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Posts Tagged ‘Central Banks’

Central Banks launch Digital Currencies – Perfect Technocratic Control

Posted by M. C. on December 7, 2021

It is all about control. What tells more about you than where you go an what you buy? Woe unto you when you do something some faceless bureaucrat doesn’t like.

Keep using that plastic.

Every central bank in the world is rushing to launch a digital currency…but why? And who is pulling the strings behind the scenes? As it turns out, we don’t need a ‘social credit score’ when money itself is used to control our behavior. Christian breaks down the reality behind this global, synchronous push for digital currencies and the elimination of cash in this Ice Age Farmer broadcast.

https://youtu.be/OavcJzYpOpw

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Central Banks and Socialism Are Forever Linked Together | Mises Wire

Posted by M. C. on October 24, 2021

This momentous fact has not escaped the attention of socialist theorists. The Saint-Simonians in France had already grasped it at the beginning of the nineteenth century. They understood that the economy of a country could be controlled particularly easily and safely with the help of the printing press. A few years later, the demand for the “centralization of credit in the hands of the state through a national bank with state capital and an exclusive monopoly” soon also held center stage in the 1848 Communist Manifesto by Marx and Engels.

https://mises.org/wire/central-banks-and-socialism-are-forever-linked-together

Jörg Guido Hülsmann

It is well known that socialism is a shortage economy. It is the economy of inefficiency and corruption, of indifferent workers and of bigwigs, of lacking spare parts, of lacking funds, of failure, of permanent reform needs and of constantly unsuccessful reforms. This concerns in particular total socialism, as it was realized in the Soviet Union or under National Socialism. But it is no less evident in the numerous partial socialisms that are featured in the real existing welfare state, in its numerous state “systems.” Budget deficits year in, year out despite high contributions—that is the reality in the state pension system and in the state health system. The state education system is similar: declining student performance and growing illiteracy despite sky-rocketing expenditure. No private entrepreneur could afford to let the costs get out of hand in such a way. Anyone who is in competition has to keep improving. Only those who have a legal monopoly and can make use of taxpayers’ money if necessary do not need it.

Now there is one partial socialism that stands out from the usual array of failures. Here we see gains instead of losses. Here we often find all the other signs of a successfully run company, from the private legal form to the pinstripe-filled boardroom. We are talking about central banking. The term “central bank” actually refers quite clearly to a centrally planned economy. But when people talk about the Fed, the ECB or other central banks today, hardly anyone thinks that they are talking about an offspring of the socialist spirit. On the contrary, central banks are typically viewed as particularly “capitalist.” After all, what would be more capitalist than money? And what would be more closely related to money than a bank?

Upon closer inspection, however, it appears that this connotation may not be entirely correct. In the unbridled market economy, private property and competition prevail. Central banks, on the other hand, are usually state institutions. Even those central banks that are private-law organizations (as in the United States, Japan, and Switzerland) are subject to special laws and their directors are appointed by national governments. In addition, central banks always and everywhere enjoy a legal monopoly. Their banknotes and their deposit money are largely withdrawn from free competition. The market participants are compelled to use the money of the central banks.

This money is one of a kind. Indeed, it can basically be produced in unlimited quantities. The production of money by the private commercial banks is limited by their equity capital and also by the cash deposits of their customers. But central banks do not need equity or cash deposits. It is they who create cash. They can generate cash out of nothing and practically for free. Certain legal limits are set for them, but in times of crisis, as in 2008–09 and in 2020–21, these limits can be relaxed quickly and dramatically. If necessary, they can also be abolished entirely.

Central banks therefore have potentially tremendous power. If only let loose, they can control all of the economy and society. There is almost no limit to the number of new loans they can issue. The can provide these loans to some and deny them to others. And by implication they can also control the use of all available resources. After all, labour usually moves where it is best paid. Raw materials and capital goods are typically sold to those who offer the highest prices. If you control the printing press, you can also let the real resources flow exactly where you think it is right. Whether this use of funds is also profitable plays a rather subordinate role for central banks (unlike commercial banks). You do not have to work hard and invest well to cover losses. One push of a button is enough.

Central banks are therefore made for do-gooders. He who runs a central bank does not need to do painstaking educational work in order to bring about any social change. The humanitarian with the printing press can finance all changes he wishes for at the push of a button. He can just pay other people to do what he wants. He does not need any savings or capital for this. He does not need a democratic majority either. As long as he has the printing press under control, he could by and large give a damn about what other people think or wish.

This momentous fact has not escaped the attention of socialist theorists. The Saint-Simonians in France had already grasped it at the beginning of the nineteenth century. They understood that the economy of a country could be controlled particularly easily and safely with the help of the printing press. A few years later, the demand for the “centralization of credit in the hands of the state through a national bank with state capital and an exclusive monopoly” soon also held center stage in the 1848 Communist Manifesto by Marx and Engels.

Unsurprisingly, the enormous possibilities of creating money from nothing have been used again and again to finance state industrial policy and socialist experiments. In the 1970s, British historian Antony Sutton reported that some of New York’s Wall Street banks had financed the radical transformation of traditional European societies. They supported Lenin and Stalin as well as Adolf Hitler with billions of dollars. That would not have been possible without the refinancing from the American central bank.

In our day, too, the historical connection between the central banking system and political utopias is being brought back to life. This time it appears in the form of a “green” and egalitarian transformation of the economy and society. The directors of the ECB [European Central Bank] and the Fed have already officially committed to this.

The new humanitarians with the printing press are undoubtedly a great danger to humanity. They threaten everyone’s prosperity by channeling scarce resources into unprofitable (and therefore unsustainable) uses. But they also threaten the free social order as a whole, in that they are preparing to disempower the open competition of all social forces. They want to replace this competition with the rule of a nonelected leadership caste.

However, green central bank policy is not to be condemned primarily because it supposedly pursues ecological goals, but because a central bank comes into its own here. Central banks are by their very nature destructive. Even if they are not led by self-proclaimed ecologists and socialists, they favor the cousin, favoritism and the bigwig economy. The economists of the Austrian school have shown, among other things, that central banks always and everywhere weaken economic growth by undermining the propensity to save; that they are destabilizing the economy by fueling a debt economy; that they incite greed and avarice; and that they create blatant inequalities in income and wealth. Central banks cannot be reformed, they must be abolished.

This article is a translation of an article that has appeared in the German edition of the Epoch Times, in October 2021. Author:

Contact Jörg Guido Hülsmann

Jörg Guido Hülsmann is senior fellow of the Mises Institute where he holds the 2018 Peterson-Luddy Chair and was director of research for Mises Fellows in residence 1999-2004.  He is author of Mises: The Last Knight of Liberalism and The Ethics of Money Production. He teaches in France, at Université d’Angers. His full CV is here.

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Why Marx Loved Central Banks | Mises Wire

Posted by M. C. on October 20, 2021

The fiat money system, the creation of money through circulation credit expansion, has brought about a new kind of debt slavery on a grand scale. Consumers, corporations and, of course, governments, too, have become highly dependent on central banks continuously churning out ever greater amounts of credit and money, provided at ever lower interest rates. In numerous countries, central banks have de facto become the real centers of power: Their monetary policy decisions effectively determine the weal and woe of economies and whole societies.

https://mises.org/wire/why-marx-loved-central-banks

Thorsten Polleit

In his “Manifesto of the Communist Party” (1848), published together with Frederick Engels, Karl Marx calls for “measures” — by which he means “despotic inroads on the rights of property” –, which would be “unavoidable as a means of entirely revolutionising the mode of production,” that is, bringing about socialism-communism. Marx’s measure number five reads: “Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.” This is a rather perspicacious postulation, especially as at the time when Marx formulated it, precious metals — gold and silver in particular — served as money.

As is well known, the quantity of gold and silver cannot be increased at will. As a result, the quantity of credit (in terms of lending and borrowing money balances) cannot easily be expanded according to political expediency. However, Marx might have fantasized already, what would be possible once the state is put in a position where it can create money through credit expansion; where it has usurped and monopolized the production of money. Long before Marx, the English churchman and historian Thomas Fuller had elaborately expressed the power of money: “Money is the sinew of love as well as war.”

The Origins of Modern Central Banking

The idea of central banking has a long history. For instance, the Swedish central bank, the Sveriges Riksbank, was founded in 1668, and the English central bank, the Bank of England, was formed in 1694. The fraudulent operations of such institutions came to light soon, at the latest with the writing of the British economist David Ricardo. In his 1809 essay “The High Price of Bullion” he pointed out that it was the increase in the quantity of money — in the form of banknotes not backed by gold — that caused a general rise in prices, an effect we know as (price) inflation.

Unfortunately, however, the political-economic insight that central banks holding the money production monopoly would misuse their power time and again, engage in cronyism, and cause an anti-social debasement of the currency has not — to this very day — sufficed to discredit the monstrous idea of central banking. It seems that as far as monetary affairs are concerned, Marx’s concept of Dialectical Materialism has made quite an impression: What is appears to form peoples’ consciousness (not vice versa). This has certainly helped in creating central bank Marxism on a world-wide scale.

Cutting the Last Ties with Commodity Money

On 15 August 1971 Marx’s vision became true: The US administration single-handedly terminated the redeemability of the US dollar into physical gold – and so gold, the currency of the civilized world, was officially demonetized. Through this coup de main, in the United States of America, as well as all other countries in this world, an unbacked paper money — or fiat money system was established. Since then, all currencies around the globe represent fiat currencies: representing money creation by circulation credit expansion, not backed by real savings or deposits, monopolized by central banks.

The fiat money system, the creation of money through circulation credit expansion, has brought about a new kind of debt slavery on a grand scale. Consumers, corporations and, of course, governments, too, have become highly dependent on central banks continuously churning out ever greater amounts of credit and money, provided at ever lower interest rates. In numerous countries, central banks have de facto become the real centers of power: Their monetary policy decisions effectively determine the weal and woe of economies and whole societies.

By issuing fiat currencies, created out of thin air, a rather small clique of central bankers, together with their staffers, causes — to borrow from Friedrich Nietzsche — a “revaluation of values.” Chronic monetary inflation, for instance, discourages savings; running into ever greater amounts of debt gets cultivated; by central banks’ downward manipulation of the interest rate, the future needs get debased compared to present needs; the favoring of a sort of monetary “Deep State” comes at the expense of demolishing civil and entrepreneurial liberties.

A Supranational Central Bank

In Europe, central bank Marxism has accomplished a rather astounding feat: 19 nation states with a total of around 337 million people have given up their right to self-determination in monetary affairs, submitting to the monetary policy dictate of a supra-national central bank entirely beyond effective Parliamentary control that issues a single fiat currency, the euro. While central bank Marxism has been reasonably successful in Europe, however, its true spearhead has always been the US central bank: The Federal Reserve (Fed).

Today’s world depends on the fiat US dollar issued by the Fed more than ever. Effectively all other major currencies are built upon the Greenback, and it is the Fed that determines the credit and liquidity conditions in international financial markets. It effectively presides over a world central bank cartel which, if it is allowed to continue unimpededly, will eventually steer and control the world economy through its unassailable money production monopoly, effectively removing one of the most critical roadblocks against unrestricted state tyranny.

Ideas Have Consequences

So those favoring a free society can only hope that something will get in the way of central bank Marxism. This is by no means impossible. Socialism-communism is not the inevitable destiny of social life and historical evolution, as Marxists would like to make us believe. What truly matters are ideas or theories, if you will, as ideas — whatever their specific content, wherever they come from, whether they are right or wrong — underlie and drive human action.1Ludwig von Mises was acutely aware of this indisputable insight:

Human society is an issue of the mind. Social co-operation must first be conceived, then willed, then realized in action. It is ideas that make history, not the “material productive forces”, those nebulous and mystical schemata of the materialist conception of history. If we could overcome the idea of Socialism, if humanity could be brought to recognize the social necessity of private ownership of the means of production, then Socialism would have to leave the stage. That is the only thing that counts.2

Against the backdrop of Mises’s words one may add: Once people understand that Marxism (and all its particular forms of socialism) does not guarantee a higher living standard and that it does make a better or more just and reasonable world, it would usher in the end of central banking and fiat money. In other words: whether or not central bank Marxism and fiat money will prevail or be thrown out of the window (or flushed down the drain) will be determined by the outcome of the “battle of ideas.” So there remains reason for hope!

  • 1. For a detailed explanation see Mises, L. v. (1957), Theory and History, Ludwig von Mises Institute, Auburn, US Alabama, Part Two, esp. Chapter 7, pp. 102 – 158.
  • 2. Mises, L. v. (1981), Socialism. An Economic and Sociological Analysis, Liberty Fund, Indianapolis, p. 461.

Author:

Thorsten Polleit

Dr. Thorsten Polleit is Chief Economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.

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“Programmable Digital Currency”: The next stage of the new normal? – OffGuardian

Posted by M. C. on October 4, 2021

By far the most dangerous idea is that any future digital currency should be “programmable”. Meaning the people issuing the money would have the power to control how it is spent.

The year is 2030.

To reduce your CO2 footprint, your food purchase with digital cash been declined because you went over your car mileage limit. Its all tracked with your digital ID.

15 social credit score points have been deducted from your climate change passport.

If you are allowed to buy ammo and firearms purchases may well be limited and certainly records will be kept.

https://off-guardian.org/2021/10/01/programmable-digital-currency-the-next-stage-of-the-new-normal/

Kit Knightly

Building on the bitcoin model, central banks are planning to produce their own “digital currencies”. Removing any and all remaining privacy, granting total control over every transaction, even limiting what ordinary people are allowed to spend their money on.

From the moment bitcoin and other cryptocurrencies first emerged, sold as an independent and alternative medium of exchange outside the financial status quo, it was only a matter of time before the new alternative would be absorbed, modified and redeployed in service of the state.

Enter “Central Bank Digital Currencies”: the mainstream answer to bitcoin.

For those who have never heard of them, “Central Bank Digital Currencies” (CBDCs) are exactly what they sound like, digitized versions of the pound/dollar/euro etc. issued by central banks.

Like bitcoin (and other crypto), the CBDC would be entirely digital, thus furthering the ongoing war on cash. However, unlike crypto, it would not have any encryption preserving anonymity. In fact, it would be totally the reverse, potentially ending the very idea of financial privacy.

Now, you may not have heard much about the CBDC plans, lost as they are in the tangle of the ongoing “pandemic”, but the campaign is there, chugging along on the back pages for months now. There are stories about it from both Reuters and the Financial Times just today. It’s a long, slow con, but a con nonetheless.

The countries where the idea progressed the furthest are China and the UK. The Chinese Digital Yuan has been in development since 2014, and is subject to ongoing and widespread testing. The UK is nowhere near that stage yet, but Chancellor Rishi Sunak is keenly pushing forward a digital pound that the press are calling “Britcoin”.

Other countries, including New Zealand, Australia, South Africa and Malaysia, are not far behind.

The US is also researching the idea, with Jerome Powell, head of Federal Reserve, announcing the release of a detailed report on the “digital dollar” in the near future.

The proposals for how these CBDCs might work should be enough to raise red flags in even the most trusting of minds.

Most people wouldn’t like the idea of the government monitoring “all spending in real-time”, but that’s not the worst it.

By far the most dangerous idea is that any future digital currency should be “programmable”. Meaning the people issuing the money would have the power to control how it is spent.

That’s not an interpretation or a “conspiracy theory”, just listen to Agustin Carstens, head of the International Settlement Bank, speaking earlier this year:

Here’s that quote again, with some emphasis added:

The key difference [with a CBDC] is that the central bank would have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and the have the technology to enforce that.”

…which tells you not only that they want and are seeking this power, but how they justify it to themselves. They transform other people’s money into an “expression of their liability”, and so consider it’s only right that they control it.

An article in the Telegraph, back in June, was just as candid [our emphasis]:

Digital cash could be programmed to ensure it is only spent on essentials, or goods which an employer or Government deems to be sensible

The article goes on to quote Tom Mutton, a director at the BoE:

You could introduce programmability […] There could be some socially beneficial outcomes from that, preventing activity which is seen to be socially harmful in some way.

Governments and employers making sure the money they issue can only be used on “sensible” things, and not be used in “socially harmful” ways? It doesn’t take much imagination to see just how this system could evolve and re-shape society into a truly dystopian nightmare.

In China the process is already beginning, with a trademarked lack of subtlety. As they progress toward the release of their digital currency, they are banning all cryptocurrencies to remove competition and it’s already known the digital yuan will be programmable.

The West’s approach will probably be less direct, but no less controlling for that.

Britcoin will likely be programmed in only “special circumstances”. Starting, as the Telegraph says, with state benefits. They will be flagged to be spent only on “essentials”. (Of course, if Universal Basic Income is put in place, then it’s possible the majority of people could end up on “state benefits”.)

It’s also not hard to see programmable money feeding into the “protect the NHS narrative”, where people aren’t allowed to spend state money on sugar, cigarettes or alcohol. Or people on organ waiting lists, or diagnosed with certain conditions, have their wages and spending controlled.

By and large, however, it is the nature of British tyranny to be unofficial. So the UK government will make a big show of renouncing their own power to program the money, thereby positively contrasting themselves with China…but at the time will take no steps to prevent large companies “programming” the wages they issue.

So, while the state controls the digital yuan in China, the digital pound will be subject to corporate control and used to enforce the unspoken state-corporate partnership that defines true fascism.

It will likely start in small, predictable ways designed to “limit competition”. McDonald’s, for example, will make it impossible to spend their wages at Burger King, and vice versa. Coke and Pepsi. Starbucks and Costa. You get the idea.

We’ve witnessed the rise of cancel culture, the cultivated age of identity politics, and virtue signalling. Well, imagine how programmable currency fits into that. Companies could commit to “combatting hate”, and stop their employees from donating money to black-listed political parties, religious groups, charities or individuals.

In the age of Covid we have seen how authors/actors/singers who step out of line are subject to poisonous witch hunts, but imagine a world where companies could “renounce those who spread misinformation”, by making it impossible to spend wages they issue on art/films/music/books by outspoken critics of the government.

Maybe companies will make it so that employees who aren’t vaccinated have more limitations placed on their wages than vaccinated ones. Maybe an unvaxxed paycheck can’t be spent at cinemas or nightclubs, to “stop the spread of the virus”.

John Cunliffe, deputy director of the Bank of England, told the Telegraph:

You could think of smart contracts in which the money would be programmed to be released only if something happened.

So maybe employers will remove choice altogether, and make a negative test and/or a vaccine booster a prerequisite for unlocking your wages. That could be applied to all kinds of behaviours moving forward.

The World Economic Forum has a clear vision of the future where people “own nothing and are happy”, combine that with a prolonged war on homeownership, and you can see employers and governments issuing money which can be spent on rent, but not on a mortgage.

Now imagine the nascent “Green New Deal”. Hard limits on how much money you can spend on petrol, plastic, or meat.

Only X dollars on flights per year. Only Y pounds on beef. All for the good of the planet.

Money will turn from an expression of independence into nothing but a voucher system operated completely at the whim of corporate monoliths.

The year is 2030.

To reduce your CO2 footprint, your food purchase with digital cash been declined because you went over your car mileage limit.

Its all tracked with your digital ID.

15 social credit score points have been deducted from your climate change passport.

— PeterSweden (@PeterSweden7) September 29, 2021

All of this would have sounded like rampant paranoia just two years ago, but would you honestly be surprised to see that suggestion in the Guardian, these days?

A programmable digital currency would have, coded into it, the ability to control our entire society. And it looks like that’s where The New Normal is heading next.

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The Crooks Running The Federal Reserve Have Been Getting High On Their Own Supply

Posted by M. C. on September 30, 2021

They knew that flooding the financial system with new money would cause the value of those investments to go up.

In other words, they made conscious decisions that they knew would make themselves even richer.

http://theeconomiccollapseblog.com/the-crooks-running-the-federal-reserve-have-been-getting-high-on-their-own-supply/

by Michael Snyder

Liquidity injections are like a drug, and the financial markets just can’t get enough of them.  But as they were endlessly juicing the stock market, officials at the Federal Reserve broke one of the cardinal rules of drug dealing.  You never get high on your own supply.  It turns out that quite a few of the big dogs over at the Fed have very large investments which greatly benefitted from all of the cash that the Federal Reserve was endlessly pumping into the marketplace.  If that sounds “extremely corrupt” to you, that is because it is extremely corrupt, and it is another example that shows why the Federal Reserve should be completely abolished.

Earlier this week, the entire nation was stunned when news of this scandal first started to break

Federal Reserve Chairman Jerome Powell directed staff to review the central bank’s ethics rules for appropriate financial activities after disclosures that several senior central bank officials made multiple multimillion-dollar stock trades in 2020, while others held significant investments.

That sounds really bad, right?

But then more of the specific details started coming out and it got even worse

  • Powell held between $1.25 million and $2.5 million of municipal bonds in family trusts over which he is said to have no control. They were just a small portion of his total reported assets. While the bonds were purchased before 2019, they were held while the Fed last year bought more than $5 billion in munis, including one from the state of Illinois purchased by his family trust in 2016.
  • Boston Fed President Eric Rosengren held between $151,000 and $800,000 worth of real estate investment trusts that owned mortgage-backed securities. He made as many as 37 separate trades in the four REITS while the Fed purchased almost $700 billion in MBS.
  • Richmond Fed President Thomas Barkin held $1.35 million to $3 million in individual corporate bonds purchased before 2020. They include bonds of Pepsi, Home Depot and Eli Lilly. The Fed last year opened a corporate bond-buying facility and purchased $46.5 billion of corporate bonds.

They knew that flooding the financial system with new money would cause the value of those investments to go up.

In other words, they made conscious decisions that they knew would make themselves even richer.

This is the sort of extreme corruption that we would expect to see in third world dictatorships, but it is happening right here in the United States of America.

But at least nobody got hurt, right?

Wrong.

As the Federal Reserve and other global central banks have been flooding their respective systems with unprecedented amounts of new money, food prices have been aggressively rising all over the globe…

Whether for bread, rice or tortillas, governments across the world know that rising food costs can come with a political price. The dilemma is whether they can do enough to prevent having to pay it.

Global food prices were up 33% in August from a year earlier with vegetable oil, grains and meat on the rise, data from the United Nations Food and Agriculture Organization show. And it’s not likely to get better as extreme weather, soaring freight and fertilizer costs, shipping bottlenecks and labor shortages compound the problem.

You and I may be able to handle rising food prices (at least for now), but on the other side of the globe there are scores of people that are deeply suffering at this moment

Filipino broom maker Gloria Hernandez longs for chicken and milkfish — big milkfish. She can only afford small ones now, and they don’t add up to a decent meal. She eats rice with coffee twice a day so she doesn’t feel hungry. Fried eggs and bread — those are the foods Nigerian clergyman Femi Oyekan Moses used to eat all the time and misses the most. Now he mainly eats beans and corn and often skips lunch.

Hernandez and Moses are part of an emerging group who could once provide regular meals for themselves and their families but are now struggling because of the pandemic. They’re not on the verge of starvation as so many millions are, but they’re suffering from what’s called “food insecurity” in moderate to severe degrees, unable to afford a balanced and nutritious diet because of income loss and rising prices.

In fact, it is being reported that the number of people around the world that are facing “food insecurity” increased by 320 million in just 12 months

According to a July report from the World Food Programme and the World Health Organization, 2.37 billion people worldwide, or one in every three people, were in that latter category in 2020. That’s an increase of 320 million people in one year.

Hundreds of millions of people do not have enough food to eat tonight because global central bankers wanted to make themselves and their wealthy friends even wealthier.

You can call that whatever you want.

I call that “evil”.

The reason we still have a Federal Reserve is because the American people kept sending politicians to Washington that support the Federal Reserve.

In recent years there have been people running for office that were calling for the Federal Reserve to be abolished, but they didn’t get the kind of support that they deserved.

Hopefully these shocking new revelations about Fed officials will start to wake more people up.

I would love see a renewed “End the Fed” movement in this country.

Because the truth is that we do not need a central bank to prop up our financial system and run our economy.  We are supposed to have a free market economy, and our financial markets are not supposed to be a rigged game.

What has been going on at the Fed should actually not surprise any of us, because it is simply a reflection of the deep corruption that we are seeing on just about every level of our society.

Without at least some basic level of morality, no society can survive for long.

Sadly, the level of morality in our society continues to sink, and it is often those that walk the halls of power that are the most corrupt of all.

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The Terrible Economic Ignorance behind Covid Tradeoffs: My Speech to the Ron Paul Institute | Mises Wire

Posted by M. C. on September 8, 2021

Dr. Hans-Hermann Hoppe has a famous dictum: markets produce goods, which are the things we want and willingly buy or consume. Government produces bads, which is to say things we don’t want at all. Things like wars and inflation. They do this with our own money, reducing what we have to spend on actual goods and thus reducing production of those goods.

https://mises.org/wire/terrible-economic-ignorance-behind-covid-tradeoffs-my-speech-ron-paul-institute

Jeff Deist

Some of you may know the name Alex Berenson, the former New York Times journalist who comes from a left-liberal background. He has been absolutely fearless and tireless on Twitter over the past eighteen months, documenting the overreach and folly of covid policy—and the mixed reality behind official assurances on everything from social distancing to masks to vaccine efficacy. He became a one-man army against the prevailing covid narratives. 

Mr. Berenson is famous for creating a viral (no pun intended) phrase which swept across Twitter last year: virus gonna virus.

Which means: whether one is in Sweden or Australia, whether in New York or Florida, whether you have mask mandates or lockdowns or close schools or require vaccine passports—or do NONE of these things—virus gonna virus. Covid hospitalizations and deaths will be concentrated among the obese and elderly. In almost any community, two-thirds or more of deaths are over age seventy, but even among the elderly more than 90 percent of those infected survive covid. And among all covid deaths, only about 7 percent are “covid only” without other serious contributing factors. 

What we won’t ever know, unfortunately—because we don’t have a control group, at least in the West—is what would have happened in a society which simply did nothing in response to the virus. What if a country simply had encouraged citizens to build up their natural immunity through a healthy diet, exercise, vitamins, and natural sunlight? What if it had taken precautions for elderly and immune-compromised populations, while allowing younger and healthier people to live normally? Would such a country have reached a degree of natural immunity faster, with overall better outcomes for the physical and mental health of its citizens? And with far less economic damage?

All of this is the unseen. And no, it wasn’t “worth it” to shut down the world.

Back to Mr. Berenson. Last week Twitter decided it had enough, and permanently suspended his account. This is no small thing for independent journalists—and God knows we need them—who reach a lot of people via Twitter and rely on it to make a living.

Search for his Twitter profile and you’ll find something spooky. His name is still there, but with a quietly menacing “Account Suspended” warning. All other traces of his existence are erased: his header photo is gone, his profile photo is blank, and the descriptive bio is missing. Just blank. It’s eerie, and reminds me of that famous old photo of Stalin by the Moscow Canal. He’s standing next to Nikolai Yezhov (I had to look him up), who fell out of favor with Stalin and was executed—then erased from the photo by Soviet censors.

Alex Berenson has been similarly unpersoned, removed, erased. But even if he ends up a casualty of this war1—and whether you agree with him or not—people like him have managed to challenge the official narrative in ways unimaginable even twenty years ago. The financial journalist John Tamny made an interesting point last week: complain about social media all you want, but Facebook and Twitter have been great sources of information during this covid mess. And after thinking about it I had to agree. Most of the alternative information about covid I’ve consumed via social media. But of course Mr. Berenson no longer has this luxury.

The Covid Economy and Tradeoffs

Speaking of narratives, we have especially lacked clear and sober thinking about the injuries to the US economy created by covid policies. We profoundly fail to understand the economics behind covid, because we so desperately want to kid ourselves that the economy will be “normal” soon.

Governments are good at two things, namely bossing us around and spending money. They do both in spades whenever a supposed crisis arises, and both Congress and the Fed went into hyperdrive beginning in March 2020. The Fed pumped more than $9 trillion to its primary dealers, estimates are that more than 20 percent of all US dollars ever issued were issued in 2020 alone. On the fiscal side, more than forty federal agencies have spent $3.2 trillion in covid stimulus spending. So that is $12 trillion of inflationary pressure introduced to our economy.

What the economy wants and needs during crises is of course deflation. When uncertainty rises, and it certainly did for millions of Americans worried about their jobs in 2020, people naturally and inevitably hold larger cash balances. They spend less. Meanwhile they were staying home, driving less, dining out less, traveling less, working less. All of this is naturally deflationary, so of course Congress and the Fed embarked on an effort to fight this tooth and nail with intentional inflation. So now we’re in a wrestling match between two opposing forces, one natural and one artificial.

Dr. Hans-Hermann Hoppe has a famous dictum: markets produce goods, which are the things we want and willingly buy or consume. Government produces bads, which is to say things we don’t want at all. Things like wars and inflation. They do this with our own money, reducing what we have to spend on actual goods and thus reducing production of those goods.

The past sixteen months we’ve had lots of government bads, to the point where we might call them “worsts,” which are even worse than bads. The covid and Afghanistan debacles come to mind. 

It may be facile and self-serving to compare the federal state’s inability to manage Afghanistan with its inability to manage a virus, but the comparison is just too perfect to resist. So I won’t resist.

Among the bads government produces is misinformation. One analogy between covid and Afghanistan is the phenomenon known as the fog of war: the uncertainty in situational awareness experienced by participants in military operations.

Paraphrasing Carl von Clausewitz: war is the realm of uncertainty; the factors on which action in war is based are wrapped in a fog of uncertainty. Fog and friction cloud the commander’s judgment—even where the commander wholly shares our interests, which is hardly a given with covid. When we declared war on a virus, clarity went out the window. And so we’ve lived with sixteen months of fog, of covid misinformation. This happens in tandem with the media, which parrot official pronouncements from sources like the deeply compromised Fauci and stir up alarmism at every turn.

And we’re still living with it. Consider we still don’t have definitive answers to these simple questions:

Do masks really work?
Do kids really need masks? As an aside, our great friend Richard Rider reports that San Diego County—population 3.3 million—shut down its public schools for a year with one student death!
Is there asymptomatic spread?
Does the virus live on surfaces?
How long does immunity last after having covid?
How many vaccines will someone need to be “fully” vaccinated? How many boosters? Annual?
Aren’t delta and other variants simply the predictable evolution of any virus?
How do we define a “case” or infection if someone shows no symptoms and feels fine?
Can covid really be eradicated like polio? If so, why haven’t we eradicated flu by now?

And so on. We never get clear answers, but only fog.

But perhaps the most shocking thing about sixteen months is our childlike inability to consider tradeoffs! I’m not only talking about the tremendous economic consequence of shutting down businesses, and the horrific financial damage it has done and will do to millions of Americans. I’m not only talking about the depression, isolation from friends and loved ones, alcoholism, untreated illness, suicide, weight gain and obesity, stunted child development, and all the rest.

I’m talking about understanding the basic economic tradeoffs of covid policy: supply chain, food, energy, housing, unemployment. This is bread and butter economics.

I can’t stress this enough: millions of Americans have no conception of economics, and simply don’t believe tradeoffs exist. They think, are encouraged by the political class to think, that government can simply print money in the form of stimulus bills and pay people enhanced unemployment benefits to stay home. That the CDC [Centers for Disease Control and Prevention], of all cockamamie federal agencies, can simply impose a rent moratorium and effectively vitiate millions of local contracts—it will just work itself out somehow. That Congress can simply issue forgivable PPP [Paycheck Protection Program] loans to closed or hobbled businesses so they can magically make payroll. That the Federal Reserve can simply buy up assets from commercial banks, lend them limitless funds, and command lower interest rates to stimulate housing and consumerism.

Millions of Americans, through sheer ignorance of economics, literally think these actions are costless and wholly beneficial—without downside.

And now we wonder why the economy can’t just flip a switch and get back to normal. But that’s not how an incredibly complex global supply chain, with just-in-time delivery, works. And that’s why thousands of Ford F-150s are sitting unsold, and unsellable, in huge parking lots—there is a global semiconductor chips shortage. Many of them come from a single company in Taiwan. By the way, semiconductor chips are used in everything from iPhones to Xbox consoles to Surface laptops to refrigerators.

There was a remarkable op-ed at CNBC recently about the supply chain interruptions. It gets the cause of inflation wrong, blaming it on the pandemic rather than central banks, but it paints a vivid picture of the serious problems facing a radically overstressed global manufacturing sector. Delays in delivery are said to be the longest in decades. And inflation plus delays is bad news, because it’s so hard for buyers and sellers at all stages of production to know what to charge and what to pay for either capital goods or consumption goods. How many construction projects, for example were blindsided by the five-time rise in lumber prices last year? Ports are clogged awaiting trucks—not enough drivers—so containers sit for weeks rather than days. Empty containers have become scarce. Rail schedules are affected by the ports like dominos, and freight prices are spiking. Will West Coast longshoremen strike in 2022 when their contract is up? Will new emissions regulations which slow ships kill more capacity? Will key Chinese factories shut down again due to delta?

None of it is pretty and may last into 2023. So buy your Christmas presents now!

We are starting to see the unseen, but economists, whose job it is to show us the tradeoffs, have been largely AWOL over the past year and a half. Consider this recent post by a famous libertarian free market economist:

US GDP is now higher, in fact a fair bit higher, than when the pandemic began.
US labor force participation is about 1.5% lower than when the pandemic began.
Was there really slack to the tune of a few million people in Jan of 2020?
Has inflation really changed enough to make the GDP numbers misleading?
Has total factor productivity improved that much in that time, under those stresses? (i.e. more output from less input, labor & capital).

Or is this all a sign that the structure of the economy is more stratified than we think—that there are millions of people in more-or-less filler jobs who can be cast out and the economy just keeps on running along? Yes, there are all sorts of reports of labor shortages, and all manner of supply chain hiccups which seem to often be associated with off shoring, but general activity is still high. (Or is it? Are the numbers reporting “vapor GDP?”—or are the inflation adjustments really out of whack so real GDP is not what we think it is?)

This is clever masquerading as smart, and it’s the sort of thing which makes people dislike economists. It’s homo economicus nonsense. This kind of navel-gazing—wondering aloud, as though we could shut down the world for a year, send everybody home, suspend rent payments, and not suffer tradeoffs—makes me think economics as a profession is not doing the world any good. People desperately need productive activity for their basic health and happiness, even if that activity doesn’t much add to the national economy.

A friend who runs a large chain of retail stores across several states sent me this in response.

It’s amazing how [BLANKED]-up this person is. An economy is a way to get stuff. Is there much stuff, or less stuff, than when this all began? More cars or less? More computers and personal digital devices or less? More food or less? More oil or less? Greater business to business supply chain or less?

But because this [BLANK] thinks the economy is a symbolic architecture, not a real thing for getting real stuff, he’s absolutely flummoxed by a simple question. Go outside, moron. Step away from the keyboard and the spreadsheet.

I thought he was spot on. Economics is the study of choice in the face of scarcity, of how we get the goods and services we want in an environment of tradeoffs and uncertainty. Nothing could be more disastrous to that environment than vague, open-ended government lockdown measures. We don’t need to move numbers around until they please us as some kind of substitute gnostic knowledge. We shut down the world over a virus, restarting it will be difficult, and the economic damage will be enormous and long lasting. Economists should be showing us the unseen damage, not cheering the juiced-up data.

My point here is to suggest the economics of our present situation are worse than advertised, and that economics is about that holds us together. What we think of as America is mostly an economic arrangement, not a social or cultural one—and certainly not a political arrangement. America is hardly a country anymore, and I take no pleasure in saying that. What happens when the economics unravel?

The Great Unraveling

But there is a happy upside to all of this. A silver lining, perhaps.

Over eighteen months we’ve learned that all crises are local. For eighteen months it has mattered very much whether you live in Florida or New York, whether you live in Sweden or Australia. And the physical analog world reasserted itself with a vengeance: no matter where you are, no matter how rich you may be, you must exist in corporeal reality. You need housing, food, clean water, energy, and medical care in the most physical sense. You need last-mile delivery, no matter what is happening in the broader world. Your local situation suddenly mattered quite a bit in 2020. It was the year localism reasserted itself.

Whether your local reality was dysfunctional or did not matter quite a bit in the terrible covid year. And people are waking up to the simple reality of this dysfunction. We know the federal government can’t manage covid. It can’t manage Afghanistan. It can’t manage debt, or the dollar or spending, or entitlements. It can’t even run federal elections, for God’s sake much, less provide security, or justice, or social cohesion.

So how can it manage a country of 330 million people? How can it manage fifty states?

Whether we want to call it the Great Awakening or the Great Realignment, something profound is happening. Imagine if the twenty-first century reverses the dominant trend of the nineteenth and twentieth, namely the centralization of political power in national and even supranational governments? What if we are about to embark on an experiment in localism and regionalism, simply due to the sheer inability of modern national governments to manage day-to-day reality?

A kind of centrifugal force is at work. Here in the US, people are self-segregating—both ideologically and geographically—in what we should think of as a kind of soft secession. A recent survey by United Van Lines confirms what we already knew: people are fleeing California, New York, New Jersey, and Illinois for Texas, Idaho, Florida, and Tennessee. This is simple flight from the dysfunction of big cities and unworkable progressive policies, laid bare by the analog lessons of covid.

We should cheer this. If just 10 percent of Americans hold reasonable views on politics, economics, and culture they would constitute 33 million people—we could coalesce as a significant political force! And this nation within a nation would be larger and more economically powerful than many European countries.

Furthermore, we are witnessing a tremendous shift in political power away from cities toward exurbs and rural areas. There really is nothing like it in US history. America started in colonies and villages, before moving westward to farms and ranches. When factories began to replace farms as major employers, Americans moved to the old Rust Belt cities like Chicago and Pittsburgh and Detroit. When tech and finance began to overshadow manufacturing, Americans moved to Manhattan and Seattle and Silicon Valley for the best jobs. But that revolution in finance and tech means capital is more mobile than ever, and covid accelerated our ability to work from home. All of this could have huge beneficial effects for smaller cities and rural areas, which in turn could have profound effects for the congressional map and electoral college. If the angry school board meetings over masks are any indication, politics already has become more localized.

Covid policies ruined cities, at least for awhile, and the Great Unraveling will reduce the political and economic power of those cities. 

So a once-in-a-generation opportunity is before us. The federal government is far and away the biggest, most powerful institution in America, but as previous speakers mentioned, faith in institutions is crumbling. And it should crumble. Washington, DC, has been the centerpiece around which we organize society for a hundred years now, and that’s a profoundly evil reality. So we should cheer when Americans lose faith in it due to Trump or covid or Afghanistan or public opinion polls which show a deeply divided and skeptical country. There is a growing sense that DC is over, it’s done, and it’s time to turn our backs on it. We are losing our state religion.

Contra our political elites, covid and the disastrous reaction by governments may end up reducing their power and standing in society.

This article is excerpted from a talk delivered at the Ron Paul Institute conference on September 4, 2021

  • 1. Don’t let this happen! Read Mr. Berenson here

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Contact Jeff Deist

Jeff Deist is president of the Mises Institute. He previously worked as chief of staff to Congressman Ron Paul, and as an attorney for private equity clients. Contact: email; Twitter.

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Are We at the Inception of an Inflationary Depression? – International Man

Posted by M. C. on June 28, 2021

It is an acknowledged fact within the circle of Austrian Economists that the Central Banks have to continuously rely on and actively indulge in the propaganda of Voodoo Economics to hide the extreme imbalances that they have created in the world economy.

https://internationalman.com/articles/are-we-at-the-inception-of-an-inflationary-depression/

by Shanmuganathan Nagasundaram

It is an acknowledged fact within the circle of Austrian Economists that the Central Banks have to continuously rely on and actively indulge in the propaganda of Voodoo Economics to hide the extreme imbalances that they have created in the world economy.

What lies in the decade ahead for much of the Western economies and most parts of the world is a prolonged period of high inflation combined with an economic depression. I should add that if one were to account for inflation correctly, even today, we are probably in stagflation (inflation + recession) already in most parts of the world.  But the sleight of hand of Central Banks in the way they underreport consumer price inflation (CPI) will allow them to hide the reality for a few more months. If we draw a comparison between the stagflationary seventies (1970’s in which gold went from $35 to $850/oz, Oil from $3 to $40/barrel, etc.) and what lies ahead. In that, it’s a given that inflation is going to be substantially higher than what we had in the 1970s and the economic recessions much deeper.

Before I proceed further, it would be useful to clarify the term “Depression” used above. Most Economists confound Depression with Deflation. These are two different economic phenomenon – the former refers to the condition of GDP growth, and the latter refers to a monetary phenomenon. Depression denotes a prolonged period of rapid economic declines and a steep fall in the living standards of most people. It relates primarily to negative GDP growth by a substantial degree over at least a few years. On the other hand, deflation is a monetary phenomenon that refers to a condition of falling prices of consumer goods.

Depressions can be either deflationary or inflationary – in fact, more often than not, most depressions are inflationary. The 1930’s “The Great Depression” was deflationary, and the one we are living in the early stages of is going to be inflationary.

Does deflation lead to Depressions?

Most Economists think that deflation caused the 1930’s Great Depression, and this is a myth that the US Fed has entirely propagated. As Murray Rothbard explains in his book “America’s Great Depression,” Deflation (or falling prices) made the depression a lot more tolerable than would otherwise have been the case. The entire century before the formation of the US Fed (from 1815 to 1914), when the US was on the classical gold standard, was deflationary. This was the period in which the US economy transitioned from a primitive agrarian society to the world’s leading economic powerhouse with an estimated CAGR of more than 4% (with real growth being even higher due to falling prices) for a century.

If deflations result in a depression, the US ought to have been a basket-case with a century of deflation leading up to 1914. Ironically, with more than a century of inflation since then, courtesy, the US Fed, the US Economy is indeed a basket-case today, and the unraveling of the currency and the economy when it happens in the years ahead will be swift and decisive.

Now that a fundamental but important distinction has been made, we can expand on the theme of the Inflationary Depression ahead.

So how did we reach this precipice…?

Well, for the world to have reached such a precarious situation as I have painted above, the problems have to be deep-rooted, fundamental, and long-standing. That is the case, and as Mises said during 1951, the origins can predictably be traced to the Central Banks.

“There is nowadays a very reprehensible, even dangerous, semantic confusion that makes it extremely difficult for the non-expert to grasp the true state of affairs. Inflation, as this term was always used everywhere and especially in this country [the United States], means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation: the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. It follows that nobody cares about inflation in the traditional sense of the term. As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are, in fact, only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil.”

What Mises rued above is commonly referred to as “Inflation is too much money chasing too few goods.” Or, as Milton Friedman said, “Inflation is and everywhere a Monetary Phenomenon.” What Mises spoke of in 1951 today is ubiquitous. It would be almost impossible to spot a single economic commentator (other than the handful of Austrian Economists) who would distinguish the cause from the effects when talking about inflation. To add insult to injury, most mainstream economic commentators believe that consumer price inflation is caused by growth and that “some” inflation is indeed good/desirable / required for economic progress.

The above US Fed propaganda of the witchcraft Keynesian economics has indeed been extraordinarily successful – so much so that after a century, even they seem to believe in it themselves. The last US Fed Chairman who understood the distinction between propaganda and the truth was Alan Greenspan. His essay “Gold and Economic Freedom” remains one of the best expositions written to date on this topic. The subsequent ones have been thoroughbred Keynesians, who pretty much subscribe to the above ridiculous notion as gospel truth.

So under the garb of promoting economic growth, we have just allowed the central banks around the world to print money with impunity. This has long been the case since 1971 when the last vestiges to Gold and Currency were removed. After Richard Nixon closed the Gold Window “temporarily” in 1971, the Central Banks have had little reason to restraint themselves. But they have indeed gone berserk after 2008, and even more so in the last year or two. Each transgression makes the erstwhile felony look like a misdemeanor.

Where has all the inflation, since 2008 – Gone?

See the rest here

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How The Nation’s Central Bank Is Covertly ‘Nudging’ Americans To Accept Digital Money & The Great Reset – LewRockwell

Posted by M. C. on April 2, 2021

https://www.lewrockwell.com/2021/04/no_author/how-the-nations-central-bank-is-covertly-nudging-americans-to-accept-digital-money-the-great-reset/

By Bill Sardi

Ever heard of the Cantillon Effect?  Neither had I.

It is what is happening right now in America, and it reveals that the primary objective of the nation’s exclusive distributor of money, the Federal Reserve Bank, is to boost the value of wealthy people’s incomes at the expense of the poor, which is why the rich get richer and the poor get poorer in America today.

First, a reader needs some backgrounding before wading through all the financial gibberish found online.

See the rest here

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EconomicPolicyJournal.com: How the Government Will Shutdown Bitcoin

Posted by M. C. on March 7, 2021

It is a rigged game in favor of the insiders and you are not one of them. There is no way that the Fed is going to want to compete with bitcoin and other cryptocurrencies when the Fed is ready to introduce a Fedcoin.

I don’t doubt the Treasury and Fed are polling right now to test and see what story the public finds as the most acceptable justification for shutting down cryptocurrencies.

https://www.economicpolicyjournal.com/2021/03/how-government-will-shutdown-bitcoin.html

As a follow up to my post, Harvard Professor Warns Central Banks Will Never Allow Bitcoin to Go Mainstream, David Brown emails:

It would be helpful to understand the details when you say “The hammer is there whenever they want to use it”. The bitcoiners will say BTC is uncontrollable. My sense is, the devil is in the details. I have yet to hear a clear discussion of the “plumbing” of how they will clamp down, and the bitcoiners’ counter-arguments. It would be very enlightening.

RW response: 

Well, bitcoiners would like you to focus on the “plumbing.” 

They have all kinds of fancy arguments of this kind and that. 

From another commenter at the post who talked about the plumbing:

Point being is that the selling point for bitcoin is that its payments are completely uncensorable as a result of the CPU cycles. Nothing and no one can stop you from sending a payment over the bitcoin network to whomever you want to.

Second level solutions can be built on top of bitcoin so you can buy your coffee, but having an unchangeable; indisputable, uncensorable way to send value is extremely valuable, even if you never buy coffee with it.

But shutting down bitcoin, in a way, is simple so you could never be able to buy coffee with it. It doesn’t matter what the plumbing is. Here is the law that could be enacted:

“The government hereby makes it illegal to conduct transactions in bitcoin.”

This instantly eliminates the ability for bitcoin to be used in retail transactions or in banking—or for an individual to be paid wages in bitcoin. If there are severe penalties, and there would be, what retailer or bank or cafe or other business is going to accept bitcoin in a transaction?

As for the uncensorable element, again we are talking about plumbing that has nothing to do with human exchanges.

Making bitcoin illegal would push bitcoin into the shadows, uncensorable or not. What are you going to do with bitcoin if it is in the shadows? Being a bitcoin dealer would be an extremely high-risk business. Transaction costs would soar. Indeed because of the nature of bitcoin transactions, the risk on any given exchange being exposed would be a lifetime proposition.

Bitcoiners focused on the “plumbing” fail to look at the situation from the non-plumbing transaction part of the exchange.

I hasten to add that as a first step, I don’t expect the government to shutdown bitcoin or other cryptocurrency trading right away. The first step will be more regulations to identify bitcoin holders.

In a discussion I had just yesterday on another topic with some Silicon Valley people, we talked for a bit about bitcoin. Our thinking went this way:

There is a massive amount of money to be made in shutting down bitcoin.

If you short it before the shutdown, you could make a lifetime-size amount of money that puts you on easy street if you are leveraged. 

When the major league insiders are ready, this is what will happen.

Right now the more buying of bitcoin, the better for them. The more liquid the market, the more bitcoin can be shorted when the time is right. And the time will eventually come. 

It is a rigged game in favor of the insiders and you are not one of them. There is no way that the Fed is going to want to compete with bitcoin and other cryptocurrencies when the Fed is ready to introduce a Fedcoin.

I don’t doubt the Treasury and Fed are polling right now to test and see what story the public finds as the most acceptable justification for shutting down cryptocurrencies.

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Prepare for Negative Interest Rates | The Libertarian Institute

Posted by M. C. on February 22, 2021

Inflation and growth are not low due to excess savings, but because of excess debt, which perpetuates overcapacity with low rates and high liquidity and zombifies the economy by subsidizing the low-productivity and highly indebted sectors and penalizing high productivity with rising and confiscatory taxation.

https://libertarianinstitute.org/articles/prepare-for-negative-interest-rates/

by Daniel Lacalle

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists, who all start from a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea.

Inflation and growth are not low due to excess savings, but because of excess debt, which perpetuates overcapacity with low rates and high liquidity and zombifies the economy by subsidizing the low-productivity and highly indebted sectors and penalizing high productivity with rising and confiscatory taxation.

Historical evidence of negative rates shows that they do not help reduce debt, they incentivize it. They do not strengthen the credit capacity of families: the prices of nonreplicable assets (real estate, etc.) skyrocket because of monetary excess and because the lower cost of debt does not compensate for the greater risk.

Investment and credit growth are not subdued because economic agents are ignorant or saving too much, but because they don’t have amnesia. Families and businesses are more cautious in their investment and spending decisions, because they perceive, correctly, that the reality of the economy they see each day does not correspond to the cost and the quantity of money.

It is completely incorrect to think that families and businesses are not investing or spending. They are only spending less than what central planners would want. However, that is not a mistake from the private sector side, but a typical case of central planners’ misguided estimates, which come from using 2001–07 as “base case” of investment and credit demand instead of what those years really were: a bubble.

The argument of the central planners is based on an inconsistency: that rates are negative because markets demand them, not because they are imposed by the central bank. If that is the case and the result would be the same, why don’t they let rates float freely? Because it is false.

Think for a moment what type of investment, company, or financial decision is profitable with rates at –0.5 percent but unviable with rates at 1 percent. A time bomb. It is no surprise that investment in bubble-prone sectors is rising with negative rates and that nonreplicable and financial assets are skyrocketing.

Instead of strengthening economies, negative rates make governments more dependent on cheap debt. Public debt trades at artificially low yields, and politicians abandon any reformist impulse, preferring to accumulate more debt.

The financial repression of central banks begins with a misdiagnosis assuming that low growth and below-target inflation is a problem of demand, not of the previous excess, and ends up perpetuating the bubbles that it sought to solve.

The policy of negative types can only be defended by people who have never invested or created a job, because no one who has worked in the real economy can believe that financial repression will lead economic agents to take much more credit and strengthen the economy.

Negative rates are a huge transfer of wealth from savers and real wages to the government and the indebted. A tax on caution. The destruction of the perception of risk that always benefits the most reckless. It is a bailout of the inefficient.

Central banks ignore the effects of demography, technology, and competition on inflation and growth of consumption, credit, and investment, and with the wrong policies generate new bubbles that become more dangerous than the previous ones. The next bubble will again increase countries’ fiscal imbalances. Even worse, when central banks present themselves as the agents that will reverse the effect of technology and demographics, they create a greater risk and bubble.

When this happens, it becomes necessary for to protect one’s savings with gold, silver, inflation-linked instruments, and stocks in sectors that do not suffer from negative rates.

This article was originally featured at the Ludwig von Mises Institute

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