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The Biggest Threats to Your Personal and Financial Freedom Today

Posted by M. C. on August 13, 2020

International Man: In the US, and much of the West, most people are willingly handing over their dwindling freedoms for the promise of safety or security.

Is there any hope that something will reverse this trend?

Doug Casey: Again, trends in motion tend to stay in motion. Until they stop.

But what generally stops them? Something big. Usually, a crisis or a collapse.

https://internationalman.com/articles/the-biggest-threats-to-personal-and-financial-freedom/

International Man: The world has become increasingly unfree. Recently, the global pandemic has justified all kinds of draconian measures by governments.

How do you see this trend evolving?

Doug Casey: It’s clearly a worldwide trend. The only exceptions are obscure places like North Macedonia, Belarus, and Nicaragua—and they have plenty of other, much more serious problems—and of course, Sweden, which is almost unique among advanced countries in not falling victim to the mass hysteria. Life there has gone on more-or-less normally since March as a result.

It’s not just the national governments, which are bad enough. States, provinces, cities, and counties have taken advantage of the hysteria to “do something” and lock down. For example, New York Mayor Bill de Blasio is putting armed guards around main entrances to New York to keep people out.

Numerous cities around the world, like Melbourne, Australia, have actually turned themselves into police states. This virus scare has gotten quite out of control. The average person thinks we’re living in a Steven King novel.

If it were just a matter of politics, people would be more apt to resist because people recognize the arbitrariness of political opinions. Interestingly, the hysteria also breaks along political lines. Conservatives tend to view it as overblown or even a scam. Liberals tend to see it as a crime if you aren’t masked up and locked down. The virus is a psychological litmus test.

Power mongers are using biology and medicine as excuses to take charge in the name of science. They’re saying that you don’t have a choice because you are affecting the health of others, not just yourself. Minor bureaucrats like Fauci and second string politicians like de Blasio have jumped on it, fanning the flames of a panic. It’s made them into “big men.”

Like the global warming scare, the COVID hysteria is corrupting the idea of science and the credibility of scientific methodology in the eyes of the average man. And incidentally, the overlap between those who want the State to “do something” about global warming, and “do something” about the virus is extremely high.

It’s actually quite insane. COVID as a disease is only serious if you’re elderly or obese or have other serious conditions, which is why the average age of a COVID victim is about 80.

In fact, the deaths from COVID are probably not going to be much greater than they are from a bad annual flu, especially accounting for the fact that many deaths from things like motor accidents are often counted as COVID if the victim also had COVID. Like most things that become politicized, it’s hard to believe anything. The statistics are completely unreliable. What we’re dealing with is mass hysteria, similar to what happened in Salem in the late 17th century.

The matter should be just between you and your doctor. This is how the vastly more serious flu epidemics of the late 1960s and the late 1950s were dealt with. In the big scheme of things, they were non-events, as COVID should be.

This time is different. Your doctor doesn’t count. It’s the doctor with political connections, that counts.

How do I see this trend evolving?

Toward more centralized power, of course. The trend has been in motion for over 100 years, starting with World War I. It’s been in motion for a long time, and it’s accelerating at this point. Trends in motion tend to stay in motion until they reach a crisis point.

The powers that be have discovered that a medical emergency is almost as effective as an actual war to get people used to doing as they’re told. It’s quite amazing how anxious the average American is to act like a whipped dog, roll over on his back, and wet himself. Those who don’t wear their masks—which serve little or no medical purpose; they’re basically virtue-signaling devices—are bullied and shamed. It’s gotten quite out of hand. The woke SJWs are in charge.

International Man: Let’s talk about one of the biggest threats to financial freedom—the Federal Reserve and every other central bank.

The currency printed by these institutions isn’t real money. That is to say, it wasn’t a result of a market process of people voluntarily coming to the conclusion to use a specific good as money. Government decrees, laws, and regulations made central bank currency money.

How can individuals protect themselves from this enormous swindle?

Doug Casey: It’s not just the US government. Every central bank in the world is printing up currency units not just by the billions, but by the trillions.

What you have to do is figure out where that money is going to go, and try to get there first. In this environment, rational investing is becoming increasingly impossible. The economy and society will become more chaotic. It has become foolish to have a long-term horizon, and to make other than hit-and-run-style investments. You’re forced to be a speculator.

I would point out that in a normal free market society, speculators would be chronically unemployed. Why? Speculating, more than anything else, is capitalizing on politically caused distortions in the market. There would be very few in a true free market.

But now, as powerful as governments are, distortions and politically caused misallocations of capital are everywhere. With regulations and tons of money being thrown at the markets, you’re forced to speculate. It’s too bad because speculation is not productive in itself; it’s a zero sum game. It’s very different from investing, which is allocating capital to create more wealth through innovation and production.

However, we don’t make the rules. That, unfortunately, is something our betters have arrogated to themselves. We’re just playing the game. If you don’t want to get hurt, it’s important to learn to play the game successfully.

That means orienting your mindset to that of a speculator. Most people will confuse speculating with gambling, however, and they’ll wind up losing everything. They’ll wind up much worse off by treating the stock market like a casino.

The simplest thing you can do at this point—other than watching where the money is going and getting there first—is continuing to buy gold and silver and setting them aside. At a minimum, that will preserve your capital.

Unfortunately, neither metal is no longer a giveaway bargain. On the other hand, the trend is clearly in motion, and it’s accelerating. They’re going much higher. Gold would have to go to about $3000 to equal—in real terms—it’s peak of $800 back in 1980. And the situation is vastly more precarious now than it was then. I expect the current bull market to take it much higher.

Right now, the best speculations are mining companies. They have done extremely well, but relative to the gains in the underlying metals, they’re lagging.

That’s true because none of the big fund managers own gold stocks. Why not? They don’t understand gold. They think that it’s a pet rock.

But at some point, soon, they’re going to pile into these mining stocks. They’re now hugely profitable and becoming more so. Even the biggest ones are relatively small-cap companies in today’s world. Most miners are not just small-cap, and they’re not even micro caps. They’re nano caps. The market caps of every gold producer in the world adds up to around $200 billion. That’s only a bit more than the cash that Apple alone has in its treasury.

These things could be more explosive than they have ever been in the past. To use a phrase, I coined to describe past gold-stock bull markets: It’s going to be like trying to funnel the contents of Hoover Dam through a garden hose.

It’s really a pity that the average American is being swindled by the Fed, and the government in DC, and a pity that almost nobody owns gold or silver physically, and many fewer own mining stocks. But let’s try to take advantage of the unfortunate reality.

International Man: In the US, and much of the West, most people are willingly handing over their dwindling freedoms for the promise of safety or security.

Is there any hope that something will reverse this trend?

Doug Casey: Again, trends in motion tend to stay in motion. Until they stop.

But what generally stops them? Something big. Usually, a crisis or a collapse.

Here’s an example. You would have thought that the trends in Venezuela and Zimbabwe would have stopped years ago. You’d think those people could see how bad things were getting and say, “Wait a minute, we’re going down the wrong path.” But that’s not the case.

Neither Venezuela nor Zimbabwe is going to turn around until there’s a complete and utter collapse followed by serious violence. That’s the case almost everywhere—trends in motion stay in motion until they reach a crisis. I don’t think you can reverse the trend with half measures, like voting.

Why don’t I think you can reverse the trend?

It’s because, over the last roughly three generations, almost everybody has gone to college. Meanwhile, colleges have been transformed from places where you received an education, something useful, to institutions of mass indoctrination. The tenets of cultural Marxism, socialism, and statism have filtered down to high schools and even grade schools.

When people are at a crucial time in their life, late teens and early twenties, and they’re taught something. It’s very hard for them to unlearn it. It’s very much like when I started playing polo. I thought I knew how to ride a horse because I could stay on when it went faster than a walk.

As a result, I picked up all kinds of bad habits and cost myself years, having to unlearn bad habits. Whereas, if I just learned the proper way to do things to start with, I would have been far ahead in the game.

That’s the problem with kids going to college and high schools, and even grade schools, today. They’re hit with instruction that’s often not just wrong, but the opposite of the truth. It’s very hard for them to unlearn it.

As Will Rogers liked to say, the problem isn’t even what people don’t know. It’s what they think they know that just ain’t so.

It’s reinforced by ads that corporations put on television, and the huge amounts of money they give to left-wing organizations. You’d think they’d be interested in defending capitalism—but that’s incorrect. Lenin was correct when he commented that the capitalists were so stupid that they’d sell him the rope he’d use to hang them.

That’s on top of Hollywood, the propaganda coming out of thousands of NGOs, and mostly everything that politicians say.

I don’t think the trend is going to turn around. In fact, it’s accelerating, and it’s going to continue accelerating until we reach a nasty crisis.

Editor’s Note: As these trends continue to accelerate, what you do right now can mean the difference between coming out ahead or suffering crippling losses.

That’s exactly why bestselling author Doug Casey and his team just released a free report with all the details on how to survive an economic collapse.

It will help you understand what is unfolding right before our eyes and what you should do so you don’t get caught in the crosshairs.

Click here to download the PDF now.

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The Ron Paul Institute for Peace and Prosperity : Central Banking is Socialism

Posted by M. C. on March 10, 2020

Allowing the central bank to buy assets of, and thus assume a partial ownership interest in, private companies would give the Federal Reserve even greater influence over the economy. It could also allow the Fed to advance a political agenda by, for example, favoring investment in “green energy” companies over other companies or refusing to purchase assets of retailers who sell firearms or tobacco products.

The essence of socialist economics is government allocation of resources either by seizing direct control of the “means of production” or by setting prices business can charge.

http://ronpaulinstitute.org/archives/featured-articles/2020/march/09/central-banking-is-socialism/

Written by Ron Paul

Last week, the Federal Reserve responded to Wall Street’s coronavirus panic with an “emergency” interest rate cut. This emergency cut failed to revive the stock market, leading to predictions that the Fed will again cut rates later this month.

More rate cuts would drive interest rates to near, or even below, zero. Lowering interest rates punishes people for saving, thus encouraging consumers and businesses to spend every penny they make. This may give the economy a short-term boost. But, it inhibits long-term economic growth by depleting the savings necessary for investments in businesses and jobs. The result of this policy will be more pressure on the Fed to indefinitely maintain low interest rates and on the Congress and president to create another explosion of government “stimulus” spending.

Boston Federal Reserve President Eric Rosengren has suggested that Congress allow the Federal Reserve to add assets of private companies to the Fed’s already large balance sheet. Allowing the central bank to buy assets of, and thus assume a partial ownership interest in, private companies would give the Federal Reserve even greater influence over the economy. It could also allow the Fed to advance a political agenda by, for example, favoring investment in “green energy” companies over other companies or refusing to purchase assets of retailers who sell firearms or tobacco products.

Mr. Rosengren’s proposal to allow the central bank to “invest,” in private companies seems like something one would hear from democratic socialists like Senator Bernie Sanders. This is not surprising since the entire Federal Reserve system is a textbook example of socialism.

The essence of socialist economics is government allocation of resources either by seizing direct control of the “means of production” or by setting prices business can charge. Federal Reserve manipulation of interest rates is an attempt to set the price of money. Federal Reserve attempts to set interest rates distort the signals sent by the rates to investors and business. This results in a Fed-created boom, which is inevitably followed by a Fed-created bust.

Economic elites benefit when the Federal Reserve pumps new money into the economy because they have access to the money created before there are widespread price increases. Artificially low interest rates also facilitate the growth of the welfare-warfare state.

The Federal Reserve’s inflationary policies harm the average American by eroding the dollar’s purchasing power. This forces consumers to rely on credit cards and other forms of debt to maintain their standard of living. Many Americans are unable to afford their own homes because they are saddled with student loan debt that can even exceed their income.

Since the bailouts of 2008, there has been a growing understanding that the current system is rigged in favor of the elites and against the average American. Unfortunately, popular confusion of our system of Keynesian neoliberalism with a free-market economy, combined with a widespread entitlement mentality, has led many Americans to support increasing government control of our economy.

The key to beating back the rising support for socialism on both the left and right is helping more people understand that big government and central banking are the cause of their problems and that free markets in all areas — and especially in money — is the solution. It is important that the liberty movement put pressure on Congress to cut spending and rein in or, better yet, end the Fed.

Copyright © 2020 by RonPaul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.
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Lebanese focus fury on banks-Erie Times E-Edition Article

Posted by M. C. on January 23, 2020

People say they are being subjected to humiliation by the banks and their managers who ultimately have the power to decide who gets how much.

Forget keeping your cash in banks. Buy a good safe.

Defeat the war on cash and be prepared for when the next crunch hits.
http://erietimes.pa.newsmemory.com/?publink=2f4c39949

BEIRUT — Before picking up cash from a downtown bank in Lebanon’s capital, Mey Al Sayegh mentally braces herself for what would have been a routine trip before the country’s crippling cash crunch. For starters, it will be at least an hour’s wait in line before her turn comes. And if she’s lucky, she’ll be able to withdraw $300 — the weekly limit on dollar withdrawals imposed by banks to preserve liquidity — without having to bargain with the teller.

“I tell my family ‘I’m going to the bank, but I don’t know when I’ll return,’” said the communications manager. “It’s very unpleasant. You see people’s expression — worried, confused, they’re scared that they’re going to lose their deposits.”

For years, many Lebanese have lived beyond their means, supporting their outsized spending with loans and generous remittances from diaspora relatives scattered across the globe, including family members working in oil-rich Arab Gulf countries.

A severe financial crisis and unprecedented capital controls have put an end to this, uniting both rich and poor in anger against corrupt politicians who have brought the country to the brink of economic collapse, and a banking system they accuse of holding their deposits hostage.

In recent days, some protesters have taken out their ire on the banks, destroying ATMs, smashing bank windows and clashing with tellers behind the counter.

Dozens of protesters have held sit-ins at banks against the fiscal policies, forcing tellers on more than one occasion to give them more than the weekly limit. Demonstrators routinely gather in front of the country’s Central Bank, jeering and hurling expletives at its governor, Riad Salameh, who was once ranked among the world’s top central bank governors.

“You go to a bank, get a ticket, and there are at least 50-60 people in front of you,” said Mahmoud Sayida, a tour guide whose money is trapped with one of the country’s largest lenders. “It’s as though you are lining up for bread in the war days.”

The crisis in Lebanon, one of the most heavily indebted nations in the world, is rooted in decades of state corruption and bad management, and the tiny Mediterranean country’s economy had been in steady decline for years. The local currency, pegged to the dollar for more than two decades, has lost more than 50% of its value in recent weeks on the black market.

Fearing a crisis, depositors in the past year had been quietly withdrawing their money, changing it from the local currency to dollars, or funneling it to bank accounts abroad.

At the onset of nationwide protests that broke out in mid-October, banks closed their doors for 12 working days. When they reopened, they faced an unprecedented rush to withdraw dollars, resulting in the limits on withdrawals and foreign transfers.

But there was no legal basis for such actions, leaving it up to the banks to implement their own controls on a caseby- case basis. Meanwhile, ATM machines have mostly stopped dispensing dollars and daily limits on credit card use have been implemented. Many restaurants and shops, strapped for cash, are refusing card payments.

People say they are being subjected to humiliation by the banks and their managers who ultimately have the power to decide who gets how much.

People with children studying abroad need to offer proof before they are allowed to transfer their tuition money. Patients are required to produce paperwork proving they need money for surgery before they can withdraw cash from their accounts. To get credit card limits temporarily increased, customers are asked by some banks to produce a plane ticket and documentation proving a stay abroad longer than two weeks.

The measures are forcing families to limit expenditures and prioritize daily necessities. Simple activities, such as going to a cafe or a restaurant, are now considered luxuries, even for those with money or jobs. Sullen moods have overcome depositors and lenders alike, whose employees say they are afraid to show up at work because of fights breaking out inside banks and people cursing them every day.

In this Jan. 14 photo, anti-government protesters smash a bank widows, during ongoing protests against the Lebanese central bank’s governor and against the deepening financial crisis, at Hamra trade street, in Beirut, Lebanon. [HUSSEIN MALLA/ASSOCIATED PRESS FILE PHOTO]

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Of Two Minds – The Telltale Signs of Imperial Decline

Posted by M. C. on December 30, 2019

There is a peculiarly widespread belief that Elites are so smart and powerful that they always manage to evade the collapse of the empires that created and protected their wealth. But there is essentially no evidence for this belief when eras truly change.

…and the worship of unproductive celebrity…

https://www.oftwominds.com/blogaug18/imperial-decline8-18.html

Charles Hugh Smith

Nothing is as permanent as we imagine–especially super-complex, super-costly, super-asymmetric and super-debt-dependent systems.

Check which signs of Imperial decline you see around you: The hubris of an increasingly incestuous and out-of-touch leadership; dismaying extremes of wealth inequality; self-serving, avaricious Elites; rising dependency of the lower classes on free Bread and Circuses provided by a government careening toward insolvency due to stagnating tax revenues and vast over-reach–let’s stop there to catch our breath. Check, check, check and check.

Sir John Glubb listed a few others in his seminal essay on the end of empires The Fate of Empires, what might be called the dynamics of decadence:

(a) A growing love of money as an end in itself: Check.

(b) A lengthy period of wealth and ease, which makes people complacent. They lose their edge; they forget the traits (confidence, energy, hard work) that built their civilization: Check.

(c) Selfishness and self-absorption: Check.

(d) Loss of any sense of duty to the common good: Check.

Glubb included the following in his list of the characteristics of decadence:

— an increase in frivolity, hedonism, materialism and the worship of unproductive celebrity (paging any Kardashians in the venue…)

— a loss of social cohesion

— willingness of an increasing number to live at the expense of a bloated bureaucratic state

Historian Peter Turchin, whom I have often excerpted here, listed three disintegrative forces that gnaw away the fibers of an Imperial economy and social order:

1. Stagnating real wages due to oversupply of labor

2. overproduction of parasitic Elites

3. Deterioration of central state finances

War and Peace and War: The Rise and Fall of Empires

To these lists I would add a few more that are especially visible in the current Global Empire of Debt that encircles the globe and encompasses nations of all sizes and political/cultural persuasions:

1. An absurdly heightened sense of refinement as the wealth of the top 5% has risen so mightily as a direct result of financialization and globalization that the top .1% has been forced to seek ever more extreme refinements to differentiate the Elite class (financial-political royalty) from financial nobility (top .5% or so), the technocrat class (top 5%), the aspirant class (next 15%) and everyone below (the bottom 80%).

Now that just about any technocrat/ member of the lower reaches of the financial nobility can afford a low-interest loan on a luxury auto, wealthy aspirants must own super-cars costing $250,000 and up.

A mere yacht no longer differentiates financial royalty from lower-caste financial Nobles, so super-yachts are de riguer, along with extremes such as private islands, private jets in the $80 million-each range, and so on.

Even mere technocrat aspirants routinely spend $150 per plate for refined dining out and take extreme vacations to ever more remote locales to advance their social status.

Examples abound of this hyper-inflation of refinement as the wealth of the top 5% has skyrocketed.

2. The belief in the permanence of the status quo has reached quasi-religious levels of faith. The possibility that the entire financialized, politicized circus of extremes might actually be nothing more than a sand castle that’s dissolving in the rising tides of history is not just heresy–it doesn’t enter the minds of those reveling in refinement or those demanding more Bread and Circuses (Universal Basic Income, etc.)

3. Luxury, not service, defines the financial-political Elites. As Turchin pointed out in his book on the decline of empires, in the expansionist, integrative eras of empires, Elites based their status on service to the Common Good and the defense (or expansion) of the Empire.

While there are still a few shreds of noblesse oblige in the tattered banners of the financial elites, the vast majority of the Elites classes are focused on scooping up as much wealth and power as they can in the shortest possible time, with the goal being not to serve society or the Common Good but to enter the status competition game with enough wealth to afford the refined dining, luxury travel to remote locales, second and third homes in exotic but safe hideaways, and so on.

4. An unquestioned faith in the unlimited power of the state and central bank. The idea that the mightiest governments and central banks might not be able to print their way of our harm’s way, that is, create as much money and credit as is needed to paper over any spot of bother, is unthinkable for the vast majority of the populace, Elites and debt-serfs alike.

That all this newly issued currency and credit is nothing but claims on future production of goods and services and rising productivity never enters the minds of the believers in unlimited state/bank powers. We have been inculcated with the financial equivalent of the Divine Powers of the Emperor: the government and central bank possess essentially divine powers to overcome any problem, any crisis and any conflict simply by creating more money, in whatever quantities are deemed necessary.

If $1 trillion in fresh currency will do the trick–no problem! $10 trillion? No problem! $100 trillion? No problem! there is no upper limit on how much new currency/credit the government and central bank can create.

That there might be limits on the efficacy of this money-creation never enters the minds of the faithful. That pushing currency-credit creation above the limits of efficacy might actually trigger the unraveling of the state-central bank’s vaunted powers never occurs to believers in the unlimited reach of central states/banks.

The possibility that the central state/bank’s powers are actually quite limited is blasphemy in an era in which the majority of the Elites and commoners alike depend on the “free money” machinery of the central state/bank for their wealth and livelihoods.

It is instructive to ponder the excesses of private wealth and political dysfunction of the late Roman Empire with the present-day excesses of private wealth and political dysfunction. As Turchin and others have documented, where the average wealth of a Roman patrician in the Republic (the empire’s expansionist, integrative phase) was perhaps 10-20 times the free-citizen commoner’s wealth, by the disintegrative, decadent phase of imperial decay, the Elites held wealth on the scale of 10,000 times the wealth of the typical commoner. Elite villas were more like small villages centered around the excesses of luxury than mere homes for the wealthy and their household servants. Here is a commentary drawn from Turchin’s work:

“An average Roman noble of senatorial class had property valued in the neighborhood of 20,000 Roman pounds of gold. There was no ‘middle class’ comparable to the small landholders of the third century B.C.; the huge majority of the population was made up of landless peasants working land that belonged to nobles. These peasants had hardly any property at all, but if we estimate it (very generously) at one tenth of a pound of gold, the wealth differential would be 200,000! Inequality grew both as a result of the rich getting richer (late imperial senators were 100 times wealthier than their Republican predecessors) and those of the middling wealth becoming poor.”

Following in Ancient Rome’s Footsteps: Moral Decay, Rising Wealth Inequality (September 30, 2015)

We can be quite confident that these powerful elites reckoned the Empire was permanent and its power to secure their wealth and power was effectively unlimited. But alas, their fantastic wealth vanished along with the rest of the centralized, over-extended, complex and costly Imperial structures…

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Danish and Swiss Banks to Charge Customers 0.75% Interest on Large Deposits – Mish Talk

Posted by M. C. on September 23, 2019

Coming to your bank soon!

https://moneymaven.io/mishtalk/economics/danish-and-swiss-banks-to-charge-customers-0-75-interest-on-large-deposits-Pu8bhyF1rkaOlu-VDBzlgw/

Mish

by

Last week, Denmark’s central bank cut its deposit rate to -0.75%. Banks will pass this on to large customers.

Please consider Denmark’s Jyske Bank Lowers its Negative Rates on Deposits.

Jyske Bank said on Friday people with more than $111,100 in their bank accounts will be charged more for their deposits as it seeks to pass on some of the costs of recent rate cuts by the European and Danish central bank.

Jyske Bank, Denmark’s second-largest bank, said it would introduce a negative interest rate of 0.75% for all corporate deposits and for private clients depositing more than 750,000 Danish crowns ($111,100) from Dec 1.

Last week, Denmark’s central bank cut its key deposit rate to minus 0.75%, a record low among developed economies. “It is a lot of money and we have to pass on part of this bill to our customers,” he said. “I don’t hope that we will have to go lower but I don’t dare to promise it.”.

Denmark’s largest bank, Danske Bank has said it has no plans to introduce negative interest rates on deposits. Switzerland’s UBS has said it will impose a negative rate of 0.75% on clients who deposit more than 2 million Swiss francs ($2 million). ($1 = 6.7559 Danish crowns)

Simple Question

If you live in Denmark and have a bank account in excess of $100,000 or so, why would you have it at Jyske Bank which charges 0.75% while Danske Bank, the country’s largest bank doesn’t?

Possibilities

  1. There is something seriously wrong at Danske Bank and people don’t trust it.
  2. Danske Bank welcomes deposits and can do something with the money. But if so, at what risk?

Any Danish readers care to answer?

Perhaps we have an answer from Bloomberg in the following discussion.

Jyske Shares Jump on Interest Rate Charge

Bloomberg reports Negative Rates Just Got Real for a Record Group of Bank Clients

Shares in Jyske closed more than 5% higher marking their best performance since December 2017, as investors calculated the impact that the new policy will have on the bank’s net interest income.

Jyske has “set the ball rolling,” said Per Hansen, an investment economist at broker Nordnet.

…
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Who Is Holding Back the Russian Economy? — Strategic Culture

Posted by M. C. on September 9, 2019

But those IMF rules are there to protect the IMF making the loans to the troubled nation, not to assist the troubled nation actually recover.

https://www.strategic-culture.org/news/2019/09/08/who-is-holding-back-the-russian-economy/

Tom Luongo

 

Russia’s economy has been a sore spot for more than two years now. Since the ruble crisis of late 2014 the role of the Bank of Russia has been to apply IMF-style counter-cyclical tightening to stabilize the situation in the wake of the decision to allow the ruble to float freely on the open market.

That was the right decision then. It was the move the US did not expect President Vladimir Putin to make. It was expected Putin would hold to his natural conservatism and keep the ruble trading in the 30’s versus the US dollar as opposed to risking a collapse in exchange rate in the face of an historic drop in oil prices over the eighteen months between July 2014 and the low made in late January 2016.

Oil dropped from $120+ per barrels to around $28 during that period. And if Putin hadn’t proactively allowed the ruble to fall from RUB32 to a high of RUB85 in early 2016 Russia would have been bankrupted completely.

During that time Bank of Russia President Elvira Nabullina raised the benchmark lending rate to 17.00% and Russia began the slow, painful process of de-dollarizing its economy.

It’s been five years since those dramatic times. But a lot of damage was done, not just to the Russian people and their savings but also to the mindset of those in charge at the Bank of Russia.

Nabullina has always been a controversial figure because she is western trained and because the banking system in Russia is still staffed by those who operate along IMF prescriptions on how to deal with crises.

But those IMF rules are there to protect the IMF making the loans to the troubled nation, not to assist the troubled nation actually recover. To explain this, I have to get a bit technical, so bear with me.

The fundamental problem is a miseducation about what interest rates are, and how they interact with inflation and capital flow. Because of this, the medicine for saving an economy in trouble is, more often than not, worse than the disease itself.

If Argentina’s fourth default in twenty years doesn’t prove that to you, nothing will.

Nabullina still believes that her job is to get inflation down to 4%. Inflation targeting, as central bank policy, is a disease that needs to be placed next to smallpox at the CDC in Atlanta.

It seems I have to write this article once every few months just to remind people what the problem is.

When inflation is above the target an austerity mindset dominates at the central bank who keeps interest rates above the market rate in the vain hope they can wring the last bits of inflation out of the economy, because sufficient confidence hasn’t returned to the banking system after the crisis.

This is Russia’s problem today. Nabullina still believes there’s work to be done before allowing the economy to grow.

When inflation is below the target, like in the ECB and the US, then to the miseducated central banker growth is sluggish and demands stimulus in the form of cheap money to create a virtuous credit cycle. It hasn’t worked and it won’t work.

Because both of these theories about the effects of inflation targeting are dead wrong.

They haven’t worked in the US and Europe because there is no more capacity within their economies to take on more debt to stimulate demand and increase spending. All they are doing is, as described by Mises and others, “pushing on a string” offering money no one wants at interest rates the market cannot sustain.

That cheap money inflates asset prices like stocks and bonds while diverting capital to long time-horizon projects like fracking in Texas, and housing and car loans, but it thieves working capital from the future by mispricing the risk of those projects in the form of the interest rate.

The net effect is enriching the already obscenely rich and powerful, through wealth transfer which feeds leftist and Marxist criticisms of the ‘free market’ while they proclaim the end of capitalism.

But central bank inflation targeting and control is the height of a centrally-planned economy. Control the value and cost of money and you control the means of production. So, capitalism this ain’t folks.

Miseducation on matters economic are commonplace today from the commanding heights to the lowest barrios.

Eventually, you reach the point we’ve arrived at in the west where no amount of forcing the market, through punitive negative rates, can stimulate growth. This is simply arrogant men praying at the altar of math torturing equations which have no resemblance to reality and turning it into policy.

On the other hand, we have Nabullina trained in this world of econometrics and its econo-babble, holding back the Russian economy with interest rates set above the market. She is either overly-cautious, if I’m being generous, or a full on fifth-columnist stifling growth to support Russia’s enemies, if I’m being cynical.

I think the truth lies somewhere in the middle, if I’m being fair. Today I’ll be fair.

The Russian economy, structurally, is in excellent shape. John Hellevig at the Awara group recently published an excellent report explaining the guts of what’s going on there. And John notes, like I have been for more than a year (here and here), that the Bank of Russia has interest rates too high given what the market is telling it.

It’s not that tough really, just look at the Russian yield curve and you can see what I’m talking about.

The current benchmark rate in Russia is 7.25%, down from 7.75% just two months ago (and that I’ll get to in a minute). The entire interbank market and short-term deposit market is trading below that benchmark rate.

This means the central bank is holding back a market that wants to trade at lower rates. This is keeping liquidity low and access to loans in the domestic and commercial market low as well.

Meanwhile, the demand for Russian debt, because as a country Russia’s balance sheet is so clean, in part due to Nabullina’s stewardship of the 2014-16 crisis period, is pushing rates lower. And for the first time in close to 5 years Russia has a normal positively-sloping yield curve from 1 year to 20 years, with no humps or flat spots.

Demand for Russian debt is finally market driven in a way that is predictable and can allow banks to make money paying short and lending long. This is how banks are supposed to make their money, not speculating on stocks and currencies!

Moreover, domestic savings rates at all maturities in the CD and money markets are below the benchmark rate, so Russian banks are under zero stress. High savings offer rates indicate a need to shore up reserves by attracting savings. It’s a bad sign.

Non-performing mortgage loans stand at less than 1%…. 1% !!

The only worry is the outstanding dollar-denominated debt, but that makes up around 1% of the total Russian mortgage market. It’s literally chump change.

I mean, for pity’s sake, what on god’s green earth is Nabullina waiting for? An engraved invitation from the Fed to the next convocation at Jackson Hole? She’s done her job, now let the Russian people do theirs.

Nabullina has kept rates high out of fear of inflation returning due to a rising US dollar and falling oil prices which is putting upward pressure on the ruble. She made an egregious policy error hiking rates in response to Trump’s crazy aluminum tariffs last year. And then held that level until June.

She’s only now just beginning to lower rates after the policy became ludicrous and Russian GDP growth has stalled. Again, incompetence and treason look very similar from a distance.

She keeps jumping at the shadows of a dollar-induced crisis. But the Russian economy of 2019 is not the Russian economy of 2015. Dollar lending has all but evaporated and the major source of demand for dollars domestically are legacy corporate loans not converted to rubles or euros.

So, the Russian economy is so much more insulated from a rise in the dollar than it was before.

The fundamental flaw in the thinking behind most central bankers, especially those trained by the IMF, is that lowering the cost of money stimulates growth and raising it reins it in. It’s an overly simplistic model to explain why we need philosopher kings like Nabullina, Mario Draghi and Jerome Powell to tinker with the economy and engineer growth and stability.

The reality is it’s more complicated than that, because access to capital means different things at different parts of the business cycle to different economies. And Russia’s role in the global economy is changing.

Russia is becoming an independent node in the global economy. Shut out of the US dollar markets, Russia now has to lead the part of the world it dominates – the EAEU, Turkey, Iran, the CSTO states – and show confidence by making the ruble more accessible to foreign investment.

Projecting confidence comes in the form of lowering rates to reflect a healthy domestic market, not keeping rates high because you’re afraid of the US

That yield curve I posted above is a picture of a central bank scared of the future, like Jerome Powell at the Fed, and not one sanguine about Russia’s future prospects. Powell has problems Nabullina doesn’t have, like hundreds of trillions in unfunded future liabilities that require much higher rates to stabilize.

Lowering interest rates in Russia from 7.25% to 6.5% or even 6% is likely all she needs to do and then let the markets take care of things from there. That’s what the market’s actually telling her.

And I believe Vladimir Putin has had enough of Nabullina’s fears. He’s getting more and more impatient with his central bank president. He sees the lack of growth of the Russian economy and wonders why capital formation is locked up behind a wall of overly-high interest rates.

Recently Putin sat down with Nabullina and right after that interest rates dropped 0.25%. The same thing happened in 2015 when she had rates stuck at 10% and Putin had to finally forced her to justify herself.

It’s clear that there is something wrong at the Bank of Russia; whether it’s Nabullina herself, her staff or the legacy of insipid and dangerous Western economic theories refusing to die, is beyond my knowledge.

The cynic in me says the foot-dragging by the Bank of Russia is the final vestige of US infiltration in Russia’s institutions rearing its ugly head. That fight is ongoing, but the recent drops in the benchmark rate are a good start.

Be seeing you

 

 

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