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Posts Tagged ‘Janet yellen’

IRS Seeks To Hire Agents With Guns In All 50 States

Posted by M. C. on April 29, 2023

Treasury Secretary Janet Yellen has vowed that the new resources will not be utilized to increase audit rates for households earning less than $400,000 per year “relative to historical levels.” She failed to clarify that “historical levels” of enforcement were far higher as recently as one decade ago: audit rates for Americans earning between $25,000 and $200,000 decreased 76% between 2010 and 2019, according to data from the Government Accountability Office.

https://www.dailywire.com/news/irs-seeks-to-hire-agents-with-guns-in-all-50-states

By  Ben Zeisloft

Onfokus via Getty Images

The IRS is attempting to hire individuals qualified to wield firearms for the tax collection agency’s Criminal Unit as enforcement activities are expected to increase amid a recent funding windfall.

Candidates for the special agent position, which is the only job at the IRS where employees are permitted to carry guns, will be expected to combine their “accounting skills with law enforcement skills to investigate financial crimes,” according to a posting on the IRS website. Individuals interested in the job must be “legally allowed to carry a firearm” and “maintain a level of fitness necessary to effectively respond to life-threatening situations on the job.”

Those who work for the Criminal Unit must also be able to “use firearms in life-threatening situations” to the point of “deadly force.” There are roughly 360 vacancies for the position in some 250 locations across the United States, according to the job application link, which said that salaries for the position range between $53,900 and $94,200.

The job posting from the IRS occurs as the agency works to double its headcount over the next decade as a result of the $80 billion windfall allocated through the Inflation Reduction Act. The IRS will hire for the position, in which staff members must work at least 50 hours each week and be available at all hours of the day, through the end of the year.

Biden administration officials have claimed over the past several months that the increased funds will enable IRS staff to more easily assist individuals and businesses attempting to properly file their taxes. The Treasury Inspector General for Tax Administration nevertheless revealed in a report that the agency’s budget for enforcement activities will increase 69% over the next decade while the budget for taxpayer services will increase 9%.

House Republicans successfully voted at the outset of the new Congress to nix the $80 billion allocation, although the repeal is unlikely to pass in the evenly divided Senate and would almost certainly be vetoed by President Joe Biden.

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Dailywire Article-Yellen Walks Back Implicit Support For Large Bank Account Holders, Prompts Investor Unease

Posted by M. C. on March 24, 2023

Big account holders know the limits. They assume a govt bail out if required. They also know banks must only hold 10% or less of deposits in reserve. Taxpayers take the hit per usual.

So what will old Yellen say next week? The fact that she was Fed chairman a few years ago tells US something about government banking. I don’t think anyone outside of Washington would hire her as their financial advisor.

https://www.dailywire.com/news/yellen-walks-back-implicit-support-for-large-bank-account-holders-prompts-investor-unease

By  Ben Zeisloft

Win McNamee via Getty Images

Treasury Secretary Janet Yellen prompted unease among investors after she appeared to walk back comments indicating that financial authorities would guarantee large bank deposits.

The recent collapse of Silicon Valley Bank, where the vast majority of accounts exceeded the $250,000 threshold guaranteed by the Federal Deposit Insurance Corporation, prompted the government-backed company to secure all accounts in order to prevent additional bank runs. Some investors have called for deposit insurance for all account holders across the financial system with balances above $250,000 until the crisis subsides.

Yellen vowed in remarks to the American Bankers Association on Tuesday that interventions similar to the one that protected Silicon Valley Bank account holders “could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” a comment that market actors interpreted as an implicit guarantee of all deposits. The senior Biden administration economist told the Senate Appropriations Committee on Wednesday, however, that she has “not considered or discussed anything” related to “blanket insurance or guarantees of all deposits.”

Markets slid on Wednesday afternoon as a result of the comments; officials at the Federal Reserve also announced an expected quarter-point target interest rate hike on Wednesday.

Pershing Square Capital Management CEO Bill Ackman had said that the earlier comments from Yellen “definitely help and hopefully mitigate the need for a temporary deposit guarantee.” He later added that the statement declaring that “systemwide deposit guarantees were not being considered” had the opposite effect.

“A temporary systemwide deposit guarantee is needed to stop the bleeding,” he contended. “The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back.”

Ackman noted that the rise in target interest rates to 5% renders bank deposits less attractive to savers and will prompt them to lend their money so they can benefit from the higher returns. “I would be surprised if deposit outflows don’t accelerate effective immediately,” he remarked.

Silicon Valley Bank fulfilled withdrawals by selling a long-term bond portfolio that had declined substantially in value amid Federal Reserve actions to hike interest rates. Assets in the banking system are now $2 trillion lower than their book value as a result of the rollback in monetary stimulus, which had been maintained to stimulate the economy during the lockdown-induced recession, according to a study from analysts at the National Bureau of Economic Research.

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To Save Time, Treasury Secretary Yellen Gives Zelensky Key To U.S. Treasury

Posted by M. C. on March 5, 2023

Not so funny, Old Yellen may do it.

https://babylonbee.com/news/to-save-time-treasury-secretary-yellen-gives-zelensky-key-to-us-treasury

U.S.·Feb 28, 2023 · BabylonBee.com

Article Image

U.S. — To avoid any future delays in sending billions of taxpayer dollars and deadly weapons to Ukraine, Treasury Secretary Janet Yellen has decided to make things easier and give President Zelensky the key to the U.S. Treasury.

“It’s simpler this way. Now Mr. Zelensky can let himself in whenever he wants, and help himself to whatever he needs!” said Yellen. “As a government official, I want to help the government be as efficient as possible. This removes all those unnecessary steps that come between Ukraine wanting money and then getting it! I’m a genius!”

“Zelensky, dear, you just take whatever you need, sweetie!”

Sources say Zelensky has already let himself in the massive, highly secure vault 3 times today, helping himself to wheelbarrows full of coins, gold bullion, and Ashley Biden’s diary. “We thank the American government for the lovely gift of their citizens’ money,” he said. “We promise to put this to good use by killing many Russians and buying lots of cocaine. God bless America!”

At publishing time, Zelensky had already made a return trip after blowing all the cash from his first three trips.

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How Governments Expropriate Wealth with Inflation and Taxes

Posted by M. C. on June 28, 2022

Government does not give excess reserves as social programs. Government takes away from existing and future wealth of the economy via currency printing, taxation, spending and debt, but math never works for those who believe extractive and confiscatory policies will work. 

RE: The Janet Yellen reference below. The WSJ used to treat her every utterance as wisdom from God. A trip to the comments section revealed the readers weren’t fooled.

https://mises.org/wire/how-governments-expropriate-wealth-inflation-and-taxes

Daniel Lacalle

In an interview with the Wall Street Journal, Treasury secretary Janet Yellen admitted that the chain of stimulus plans implemented by the US administration helped create the problem of inflation. “Inflation is a matter of demand and supply, and the spending that was undertaken in the American Rescue Plan did feed demand,” Yellen admitted. Of course, Yellen went on to say that the spending was appropriate due to the collapse of the economy as governments were trying to prevent a recession.

This reminds us of a few of the problems of disproportionate government intervention and the negative impact on the middle class. The misguided massive lockdowns were imposed by the government. Countries that had strict testing, like South Korea and other Asian and European countries, kept the economy working and the pandemic under control. However, the problem is larger and deeper. Central banks and governments have exhausted all demand-side policies at the expense of the middle class by eroding real wages and deposit savings.

Even worse, governments created a larger inflationary spiral by maintaining all “pandemic relief” packages even after the reopening, well beyond the recovery. They expected a spectacular aggregate demand increase and they got it. Now the result is higher inflation and lower economic growth. But government size and deficit spending remain.

Everything that government spends is paid by you. There is no free money. Even for the recipients of benefits in constantly depreciated currency. Inflation, the tax on the poor.

Governments do not avoid recessions through spending, they simply make the accumulated problems larger by constantly adding debt that central banks monetize via quantitative easing. This uncontrolled increase in M3 money supply (a broad money proxy) leads to asset inflation first and everyday goods price inflation afterwards. Both consequences lead to inequality and a constant deterioration of the purchasing power of the currency, making salaries in real terms lower.

Central-planned money creation is never neutral. It disproportionately benefits the first recipients of money, government and those with assets and debt, and negatively impacts those with a monetary salary and some savings in cash deposits, which dissolve over time. No socialist excel spreadsheet can erase the fact that massive deficit spending financed with newly created money destroys the poor and the middle class. They may say that government spending goes to social programs that benefit the poor, but that does not happen. Social programs in a constantly devalued currency become irrelevant, inefficient, and worthless while at the same time the wrongly named welfare state condemns a substantial proportion of the population to being hostage clients of government plans.

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The Unborns’ Dying Wish: The Abortion of the Fed

Posted by M. C. on May 19, 2022

Yellen’s inability and unwillingness to articulate the Fed’s role in creating lowered purchasing power among the poor is maddening but not surprising. Porter’s comments beg the question: If inflation goes to zero, then does the need for abortions among the poor go away as well?”

https://mises.org/wire/unborns-dying-wish-abortion-fed

In a moment that would have made the progressive eugenicist Margaret Sanger proud, former Fed chair Janet Yellen extoled the virtues of high abortion rates among poor women, as they allow them to have higher labor force participation rates. Paraphrasing Sanger, who is the intellectual founder of the modern abortion industry, Yellen’s argument was plain: it is cruel for parents to bring children into a state of poverty; therefore, it is humane to incentivize abortion among the poor.

California representative and chair of the Progressive Caucus of the Democratic Party Katie Porter expressed a similar sentiment before a CNBC audience, remarking that “things like inflation can happen” as a justification for the Democrats’ now failed attempt to enshrine unfettered abortion access in federal law.

Yellen’s inability and unwillingness to articulate the Fed’s role in creating lowered purchasing power among the poor is maddening but not surprising. Porter’s comments beg the question: If inflation goes to zero, then does the need for abortions among the poor go away as well?”

While no reasonable person should hold their breath for an answer from either of these politicians, their comments unwittingly reveal an important causal link in human action. That is, in a modern, wealthy society, the households that are harmed by lost purchasing power from money supply expansion are less likely to bring children into the world, all things held equal. 

The qualification of “modern wealthy society” leans on Gary Becker and Robert Barro’s contention that real net costs in raising children reduce total fertility in families. While all human action is based on individual subjective valuations it’s safe to say that an ongoing loss of real income and wealth can be among the data points that people use to derive their preferences. As the interventions of the Fed alter the structure of prices, income, and wealth it is certainly plausible that these changes can impact fertility choices. With that said, one could simply think about the reality that the poor in the US are among those harmed by money supply expansion as articulated by Richard Cantillon. The increasing lack of purchasing power over time, creates the tendency for these households to have fewer children than they otherwise would have. This results because each childbirth represents a net loss in real wealth. The reasons for this outcome in a developed economy are quite simple. In most wealthy nations, child labor and panhandling are unnecessary because those nations have enriched themselves via the international division of labor. This has also had the welcome effect of eliminating a household’s perceived need to supply children to traffickers, which sadly remains a scourge of the developing world.

What Becker and Barro fail to account for is that wealthy and poor nations alike may also allow fiat central banking. What this omission fails to capture is the reality of a harmed class who lose purchasing power over time under inflationary regimes. It is just such households that Yellen and Porter have described as having a need for abortion access due to their financial distress.

The destruction of human life (or potential life, for some) resulting from central banking is implied by Jörg Guido Hülsmann’s attack on fiat currency. His observation is that such regimes are socially destructive and that they tend to increase the financial fragility of households. This fragility can be particularly crushing among the poorer classes, as fiat inflation is deemed to be a “juggernaut of social, economic, cultural, and spiritual destruction.” It turns out that part of this social destruction may very well include the negation of the society shared between mother, father, and yet-to-be-seen (or, as some might say, unseen) child. 

Even if one gives the pro-choice/proabortion faction the full benefit of the doubt by conceding that they don’t want ANY abortions to occur and would prefer that the only pregnancies were wanted pregnancies, thus eliminating the need for abortion, the logic that connects inflationism to abortionism still stands. It could be additionally reasoned that inflationism represents a boon to the contraception industry as a whole. While such a connection might seem trivial, recent observations from Saifedean Ammous noted how inflation is a means to lower the cost of reckless behavior in financial markets. I’m simply suggesting that inflationism might generate moral hazard in sexual behavior as well.

If Yellen and Porter’s shared goal is to continue to boost female labor force participation and engage women in what Josef Pieper called “proletarianization,” where “total work” is the norm, then the inflation-abortion connection is certainly an effective means to achieve it. Yellen further justified this reasoning to Senator Bob Menendez by contending that increased—and presumably federally funded—access to abortion generates better educational and economic outcomes for those children conceived later in a woman’s life. Such irony could only be lost on the most ardent abortionist. 

Setting aside the existing moral arguments for or against abortion, an understanding of the connection between money supply increases and the heightened likelihood of abortions among the poor may contribute to the Austro-libertarian discussion on the question of the morality of abortion. If it is indeed the case that an increased likelihood of abortion among the poor is one of the myriad social consequences of the Fed’s currency debasement, then the would-be-born could also rejoice at the central bank’s abortion.

Author:

Contact Jeffrey L. Degner

Jeffery L. Degner is an Assistant Professor of Economics at Cornerstone University and a former Mises Summer Research Fellow. He holds Bachelor’s degrees in Economics and History from Western Michigan University where he also earned an M.A. in Applied Economics. He is currently a Ph.D. candidate at the University of Angers under the direction of Dr. Jorg Guido Hülsmann.

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Price Inflation Hit a New 40-Year High in February. No, It’s Not “Putin’s Fault.”

Posted by M. C. on March 12, 2022

In early 2020, the economic was weakening after more than a decade of remarkably slow economic growth and rising reliance on monetary expansion to prevent the implosion of Fed-created economic bubbles. But then covid happened, and the Fed blamed the disease for the economic collapse and inflation that followed. Now the war will provide yet another way for the Fed and its economists to claim they were doing a great job, and it would have all been a great success if not for the Russians.

https://mises.org/wire/price-inflation-hit-new-40-year-high-february-no-its-not-putins-fault

Ryan McMaken

According to new data released by the Bureau of Labor Statistics, price inflation in February rose to the highest level recorded in more than forty years. According to the Consumer Price Index for February, year-over-year price inflation rose to 7.9 percent. It hasn’t been that high since January 1982, when the growth rate was at 8.3 percent.

February’s increase was up from January’s year-over-year increase of 7.5 percent. And it was well up from February 2021’s year-over-year increase of 1.7 percent.

A clear inflationary trend began in April 2021 when CPI growth hit the highest rate since 2008. Since then, CPI inflation has accelerated with year-over-year growth nearly doubling over the past 11 months from 4.2 percent to 7.9 percent.

feb

For most of 2021, however, Federal reserve economists and their PhD-wielding allies in academia and the media insisted it was “transitory” and would soon dissipate. By late 2021, however, economists began to admit they were “surprised” and had no explanation for the inflation. (What one actually learns while obtaining a PhD in economics apparently has nothing to do with understanding money or prices.) Jerome Powell then declared that the Fed would prevent inflation from becoming “entrenched.”

Now, high level economists have changed their tune again with Janet Yellen admitting this week that “We’re likely to see another year in which 12-month inflation numbers remain very uncomfortably high.” Yellen had earlier predicted that CPI inflation would drop to around 3 percent, year over year, by the end of 2022.

Yellen was also careful to attempt political damage control by insinuating that price inflation is a result of uncertainty over the Russia-Ukraine war.

Never mind, of course, that the inflation surge began last year and that January’s CPI inflation rate was already near a 40-year high. The current crop of embargoes and bans on Russian oil imports implemented during March were not drivers of February’s continued inflation surge.

Few members of the public, however, will bother with these details, and this will benefit both the Fed and the administration. As far as the Fed is concerned, the important thing is to never, ever admit that price inflation is really being driven by more than a decade of galloping Fed-fueled monetary expansion (aka money printing). This was done largely at the behest of the White House and Congress to keep interest on the debt low and government spending high.

So, we can expect the administration to portray inflation as “Putin’s fault.” In a Friday speech to Democratic activists, Biden even claimed the high inflation rates are not due to “anything we did.” The tactic will no doubt work to convince many. But it’s unclear how many.

Workers Are Getting Poorer

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Price Inflation Hits a 31-Year High as Janet Yellen Insists It’s No Big Deal | Mises Wire

Posted by M. C. on November 11, 2021

Nonetheless, it is entirely possible that inflation rates could quickly turn downward again in coming months. That could occur if recession sets in with businesses and households unable to pay off their debts. If that happens, monetary deflation will set in and demand will decline, leading to a real drop in price inflation. Of course, that won’t exactly do wonders for real wages, either.

https://mises.org/wire/price-inflation-hits-31-year-high-janet-yellen-insists-its-no-big-deal

Ryan McMaken

The Bureau of Labor Statistics reported Wednesday morning that prices rose 6.2% on a year-over-year basis in October. That’s the highest YOY rate since December 1990 when the CPI was also up 6.2 percent.

October’s rate was up from 5.3 percent in September, and remains part of a surge in the index since February 2021 when year-over-year growth was still muted at 1.6 percent.

cpi

Not surprisingly, producer prices surged in October as well. The producer price index for commodities in October was up 22.2 percent, year over year, reaching a 48-year high. We must go back to November 1974 to find a higher PPI increase—at 23.4 percent.

Asset price inflation has naturally continued unabated at well, with the result being rising housing costs. In addition to the CPI’s 31-year high, home prices in the second quarter surged near to a 42-year high. According to the Federal Housing Finance Agency’s home price index, home price growth reached 11.9 percent in the second quarter of this year. Since 1979, only the second quarter of 2005—also with 11.9 percent growth—showed home-price growth as high.  

This is troubling information indeed, given that average real weekly earnings have turned negative this year, with inflation-adjusted earnings down 0.5 percent from September to October.  It is increasingly clear that wages are not keeping up with rising prices for a great many Americans.

None of this means policymakers will diagnose the problem properly, however. We should expect the discussion around inflation in Washington to keep missing the point and denying any connection to the central bank or to monetary inflation. 

For example, rising prices are so obvious now that not even the administration can ignore them anymore. Today, the White House released a statement in which President Biden admitted: “… today’s report shows an increase over last month. Inflation hurts Americans pocketbooks”

Yet the administration continues to be very much in denial about the causes of price inflation. The Biden statement continues:

I have directed my National Economic Council to pursue means to try to further reduce these costs, and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector.

As if “price gouging” were the cause of nationwide price inflation!

If it were “gouging,” we’d be seeing increases only in the areas where so-called gouging is taking place. Moreover, that would mean a decline in spending—and thus price deflation—in areas where the gouging isn’t taking place. The overall effect would be price stability.

Similarly, the administration has also tried to blame inflation on a lack of childcare.  In an incoherent series of non sequiturs, Secretary of Transportation Peter Buttigieg this week claimed that paid family leave is “part of [the administration’s] tool kit to fight inflation.” Buttigieg simultaneously claimed that paid family leave means more people can take time off from work, and yet this somehow will also translate into more people going back to work. While it’s true more workers could help temper—to some extent—upward pressure on prices, more paid family leave would contribute nothing to this “solution” to price inflation.  Rather, it’s apparent the memo went out at the administration that every policy must now be tied into some kind of plan to fight inflation—no matter how tenuous the connection.

Yet we should expect more of this sort of blind grasping at excuses for our economic malaise as time goes on. The same strategy was used by the Ford administration in the dark days of the mid1970s and the “Whip Inflation Now” campaign. The administration then claimed that the American public should fight inflation through strategies such as planting a vegetable garden at home.

Then, as now, the regime refused to admit that rising monetary inflation had anything to do with rising prices. Instead, we’re told it must be a lack of daycare services or “price gouging.”

A Second Strategy: Total Denial

But some in the administration are sticking to their narrative that there’s nothing at all to see here. Janet Yellen, for example, declared on Tuesday that “I’d expect price increases to level off, and we’ll go back to inflation that’s closer to the 2% that we consider normal.” She insists the Fed is very much in control of the situation and won’t allow 1970’s style inflation to occur. 

What Yellen fails to mention is that even if inflation rates of, say, four to six percent, last only a year, middle class workers won’t make up these losses later just because inflation falls again at some point to “to the 2% that we consider normal.” After all, this year’s declines in real average weekly wages means real hardship for many people, even if Janet Yellen will be just fine with her private driver shuttling her from her luxury home to opulent cocktail parties all the while.

But not everyone is as uninterested in the effects of inflation as Janet Yellen. As MSNBC reports:  

“For now, inflation is going to continue to run above very solid wage growth,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council during the Trump administration. “This is why when you look at consumer confidence, it’s really taking a beating. Households do not like the inflation story, and rightly so.”

For at least one MSNBC columnist, though, people don’t know how good they have it. On Monday, James Surowiecki insisted everyone is better off and discussion of inflation amounts to little more than fear mongering. He writes:

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Doug Casey on Insider Trading… Why Politicians Can Do it and You Can’t

Posted by M. C. on October 21, 2021

Doug Casey: As I said before, the only way you can end the practice is to get the government 100% out of the economy. Let me reemphasize this point. The government is supposed to have essentially zero to do with the economy. But today, it’s the main thing that government does.

https://internationalman.com/articles/doug-casey-on-insider-trading-why-politicians-can-do-it-and-you-cant/

by Doug Casey

International Man: What exactly is insider trading? Is it inherently unethical?

Doug Casey: The term insider trading is nebulous and as open to arbitrary interpretation as the Internal Revenue Code. A brief definition is to “to trade on material, non-public information.” That sounds simple enough, but in its broadest sense, it means you are a potential criminal for attempting to profit from researching a company beyond its public statements.

Is the use of insider information ethical? The government says, “No!” I say, “Absolutely, whenever the data is honestly gained, and no confidence is betrayed by disclosing or using it.” The whole concept of inside information is a floating abstraction, a witch hunter’s dream, and a bonanza for government lawyers looking to take scalps.

When the SEC prosecutes someone, it can cost millions of dollars in legal fees to defend against them. And as with most regulatory law, concepts of ethics, justice, and property rights never even enter the equation. Instead, it’s a question of arbitrary legalities.

Whether someone is prosecuted of insider trading is largely a question of who he is. A maverick researcher and a powerful government official will tend to get very different treatments. It’s also a question of the psychology and motives of the prosecutor. Insider trading is generally a non-crime that can be used in a Kafkaesque manner by upward-mobile prosecutors.

Insider trading should, at best, be the basis of a tort suit by a company if a board member betrays a trust. It shouldn’t be a crime prosecuted by the State.

Any ethical problem shouldn’t be about how information is used or who profits but whether it’s acquired honestly. Whether information is “inside” has no moral significance as long as it is honestly acquired. The market is a register of information, and impeding the free flow of knowledge in any way makes it less efficient. A morass of regulation only opens the door to real corruption. This is nothing new. Tacitus correctly said “The more numerous the laws, the more corrupt the State.”

In addition, the very concept of insider trading is ridiculous from a practical point of view. Someone always gets the information first. If an announcement is made, the people in the room who hear it first act on it first. By the time it’s published, it’s old news. It’s physically impossible for everyone to get information at the same time.

Insider trading has never cost shareholders a penny. Other actions taken by management insiders have, however, cost shareholders many billions. Regardless of the rhetoric, the name of the game in hostile takeovers and proxy battles is often management versus the shareholders. But that’s a story for another time.

International Man: In the past, politicians in Congress and elsewhere have allegedly engaged in insider trading with impunity.

Meanwhile, the penalties inflicted upon regular citizens can be severe. The maximum criminal penalty for insider trading is 20 years in prison and a $5 million fine.

What is your take on this?

Doug Casey: Congress is in a unique position to treat itself well. They control almost unlimited amounts of both power and money. Politicians really are a favored class.

The people in control of making regulations and printing money can tip off their pals subtly. This naturally lends itself to corruption. Congress critters know who’s going to get the big contract. They don’t have to buy or sell a stock themselves; a discreet tip to a trusted crony is safer. The Federal Reserve sets interest rates and controls the amount of money and credit entering the markets; they’re in a position to take advantage of this situation as well. And I have no doubt they do.

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Billionaire Plutocrat Jamie Dimon Wants to Ditch the Debt Ceiling | Mises Wire

Posted by M. C. on October 15, 2021

Consequently, Dimon’s position is essentially this: “Abandon all checks and balances if it threatens Wall Street portfolios!” What Wall street wants is to know for sure that the regime will keep the money flowing. That leaves no room for meaningful opposition.

https://mises.org/wire/billionaire-plutocrat-jamie-dimon-wants-ditch-debt-ceiling

Ryan McMaken

At a meeting with Joe Biden and other CEOs last week, JP Morgan Chase CEO Jamie Dimon predicted a global catastrophe if the debt ceiling is not raised.

Dimon was echoing the words—nearly verbatim—of Biden’s Treasury secretary Janet Yellen in using the most extreme language possible, with words such as “complete catastrophe.” Dimon also repeated Yellen’s lie that the US has never defaulted, claiming a default “would be unprecedented.” Dimon then went on to demand that the debt ceiling be abolished altogether so that the US government would no longer be encumbered by inconvenient impediments to endless amounts of federal debt and spending.

This sort of thing, of course, is precisely what we’ve come to expect from billionaires and other captains of the financial sector who have made a living out of turning inflationary monetary policy into big profits for themselves and their fellow corporate cronies.

[Read More: “The Debt Ceiling: An Affectionate History” by David Howden]

Wall Street and the financial sector have become increasingly dependent on inflationary monetary policy to prop up their portfolios, and huge amounts of deficit spending have been key to this equation.

After all, as federal deficits (and the debt overall) have ballooned, the regime in Washington has relied more and more on deficit spending to keep paying the bills. Yet with more than $25 trillion in debt on the books, debt service would prove to be crippling to the regime were it not for the central bank’s monetization of debt.

[Read More: “How the Fed Is Enabling Congress’s Trillion-Dollar Deficits“ by Ryan McMaken]

In other words, the federal government would have to pay double or triple the amount of interest it now pays—thus forcing big cuts to popular government programs—were it not for the fact that the central bank is buying up enormous amounts of government debt. Indeed, the Fed’s holdings of Treasury debt have multiplied many times over during the past decade, rising from “only” a half trillion dollars in 2008 to $4.6 trillion today, more than half of the Fed’s total portfolio in 2021.

These assets have been purchased using newly created money, which when spent on Treasurys enters the economy through the financial sector. That means fat fees and a huge advantages for the financial sector, as it is able to spend newly created cash on assets and goods before prices adjust to reflect the realities of an increasingly inflated currency.

[Read More: “The Plutocrats of Wall Street and Silicon Valley Are Scamming America“ by Ryan McMaken]

Moreover, this need for low interest rates on federal debt drives an overall dovish monetary policy committed to ultralow interest rates. This, as shown by Karen Petrou in her book Engine of Inequality, has disproportionately benefited the financial sector and the ultrarich.

So we shouldn’t be surprised when representatives of the ultrawealthy Wall Street class like Dimon apparently don’t see much downside to having federal deficits continue to spiral upward. The deficit-spending game has been great for them. 

Nonetheless, their efforts at defending the status quo are remarkably ham-fisted at times. In his efforts to end the debt ceiling altogether, Dimon listed his three reasons why huge deficits must continue:

“Number one is really a morality point: We all teach our children that we are supposed to meet obligations and I don’t think the nation should be any different. Number two, we should never even get this close—there are huge economic costs already being borne … [and] it’s already affecting the stock market,” Dimon said, and “number three, we should get rid of this debt ceiling—we don’t need to have this kind of brinksmanship every couple of years.”

The first point, of course, is laughable coming from any representative of corporate America. Corporate leaders in America hardly eschew bankruptcy as a method of avoiding paying one’s debts—when it helps the bottom line. It’s standard practice, and one never witnesses much hand-wringing about whether or not we’re sending a good message to “the children” when a business declares bankruptcy. Dimon’s attempt to put a patina of moralism on paying debts should be regarded as cynical in the extreme. Moreover, by engaging in policies that lead to price inflation—whether in assets prices or goods prices—the regime is already embracing the schemes of a deadbeat. It’s paying off its debts in deliberately devalued dollars. 

The second point merely illustrates the tunnel vision with which Wall Street operates. Ever since the early days of the Greenspan Put in the late 1980s, central bankers and Wall Street have increasingly all agreed that asset price inflation in the stock markets is somehow synonymous with American prosperity overall. Yet, as repeatedly shown by David Stockman in his book The Great Deformation, Wall Street and Main Street are absolutely not the same thing, and we ought not treat them as such. Moreover, a disproportionate amount of these “huge economic costs” that would be borne in case of default would be largely felt by the regime itself and by the investor class. While default would finally rein in government runaway spending—while freeing up much of the budget for things other than debt service—holders of government debt would no doubt suffer. But, as Rothbard notes, these people took that risk willfully. The taxpayers, on the other hand, have no say in the matter and ought not be forced to endlessly pay the bills which they have never consented to. 

And finally, there is Dimon’s condemnation of “brinksmanship.” Yet, what Dimon here calls brinkmanship is what opponents of monarchical tyranny once called “dissent” or “freedom.” After all, parliamentary government—so far as it was a check on executive power—was created in practice for purposes of brinkmanship. That is, the legislative’s body control over government spending was there precisely to hold the executive—usually a monarch—accountable by withholding tax revenues until the monarch agreed to concessions of various types. Usually, the executive would attempt to force some sort of crisis—often a war-related crisis—to frighten the legislators into caving to his or her demands. It’s a time-honored political tactic. Much of the time, however, only by refusing to blink during periods of ”brinkmanship” do opponents of executive power succeed.  The fact that the current crop of legislators is largely motivated by goals of partisan advantage is immaterial. Thus has it always been. That’s not a reason to straighten the regime’s path to yet another round of ripping off the taxpayers.  

Consequently, Dimon’s position is essentially this: “Abandon all checks and balances if it threatens Wall Street portfolios!” What Wall street wants is to know for sure that the regime will keep the money flowing. That leaves no room for meaningful opposition. 

Also an Ideological Problem

It is unlikely, however, that Dimon is motivated strictly by the prospects of a bigger payday. Supporting runaway spending is simply the dominant ideology today in financial sector boardrooms and in business schools. While conservatives were shortsightedly obsessing over “electing the right people” or winning the next election, interventionist ideologues were taking over business schools and university faculty offices. They ensured that the next generation of business leaders and economists would embrace the ideas of endless spending, large-scale government intervention, and inflationist monetary policy. So, when the Jamie Dimons of the world push for abolishing the debt ceiling—or having the central bank monetize another trillion in government debt—its likely not just a cynical ploy. This is especially unsurprising for someone like Dimon, who sat on the board of the New York Fed from 2008 to 2013. The thinking here is likely far more nuanced than a mere scramble for profits.  In other words, these people are probably true believers. This is, after all, what they learned from their economics professors. Author:

Contact Ryan McMaken

Ryan McMaken is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first.

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What We Have to Gain from a National Default | The Libertarian Institute

Posted by M. C. on October 6, 2021

The reality, however, is quite something else. While a failure to raise the debt ceiling would no doubt cause short-term disruptions, the fact is the medium- and long-term effects would prove beneficial by reining in the regime’s chokehold on the American economy and financial system.

Ultimately, when a media pundit or Janet Yellen predicts the end of the world if debt doesn’t continue to skyrocket ever upward, they are simply calling for a continuation of the status quo.

https://libertarianinstitute.org/articles/what-we-have-to–from-a-national-default/

by Ryan McMaken

The Biden administration’s rhetoric on the debt ceiling has become nothing short of apocalyptic. The Treasury Department has announced that a failure to increase the debt ceiling “would have catastrophic economic consequences” and would, as NBC news claims, constitute a “doomsday scenario” that would “spark a financial crisis and plunge the economy into recession.”

Apparently, the memo went out to the debt peddlers that they are not to hold back when sowing maximum fear over the thought that the U.S. might government might pause its incessant debt accumulation even for a few days.

The reality, however, is quite something else. While a failure to raise the debt ceiling would no doubt cause short-term disruptions, the fact is the medium- and long-term effects would prove beneficial by reining in the regime’s chokehold on the American economy and financial system.

This is explained in a recent column by Peter St. Onge in which he examines just how much of a problem default really is:

In 2021 the U.S. government plans to spend $6.8 trillion. Of which about half is borrowed—$3 trillion. So if they can’t raise the ceiling, they’d have to cut that $3 trillion.

Mainstream media, naturally, claims this is the end of the world. CBS estimates it would cost 6 million jobs and $15 trillion in lost wealth—comparable to the 2008 crisis, which was also caused by the federal government. CNN, more colorfully, claims cascading job losses and “a near-freeze in credit markets.” They conclude, falsely, that “No one would be spared.”

Considering the source, we can guess these predictions are overblown. So what would happen?

Well, $3 trillion is a lot of money—roughly 15% of America’s GDP. But we have to remember where that $3 trillion came from. The government, after all, doesn’t actually create anything, every dollar it spends came out of somebody else’s pocket. Whose pocket? Part of the $3 trillion was bid away from private borrowers like businesses, and the rest was siphoned from peoples’ savings by the Federal Reserve creating new money.

This means that, yes, GDP would decline sharply. But wealth would actually grow, perhaps substantially. The businesses would be able to buy things they need, while the savers keep their money that was doing useful things like paying their retirement.

So GDP drops, wealth soars.

Now, there will be near-term pain, simply because the GDP drop comes before the private borrowing ramps up, while those retirement savings are no longer being siphoned to pay for parties at strip clubs or, say, another trillion for farting cows.

So, yes, it will be a sharp drop in GDP. But so long as government stays out of the way, choosing the prudent 1920 response of doing nothing, the recovery will be very rapid. Why would they do nothing? After all, governments don’t like staying out of the way these days. Because a government that suddenly loses half it’s budget is going to find a lot of things not worth doing. Given a choice between defunding government workers’ pensions or defunding economy-crushing Green New Deals, governments will choose their own.

So that’s short-term: pain, but less than it seems. And that’s where the magic begins. Because ending deficits fundamentally reduces governments’ long-term ability to prey on the people’s wealth.

This is because debt and money printers are much less obvious than taxes, which are painful and make more enemies. So a default becomes a “back door” to move government back towards its traditional “parasite” role rather than the “predator” role it’s taken on since Nixon unleashed the money printers. Especially since COVID-19, when lockdowns were bought with fresh money and deficits. I wrote about this predatory evolution a few months ago, but the bottom line is government default is a tremendous investment in our future prosperity.

Ultimately, when a media pundit or Janet Yellen predicts the end of the world if debt doesn’t continue to skyrocket ever upward, they are simply calling for a continuation of the status quo.

And what does the status quo mean? It means a world in which the U.S. government continues to spent trillions of dollars it doesn’t have, made possible through monetizing massive amounts of debt and forcing taxpayers to devote ever more of their own wealth and income to paying off an ever-more-huge chunk of interest.

It also means more government spending, which—regardless of whether it’s funded by debt or by taxes—causes malinvestment and, through the redistribution of wealth, rewards the politically powerful at the expense of everyone else. In other words, its keeps Pentagon generals and Big Pharma executives living in luxury while the taxpayers are lectured about the need to “pay America’s bills.”

Rather, as Mark Thornton noted in 2011, the right thing to do is lower the debt ceiling. Thornton explains the many benefits, ranging from effective deregulation to freeing up capital for the private sector:

If Congress passed legislation that systematically reduced the debt ceiling over time, the economy could be rebuilt on a solid foundation. Entrepreneurs in the productive sectors would realize that an ever-increasing proportion of resources (land, labor, and capital) would be at their disposal, while companies that capitalized on the federal budget would have an ever-declining share of such resources.

Congress would have to cut the pay and benefits of its employees (FDR cut them by 25 percent in the depths of the Great Depression) as well as the number of such employees. Real wage rates would decline, allowing entrepreneurs to hire more employees to produce consumer-valued goods.

Congress would have to cut back on its far-flung regulatory operations, which are in fact one of the biggest drags on the economy due to the burden and uncertainty that Obama and Congress have created in terms of healthcare, financial-market, and environmental regulations. A recent study by the Phoenix Center found that even a small reduction of 5 percent, or $2.8 billion, in the federal regulatory budget would result in about $75 billion in increased private-sector GDP each year and the addition of 1.2 million jobs annually. Eliminating the job of even a single regulator grows the American economy by $6.2 million and creates nearly 100 private-sector jobs annually.

Under a reduced debt ceiling, the federal government would also have to sell off some of its resources. It has tens of thousands of buildings that are no longer in use and tens of thousands of buildings that are significantly underused—about 75,000 buildings in total. It also controls over 400 million acres of land, or over 20 percent of all land outside of Alaska, which is almost wholly owned by the government. There is also the Strategic Petroleum Reserve and many other assets that could be sold off to cover short-term budget shortfalls.

Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government’s regulatory apparatus. This would put Americans back to work producing consumer-valued goods.

Unfortunately, the public has been fed a steady diet of rhetoric in which any reduction in government spending will bring economic Armageddon. But it’s all based on economic myths, and Thornton concludes:

Passing an increase in the debt ceiling merely perpetuates the myth that there is any ceiling or control or limit on the government’s ability to waste resources in the short run and its willingness to pass the burden of this squander onto future generations.

This article was originally featured at the Ludwig von Mises Institute

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