Dismantle NATO, or at Least Get Out
Biden is Calling Up Military Reserves…Are Your Kids Next?
As a rule, US war reporting since Vietnam has been mostly mainstream media cheerleading the mission rather than digging beyond government war propaganda. After all, it was images of American boys coming home in body bags shown on the six o’clock news across America that finally galvanized mainstream opposition to that war.
The Pentagon learned its lesson by the first Gulf War, and it severely restricted up-close media coverage. Only “trusted” journalists were able to report from the front lines. Most of the press corps wrote up stories based on US military press releases from luxury hotels in Baghdad.
By the time of Gulf War II the Pentagon came up with the concept of “embedding” select journalists with the troops. This allowed the story to be framed by the Pentagon with the false impression that actual journalism was taking place. It felt authentic, because the journalist was with the troops and close to the action, but the story presented what the Pentagon wanted to be presented.
This is perhaps a long way of pointing out that US mainstream media coverage of the war in Ukraine leaves a lot to be desired. Yes, sometimes the truth does slip out in publications like the New York Times, which reported last week that in just the first weeks of Ukraine’s “counter-offensive” at least 20 percent of the weaponry and equipment donated by the US and NATO has been destroyed.
However, usually what the mainstream media serves up are Pentagon and neocon talking points. Russia is losing, they report. Russia has already lost, as Biden said recently. Most Americans don’t go out of their way to listen to actual experts like Col. Doug Macgregor, who from the beginning has been telling a very different story. Thus Americans continue to be fed propaganda.
There is a funny thing about propaganda, though. Sometimes it comes face-to-face with contradictory reality and is shown to be nothing but a pack of lies.
Take for example last week’s shocking report that President Biden has signed an order to mobilize 3,000 US military reservists for deployment to Europe in support of the 2014 “Operation Atlantic Resolve.” What is Atlantic Resolve? It was launched in the aftermath of the US-backed coup in Ukraine and the ensuing unrest under the US-installed puppet government.
So, if Russia is losing – or has already lost, as Biden said last week – why has it suddenly become necessary to call up US reserve forces? Well, in the midst of one of the most serious US military recruiting crises ever, it seems Washington does not have sufficient troops for its anti-Russia mission in Ukraine. So what is the mission and why does it seem to be creeping toward sending more Americans close to the battle zone? No one in the Administration seems interested in explaining it and no one in the US media or Congress seems interested in asking.
We are on a very slippery slope, with Biden’s neocons continuing to escalate in the face of massive Ukrainian losses and an apparent shortage of US troops. Make no mistake, if the US/NATO proxy war with Russia is not halted the next step will be to look at the US Selective Service. That means they are coming for your kids. How long before America wakes up and says “NO”?
Study for a PhD at the University of Manchester
It’s no secret that Austrian economics is flourishing around the world and that more students than ever are searching for careers that will allow them to contribute to the Austrian tradition. However, students often ask where they can go to study Austrian economics at the PhD level in preparation for teaching and researching in academia, or for work in the non-profit sector or in business generally.
Thankfully, there are now a variety of options available, but one pathway that is especially important, and which is also one of the fastest-growing routes, is to pursue a PhD in management. Thanks to the pioneering work of people like Peter Klein, Austrian economics is flourishing in business schools, in entrepreneurship and in various other management disciplines, and Klein and scholars like Per Bylund now actively support doctoral research at their respective universities.
In addition to those programs, I want to invite prospective students to consider studying for a PhD at the University of Manchester in the UK.
Why study at Manchester?
Our doctoral program is open to students from anywhere in the world, and it offers a variety of advantages and benefits to graduates.
First, studying for a management PhD at Manchester gives you the opportunity to develop serious research within the Austrian tradition that is actually supervised or co-supervised by an Austrian. The PhD is in management, and there are many potential research topics related to Austrian economics that are well-suited to this line of study. (You can see some of my work here for a few examples.)
Second, the University of Manchester’s brand is strong and globally recognized: not only does it have an excellent reputation among higher ed institutions in the UK, it’s also usually ranked among the top 30-70 universities worldwide. A PhD from Manchester is thus highly valued, and it positions students quite well for careers in academia, non-profit work, or in business or finance.
Third, Manchester is a terrific place to live, especially for students: in addition to its historical significance as the cradle of the industrial revolution and the birthplace of the free-trade movement, today it’s a cultural and a technological center with all types of music scenes, night life, etc. (not supervised by me). It has an enormous student population and is substantially cheaper to live in than London, and it’s regularly voted one of the best cities to live in the UK and in Europe.
What are the entry requirements for the program?
One major difference between doctoral study in the UK as compared to the US is that in the UK you will develop a detailed (3,000 word) research proposal to be submitted with your application. This proposal will serve as the basis for your doctoral thesis should you be accepted to the program.
A second important difference is that applicants to the PhD program must generally hold a bachelor’s and a master’s degree from a suitably accredited university.
Funding is available for qualified students who apply early enough. Other details about admission requirements, costs, scholarships, and application deadlines can be found here.
If you are interested in studying at Manchester, please contact Matthew McCaffrey at matthew.mccaffrey@manchester.ac.uk to discuss the program and potential research proposals.
How to Stop Woke Bankers from Discriminating against the Unwoke
Last year, Paypal corporation announced that it was going to "fine" users (i.e., steal their money) to the tune of $2,500 for "the sending, posting, or publication of any messages, content, or materials” which “promote misinformation.” Well, Paypal didn't "announce" the policy so much as try to sneak it into the fine print. When the company was caught in the act, however, management then claimed it was all just a big mistake.
Sure it was.
Unfortunately, Paypal is not the only financial organization that has shown an interest in punishing or "debanking" customers for political or ideological reasons. In 2021, The Hill reported on how the banking sector was showing a willingness to cut off entire industries from financial services to appease certain activists. These industries include fossil fuel extraction firms and gun manufacturers.
Big banks have been shown to attack certain non-profits in this fashion as well. Earlier this year, Former US Senator Sam Brownback explained that JP Morgan Chase had shut down, without explanation, its account with Brownback's organization The National Committee for Religious Freedom. The bank demanded a list of the organization's donors before it would reinstate the account, although no such thing is required by law. JP Morgan's senior management is now fighting stockholder efforts to investigate why the bank shut down the account.
These debanking efforts by activist bankers pose an enormous threat to ordinary people. Activist bankers could simply cut off dissident organizations from their money should these organizations sponsor the "wrong" event or publish the "wrong" opinion.
This is a type of discrimination. Yet, the usual "answer" to discrimination pushed by social democrats—i.e., employing the Equal Protection Clause—is not something we can support. After all, a truly private organization ought to be free to discriminate against whomever it wishes. No respect for basic human rights (i.e., property rights) is compatible with claiming that the federal government can sue and shut down businesses for "discrimination." And yes, a truly private college should be free to discriminate in favor of non-whites if it wants.
Some aspects of anti-discrimination law are exactly right, however, and these we can support. For example, Title VI of the Civil Rights Act, for instance, protects people from discrimination (based on race, color or national origin) in programs or activities that receive federal money.
This is applicable to the problem of "debanking" because much of the banking sector is heavily reliant on federal assistance, and many of today's major banks likely wouldn't even exist if it weren't for federal banking bailouts and easy money from the central bank (a de facto federal agency). Federal largesse for America's big banks has become nearly constant, in fact. These banks' portfolios are propped up by Federal Reserve purchases of mortgage-backed securities and Treasurys. In recent months, the federal government has also helped shore up banks' solvency by effectively guaranteeing all deposits, far in excess of the statutory limit of $250,000. The claim that the FDIC is an "insurance" program makes less sense than ever. It's now simply a mechanism for helping big banks hold on to depositors. And then there are the bailouts. In the wake of the 2008 financial crisis, the federal government granted enormous loans to virtually all of the nation's big banks while buying up bank stock to bail out the industry. Since then, bankers have also received (from the Federal Reserve) enormous sums in interest payments on bank reserves. This has created larger tax bills for taxpayers and higher inflation rates.
READ MORE: "Yes, the Latest Bank Bailout Is Really a Bailout, and You Are Paying for It" by Ryan McMaken]
Without these bailouts, many of these banks would have ceased to exist altogether. Their assets would have been auctioned off, and housing prices would have fallen. First-time homebuyers would not now be looking as astronomical housing prices so that billionaire bankers can keep collecting a handsome return on housing securities propped up by federal spending. To this day, however, bankers will peddle their official propaganda line that this wasn't a bailout because the banks paid back these special sweetheart loans. This is a dishonest way of spinning it, however. The purpose of the loans was to keep the current crop of incompetent bankers in business so that their firms would not go bankrupt. That would have allowed smaller, more efficient entrepreneurs to take over the failed bank's assets at lower prices. This would have benefited all consumers by reducing prices and cleaning out the old crop of failed bankers. Instead, the bailouts ensured the same cronies remained in power even as their firms failed. Those same people (or their friends) continue to be in charge today.
What this all means is that bankers at the big banks have been protecting their riches on the backs on taxpayers. Yet, these same bankers have the chutzpah to also think they ought to be able to discriminate against their own customers should those customers engage in politically "objectionable" activities.
Since many bankers believe it's perfectly fine to steal from taxpayers while also attacking taxpayers who won't toe the regime party line, Congress should make it clear that discrimination under Title VI includes discriminating against people or organizations based on their political or ideological views. Thus, organizations like the big banks that are on the dole and benefit from taxpayer exploitation can no longer refuse service to any customer because that customer makes guns, or questions the official covid narrative, or owns an oil well. The same would apply to the major airlines the auto companies, AIG, Fannie Mae, and any other organization that sucks the taxpayer dry every time there is a recession or financial crisis.
Of course, an even better solution would be to end the entire federal and financial apparatus that keeps today's plutocratic banker class in power. Federal banking regulations overwhelmingly favor huge banks at the expense of smaller community banks. The total number of banks in the US is shrinking as banks like JP Morgan Chase gain ever-greater monopoly power. Banks that try to introduce more sound banking practices, like Custodia bank, are denied federal approval while large federally-favored banks enjoy fast-tracked access to federal policymakers. The feds' too-big-to-fail doctrine ensures ever more capital flows to only the largest banks.
The result is less market competition and less choice for consumers, which allows woke bankers to more effectively silence those with "incorrect" ideological views.
The Traffic We Endure Is a Sad Sign of Public Roads
Traffic in our major cities is grinding to a halt. This is especially true during morning and evening “rush” hours (scare quotes around this word since no one is rushing around anywhere, apart from bicyclists and roller skaters, who are just about the fastest movers in this system). All too often, however, this period stretches from 7 am to 7 pm, with barely a diminution during this period of time.
Nor are large cities the only ones suffering from this transportation malady. Here is a case in point: just try moving from the 520 to the 405 in the state of Washington, near Seattle. There are literally miles of cars just creeping along, patiently waiting their turn.
What has government, the owner and manager of our vehicular transportation system, done to rectify this frustrating situation? It has whined to the business community to stagger hours of work. It has urged motorists to car-pool or take buses. But to no avail. There is no evidence whatsoever that this jaw-boning has had any success.
It has also set up express lanes the use of which is limited to vehicles with two or more occupants. This too has failed, since, often, there is back to back traffic on them, too. Further, who is it more important to get to where they are going? Five busboys or cleaning ladies who earn $20 per hour each, for a grand total of $100 hourly, or one doctor, or businessman whose time is worth $500 per hour? Our present rules and regulations vitiate in favor of the former, not the latter. This is due to the fact that express lanes on highways give the nod to automobiles with two or more occupants. The former low wage earners would qualify, but neither of the latter two would do so. They would be confined to one of the bumper to bumper lanes, cooling their heels, while the marginal workers would whiz on by. This brings to mind Thomas Sowell’s famous statement: “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.” Who is in charge of this present irrational system? Bureaucrats in the Department of Transportation.
How would private enterprise handle this challenge? Please do not stop reading at this point, horror struck by the idea that entrepreneurs could actually own and manage our system of streets, roads and highways. Our very first thoroughfares were run on this system. Charges were based on the number of axels, and horses. Even the width of the wagon wheel was considered in the pricing system. The owners of thin wheeled vehicles, think ice skates, were charged more, since they dug ruts into the dirt road. And even nowadays, capitalists run long thin things such as railroads.
First of all, under capitalism, there would be competition. Those entrepreneurs who failed to satisfy customers would tend to go bankrupt, leaving the field to more efficient providers, a la Sowell. So what would the private owners do? Simple. They would raise prices and continue to do so, until traffic moved during periods of high demand; this would presumably be as something of the order of 40 miles per hour, the speed that maximizes road usage, and hence, ceteris paribus, profits.
In other words, the owners would borrow a leaf from practically every other industry under the sun. They would engage in peak load pricing, as do hotels, movie theaters, ski resorts, etc.
What about the poor? Would this not be unfair to them? They would have to car pool, or patronize buses, or use less crowded streets instead of the highways. They would be subjected to staggered work hours. They would also gain from the fact that the economy would be far more efficient in terms of transportation.
The only real contribution made by government to transportation arteriosclerosis stemmed from its reaction to covid: pretty much shut down virtually everything. With very little traffic on the road, automobiles moved more slowly. But with this disease now, happily, in the rear view mirror, that “contribution” can no longer be made. The best way forward is privatization.
This originally appeared on Real Clear Markets and was reprinted with the author’s permission.
Hotelier Checking Out
While the jobs report came in less than hot, Reuters still described the labor market as “still-tight” on the first Friday of July. Fed Chair Jerome Powell and the other experts in charge of destroying jobs and job opportunities for common folk will no doubt raise rates this month and next.
Higher rates have already taken a toll on real estate investors and now hoteliers. Bloomberg reports “Ashford Hospitality Trust Inc. expects to return 19 hotels to lenders in cities including Las Vegas and Atlanta.” Hotels brands expected to be returned include Residence Inn, SpringHill Suites, and Marriott. The company issued a statement that the underperforming properties “are located in markets that have experienced significant headwinds throughout their post-pandemic recoveries, and a number of these markets are not forecasted to reach pre-pandemic topline levels until 2025 or 2026.”
It’s hard to imagine the cluster of these properties in Las Vegas not doing well, being located just down the street from Allegiant Stadium. But, the statement is likely corporatespeak for “the properties are over-indebted with variable-rate debt and that rate has more than doubled in the last year putting the properties underwater.”
Ashford’s lenders are requiring a paydown of about $255 million to extend the financing and $80 million in capital expenditures through 2025, according to Dallas-based Ashford Trust. “The equity in the properties is already negative, based on comparable sales and brokers' opinion of value, according to the statement,” writes Bloomberg’s John Gittelsohn.
Ashford will not throw good money after bad. “At this time, it appears that the most likely outcome will be a consensual transfer of these hotels to the respective lenders,” the company said in the statement.
Ashford made a $121 million payment in June to extend a mortgage on four other hotels, reducing the outstanding mortgage debt by 33% to about $249 million and is currently working out deals to extend the debt on 15 other hotels in the portfolio by providing a total of $129 million in paydowns.
So many properties to save and only so much capital to do it with.
More loans are coming due in November, a Morgan Stanley loan pool secured by 17 hotels. “We currently believe that the loan should be able to be extended with no paydown required,” Rob Hays, Ashford Trust’s president and chief executive officer, said in the statement.
What Chairman Powell and the rest of the open market committee does in the meantime will have something to say about that.
Basel III Endgame
Earlier this week Federal Reserve Vice Chair for Supervision Michael S. Barr delivered a speech called Holistic Capital Review, sharing thoughts on the banking sector's existing capital requirements imposed by the Fed.
He firmly stated:
… the existing approach to capital requirements is sound.
Illustrated through nondescript mentions, despite this alleged soundness, he did find some ways to improve the fatally flawed system:
With respect to risk-based requirements … The international standards were developed through a rigorous, lengthy process, have been under discussion for nearly a decade and will improve on the extent to which capital requirements fully reflect the risks posed by different banks engaged in a variety of activities.
There is a pattern of first mentioning that everything is fine followed by ways to make improvements:
With respect to stress testing, I believe that the stress capital buffer framework is sound. At the same time, I believe that the stress test should continue to evolve to better capture risk.
It’s all part of the plan, literally! They call it the Basel III Endgame, explained by the Vice Chair:
An important aspect of my proposals will be to implement the changes to the risk-based capital requirements, referred to as the Basel III endgame, which are intended to ensure that our minimum capital requirements require banks to hold adequate capital against their risk-taking.
It comes off rather vague. But central bankers could force banks to have stricter capital requirements, such as holding more cash, or attempting to get banks to engage in less risky behavior, as defined by regulators.
In the eyes of the regulator, banking failures such as Silicon Valley Bank (SVB) seem more to do with the bank's faulty capital structure than problems caused by the Fed. As explained:
Some industry representatives claim that inadequate capital had nothing to do with those bank failures. I disagree. It was an unsuccessful attempt by SVB to raise capital that caused uninsured depositors to look more closely at how the bank was capitalized.
He went so far as to say:
If SVB had enough long-term debt outstanding, it might have reduced the risk of a run by uninsured depositors…
When it comes to diagnosing problems within the banking system, we cannot trust a central banker to blame the organization paying his salary. However, the takeaway from this would be the continuous need for regulatory and supervisory enhancements in the system. We are expected to believe these improvements in capital structure will ensure the prevention of future bank failures, as if this will mark the final implementation of rules for time on end.
Whatever they decide, they should not call it an endgame, as this game is not meant to end.
Ahoy! Loans Overboard!
Like ships taking on water, banks are throwing assets overboard trying to stay afloat. PacWest sold $3.5 billion in lender finance loans to private lender Ares last week. The Financial Times reports, “Ares paid $2.01bn in cash for the first tranche, less than its principal balance of $2.07bn. PacWest had previously raised $2.36bn by selling construction loans to real estate investors Kennedy Wilson.”
“There are currently a lot of portfolios changing hands. It’s not just PacWest,” said Joel Holsinger, co-head of alternative credit at Ares. “This is the first inning. They [banks] are selling the assets that are their highest-quality assets and that are short-duration and floating rate.” Some quick math on the $2 billion sale looks to be a 3% hit to PacWest on their best loans.
Holsinger continued more soberly, “The next wave will likely involve the bid-ask spread coming down and will likely include non-core bank assets. Banks are asking themselves: what do I have that I am not going to be in, longer term, when I streamline my business?”
Remember, banks on their best day don’t have much capital, so selling loans even at slight losses can’t continue. But with deposits leaving and bank share prices cratering, even performing loans are being sold in bulk at a discount. The FT’s Brooke Masters writes, “The trend is particularly pronounced in the real estate sector, where a large number of banks including HSBC’s US arm are considering discounted offers for their portfolios even when borrowers have not fallen behind in making payments. The volume of real estate loan sales ran four to five times ahead of preceding years in the first four months of 2023, according to LightBox RCM, a global market for such loans.”
Ari Rastegar, who heads an eponymous real estate investment group, told the FT, “We will continue to see loan portfolios transact, potentially more so than at any other time since 2008. This is a systemic move by banks to gain liquidity and de-risk.”
Even Goldman Sach took a $470 million loss selling loans in the first quarter.
Why Shouldn’t a University Be Free to Adopt Affirmative Action?
Not surprisingly, right-wingers are celebrating the Supreme Court’s decision to declare affirmative-action policies at American universities to be unconstitutional. In the process, conservatives fail to recognize that they are, at the same time, celebrating the further destruction of American liberty and private-property rights.
After all, why shouldn’t a private university, like Harvard, be free to establish any policy it wants for admitting students? It’s their university, isn’t it? Why should the Supreme Court wield the power to dictate to a privately owned institution what it can and cannot do?
[READ MORE: "The Affirmative-Action Ruling Strengthens Vast Federal "Anti-Discrimination" Powers" by Ryan McMaken]
We can all agree that we don’t want a state entity to discriminate on the basis of race, color, creed, national origin, or sexual proclivity. But in a genuinely free society, private individuals should be free to exercise the fundamental, God-given right of freedom of association and to run their businesses the way they want.
Thus, if a privately owned university wants to give preference to certain racial groups, it should be free to do so. Sure, people might disagree with that decision but that doesn’t mean that the government should wield the authority to interfere. If people disagree with a certain policy set forth by a university, they can go elsewhere. Consumers can also protest, ostracize, or publicly condemn a university with whose policies they disagree. The university is free to modify its policy in response to consumer sentiments or instead continue maintaining it. That’s how things work in a genuinely free society.
So, why does the Supreme Court wield the authority to dictate to a private university what its admission policy is going to be or not be?
The answer is that most private universities accept government funds and their students receive government grants. That simple little act or going on the state dole provides the federal government, including the Supreme Court, with the ability to exercise dictatorial power over how a private university is going to be run.
Americans have become so accustomed to state-owned universities and colleges and state-supported colleges and universities that hardly anyone questions it. They are now accepted as a permanent part of American society. Thus, neither conservatives nor progressives challenge the higher-education status quo.
Yet, it should be challenged, not only because it’s an immoral policy but also because it provides the government with the power to dictate the manner in which colleges and universities are operated.
Let’s assume that John Doe University needs $100 million to operate. It depends on $40 million in tuition and $60 million in donations. It raises the $40 million in tuition but after extensive fundraising it is only able to raise $20 million in donations.
So, it runs to the state and exclaims, “The citizenry are selfish. They only want to give us $20 million. Please tax them $40 million and give the money to us.” The state complies.
Where is the justice in such a process? Why shouldn’t people be free to decide for themselves what to do with their own money? If they don’t wish to donate to a particular college or university, then why should they be forced to do so? How can being forced to do so be reconciled with the principles of freedom?
What if the college has to go out of business? Then, so be it. If a business cannot satisfy consumers or donors, then it goes out of business. That’s partly what a free market is all about.
Hillsdale College in Michigan has long had a policy of not accepting state funds. As such, neither the state government nor federal government, including the Supreme Court, wield the power to control or regulate Hillsdale in any respect.
Many years ago, the feds, unable to countenance this oasis of educational independence from state control, declared that the federal government was henceforth going to control and regulate Hillsdale’s admission policies. Their justification? The feds said that because Hillsdale students accepted government grants, that gave the feds the power to regulate Hillsdale’s admissions office.
The federal courts agreed with the government’s position. So, what did Hillsdale do? It prohibited its students from accepting government grants. And then it raised enough money through voluntary donations to replace all the government grants. Today, much to the chagrin of the feds, Hillsdale operates totally independently — that is, without any government control, supervision, regulation, or oversight whatsoever.
In other words, Hillsdale is not subject to the Supreme Court’s recent ruling on affirmative action. The school is free to adopt any admissions policy it wants, including affirmative action.
The Hillsdale model is what we need to do with higher education entirely. We don’t have to accept the long-established statist model of higher education. We can raise our vision to a higher level — one that separates education and the state entirely. Let’s rid our nation of state-owned colleges and universities and state-supported colleges and universities. Let’s leave people free to decide what to do with their own money. And let’s make all colleges and universities independent of government control, including control by the Supreme Court.
Without Inflation, the Status Quo Collapses; With Hot Inflation, It Also Collapses
Many others have explained why inflation is part-and-parcel of the status quo.
In the simplest terms, where's why inflation is essential:
1. Our economy and financial system are totally dependent on the expansion of credit/debt: Banks make money by issuing new loans, and financiers make money by buying and selling debt and instruments that leverage debt. Consumers can only buy big-ticket items with credit.
As a thought experiment, let's consider what would happen to the US economy and financial system if credit was outlawed and the economy was a cash-only marketplace. The government couldn't run deficits by borrowing money, no one could buy a vehicle except with cash, banks could no longer issue $19 of new loans for every $1 of cash they held.
We all know what would happen: the economy and financial system would both crash. Imagine the horrors of living solely on earnings and having to laboriously save up cash to buy a car or home.
2. The problem with credit/debt is it accrues interest: The more we borrow, the more interest we owe. If our income doesn't rise, at some point all our discretionary income--what's left over after paying taxes and essentials--is devoted to debt service, and we can't borrow more. At that point, the economy slides into recession.
3. There are a few policy ways out of this built-in limit on the expansion of credit/debt:
A. The government can borrow trillions of dollars and give every bottom-80% household cash to spend. The problem here is the government debt also accrues interest, and eventually this crimps government borrowing and spending.
B. The central bank can suppress interest rates to near-zero so consumers can free up income by refinancing old debt at significantly lower rates of interest.
C. The central bank can vastly increase the issuance of currency and credit (a.k.a. "liquidity") to generate inflation by expanding the amount of currency and credit chasing goods and services.
Inflation slowly reduces the burden of debt by raising wages while keeping the debt unchanged. For example, back when $2,000 a month was a decent salary, a $600/month home mortgage placed a strict limit on the household's spending.
Fast-forward two decades of "modest" inflation and the average full-time wage has doubled to over $4,000 a month. Voila, the mortgage payment has remained the same (or perhaps been reduced via refinancing) and now the $600 monthly nut isn't much of a burden. In fact, the monthly nut for the new pick-up truck is larger than the home mortgage.
In a truly steady-state economy, wages would only rise with increases in productivity. With productivity increases dawdling along around 1% per year, that's a modest and unevenly distributed increase in earnings. Systemic inflation is a much more reliable and broad-based way of reducing the burdens of existing debt.
A back-of-the-envelope calculation based on official inflation is that 2/3 of the wage increases are inflation-driven and perhaps 1/3 or less is the result of increasing productivity.
We now see why inflation is absolutely essential to a credit-dependent economy and financial system. Without inflation, consumers and the state soon max out their income and are unable to borrow and spend more.
What about savers, you ask? They're sacrificed to support inflation's erosion of the currency's value. Once interest rates have been suppressed to enable more borrowing and spending (known as financial repression), savers are unable to stay even with inflation unless they take on the risks of speculating in stocks, housing, collectibles, etc.
Financial repression in service of maintaining inflation inevitably fuels speculation. The constant drip of inflation in a low-interest era forces everyone to take on risks that few are prepared to manage.
Inflation punishes the commoners in two ways: it erodes the value of their labor, the primary source of their income, and it forces them to gamble in speculative bubbles where the super-wealthy hold all the high-value cards.
But without inflation, the economy and financial system collapse. So the slow erosion of the bottom 80% is a systemic cost of maintaining the credit-dependent economy and financial system. The dependence on inflation to keep credit expanding generates winners and losers, but hey, maybe you'll win big at the stock market roulette wheel.
This dependence on speculation to keep up with inflation has another pernicious consequence: it incentivizes the diversion of capital and talent into speculation rather than into investments that increase productivity. So while capital chases the stock market chimera of AI, the nation's creaky, outdated electrical grid that is the foundation of whatever fantasy-economy speculators are betting on continues on its path to breakdown.
But nothing in the financial realm is ever permanent, and so eventually global risks rise and capital demands a return above zero. This pushes bond yields and the costs of credit higher, crimping borrowing. The profligate expansion of currency and credit also eventually generate real-world inflation as scarcities meet monetary expansion: too much "money" is chasing a constrained quantity of goods and services.
Once inflation heats up, the system starts breaking down as soaring interest rates stifle borrowing. Central banks and private banks can issue new credit, but if few can afford to borrow more, the economy spirals into recession.
With rates rising, the income pump of refinancing is shut down.
The "Goldilocks" economy of the past 30 years was enabled by the deflationary forces of globalization and the vast expansion of credit, a.k.a. financialization. Both of these have topped out and are reversing. Globalization is no longer lowering costs and everything under the sun has already been commoditized and financialized. There's no more pools of "free money" (or free anything) waiting to be exploited.
Real-world inflation is crimping discretionary spending, leaving less to service additional borrowing. Post-pandemic "revenge" splurging has depleted savings, and since all speculative bubbles eventually pop, the inevitable collapse of the Everything Bubble will kick the reverse wealth effect into high gear.
In summary, here's the problem: the system only functions with Goldilocks moderate inflation but that is no longer possible given the changing tides of globalization, financialization, real-world inflation and rising global risks. This leaves those in charge of the status quo system that benefits the few at the expense of the many with no sustainable option other than doing more of what's failed until it fails spectacularly.
Put another way, distorting the entire economy and financial system with financial repression has generated decades of false signals: the system is permanent and sustainable, policies remain effective forever, we can "grow our way out of any problem," and so on.
Eventually policy-makers turn the dials to 11 and nothing happens.
Their supposedly god-like powers are revealed as mere trickery once the real-world intrudes. What were taken as strong signals turn out to be noise.
Some Bank Depositors Get the Smoke, Others the Mirrors
Over dinner the other night a business man mentioned that he had large amounts on deposit in the nation's banks and said words to the effect that there is no way the government will let those deposits which are various company operating accounts go “pfft.”
On that subject, while Silicon Valley Bank’s US deposits have been covered, SVB’s deposits in the Cayman Islands have gone “pfft '' or to be more clear those depositors have become unsecured creditors in the SVB bankruptcy. The bank’s foreign deposits totaled $13.9 billion at the end of last year. “The branch in the offshore tax haven was set up to primarily support the bank’s activities in Asia, according to SVB. Its depositors, which include multiple Chinese investment firms, haven’t been able to access their funds—and have been in limbo since SVB’s collapse,” reports the Wall Street Journal’s Frances Yoon.
Depositors are more than surprised, after all the Federal Reserve Board made a statement after the SVB failure, “After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that ”fully protects all depositors.” (emphasis added)
A spokesperson for Phoenix Property Investors, a Hong Kong-based private-equity firm that had funds in SVB’s Cayman Islands branch told the WSJ “We feel misled and are now doing what we can to recover our deposits.”
Now it’s worse than being misled. Those same deposit customers who have loans outstanding are being told to pay up by loan purchaser First Citizen Bank. Ms. Yoon and Serena Ng write in the WSJ, “Some of those same venture-capital and private-equity funds had previously drawn on credit lines that were linked to their SVB deposit accounts. Their outstanding loans were among the assets that were sold to First Citizens, customers of the bank told the Journal.”
These credit lines are short-term and venture firms planned on paying off those loans with those Cayman deposits that are, for the moment, “pfft.” Customers have reasonably asked First Citizens if their loans can be set off with the deposits that the funds had in their Cayman bank accounts. A First Citizens spokeswoman said a setoff “isn’t legally possible in this situation” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank, reports the WSJ.
Sounding just like an acquiring bank, First Citizens said requests for additional credit-line increases will no longer be approved by First Citizens. “First Citizens did not retain a banking presence in Asia, which is the basis for the decision on credit line increases,” a spokeswoman for the Raleigh, N.C.-based bank said very banker-like. Bankers alway have an excuse.
The FDIC can decide what deposits live and which ones die. For now, the deposit insurer has told SVB’s Cayman depositors they can file unsecured claims in the bankruptcy by July 10. The receiver (FDIC) has up to 180 days to determine whether to allow the claims, according to a notice sent by one of SVB’s customers to its investors.
Murray Rothbard wrote in The Case Against The Fed, “the Roosevelt Administration unsurprisingly went in the opposite direction: plunging into massive fraud upon the American public by claiming to rescue the nation from unsound banking through the new Federal Deposit Insurance Corporation (FDIC). The FDIC, the Administration proclaimed, had now ‘insured’ all bank depositors against losses, thereby propping up the banking system by a massive bailout guaranteed in advance. But, of course, it's all done with smoke and mirrors.”
Some depositors get the smoke and some get the mirrors.
Dismantle NATO, or at Least Get Out
The United States and other countries are debating whether to admit Ukraine into NATO which, of course, would virtually guarantee an all-out nuclear war between the United States and Russia. I’ve got a better idea: Dismantle this old Cold War dinosaur, or at the very least, the United States should withdraw from it, which would undoubtedly lead to its demise anyway.
NATO was formed after World War II to ostensibly protect Western Europe from an invasion by the Soviet Union. The organization was part of the overall Cold War campaign of anti-communist fear-mongering that was used to convert the United States to a massive national-security, military-intelligence nation.
The Soviet Union, which — let us not forget — was a partner and ally of the United States during World War II, was totally devastated by the end of the war, owing to the massive deadly and destructive invasion of the country by Nazi forces. Thus, the notion that the Soviet Union intended to invade Western Europe was always ridiculous, especially since it was a virtual certainty that the United States would come to the defense of Western Europe. Why would the Soviets want to go to war against the only nation that had nuclear bombs and the willingness to use them against populated cities?
The notion that the Soviets were going to invade Western Europe was based on the refusal by the Soviet Union to terminate its brutal military occupations of Eastern Europe and East Germany. What U.S. officials conveniently forgot is that President Franklin Roosevelt had agreed that the Soviets could maintain control over those countries in order to serve as a buffer against future German invasions of their country.
Regardless of where one stands on the Cold War racket that so greatly benefited the Pentagon, the military-industrial complex, the CIA, and the NSA with ever-increasing power and taxpayer-funded largess, one thing is crystal-clear: When the Cold War ended and the Soviet Union dismantled, the justification for NATO came to an immediate end. At that point, the old Cold War dinosaur should have been put down.
But as everyone knows, that’s not what happens with big, long-standing bureaucratic entities. Instead, they will fight tooth and nail to remain in existence, desperately searching for new justifications for doing so. That’s what NATO, which, of course, was operating under the control of the Pentagon, did.
Unfortunately, but not surprisingly, the NATO-Pentagon bureaucrats were not willing to settle for mere continued existence. They were dead-set on reviving their old Cold War racket, especially since they knew that their new “war-on-terrorism” racket was likely to begin fizzling out down the road.
That’s when they began using NATO to absorb former members of the Warsaw Pact, which would enable them to install U.S. military bases, missiles, troops, and armaments ever-closer to Russia’s borders. They knew that at some point, Russia would react and — voila! — they would have their old Cold War racket back, along with all the anti-Russia hatred and fear-mongering that they would, once again, inculcate into the minds of the American people.
No one can deny that that has been one great big new Cold War “success” story. The only thing missing is another anti-communist crusade. But, hey, don’t fret — they have Red China for that.
Reprinted with permission from The Future of Freedom Foundation.