Liberty Economics

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Category: Economics

Analyzing faux news with Alex Jones

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. 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.

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.

[1]http://news.xinhuanet.com/english/2009-04/10/content_11160595.htm

[2]http://www.theaustralian.com.au/business/us-trade-deficit-dive-may-ease-slide/story-e6frg8zx-1225697017588

[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.

Rex Tillerson is a true patriot

Attorney General Loretta Lynch’s priorities are a bit inverted from a constitutional and legal perspective. Ms. Lynch has directed the FBI to investigate Exxon Mobil for not parroting climate change propaganda. See: https://www.rawstory.com/2016/05/ted-cruz-joins-gop-group-demanding-that-justice-dept-stop-probing-big-oils-climate-denial/ Not only does the cartel want to enforce its price fixing scheme, but it wants to criminalize dissent.

While threatening people and companies with sanctions for dissent, torturers and war criminals who pose a serious threat to the national security of the United States remain free. Why are we seven years into the Obama administration and Dick Cheney remains free? That the Obama administration has failed to prosecute war criminals, committing new war crimes, is precisely why Obama bears some responsibility for Donald Trump. The real amnesty scandal that nobody in Washington is debating is amnesty for war criminals. Lynch is the quintessential example of Murray Rothbard’s law that people tend to specialize in what they are worst at. She’s one of the worst barristers in the country, so she becomes the Attorney General.

I’m reminded of a plea from a Congressman I saw many years ago encouraging people to report price gouging at the gasoline pump. If somebody saw a gasoline price that deviated upwards from some “normal”, they were encouraged to report it to some hotline. Simultaneously, there are regional committees that enforce regulations against undercutting on the price of gasoline. In other words, the real purpose of the central planners was to enforce the same price.

There’s only one reason to set similar prices amongst vendors, and that’s not to curtail price gouging, but to fix prices upwards. The market will naturally punish price gouging, driving gougers out of business. How so? If a vendor is selling gasoline 5 or 10 cents higher than other gas stations, that vendor will lose market share to other vendors. If somebody sees higher prices on the same gasoline, don’t call a hotline. Buy the cheaper gasoline. Furthermore, how do we know what vendors are price gouging and what vendors are undercutting? If half the stations have a price that’s lower than the other half, is one half price gouging or is one half undercutting?

That price gougers can’t succeed in the free market is why cartels must rely upon government intervention and support. All participants must raise prices in synchronization with one another. The moment one participant begins to set prices pursuant to supply vs. demand, the entire cartel begins to collapse. The problem for the cartel is that even if all participants set prices pursuant to the price fixing scheme, vendors can’t short inventory at prices above what consumers are both willing and able to pay. Higher prices beget fewer consumers, diminishing the volume of sales.

The campaign against fossil fuels has nothing to do with saving the environment. It’s all about price fixing by erecting barriers for oil producers that benefit the big oil producers and big “green” energy companies that can’t compete against fossil fuels. It’s about the restraint of trade to curtail competition. Not only is it about price fixing, it’s about waging war against humanity. Restricting the supply of energy is most injurious to the poor. On one hand, the government offers subsidies to people with low income. On the other hand, the government pursues policies that raise the cost of living.

The key to an economic recovery does not rest in Washington. The key to an economic recovery is to put Washington through a recession. Any efforts by politicians to con you into believing they’re stimulating some kind of economic progress – again, bribing you with your own money – by promoting one form of energy or another should be detected as a ruse.

Some politicians have gone “green” in the name of curtailing “dependence on fossil fuels” and “foreign oil”. It’s a sham. Why not promote a certain type of underwear in the name of curtailing dependence on a particular foreign brand?

The fundamental problem is that most politicians and central planners view the economy as a blob to be manipulated, rather than a complex capital structure involving individuals making choices in exchanges, a process of production, and a price mechanism.

Last year, the United States imported about 4.5 million barrels of oil per day more than it exported. The reason why the United States is so dependent upon foreign oil is due to policies that have already been put in place. The solution, then, is to repeal and correct these policies – not creating new legislation.

Artificially low interest rates, brought on by loose monetary policy at the FOMC, drives capital overseas (by deploying unearned income from a printing press, disconnecting consumption from production, capital is also consumed). Capital naturally gravitates to cheaper, more efficient, higher-yielding economies. Rather than generating revenue and income, the nation spends beyond its means. That’s the short explanation. I hate to spend time belaboring the long answer, because I have already done so in previous commentaries.

Look at it like this: if a person, firm, or nation is dependent upon inflationary credit expansion (as opposed to credit expansion out of savings), then that person, firm, or nation is insolvent and inefficient. We are spending beyond our means, which – yes – engenders dependence upon cheaper markets to supply us with production.

If you want to reduce dependence upon foreign “anything”, then the Fed has to tighten, forcing up interest rates, and Washington has to abandon the spending orgy. Dollars that have been accumulating in foreign reserves will then come flowing back into the domestic loan market, begetting lower interest rates.

I know “clean energy” sounds so nice, so attacking it is very “environmentally-incorrect”. I will put everything I possibly can into layman’s terms. Let’s start with the following axiom: we consume energy in everything we do. If you’re that environmentally-conscious, you shouldn’t be online reading this right now because you’re using electricity which is consuming energy. That’s why I’m confident that everybody reading this agrees with everything I write in this commentary.

Solar energy sounds so nice. After all, it comes from the sun. But let’s not forget that there is a process of production. Take, for example, the solarization of a house. Solar energy requires panels, charge controllers, batteries, inverters, etc. And then let’s not forget capital asset depreciation. Energy is consumed during the process of production.

If “clean energy” has a positive yield, then it will be profitable and private enterprise will pony up the capital. The government need not encourage this. If “clean energy” has a negative yield, then this means that it is unprofitable and dependent on so-called “dirty energy” for its sustenance. It would be akin to consuming 1,000 blueberries for every 500 you are growing – nobody in their right mind would pursue that course absent government subsidies. Somewhere, you have to make up the difference.

I’m not arguing that solar power is necessarily inefficient, but that the market will naturally produce the most efficient and cleanest forms of energy. It’s the pursuit of profits on the free market that engenders efficiency. It’s government intervention in the marketplace that engenders inefficiency and the needless consumption of resources. Government subsidies enable firms to produce inefficient energy. By mandating inefficiency, only those with political connections can compete. Conversely, sound economic policies enable firms to supply efficient forms of alternative energy absent government support.

This leads me to the following axiom: the most profitable and economically-efficient form of energy, within the construct of the unhampered market, is also the cleanest form of energy. Also, pretending that global warming is real, does this mean we should rely upon government coercion to solve the problem? Cancer is real, but that doesn’t mean we should trust the government to run our healthcare. Rather than saying end our dependence on oil, if you support “clean energy” then you should be saying end our dependence on government intervention.

The best ecological hygienist is the unhampered market. Suppose a logging company owns a forest. That logging company can clear-cut the forest, say, tripling immediate income. However, this must be weighed against diminishing future income, or the capital value of the forest as a whole. Suppose, however, this is government property. This calculation no longer needs to be made, and the objective is going to be rapid extraction of resources.

No shocker, then, that government is the biggest abuser of the environment and waster of resources. Look at the atomic weapons tests done in the Nevada desert – and right on top of our own military service members. Or think about the government’s war policy, which both major parties support. Last time I checked, there are no CAFE standards on tanks. How are exploding munitions good for the environment?

The government does not sustain itself by satisfying consumer demands, but through compulsory taxation. Government subsidies to, and control over, industry diminishes the need to set prices pursuant to supply vs. demand. Why? Because sustenance is no longer dependent upon having to satisfy consumer demands. Sustenance is disconnected from the satisfaction of consumer demands.

It’s the price mechanism that ensures resources are allocated and managed efficiently. The price mechanism can only function within the construct of the unhampered market, allowing for producers to set prices pursuant to supply vs. demand (i.e. market-clearing prices). The scarcer the supply, the greater the demand, the higher the price. Consumption runs inversely with prices.

Government subsidies distort prices, interfering with the price mechanism, and cause prices to be set above, or below, market-clearing prices. There is a paradox in government policy in that the government encourages consumption without production (in the name of demand-side stimulus), tells us that we should conserve resources, while simultaneously punishing “price gouging”. Within the construct of the unhampered market, there can’t be price gouging any more than there can be wage gouging, since vendors can only short inventory at prices consumers are both willing and able to pay.

Prices send signals to entrepreneurs, telling them where to deploy capital. Prices tell entrepreneurs what to produce and what not to produce. Prices tell consumers what to buy and what not to buy. The price mechanism can only function within the construct of an unhampered market. There’s no need for the government to encourage or discourage the use of any kind of energy. And let’s not forget that tax credits are subsidies camouflaged as tax cuts. A tax credit merely allows a person to use a portion of their income for a specific purpose (i.e. indirect subsidy). See: http://libertyeconomics.com/reichsfuhrer-ss-rudy-giuliani-vs-hillary-clinton/

I write as a native-Minnesotan. Minnesota is one of the states that mandated the use of ethanol-blend fuels. I only purchase ethanol-blend fuel if there’s no other option. I will not purchase anything over E10. It’s “cheap” for a reason: it’s inefficient.

Only can politicians get away with turning efficient food into inefficient fuel. If politicians keep at it, we will soon be filling our automobiles up with corn and drinking motor oil. Maybe after installing those solar panels, the government can begin shooting those pollution particles – which supposedly ”clean energy” is designed to diminish – into the atmosphere in order to block the sun and “save” us from “global warming”. Sounds like the perfect plan. One only a politician in Washington can dream up. See: http://www.telegraph.co.uk/news/earth/environment/climatechange/5128109/Shoot-pollution-particles-into-atmosphere-to-cool-Earth-says-Obama-adviser.html

As I wrote almost a decade ago, we will soon not only be dependent upon foreign sources of fossil fuels, but also so-called “clean energy”. That’s came to pass. Unfortunately, it was due to misguided policies coming from Washington.

It’s time for somebody to investigate Loretta Lynch for working on behalf of a price fixing cartel. If the government wants to threaten people for speaking truth, that will only prompt me to speak truth even louder. If the FBI wants to investigate truth, good. They’re more than welcome to ask me any questions. Somebody needs to look into the benefits of free markets – and take another look at 9/11 for that matter. I don’t care how tyrannical the government in Washington becomes, I will continue to stand up to an out of control and lawless government. The more tyrannical that government in Washington behaves, the greater is the fiduciary responsibility we all have to speak truth. Rex Tillerson is honoring his fiduciary responsibility as an American.

Donald Trump will implement capital controls

Recently Donald Trump unveiled a plan to proscribe remittances sent to Mexico. See: http://abcnews.go.com/Politics/wireStory/report-trump-hell-fund-wall-cutting-remittances-38158595 Amazingly, remittances sent to Mexico were characterized by Trump as “de facto welfare”. Pursuant to the Trump calculus, money earned through productive work in the private sector is synonymous with welfare.

The purpose of Trump’s plan is to pressure the Mexican government into taxing its citizens in order to fund a border wall. In other words, Donald Trump wants to implement capital controls in order to get the Mexican government to pay for his cronies to build a border wall, which somehow isn’t considered to be welfare.

If Trump plans to impose capital controls in order to build a border wall, why believe a border wall wouldn’t be used to impose capital controls? With legislation like Foreign Account Tax Compliance Act that passed in 2010, why believe it would be used for anything other than trapping people and capital into the United States? Yet we are supposed to believe that Trump’s capital controls would be used only against immigrants and until the Mexican government ponies up the capital to build a border wall, at which time Trump will cease being a menace.

Supposedly, Trump’s plan will be limited to immigrants (somehow making it a good thing). Arbitrage has a funny way of holding lawless regimes in check. Desperate governments do desperate things, and if we can justify curtailing capital outflow to Mexico in one instance, then why not in every instance? By treating honestly earned money on the free market as “welfare” that the government can seize, this will discourage immigrants from performing honest and productive work. No matter where dollars earned flow, productive work is a benefit to the economy.

I didn’t have to read about Trump’s plan to know that Trump would impose capital controls. As I wrote back in 2010, immigration restrictionism taken to its logical conclusion is capital controls. See: http://libertyeconomics.com/my-problem-with-brian-sandoval-mike-montandon-and-governor-jim-gibbons/ The populist indictment of immigration is that immigrants “drive down wages.” Not true. This argument dovetails with arguments in favor of minimum wage law as an effort to fix wages. The welfare-warfare state drives down wages. The problem is not the immigration, but the welfare-warfare state. Furthermore, let’s take this argument to its logical conclusion: capital controls.

The government could inflict injury upon every employer of Mexican immigrants (legal or illegal). However, this would do absolutely nothing to create or save a job. If employing inexpensive labor at home is curtailed, this begets one of two possibilities: the job is destroyed altogether, or the employer flees the country altogether.

What next? Criminalize capital flight? Pursuant to the statutory case against hiring illegal immigrants, the de jure case for capital controls is already in place. If it’s illegal to hire an illegal immigrant at home, then why is it legal to do business with “undocumented” workers abroad? (In that case, one becomes the de facto employer of foreigners living abroad.) For the sake of logical consistency, outsourcing should be criminalized. All international trade and commerce should be criminalized. If the government should proscribe remittances, then why not proscribe Americans from traveling to Mexico and paying Mexican nationals for goods and services?

Let me remind you that if the government can trap capital in, it can trap people in. Try leaving the country without your capital. If immigrants aren’t permitted to send money to Mexico, then how can they be expected to leave the United States? This means that Trump has, almost paradoxically, devised a scheme to trap immigrants into the country. Coming to the United States will be akin to checking into a roach motel.

We are being told that protectionism and capital controls are used to protect us, to protect our jobs. In reality, capital controls are a makeshift effort to remedy capital outflow engendered by loose monetary policy. Capital naturally gravitates toward cheaper, higher-yielding, more efficient economies. The only way to repatriate capital is for the central bank to stop inflating, forcing up interest rates, and return to sound money. If we pursued the right economic policies, people would voluntarily keep their money in the United States.

Not only will capital controls not work, capital controls will beget greater problems. If we reject the free market argument against capital controls today, then the resulting chaos will be met with demands for tighter controls tomorrow. Trump’s plan is to turn the United States into an open air prison. Trump’s plan will actually precipitate an exodus of capital.

How would I approach the matter of immigration? Let property rights prevail. If two people wish to engage in peaceful, voluntary and mutually beneficial exchange, whose right is it to interfere? That somebody is an “illegal alien” is a faux concept constructed by statutory law. Unlike politicians and bureaucrats, most Mexican immigrants hold real jobs. It’s time to legalize immigration. I say we deport politicians and bureaucrats instead.

My problem with Brian Sandoval, Mike Montandon, and Governor Jim Gibbons

My intention in this piece isn’t to make the constitutional case against Arizona’s immigration law – i.e., appeal to authority. Suppose the law is constitutional, the statute still fails to pass my morality test. Instead, I make the moral case against the immigration law.

The events that took place on 9/11 have been used as a battering ram against the civil liberties of Americans. Since that horrific event, the federal government has implemented CAPPS II and the “No-Fly List.” What is the “No-Fly List” for? Supposedly to prevent terrorists from boarding flights. This is a perfect absurdity. Why would terrorist suspects be told they can’t fly? Wouldn’t – and shouldn’t – a terrorist suspect be apprehended? Apprehending a terrorist suspect would also suspend the right to freely travel, which means it isn’t necessary to suspend particular freedoms without due process of law.

It is self-evident that the “No-Fly List” was never aimed at terrorists. Indeed, politicians, political activists, and tax delinquents have all ended up on the list. Objectively, their right to freely travel has been suspended contra legem. Travel restrictions are the hallmark of totalitarian governments. Does anybody remember the Berlin Wall?

Now, in the name of stopping the “brown peril,” right wingers agitate for deporting Mexicans and building fences. In light of the travel restrictions already in place, it would be a legitimate concern that a border fence and heightened border security can be used to trap people in – a far more dangerous prospect than living amongst individuals who don’t carry their federal papers.

The populist indictment of immigration is that immigrants “drive down wages.” Not true. This argument dovetails with arguments in favor of minimum wage law. The welfare-warfare state drives down wages. The problem is not the immigration, but the welfare state. Furthermore, let’s take this argument to its logical conclusion: capital controls.

The government could inflict injury upon every employer of Mexican immigrants (legal or illegal). However, this would do absolutely nothing to create or save a job. If employing inexpensive labor at home is curtailed, this begets one of two possibilities: the job is destroyed altogether, or the employer flees the country altogether.

What next? Criminalize capital flight? Pursuant to the statutory case against hiring illegal immigrants, the de jure case for capital controls is already in place. If it’s illegal to hire an illegal immigrant at home, then why is it legal to do business with “undocumented” workers abroad? (In that case, one becomes the de facto employer of foreigners living abroad.) For the sake of logical consistency, outsourcing should be criminalized. All international trade and commerce should be criminalized. Let me remind you that if the government can trap capital in, it can trap people in.

How would I approach this issue? Let property rights prevail. If two people wish to engage in peaceful, voluntary and mutually beneficial exchange, whose right is it to interfere? That somebody is an “illegal alien” is a faux concept constructed by statutory law. Unlike politicians and bureaucrats, most Mexican immigrants hold real jobs. (Maybe we should deport politicians and bureaucrats instead.) I will never again travel through Arizona until that law is repealed.

Recently, I was down in Puerto Vallarta. It’s a beautiful place and Mexicans are some of the most wonderful people on the planet. When Americans travel to Mexico, they see themselves as – and are treated as – tourists. When Mexicans come to the United States, Americans see them as invaders. I plan on moving to Puerto Vallarta. Don’t forget that there are plenty of American expats living in Mexico. Just wait until the Mexican government goes tit for tat and decides to expel American expats. And what would Americans say if Mexicans decided to do just that to the gringo? Maybe I’ll take that idea to…”my Congressman in Puerto Vallarta” (I say that jestingly). Let’s send all them silly Americans back to…Arizona.

Puerto Vallarta is peaceful. The crime is along the border. Why? The drug war, which empowers drug cartels by fueling demand for cross-border transportation. Last time I checked, there are no problems with cigarette smugglers at the border. End the drug war and you end the violence.

Be afraid of the dollar, not gold

I have been working to educate people about the dangers of inflation and the crisis that is looming on the horizon for the past six years. The pathological origin of this precarious economic situation we are in has never been an enigma for me. My on-radio New Year’s prediction for the year 2002 was that the price of gold would go up, and people better get some to protect themselves against inflation, i.e., the devaluation of the dollar. I was laughed at by the host of the program that I made my prediction on, since, as the attorney-host said, the danger we were facing was “deflation.”

At the time I made that prediction, the price of gold was about $270 an ounce, which was near the price gold had been stagnating at for quite some time. The year 2002 was exactly when the price of gold started to rise exponentially. Do I have special access to information that others don’t have? No. My forecast was based on nothing but a sound understanding of economics.

How did I see this coming? I owe a special debt of gratitude to Murray Rothbard, who still teaches from beyond the grave. It was about the year 2000 when I first read one of the late Professor’s books: What has Government Done to Our Money? That was my epiphany. Not only did the lights go on for me, but I was impressed with the saliency of Rothbard’s writing. No platitudes, no sterility, and no obfuscation. Every word was indispensable to the construct of substantive thoughts that were easy to understand. It is lies – not the truth – that must be camouflaged with pseudo-intellectual hieroglyphics.

By the time I got done reading my first Rothbard book, I was able to sum up America’s economic problems with one word: inflation. Reading my first Rothbard book impelled me to read more and more of his books, as well as reading other Austrian School economists. After reading Murray Rothbard, Ludwig von Mises, and Henry Hazlitt throughout the year 2000, I had a very good understanding of why the sudden revelation of a cluster-of-errors, known as a recession, occurs: inflation.

I will do my best to explain how inflation (i.e., an expansion of the money supply, which the politicians and their central bank are responsible for) causes recessions as briefly as possible.

As goods and services are exchanged for devalued dollars, profits are over-estimated. This is due to orthodox accounting practices, and the way people are trained to measure transactions in strictly nominal terms. I call it two-dimensional thinking. The seller exchanges his goods or services for these devalued dollars, earning, say, a seven-percent return in nominal terms. The problem comes when the seller has to replace capital, or re-stock inventory, when the seller discovers that there was a failure to account for inflation, i.e., the devaluation of the dollar. That seven-percent return in nominal terms turns out to be less – perhaps even a negative rate of return – in real terms, because prices are higher. Inflation causes people to over-estimate profits. Without even realizing, people are using up original, and even more than original, capital. What looked profitable wasn’t profitable, forcing a contraction.

Before the revelation phase known as the recession, the over-estimation of profits causes even more mal-investment in those sectors that appear to be profitable, but really aren’t.

That which is unproductive is unprofitable, and would not last for very long in the unhampered free market. The biggest beneficiary of inflation is the inflator itself, i.e., government. Just look at how huge the government is, and it isn’t just unproductive, but counter-productive. This should lay to rest any doubt about how inflation nurtures mal-investment.

The inevitable consequence of, and economic catharsis for, mal-investment is liquidation, i.e., a true correction. Unfortunately, the mainstream economics profession is lax in this understanding. It is normal that certain prices should drop due to mal-investment. This is where mainstream economics turns logic upside down. Instead of realizing that the inflation before the collapse of certain industries is the cause, mainstream economics uses econometrics to examine piles of data. The data itself becomes synonymous with the recession, as though nothing in the past precipitated present circumstances. The recession caused itself. From this thought pattern, it then follows that to adjust those “markers” of the recession is to provide the cure. If certain industries are collapsing and prices are falling, the government must inflate even faster, argue mainstream economists. It is akin to pushing the mercury in a thermometer down to cure a fever.

Having been armed by brilliant Austrian School economists with an arsenal of knowledge, I could see the fallacy in using inflation to cure the recession; I could see that the government’s “recession response team” at the Federal Reserve would cause more inflation and calamity. The government and its central bank would do everything in its power to combat “deflation.”

Power is an intoxicant, and the regime running the United States is well past inebriated. I have no reason to believe this current cabal of promiscuous spenders will end the orgy any time soon. As dependable as the idea that bears sleep in the woods is, prices will go up as long as politicians keep devaluing the dollar to finance their spending orgy. That is axiomatic. We have had chronic inflation for almost a century. There is no mystery about this, yet so few seem to understand. The real scary thing is that many politicians and their followers believe the way to mitigate the impact from rising prices is to inflate even more, like there is a dollar shortage.

People have been inundated with phrases like “housing bubble.” Let me say this: there is no housing bubble; there is no gold bubble; there is a dollar bubble. I don’t see the dollar bubble getting “popped” short of hyper-inflation.

If the 1980 price of gold is adjusted for the expansion of the money supply (i.e., inflation) up to the present time, today’s price of gold would have to reach over $2,000 per ounce. Relatively, I believe the price of gold is still very cheap. The United States has started to exhaust its ability to finance cheap imports with inflated dollars. I believe the price of gold is just starting to come back into parity with reality with the upward surge. Ignore the financial press. Every time the price of gold drops more than a dollar, the reactionary financial press starts ringing alarm bells. No sooner does the price of gold go up by another twenty dollars. It is never too late to protect yourself by purchasing precious metals, but the earlier the better. You will lose by holding onto dollars that are losing purchasing power. Be afraid of the dollar, not gold.

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