and that the solution to how everything is being ran straight into the ground is to lock up campaign contributors, you are totally delusional. Things won’t change until we demand governmental agencies and departments get shut down and abolished. For starters, let’s shut down the Department of Homeland Security which trains with paper targets of children. Let’s shut down the VA medical system which is unable to take care of veterans. Let’s end the promiscuous foreign policy of war all over the globe which creates more disabled veterans when we can’t afford to take care of the ones who already exist. By following the Constitution, this would curtail the practice of politicians using favors to buy campaign contributions.
While there are many legitimate reasons to criticize and even prosecute Hillary Clinton, selling protection to UBS bank isn’t one of them. It’s the wrong barrister with the wrong indictment of the right suspect. Reichsführer-SS Rudy Giuliani couldn’t be more mistaken. It’s not the crimes that matter to Reichsführer-SS Giuliani, but that people would sell protection from the crimes. Let’s not forget Reichsführer-SS Giuliani defends Trump on tax avoidance, and I agree with him as it is certainly not in anybody’s interest that billionaires pay taxes to empower government even more so. Tax fairness should not be defined by taxing the rich, but by eliminating taxes on everybody.
This is another example of how Republicans and Democrats engage on the wrong issues in an effort to thrust us deeper into a constitutional crisis. It reminds me of Clinton’s email controversy. Pursuant to the Reichsführer-SS, it’s not the matter of policy crimes committed by Hillary Clinton, but that she isn’t good at securing information which can lead to us mere mundanes finding out about those matter of policy crimes. Hillary Clinton’s carelessness with state secrets might be her main excellence. Call it unintentional transparency. The perfect solution to the Clinton Foundation is to liberalize laws on bribery. If Reichsführer-SS Giuliani can claim accolades for knowing that he could successfully prosecute Hillary Clinton for selling protection to UBS, then I will claim accolades for knowing I could successfully defend Hillary Clinton on those particular charges.
Mark served honorably for four years on active duty in the Marine Corps infantry. Since the year 2000, he has spent much of his free time reading the great minds of the Austrian School of economics, such as Murray Rothbard, Henry Hazlitt, Ludwig von Mises, et al. In 2002, he ran for a municipal office and was endorsed by the Libertarian Party and Constitution Party. He has previously held a Series 3 license (i.e. futures and futures options broker license).
