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Posts Tagged ‘Modern Monetary Theory’

The New Antieconomics | Mises Wire

Posted by M. C. on February 17, 2022

Economics is about human action and choice within the context of scarcity. The problem facing economists is how to understand and explain human betterment, which is another way of saying production. The critical question, posed correctly by economist Per Bylund, starts with scarcity as the default point for understanding purposive human behavior.

https://mises.org/wire/new-antieconomics

Jeff Deist

What causes poverty? Nothing. It is the original state, the default and starting point. The real question is what causes prosperity.

Antieconomics, by contrast, starts with abundance and works backward. It emphasizes redistribution, not production, as its central focus. At the heart of any antieconomics is a positivist worldview, the assumption that individuals and economies can be commanded by legislative fiat. Markets, which happen without centralized organization, give way to planning in the same way common law gives way to statutory law. This view is especially prevalent among left intellectuals, who view economics not as a science at all, but rather a pseudointellectual exercise to justify capital and wealthy business interests.

Antieconomics is not new; even alchemy might be considered a medieval version of the endless quest to achieve something for nothing. It holds enduring appeal in modern politics and academia, where communism, chartalism, Keynesianism, and monetarism all represent twentieth-century variations on the central theme of commanding economic activity.

But today’s most visible version of antieconomics takes the form of modern monetary theory. MMT featured heavily in a recent flatteringprofile of Professor Stephanie Kelton in the New York Times titled “Is This What Winning Looks Like?” “Winning” in this context refers to MMT’s growing popular appeal, with Kelton as the public face following her 2020 book The Deficit Myth.

Kelton’s MMT is a political and fiscal program, not a macroeconomic theory. It argues deficits don’t matter because money issued by a sovereign government is never constrained (unlike resources, as Kelton admits). Thus governments don’t “pay” for things the way individuals or businesses do, and furthermore, public debt is actually a private benefit to someone. The problem is not paying for government programs, but rather identifying them—robust public works, job guarantees, universal basic income, food and housing, Green New Deal programs, Medicare for All, etc.—and, more importantly, creating the public will to support them politically.

In Kelton’s words, MMT “teaches us to ask not ‘How will you pay for it?’ but ‘How will you resource it?’ It shows us that if we have the technological know-how and the available resources—to put a man on the moon or embark on a Green New Deal to tackle climate change, then funding to carry out those missions can always be made available. Coming up with the money is the easy part.” The Deficit Myth, in sum, is what one commenter called “a plea to use permanent wartime mobilization for civilian ends.” Endless stimulation, not better and cheaper production, is the goal of fiscal (or monetary) policy.

This is antieconomics in its fullest expression. Resources exist (from whence?); are commanded by or at least available to the state, if not outright owned by the state (taxes? seizure? forfeiture?); and then are put in service of an undefined political mandate (what “we” want). Funding is an afterthought, as the fiscal authority creates money as needed. But in fairness to Kelton, the US federal government in 2020 spent roughly $6.5 trillion, twice what it raised in taxes ($3.4 trillion). In a very narrow sense, MMT “works” in the short term for the benefit of politically favored groups.1 This is the seen. But proper economics, as Henry Hazlitt and Frédéric Bastiat explained, requires looking at the long-term effects of a policy on everyone. This is the unseen. For MMTers, the vast opportunity costs of government spending, even when the economy is nowhere near “full employment,” go unseen.

Perversely, media critics defended criticisms of Kelton’s Times feature on the grounds of sexism. She is lauded, not surprisingly, as a rare standout in the male-dominated field of academic economics. The attacks on her work, we are told, come from older jealous white men (e.g., former Treasury secretary Larry Summers) who don’t appreciate the “new” economics she proposes and who envy the attention she has brought not only to herself and MMT, but to the broader push for egalitarian economic justice. Kelton, after all, served as an economic advisor to democratic socialist presidential candidate Bernie Sanders and supported Elizabeth Warren. Old neoliberals like Summers, by contrast, still support the outdated idea of fiscal constraints.

But beyond the absurd allegations of sexism—surely Kelton knows how merciless Twitter and other platforms are to everyone—is the more alarming suggestion that the practice of economics is too male and needs a female version. Economics is too adversarial, too concerned with being right, and in need of a more collaborative (read: female) approach. The implications of this for all social sciences, not just economics, are staggering: we would upend the search for knowledge to reflect a different logic between men and women—what Mises called “polylogism.” Would this not require an entirely new epistemology across all scientific disciplines?

None of these diversions will allow us to escape reality. Economics starts and ends with scarcity, an inescapable feature of human reality. Any conception of freedom from material and human constraints requires a posteconomics world, either an earthly utopia or a heavenly abundance. In our world, however rich relative to the past, scarcity is the starting point of economic analysis. In our world, individual human actors make “rational” choices only within the context of constraints: time, capital, intelligence, ability, health, and location. And every choice has an opportunity cost. 

Professional economics is in big trouble, and only an aggressive new generation of Austrian-trained praxeologists can undo the damage done by the prescriptive and political antieconomists. 

  • 1. The US government is one such favored group, given the dollar’s status as the world’s reserve currency coming out of the Bretton Woods agreement, a powerful military, plentiful land and natural resources, and other economic advantages. Is MMT only a viable system for wealthy, powerful countries? 

Author:

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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The Real Tax Scandal – LewRockwell

Posted by M. C. on June 30, 2021

No, the real scandal is this: federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS. A tax audit, like cancer, can come out of nowhere and ruin your life.

Federal income taxes have always been a tool for compliance. The IRS has always been a tool for presidents to go after rivals—or for rivals to go after presidents. Why would we expect otherwise?

https://www.lewrockwell.com/2021/06/jeff-deist/the-real-tax-scandal/

By Jeff Deist

Mises.org

The self-styled investigative journalism outlet ProPublica recently published private IRS tax information—presumably embarrassing private tax information—for a host of ultrawealthy and famous Americans. I say “self-styled” because the organization claims a pretty lofty and self-important mission to use the “moral force” of journalism on behalf of the public interest against abuses of power. But does this apply to state power, such as when a federal agency employee illegally leaks sensitive material to media? And why is it presumed to be in the public’s interest to have rich billionaires pay more in taxes? Maybe we’d rather have them investing in their companies, or at least buying megayachts and Gulfstream jets, rather than sending more resources to the black hole of DC? Why is the public interest always defined as “things progressives like”?

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.

And as an aside, it’s worthwhile to recall the tremendous whopper of a lie President Franklin Delano Roosevelt told back in 1935—namely that no one other than the program’s administrators would ever know your private Social Security number. Today, of course, Social Security numbers are the absolute linchpin of one’s entire financial identity, and known by everyone from the IRS to your local credit union.

Yet the real scandal here is not the IRS leak, which was no doubt internal and designed to gin up public support for Biden’s proposed tax increases while advancing a progressive inequality narrative. Political capture of federal agencies is nothing new or shocking; that’s what presidents do (or have done to them). Nor is it particularly scandalous that the wealthiest people sometime pay little in federal income tax, at least relative to their income. After all, elites by definition tend to wield power rather than fear it, especially when it comes to state power. And they have lobbyists and accountants to make sure taxes remain something the little people pay.

No, the real scandal is this: federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS. A tax audit, like cancer, can come out of nowhere and ruin your life. In some cases it can land you in jail. Tax enforcement is the ultimate check on the public’s behavior; after all, who takes up the cause of a tax cheat? For middle-class Americans the IRS is an existential threat, but for Jeff Bezos it is another business expense to be minimized.

And as for revenue, consider that Uncle Sam borrowed nearly half of the dollars spent by Congress in fiscal 2020. With covid shutdowns, federal income taxes amounted to about $3.42 trillion, while spending was $6.55 trillion. If the federal government can finance 50 percent of its annual spending through deficits, why not 80 percent or 100 percent? Why do we need the IRS terror regime at all?

Again, this is about control. Progressives will never give up the income tax for this very reason. Proponents of modern monetary theory, for example, are almost uniformly left progressive in political outlook. These are the people cheering Biden’s >$1 trillion infrastructure spending bill because of their fervent belief that deficits don’t matter.

MMT rests on two central assertions.1 First, sovereign governments with their own currencies can print as much money as needed to fund operations without fear of insolvency or bankruptcy—unless a purely political decision is made to go broke. Government deficits per se do not matter, because the only real constraint in any economy is the amount of real resources available rather than the amount of money. In fact, MMT views government debt as private financial wealth—money inserted into the economy by the central state but not taxed back.

Second, sovereign governments with their own currencies can require tax payments to be made in that currency. Therefore any overheating in the economy in the form of inflation resulting from too much money can be fixed by pulling some money back to the Treasury via tax increases. This is the ostensible reason MMTers are not quite ready to give up on taxes altogether.

Yet I’ve never heard an MMTer express support for even a one-year moratorium on taxes to stimulate a bad economy (after a shock such as a worldwide covid pandemic). Why is this? If inflation really is so low, with the economy struggling in postcovid recovery mode, why pull any money back into federal coffers? Just damn the torpedoes! The bigger the deficit, the more “private wealth” we all have! Perhaps there is a political element to all the MMT jargon after all, one which relies on taxes both for control over people and to advance an advantageous but hollow trope about taxing the rich.

Federal income taxes have always been a tool for compliance. The IRS has always been a tool for presidents to go after rivals—or for rivals to go after presidents. Why would we expect otherwise?

1.See Dr. Robert P. Murphy’s definitive critique of MMT and Professor Stephanie Kelton’s book here.

Jeff Deist [send him mail] is president of the Mises Institute, a tax attorney, and a former staffer for Ron Paul.

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Three Reasons Why the Biden Tax Increase Makes No Sense | Mises Wire

Posted by M. C. on May 6, 2021

Even Yellen knows this tax increase is damaging. That is why she wants a global tax. If she saw no negative impact, she would let other countries manage their taxes as they wish.

So why does Biden do it? To please the most socialist part of his administration and voter base, who do not worry about the economic implications; they only want to make the rich poorer.

https://mises.org/wire/three-reasons-why-biden-tax-increase-makes-no-sense

Daniel Lacalle

Anyone who believes the “rich” and large corporations will pay for $28 trillion in debt or the $2 trillion in new deficit has a real problem with math.

Biden’s announcement of a massive tax increase on businesses and wealthier segments of the population simply makes no sense. The tax hikes will have a significant impact on economic growth, investment, and job creation and do not even scratch the surface of the structural deficit. Even if we believe the gross domestic product growth and revenue estimates announced by the Biden administration, the impact on debt and deficit is negligible. So, what is their response? That debt and deficits do not matter because the key now is to spur growth and the cost of borrowing is low despite rising debt.

Furthermore, the Biden administration has been inundated by MMT (modern monetary theory) proponents who passionately believe that deficits are good because they attend to the rising global demand for US dollars. Additionally, the Biden administration argues that the deficit increase is not a problem because the Federal Reserve continues to purchase government bonds, keeping yields low and debt costs stable.

Nice, so why the tax hikes, then? If debt and deficits do not matter and growth and jobs is what we need to focus on, then why increase taxes?

The entire tax increase argument crumbles. There is absolutely no rationale for such massive hikes either from the revenue perspective or the growth objective. If growth will take care of the rising deficit, the Biden administration should use all the tools to support growth.

There are three main reasons why the tax increase makes no sense.

First, estimated real revenue impact is negligible. In 2018, the federal capital gains tax revenue was $158.4 billion. A five–percentage point increase in the current regime would provide an additional $18 to $30 billion according to Princeton University estimates in an optimistic scenario where there would be no negative impact of the tax increase. The estimates of revenues of the corporate and personal tax increase assume $691 billion from corporate taxes, $495 billion from global minimum tax, and $271 billion from so-called repeal tax loopholes, end–fossil fuel tax breaks, and anti-inversion deals. Obviously, these estimates are optimistic and in many cases science fiction as they consider a perfect world where these taxes will not have any negative impact on the economy and a GDP growth that will not be affected at all. Even if we accept the estimates, these revenues are spread throughout a decade (yes, ten years), so the net-present-value impact is even worse.

These do not even start to address the rise in mandatory spending that drives the structural deficit above 2.5 percent of GDP.

Second, the impact on the economy will be larger than what the Biden administration estimates. These tax increases do not affect only “the rich.” Such high capital gains tax stifles innovation and reduces capital flow into private equity which is essential to boost start-ups and new high-productivity businesses. This is the reason why Europe has reduced capital gains taxes and even eliminated them. Belgium, Luxembourg, Switzerland do not have capital gains tax. Of the countries that do levy a capital gains tax, Greece and Hungary have the lowest rates, at 15 percent. European countries average 19.3 percent. The same happens with the corporate tax rate. The United States would have the highest corporate tax rate in the Organisation for Economic Co-operation and Development under Biden’s plan (28 percent). Many argue that effective corporate tax rates are lower and that in other countries firms pay value-added tax, and the arguments are only partially correct. The European Commission showed that the effective average tax rate of United States companies was 36.5 percent compared to 21.1 percent in the average of the European Union. When comparing effective rates, many United States analyses play the trick of adding loss-making companies or averaging what a tech giant pays in the US with the rest of the sectors. However, none of these arguments matter if you look at the tax wedge that United States companies pay relative to other OECD companies. According to PWC, the total tax wedge and contribution of United States businesses was 43.8 percent (profit, labor, and other taxes) compared with a region average of 38.9 percent.

The risk of outflow of capital from the United States to other countries with more competitive taxation is evident to anyone that has run a business or a financial firm. These tax increase may have little impact on multinational corporations, but they do have an exceptionally large negative effect on medium-sized businesses. That is why these measures are regressive.

Even Yellen knows this tax increase is damaging. That is why she wants a global tax. If she saw no negative impact, she would let other countries manage their taxes as they wish.

Third, the problem of mandatory spending is not even addressed. Mandatory spending in the United States has ballooned to $2.9 trillion in 2020 from $1.8 trillion in 2008 and is estimated to rise another trillion in the next ten years. The main cause of the United States deficit comes from the rise in mandatory spending as receipts cannot match the unstoppable increase in spending that no government can touch. Economies grow and enter recessions. It is impossible to cut the deficit via tax increases when the pace of growth of the expense side exceeds the economic output and receipts even in growth periods.

No serious economist can believe that tax increases will generate sustained annual revenues in any economic cycle, be it growth, stagnation, or recession to cover more than $200 billion every year in spending increases over a trillion deficit.

So why does Biden do it? To please the most socialist part of his administration and voter base, who do not worry about the economic implications; they only want to make the rich poorer.

If making money in capital markets is so easy, why don’t the politicians facilitate things to allow everyone to do it? Furthermore, if they believe making money in capital markets or in a business is so easy, why don’t they do it themselves?

Biden’s tax increase plan does not make sense from a growth, revenue, or deficit perspective. Furthermore, it does not make sense from a Republican or Democrat perspective. It simply does not add up and does not address the United States problem: ballooning mandatory spending. Author:

Daniel Lacalle

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020),Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

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Do You Believe in Magic? | Kunstler

Posted by M. C. on March 30, 2021

A command economy means that government increasingly attempts to takes over economic enterprise, to replace x-million individual economic choices of freely-acting people in a society with bureaucratic central planning. (Have you already said ha-ha-ha, knowing how that has worked out through history?)

UBI is the primary feature of that because, in a command economy, production is mostly pretend, so you just have to give people money (for nothing). Remember the old basic operating system of the Soviet Union, stated succinctly as: We pretend to work and they pretend to pay us. Got that?

https://kunstler.com/clusterfuck-nation/do-you-believe-in-magic/

James Howard Kunstler

The people pretending to run the world’s financial affairs do. The more layers of abstract game-playing they add to the existing armatures of unreality they’ve already constructed, the more certain it becomes that they will blow up all the support systems of a sunsetting hyper-tech economy that now has no safe lane to continue running in.

Virtually all the big nations are doing this now in desperation because they don’t understand that the hyper-tech economy is hostage to the deteriorating economics of energy, basically fossil fuels, and oil especially. The macro mega-system can’t grow anymore. We’re now in the de-growth phase of a dynamic that pulsates through history, as everything in the universe pulsates. We attempted to compensate for de-growth with debt, borrowing from the future.

But debt only works in the youthful growth phases of economic pulsation, when the prospect of being paid back is statistically favorable. Now in the elder de-growth phase, the prospect of paying back debts, or even servicing the interest, is statistically dismal. The amount of racked-up debt worldwide has entered the realm of the laughable. So, the roughly twenty-year experiment in Central Bank credit magic, as a replacement for true capital formation, has come to its grievous end.

Hence, America under the pretend leadership of Joe Biden ventures into the final act of this melodrama, which will end badly and probably pretty quickly. They are about to call in the financial four horsemen of apocalypse: 1) Modern Monetary Theory (MMT), 2) a command economy, 3) Universal Basic Income (UBI, “helicopter” money for the people), and 4) the “Build Back Better” infrastructure scheme.

MMT is the idea that a nation which claims a monopoly on issuing money can “create” new money ad infinitum with no negative consequences. That is, we can “lend” ourselves money (borrow it into existence) without having to worry about paying it back. The theory caught on only because that’s what we’ve done for two decades and, so far, it hasn’t destroyed the banking system — though debt turned exponential, which is to say ruinous, only recently — so we won’t have to stand by long to see how this experiment works out. Note this: MMT completes the divorce between productive activity and capital formation, that is, prosperity without wealth.

A command economy means that government increasingly attempts to take over economic enterprise, to replace x-million individual economic choices of freely-acting people in a society with bureaucratic central planning. (Have you already said ha-ha-ha, knowing how that has worked out through history?)

UBI is the primary feature of that because, in a command economy, production is mostly pretend, so you just have to give people money (for nothing). Remember the old basic operating system of the Soviet Union, stated succinctly as: We pretend to work and they pretend to pay us. Got that?

The idea behind “Build Back Better” is to renovate the infrastructure of a hyper-tech economy that actually no longer exists because we are in the contraction phase of an historic pulsation or cycle, leaving us with lots of tech and less production, tending toward zero. Nobody flogging this slogan actually knows what it ought to mean under the circumstances, which is to go with the flow of the reality of this contraction: to downsize, downscale, and re-localize all our activities to bring them back into sync with actual productivity — that is, raising food, making real stuff, and trading it. Again, it’s the energy dynamic, stupid.

To get to that point, we’re going to shed the massive over-burden of financial game-playing that has pretended to represent our economy. That means stock valuations and bond prices will vaporize along with the derivative activities concocted for trading gainfully in these now-phantom representations of capital. If that happens sooner rather than later, we won’t even be able to pretend to Build Back Better the interstate highways, the electric grid, airports, and all the other stuff in the “infrastructure” folder.

Indeed, a lot of that would be malinvestment folly now because we’re nearing the end of mass motoring and commercial aviation as we’ve known them. If we even have electricity twenty-five years from now, it will come from much-reduced grids on a much more regional basis. The bottom line for all this is that pretty soon every corner of the country will be on its own amid quite a bit of social disorder and financial wreckage. So, whatever energy you actually can marshal to Build Back Better, save it for your town or your local community. And remember, all of the attempts by a national government to control these events, and coerce its citizens in the service of that, will only lead to a more ineffectual and impotent national government that nobody has faith in, confirming the fact that you are on your own.

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‘The Fed Enabling Biden and Congress’ Destructive Agenda’ – Ron Paul’s 8 Mar. Column

Posted by M. C. on March 9, 2021

https://mailchi.mp/ronpaulinstitute/bidenfed-115290?e=4e0de347c8

Mar 8 – According to the Congressional Budget Office (CBO), 2021 will be the second year in a row in which the federal debt exceeds Gross Domestic Product (GDP). CBO also projected that this year’s federal deficit will be 2.3 trillion dollars, which is 900 billion dollars less than last year. However, CBO’s projections do not include the 1.9 trillion dollars “stimulus” bill Congress is likely to pass.

The CBO’s report was largely ignored by Congress and the media. One reason the report did not get the attention it deserves is Federal Reserve Chairman Jerome Powell’s continued commitment to making sure Fed policies enable Congress to spend as much as Congress deems necessary to address the economic fallout from the coronavirus panic.

As financial analyst Peter Schiff points out, the Fed’s commitment to ensuring the government can run up massive debt means the Fed will not allow interest rates to increase to anywhere near what they would be in a free market. This is because increasing interest rates would cause the federal government’s debt payments to rise to unsustainable levels. Yet, the Fed cannot admit it is going to keep rates near, or even below, zero indefinitely without unsettling the markets. So, the Fed continues to promise interest rate hikes in the future and the markets pretend to believe the Fed. When (or if) the lockdowns end, the Fed will find a new crisis justifying “temporarily” keeping interest rates low.

The Federal Reserve has not just endorsed massive federal spending, Fed Chairman Powell has also endorsed masks, vaccines, and social distancing to defeat the coronavirus and restore the economy. It is disappointing, but not surprising, to see the Fed go full Fauci.

The overreaction to coronavirus is a cause of the explosion in federal spending and debt we have witnessed over the last year. However, federal spending already greatly increased from January 2017 until the lockdowns. This spending growth occurred under a Republican president, a Republican Senate, and, from 2017 to 2019, a Republican House. One bright spot in Democratic control of the presidency and both houses of Congress is more Republicans will fight excessive spending and claim to be “deficit hawks.”

Republican hypocrisy in claiming to care about spending and debt only when a Democrat sits in the Oval Office is one reason why Democrats can so easily disregard debt. Another reason is the left’s embrace of Modern Monetary Theory. Modern Monetary Theory is the latest version of the fairy tale that politicians need not worry about debt and deficits as long as the central bank can monetize the federal debt.

Unless the government changes course, America will experience a crisis greater than the Great Depression. The crisis will include a final rejection of the dollar’s world reserve currency status. There will also be much increased price inflation. At that point Congress will have no choice but to limit spending, although it will try to hide cuts in popular entitlement programs by “adjusting” government measures of inflation. Congress could then blame the Fed for the reduction in value of government benefits.

Those who know the truth have two responsibilities. First, ensure they and their families are protected when the crash comes. Second, redouble efforts to spread the ideas of liberty and grow the liberty movement so politicians are pressured to cut spending and debt and to end the Fed.



Read more great articles on the Ron Paul Institute website.
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Copyright © 2020 by Ron Paul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.

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Market Weekly: All Hail the Conquering Central Bankers – Or Else

Posted by M. C. on February 8, 2021

As I’ve said many times, the stakes are higher today than they were in 2016 for these people. The Obama Restoration that is the Fungal Presidency depends solely on the central banks taking control over the global economy, sidelining the traditional, and terminally corrupt, banking system.

Yes, I can hear you saying, “But they are one and the same.” But, not really, not anymore. In order to pull this off someone will have to be sacrificed to the incredibly angry mob that is brewing outside the capitols of every major western power.

https://tomluongo.me/2021/02/05/hail-conquering-central-bankers/

Author: Tom Luongo

If you are unclear what’s happening, frankly, you aren’t paying attention. The central banks, at the urging of the World Economic Forum, have come from behind the shadows to assert their will over the world.

In order to create the imprimatur of depth and sincerity Fungal President Joe Biden tapped former FOMC Chair Janet Yellen as his Treasury Secretary.

It doesn’t matter that Yellen was the architect of the worst recovery in history or that her incessant dithering on ending QE and raising rates. She’s a woman. Right?

The only good thing about Yellen at Treasury is that Steve “Mr. Goldman” Mnuchin is gone. All Mnuchin did at Treasury was ensure the outsourcing of monetary policy to Blackrock through the loan programs of the CARES Act and sanction anyone who didn’t pay Goldman enough Tribute.

So, from that perspective, I guess, Yellen is an upgrade. Because she’s just an incompetent career bureaucrat. But what this means is that since personnel is policy in D.C. the central banks will become the center of policy.

And that means full international coordination by them to implement not only MMT — Modern Monetary Theory — but also accelerate the adoption of digital-only versions of national currencies, CBDCs, to support the full takeover of the economy by central planners.

Given Biden’s first foreign policy speech last night and the very real smackdown issued by Russian President Vladimir Putin at this year’s Virtual Davos, expect nothing but more of what ailed us under Trump taken up another notch.

Putin’s speech was one for the ages, to be honest, and everyone should read it.

Why?

Because Putin openly declared his opposition to the brave new world of Klaus Schwab and his Davos Crowd. And that means he incurred the wrath of the policy-wonks in D.C, Brussels and London.

Not that he didn’t have that already, but again, I believe we ain’t seen nothin’ yet when it comes to aggression. The problem with that however is that it openly risks open military conflict not only in Syria where Biden immediately sent troops across the Iraqi border but also in the Black Sea

As I’ve said many times, the stakes are higher today than they were in 2016 for these people. The Obama Restoration that is the Fungal Presidency depends solely on the central banks taking control over the global economy, sidelining the traditional, and terminally corrupt, banking system.

Yes, I can hear you saying, “But they are one and the same.” But, not really, not anymore. In order to pull this off someone will have to be sacrificed to the incredibly angry mob that is brewing outside the capitols of every major western power.

This planned destruction of the West’s middle class is creating an unruly, #ungovernable mob. This week that mob attacked Wall St. at its heart. Going after the hedge funds who are nothing but fronts for the big banks.

They’ve used their market position and capture of the regulators (including Yellen herself) to create one-way trades, draining the vitality of the economy through fees, taxes and barriers-to-entry.

That’s what animated the GameStop Rebellion of the past couple of weeks and we’ll see more of these #ShortSqueezes going forward. The markets, thanks to the ocean of liquidity sloshing around and now the promise of another massive stimulus bill, are so thoroughly unbalanced that anything could become a trigger for another meltdown.

And that brings me to the next part of the story in the conquering of governments by the central banks. Mario Draghi (yes that guy!) has been given the right to try and forma government from the ashes of the last terrible government in Italy.

President Sergio Mattarella is as pro-EU and Italian Swamp as it gets. This will be the fourth time he has intervened far beyond his constitutional capacity since Five Star Movement and Lega shocked the world in 2018 with their bipartisan populist uprising.

Because those election results would never hold up today, Mattarella continues to shield Italy from new elections. It’s fascinating how a mostly ceremonial (mostly peaceful) position like his has become more powerful than any other, all because Brussels demands it be so.

So, Former ECB President Mario Draghi will likely become the next Prime Minister of Italy over the objections of everyone outside of the Rome Mafia.

“In my opinion, the 5-Star Movement has the duty to meet (Draghi), listen and then take a position on the basis of what our parliamentarians decide,” said Luigi Di Maio, the outgoing foreign minister and party big-wig.

“We did not seek the stalemate … but it is precisely in these circumstances that a political force shows itself to be mature in the eyes of the country.”

Former prime minister Silvio Berlusconi suggested he might be ready to support a Draghi government – a move that could cause a schism within the right-wing opposition bloc.

Now it was Di Maio who betrayed Lega leader Matteo Salvini in September 2019 to form the outgoing government which was never stable. It was a clear betrayal by Di Maio who I said at the time would become Italy’s version of Alexis Tsipras, the former Greek Prime Minister who folded to Brussels in 2015 if he did just that.

See the rest here

Published by Tom Luongo

Publisher of the Gold Goats n Guns. Ruminations on Geopolitics, Markets and Goats. View all posts by Tom Luongo

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Who’s Next to Fail in the Post-COVID World?

Posted by M. C. on April 1, 2020

Europe’s troubles are multiplying because the basic premise of how to fight this virus and the deflation it is engendering is functionally flawed. More money dropped from helicopters isn’t the solution.

Freeing Europe from the euro is.

And then there won’t be enough credit in the world to keep the engine of the world from sputtering and dying. That’s when real leadership is needed.

https://tomluongo.me/2020/03/30/whos-next-engine-world-failure/

As much as I hate to invoke The Ayn Rand lest I give off the impression I’m some kind of Objectivist, which I am most certainly not, the engine of the world is coming to a halt.

Money velocity has been falling for years. It is now cratering as we hide in our homes from a bug that eventually we will all have to reconcile with. Credit is the engine of the world of today.

It is the gas which fuels the engine of the world.

COVID-19 has cratered the global economy exposing the internal rot within our hyper-financialized global economy as nothing more than a pyramid of Ponzi schemes…

… piling credit on top of credit until there are no more greater fools to sell the new debt to.

That’s the system we have. And it is collapsing precisely because the world is situated at the point where there is little more productive capacity to monetize and pull that capital from the future to fund the new debt.

It won’t matter if we replace this system with pure helicopter money without debt as the Modern Monetary Theory proponents argue. We’re already doing a version of this by having the central banks buy debt they never intend to sell on the open market. So, the debt itself is without value. The money printed from those bonds is as much scrip as if the bond had never been issued.

But the time lost by people in pursuit of uneconomic ends by mispricing risk and servicing debt they are legally obligated to service is real.

The engine is sputtering as trillions are printed to kick it back over one more time. But the gas has too much ethanol in it. There’s not enough air.

The engine is dying.

And it can no longer outrun the abyss swallowing the world staring back at us saying, “Thanks for the snack, those frackers and restaurants are tasty, but I’m still hungry. Who’s next?”

I’ve been very clear that Europe is the next big meal for the Abyss.

In the end, a home builder here, an over-leveraged bank there are nice. These are but apéritifs in the grand scheme of things. They are like sugar to a starving child, revving it up but not fulfilling its real needs.

Europe’s troubles are multiplying because the basic premise of how to fight this virus and the deflation it is engendering is functionally flawed. More money dropped from helicopters isn’t the solution.

Freeing Europe from the euro is.

And it will set Italy in the post-COVID-19 world at odds completely with the rest of Europe.

Ambrose Evans-Pritchard adds more color to what happened at last week’s meeting of EU national leaders in which both sides of the fiscal divide dug in their heels.

Dutch premier Mark Rutte has become the spokesman for the hardliners – giving political cover to Germany – categorically ruling out emergency “coronabonds” or other forms of debt mutualisation. “It would bring the eurozone into a different realm. You would cross the Rubicon into a eurozone that is more of a transfer union,” he said. “We are against it, but it’s not just us, and I cannot foresee any circumstances in which we would change that position.”

Enrico Letta, Italy’s former-premier and an ardent EU integrationist, accused the Netherlands of leading the pack of “irresponsibles” and trying to “replace the United Kingdom in the role of ‘Doctor No’”. The reflexive use of the UK as a rhetorical foil evades of the true issue. It was not London that blocked moves to fiscal union over the last decade; it was Germany.

Pritchard brings up the spectre of Lega’s Matteo Salvini coming back into the picture, especially as the mood sours among even the most ardent Euro-integrationists like Italian President Sergio Mattarella.

Merkel is hiding behind her quarantine and letting Dutch Prime Minister Mark Rutte speak for her. And that is driving the Italians to the point of no return.

Giuseppe Conte’s government is at a loss to fight the virus. It was ignored by the EU when it asked for help it paid for when this began. As Pritchard points out, what purpose does the EU serve when it won’t act to help a member in need as it is supposed to do?

The answer is the EU’s purpose is to be obeyed.

Italy’s two ways out of this mess is leaving the euro or forcing the northern bloc to cry uncle. But that has to occur within the prospect of removing so many internal roadblocks to Italian economic growth, starting with the euro but entailing much wider reforms, which are most definitely not on the post-Keynesian/MMT technocrats’ agenda.

Italy’s debt numbers are a large part of the hunger of the Abyss and no amount of blackmail by them and France will get Germany to go along with bailing them out.

I discussed these issues and more at length with Alexander Mercouris of The Duran in this series of videos we recorded over the weekend (here, here, and here) in which we tie Europe’s collapse to all the other things we’re experiencing in the world right now.

Most EU economies are fundamentally hampered by the ossified bureaucracy of the EU which is an over-layer of domestic bureaucracies.

And, as such, these national systems are barely capable of acting in a coordinated manner normally, no less with the EU enforcing its fiefdoms at the same time in the face of overwhelming strain.

In all situations the primary objective of all organizations is survival. All else is secondary.

The more credible the threat the more extreme their response.

They will dig in to protect against that threat rather then fulfill their stated mission. In the case of the EU that means using this crisis as the excuse to force fiscal integration and monetary reform on those that don’t want it as a means to survive.

Because in a crisis period there is no time for such luxuries as national sovereignty. There isn’t any reflection that the organization itself is the source of the problem. The organization is a default setting.

And now both sides of the fiscal debate are seeing the other for what they are and the result will most likely be an irreparable fracturing of the European Union.

Italy has now seen the true face of the EU. Conte has now tried histrionics to get his bailout, which won’t actually solve anything, because he’s aligned with the Euro-integrationists. What his country needs is a new currency and different leadership.

But he’s held onto power because his opposition would have already broken with the EU.

Like the obsequious worm that he is, instead of doing the right thing, issuing mini-BOTs, to free up domestic liquidity issues, Conte is looking at putting up the whole of the Italian government’s holdings as collateral against new debt to pay for stimulus of Einsteinian proportions.

This is the ultimate sellout of Italy to the EU. As a proposal it is the ultimate betrayal of the Italian people. These buildings and infrastructure are their legacy and they will be sold as collateral to loan sharks as opposed to reclaiming their national dignity.

There is no market for these bonds. So,who will buy them? The ECB.

Who then owns all of this property, ultimately?

The ECB and therefore the EU.

This is a proposal designed for Merkel to take back to home to the Bundestag and sell to the German people. If they bail out Italy, they will get something in return for their risk.

It’ll be just like they did with Greece in 2015, except then it was Germany forcing this upon them rather than the satrap Italian government offering themselves up like lambs.

But even with this desperation attempt to find buyers for their debt, Italy is facing a bleak future without serious reform.

And the odds are about equal at this point as to whether Germany or Italy breaks the EU. Because neither side can live with the other under the other’s terms.

At it’s core, however, this fight is a symbolic one over the continued belief that government can provide the solutions to our problems rather than being the source of them in the first place.

Socialized markets with bureaucratic controls are incapable of reacting in real time to swiftly changing conditions. No amount of helicopter money will change that. No amount of taxation as social engineering tool will create preferred outcomes.

Because remember when you advocate for things like that, you’re putting in charge of those taxes the same people who are mismanaging them now. Our governments aren’t staffed and run by angels. These are the same misinformed, mal-educated, biased, myopic, flawed people as everyone else.

In short, they are human.

And they have the same pretense to knowledge everyone else does. And they will make the same mistakes as everyone else. Under the pressure of outrunning the Abyss the character of the people in charge of the money reveals itself.

All that does is create the false signal of stability while perpetuating systems that are wholly inadequate to the job. COVID-19 has exposed them ruthlessly.

And still the Abyss stares back, like an implacable kidnapper, demanding its payday. Because there is no escaping the it.

So, while you can chuck funny money in there for as long as you want it doesn’t create value. It doesn’t produce sustainable outcomes. It produces theft and graft, it extends the grift, bails out the unproductive and punishes those that honestly went about their business.

Digging holes and filling them in doesn’t produce wealth anymore than breaking a window stimulates aggregate demand for glass.

It just creates an accounting fiction which costs twice as much as having not dug the hole or broken the window in the first place. It may delay the Abyss from swallowing you until tomorrow.

Until, of course, you run out of time.

And then there won’t be enough credit in the world to keep the engine of the world from sputtering and dying. That’s when real leadership is needed.

Be seeing you

 

 

 

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Doug Casey: The Democratic Party Is a “Freak Show” – Casey Research

Posted by M. C. on May 18, 2019

No, to come up with ideas like hers means that you’re purposefully trying to create a disaster; that’s the definition of an evil person.

You only have to look at John Bolton to know progressives don’t have a on lock on freaks.

https://www.caseyresearch.com/articles/doug-casey-the-democratic-party-is-a-freak-show/

Justin’s note: Elizabeth Warren could cost America trillions of dollars.

Warren is, of course, a Democratic senator from Massachusetts. She’s also running for president.

And like many fellow Democrats, she’s full of wacky ideas. Most recently, she made waves by saying she wants to forgive more than $1 trillion worth of student loans if she becomes president. She also wants to issue reparations to African Americans, which could also cost trillions.

These sorts of ideas used to be considered extreme. A candidate would get laughed out of the race for suggesting them. But those days are over.

A recent poll found that just 27% of Americans oppose Warren’s debt forgiveness plan. As for reparations? Well, fellow Democratic presidential candidates Bernie Sanders and Kamala Harris both support the idea.

Of course, not everyone’s a fan of these ideas. Doug Casey is one of those people. Below, Doug tells me why these ideas are not only ridiculous but destructive. He also tells me why he thinks Warren is part of a much bigger problem.


Justin: Doug, what do you make of Elizabeth Warren’s plan to forgive student loans? Surely, student loans are a major problem.

But I’m not sure this is the best solution. What do you think?

Doug: Well, it makes perverse sense that she’d suggest something like this. After all, a new Democratic presidential candidate enters the race every day now. I think we’re up to 22 candidates now. But who’s counting?

They seem to be competing with each other in an actual freak show. The Evil Party is trotting out its most bizarre nomenklatura, each trying to outdo the other in being socialist, black, queer, transgender friendly, or a professional female. By which I mean a female who parades as a female for a living. They’re vying over who has the most outlandish, rabid and nonsensical ideas about how they’re going to transform the very nature of what’s left of the United States.

Meanwhile, the Stupid Party, the right wing of the Demopublicans, populated by neocons, has-beens, and assorted non-entities, seems mainly interested in hyping the stock market with phony money, and looking for a major war somewhere in the world.

Alexandria Ocasio-Cortez (AOC) kind of set the tone for all this. It amazes me that a 29-year-old Puerto Rican bartender comes from out of nowhere, apparently as a result of an actual casting call, and now everybody in the country takes her ideas seriously.

Perhaps the most stupid of her ideas is Modern Monetary Theory (MMT). This basically amounts to unlimited printing of dollars.

All these other candidates have to call her bet, raise it, and wait for the next player to reraise. They all have some signature goofball idea at this point… Read the rest of this entry »

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