Central Banks Buy Gold, Baltic Dry Index Sinks

Central Banks Buy Gold, Baltic Dry Index Sinks

02/13/2019Doug French

David Rosenberg tweeted a graph of the plunging Baltic Dry Index with the comment, “Is there a more deflationary chart than the Baltic Dry Index of global freight rates?”

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Perhaps, or there is the New York Times business headline, “ Some Central Banks Have Gold Fever, and It Might Be Sensible .”

However, central banks are notoriously bad in timing gold purchases.

Swaha Pattanaik slams gold enthusiasts while praising central bankers.

Gold bugs aren’t always rational. That’s not the case for central banks, whose purchases of the yellow metal last year were the highest since the United States broke the link between gold and the dollar in 1971.


Pattanaik gives us the numbers.

Central banks bought 651.5 tonnes of gold in 2018, the second highest annual total on record and up 74 percent from the year earlier, according to the World Gold Council. As in the past three years, Kazakhstan, Russia and Turkey were significant buyers, but were last year joined by the likes of Hungary, India and Poland.

Gordon Brown’s infamous sale of UK gold cost the Bank of England nearly £5 billion.

Christopher Hope wrote for The Telegraph in January 2009,

The sale of more than half of the country's gold reserves between 1999 and 2002 has proved to be deeply controversial. Critics say that signalling such a large sale of bullion to gold traders helped to drive the precious metal to a 20-year low. In 17 auctions, Mr Brown as Chancellor of the Exchequer sanctioned the sale of 395 tonnes of gold.

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Is Price Gouging a Problem?

Is price-gouging wrong? For many, this practice does not exactly seem to be ethical. So, there is a moral angle here which suggests that raising prices of goods such as toilet paper and bottled water when a hurricane cuts off supply—and forces the market into a shortage—is not the most humane practice.

The economic angle, which is more important for policymaking, views price-gouging as a regular supply-side response to a shock. The economics around this practice suggests that price-gouging is not only reasonable, but it also serves many crucial economic purposes.

Why Price-Ceilings Are Illogical

In free and competitive markets, prices are signals. If you have ever laid eyes upon the supply and demand graph found in Econ 101 textbooks, you understand what I speak of. Consumers demand goods based on price. Suppliers produce them after being encouraged or discouraged by the same. When governments step in and cap prices during emergencies, this signaling property of market prices under this free-market mechanism is heavily distorted. Consequently, people lose the incentive to ration resources when they need to be rationed the most.

When governments jump in to “remedy” shortages during crises by enacting anti-price gouging laws, they create unintended consequences such as hoarding. If I am a consumer who learns that a pack of 12 toilet paper rolls has been capped at eight dollars in a situation where an unhindered equilibrium price could easily be 20 dollars for each such pack, I have every reason to rush to stores and buy many more rolls than I could use in a month, assuming my digestive system remains agreeable. What would happen if all consumers in my area made similar runs to stores? I hope this question drives the point closer to home.

You guessed correctly. Now local shelves are being emptied even faster of toilet paper rolls, and the shortage that could have been managed and mitigated has been aggravated! If toilet paper rolls are indeed 20 dollars a pack in a “disaster” market without a government-imposed cap, people will ration their stocks more judiciously and buy only what they need. Stores will be able to serve more people, thus alleviating the problems caused by the shortage.

People will spend 20 dollars on a roll only if they need it, rather than panic-buying an unscientific quantity at capped prices. In trying to help disaster-struck populations, the government leaves them worse-off by implementing anti-price gouging rules.

Policymakers also need to understand that nothing is stopping a handful of people who get to the stores first from buying out the entire stock and selling them to the unfortunate majority at prices much higher than what these consumers would have paid in an unfettered local market. Since these individual “profiteers” can easily find a way to price-gouge despite formal price caps, it is much better to let stores distribute essential items at a competitive equilibrium through formal channels, even if it is at a higher equilibrium price.

Supply Side Arguments

A description of consumer responses to the capping of prices ensured by anti-price gouging laws does not complete the picture. We must consider the supply side of production and supply during crises such as hurricanes to fully understand why price gouging is a natural, legitimate, and beneficial economic adjustment. When prices rise, producers are motivated to produce more. This increase in production, if you recall, can be observed by moving up along the supply curve.

What happens when the price of an essential item is capped in a region that needs that item much more than others? If a production manager learns of this situation, she has no economic incentive to increase the supply of that much-needed good to that particular region. Without a legal intervention that imposes a price ceiling, higher prices would naturally motivate suppliers to supply more, thus easing shortages in desperate regions.

Prior Research and Empirical Evidence

The scope and length of this article limit my ability to guide readers through a quantitative process of measuring the harm caused by legislation against price gouging. However, I would like to defer to research published by academics with a much deeper knowledge of economics and policy than I can claim to have.

Montgomery, Baron, and Weisskopf noted in a paper published in 2007 in the Journal of Competition Law & Economics that, in cases that were thought to be the producy of deliberate attempt to engage in price gouging, it was actually the case that  “price increases were due to the normal operation of supply and demand and not market manipulation.”  The authors were evaluating the aftermath of hurricanes Katrina and Rita in drawing conclusions regarding anti-price gouging laws.

An analysis of the two-month period of price increases following Rita and Katrina revealed to Montgomery, et al the economic benefits that were realized from a lack of anti-price gouging laws at the time in 2005. The economic damages in presence of these laws, the authors estimated, would have been between $1.5 billion and $1.9 billion.

Of course, the morality of increasing prices during floods, hurricanes, or other emergencies can still be questioned, but when governments target price gouging, morality is not the backbone of their legislations. Since economic wellbeing is the intended target of these anti-price gouging laws, the best way for these laws to accomplish their goals is to stop existing. We can keep debating whether said price manipulations are the right thing to do, but at least we can have these debates without the discomfort of cutting our paper towel rolls in half (or into thirds in some cases) to fulfill our toilet paper needs.

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From Christianity to Black Power, Rothbard Offers a Unique View

04/08/2021Lipton Matthews

Judged by the sheer quality and volume of his intellectual output, Murray Rothbard was a genius. Though we reflect on the ingenuity of his peculiar intellect - we must never forget that Rothbard was the master of defying stereotypes. Unfortunately, many assume that libertarians are hostile to Christianity, but it was Rothbard who admitted that “The greatest and most creative minds in the history of mankind have been deeply and profoundly religious, most of them Christian.” Rothbard also informed readers that the Spanish Scholastics made a pivotal contribution to economics.

Christianity

Rothbard in several articles and books refuted the uncharitable characterization of late scholasticism as intellectually barren. In his article “New Light on the Prehistory of the Austrian School”, Rothbard asserts that we owe religious thinkers a debt of gratitude for laying the foundations of modern economics. Despite popular belief, late medieval thinkers and not Adam Smith offered the first systematic justification for modern economic theories. Rothbard writes of the scholastics: “It was the sixteenth-century Spanish Scholastics who developed the purely subjective and profree-market theory of value. Thus, Luis Saravaia de la Calle denied any role to cost in the determination of price; instead, the market price, which is the just price, is determined by the forces of supply and demand, which in turn are the result of the common estimation of consumers on the market. Saravia wrote that “excluding all deceit and malice, the just price of a thing is the price which it commonly fetches at the time and place of the deal.”

Notably, the Spanish Scholastics were remarkably sophisticated in applying supply and demand analysis to money. Rothbard writes of the Dominican Martín de Azpilcueta Navarro: “Citing previous Scholastics, Azpilcueta declared that “money is worth more where it is scarce than where it is abundant… Because “all merchandise becomes dearer when it is in great demand and short supply, and that money, in so far as it may be sold, bartered, or exchanged by some other form of contract, is merchandise and therefore also becomes dearer when it is in great demand and short supply.”

This analysis is illuminating because Azpilcueta provided relevant examples: “We see by experience in France, where money is scarcer than in Spain, bread, wine, cloth, and labour are worth much less. And even in Spain, in times when money was scarcer, saleable goods and labour were given for very much less than after the discovery of the Indies, which flooded the country with gold and silver. The reason for this is that money is worth more where and when it is scarce than where and when it is abundant.”

The Black Power Movement

Rothbard was such an objective analyst that he could even appreciate the political aspirations of the Black Power movement. Unlike many on the right, he noted that “the goals and means of civil rights were statist and Liberal to the core.” Rothbard argued that the failure of civil rights to change the hearts of men resulted in an awakening among black activists, who recognized that they could not force racists to tolerate their demands. As a result, instead of lobbying for integration, these leaders thought that it would be prudent for blacks to create communities free of white control and Rothbard supported them in this regard in a popular essay: “The Negroes began to turn, and turn swiftly, from the old Liberal ideal of compulsory integration to another tradition that had previously lingered, underground and un-respectable, at the core of the Negro community. This was the idea of black nationalism, an idea that had always appealed, not to the educated and articulate Negroes, but to the poorest inhabitants of the ghetto. The black nationalist idea came to the fore in the 1920s with the phenomenally popular Marcus Garvey.”

Rothbard felt that the circumstances of the 1960s justified black separatism: “For a time many conservatives were enthusiastic about black nationalism…The conservatives were overjoyed with the nationalist and Muslim emphasis on Negro self-help, thrift, dignity, and pride, in contrast to the old ideals of coerced integration from above. But there is one thing that the conservative proponents of black nationalism overlooked: self-help, pride, thrift, Negro businesses, etc. are all well and fine. But they cannot hope to flourish within the context of the black reality in America: permanent oppression by the white 'power structure.' None of these good and libertarian things can be achieved without first and foremost, getting the white-run U. S. and local and state governments off the backs of the Negro people.”

Nationalism and National Liberation

Although libertarians frequently condemn nationalism, Rothbard held that in some cases nationalism can result in the liberation of oppressed groups. As he contends in a 1966 essay: “There are two contrasting types of nationalism: a desire to liberate an oppressed nation from the chains imposed by another nation (a movement for "national liberation'); as against a desire to aggress against other nations and impose one's own national domination upon them…One is a libertarian form of nationalism, the other an invasive, profoundly anti-libertarian form. A Negro nationalist movement in present-day America is a movement for national liberation; any white insistence on thwarting such a movement is an example of white imperialism. Such are the qualitative differences within the concept of nationalism.”

In his radicalism, Rothbard posited that black Americans were a colonialized people and needed to be free from the clutches of the state. Specifically, urban renewal activists and school administrators are singled out for criticism in his controversial piece on black power. Rothbard details the negative effects of urban renewal on black communities: “All good Liberals, not so long ago, used to admire urban renewal as a means of helping the poor and bringing esthetics to the city. Now, radicals and some conservatives are beginning to agree (in another burgeoning form of 'Left-Right" coalition) that urban renewal is really a vast subsidy to the real estate interests at the expense, not only of the taxpayer which was always evident, but also of the poor themselves, who are summarily kicked out of their homes by the urban renewal bulldozer, and forced elsewhere, redoubling the slums there. If they try to move into the new urban renewal housing, they find that there is far less space available, and at much higher rents than they were paying before. And so, more and more people are coming to recognize 'urban renewal' is really 'Negro removal --for urban renewal has been concentrated in the Negro ghetto areas.”

He is equally critical of administrators: “The compulsory attendance laws force all of the youth of the country, regardless of their talents or inclinations into this vast prison-system, and the teachers and administrators are their guards and wardens. The oppression lies much the heaviest in the urban Negro areas, where so many children are not inclined toward schooling and where racism as well as hatred for working-class mores are given full rein by the school staff, armed with the power of compulsory education to force their charges to stay in school. No wonder that Negro youth are embittered by their enforced stay in the system.”

So, Rothbard continues to confound even in death. For example, the average person who has not read his publications would assume that he had no interest in Christian philosophers. And as expected people under the spell of liberal delusions believe that he was a racist without assessing his ideas. However, Rothbard was a giant among men and an exceptionally articulate defender of black sovereignty.

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What Clarence Thomas Gets Wrong about Big Tech

04/08/2021Jeff Deist

Supreme Court Justice Clarence Thomas's recent concurring opinion in the Biden vs. Knight decision sent hopeful tremors across conservative legal circles and drew condemnation from libertarians. Was Thomas finally laying the groundwork for regulation of Big Tech, which conservatives correctly view as both deeply biased against them and actively biased in favor of left-wing causes? 

At first blush, the case primarily concerned First Amendment questions about whether former president Donald Trump (while in office) could block certain individuals or groups from following his Twitter account.1 The Blockees argued that a sitting president should not be able to prevent access to "news" he creates on social media, especially when particular tweets relate to official government business. Yet if Twitter is indeed a constitutionally protected "public forum," how does the company get away with deplatforming the president of the United States?

No clear answers from the court were forthcoming: since Trump is no longer in office, the court remanded the case back to the Second Circuit to dismiss on grounds of mootness. But Thomas took the opportunity to move past any free speech questions and make a much broader case for Congress to radically rewrite regulations for the modern digital space. In his words, the "principal legal difficulty that surrounds digital platforms—namely, applying old doctrines to new digital platforms is rarely straightforward." But in the same concurrence, his language appears to argue simply for the application of existing legal doctrines, namely those surrounding antitrust, common carriers, and public utilities regulation. Thus there is a tension between his view that new thinking is required and his default to statutory or bureaucratic approaches to defeat what he sees as de facto tech monopolies:

The analogy to common carriers is even clearer for digital platforms that have dominant market share. Similar to utilities, today’s dominant digital platforms derive much of their value from network size. The Internet, of course, is a network. But these digital platforms are networks within that network. The Facebook suite of apps is valuable largely because 3 billion people use it. Google search—at 90% of the market share—is valuable relative to other search engines because more people use it, creating data that Google’s algorithm uses to refine and improve search results. These network effects entrench these companies. Ordinarily, the astronomical profit margins of these platforms—last year, Google brought in $182.5 billion total, $40.3 billion in net income—would induce new entrants into the market. That these companies have no comparable competitors highlights that the industries may have substantial barriers to entry.

Size and dominance in the provision of "essential services" are arguments we've heard against everything from railroad trusts to Ma Bell. Yet Thomas's common carrier analogy is far less accurate for today's search and social media platforms than it was for tech companies at the birth of widespread internet adoption. In the 1990s, when Congress passed the Communications Decency Act, telephony was the prevailing regulatory model. Internet service providers like AOL provided "pipe" in the form of fiber optic cable, akin to a utility providing water or electricity. Satellite and cellular ISPs would come only later. Search engines and browsers like AltaVista were the on-ramps to this information superhighway. Email companies like Hotmail provided instantaneous worldwide text communication across the old telephone networks. These early internet firms bridged the gap between old analog systems and the emerging digital networks we take for granted now.2 But unlike the AOLs of yesteryear, the biggest tech players today mostly own cloud servers and endless lines of software code, brought to life via websites or social media platforms. Yes, servers can crash due to traffic. But for the most part companies like Facebook and Twitter resemble neural networks more than pipelines. And who knows what the rapidly evolving technology landscape will look like even five or ten years from now?

This is precisely why a sclerotic federal bureaucracy ruling over Silicon Valley is the last thing we need, despite Thomas's valid concerns (in my view). Contra the CDA, and contra Justice Thomas, common law tort and contract actions are the pragmatic and just approach to address harms caused by tech companies. As I argued in "A Tort Law Approach to Fighting Big Tech," long-standing legal concepts like equitable estoppel, conversion, fraud, and waiver are available and malleable. Libertarian legal theory—rooted in natural law, property, and restitution—relies on common law "discovery" rather than positive law edicts. Ever-evolving common law, highly temporalized and localized, provides the best mechanism for determining what actions by tech companies should give rise to legal liability. Stealing a horse in 1800s Tombstone, Arizona, is different than stealing a horse in 2021 Middleburg, Virginia: the former may have left the victim dead in the desert and the perpetrator ordered whipped by an exceedingly unsympathetic jury. Today, deplatforming a celebrity from social media or unbanking a small business owner may leave them metaphorically stranded in the desert. In both cases societal and technological evolution should compel us to adjust our ideas of harm and proportionality. Shouldn't common law, rather than rigid and highly political statutory or regulatory frameworks, give us better outcomes?

The larger question for libertarians is whether their existing conceptions of property rights, harms, torts, and free speech still work in a thoroughly digital era. Principles may not change, but facts and circumstances certainly do. Rothbard's strict paradigm for what ought to constitute actionable force, especially as discussed in part II of The Ethics of Liberty, requires some kind of physical invasion of person or property. In doing so, Rothbard necessarily distinguishes between aggression (legally actionable) and the broader idea of "harm." The former gives rise to tort liability in Rothbardian/libertarian law; the latter is part of the vicissitudes of life and must be endured. Theorists like Professor Walter Block and Stephan Kinsella have expanded on this "physical invasion" rule, applying it to everything from blackmail to defamation to (so-called) intellectual property. Aggression against physical persons or property creates a legally actionable claim, mere harm does not. 

But Rothbard's bright-line rule seems unsatisfying in our digital age. If anything, the complexity of modern information technology and the pace of innovation make the case against bright-line tests. For one thing, the sheer scale of instantaneous information ought to inform our view of aggression vs. harm. A single (false) tweet stating "famous person X is a pedophile" could reach hundreds of millions of people in a day, ruining X's life forever. This is a bit worse than a punch to X's nose in a bar fight, to put it mildly. Moreover, physical trespass against property takes on an entirely different form when said property is intangible, e.g., Twitter's platform and servers. There is a difference, at least in scale, between Donald Trump occupying a tiny sliver of data storage (at almost no additional marginal cost to Twitter) and Donald Trump occupying the lobby at Twitter’s headquarters. Again, surely the best argument is to let naturally evolving common law grapple with these questions. Yes, we don't have private common law courts, and yes, we have a gargantuan statutory overlay at both the federal and state levels. But we ought to argue for the underlying principle of evolving, discovered law—and advocate for legislatures to get out of the way of private litigating parties and juries.

Common law tort and contract doctrines, not a hopelessly befuddled Congress or agency bureaucrats, can regulate Big Tech. But libertarians and conservatives should broaden their conceptions of tort and contract remedies, and support the evolution of what constitutes harm in a digital era. "Private companies" that openly deplatform, impoverish, and unperson dissident voices are waging a war of attrition. Those inclined to fight back should look to courts rather than legislatures, and they don't need novel legal theories to do so. Common law tort and contract will do just fine.

  • 1. In what universe does "Congress shall make no law" apply to presidents? Our universe, apparently. And is political speech really much of a virtue, in the sense of securing individual liberty? Property rights, to the extent they are respected, anyway, yield very tangible benefits for average people. It is less clear whether so-called political rights (voting, speech, petition) have done much good for the modern West at all—look at the people who keep getting elected, for starters!
  • 2. Since all of this was new, the authors of the Communications Decency Act reasonably decided these nascent companies should not be legally liable for the misdeeds or defamatory content produced by their users. After all, if two individuals enter into a criminal conspiracy over AT&T's phone network, we don't charge AT&T as a coconspirator. And in stark contrast to the social media companies of today, early ISPs and search engines exercise almost no oversight over content whatsoever, much less editorial oversight. They were truly neutral platforms.
    Still, the CDA's chief mechanism for promoting a largely unregulated internet—Section 230—not only provides certain classes of tech companies with immunity from federal suits, but also preempts certain kinds of cases from being heard in state courts. This was and is constituionally shaky, as Congress has no business telling state courts what kind of lawsuits they may hear.
Image source:
Cknight70 via Flickr
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Rewinding the Mainspring of Human Progress

04/07/2021Gary Galles

Henry Grady Weaver worked through many jobs on the way to becoming director of customer research for General Motors, which landed him on the November 14, 1938 Time cover. But virtually no one remembers that. Now he is best known for his short 1947 bookThe Mainspring of Human Progress, that the Ludwig von Mises Institute’s website called “the true story of progress for the human race with acute understanding of the fundamental cause: freedom itself,” which led to the fact that now “Several generations count this book as the very one that started an intellectual revolution.”

The book had an interesting background. It draws heavily from Rose Wilder Lane’s 1943 The Discovery of Freedom: Mans’s Struggle Against Authority. It became a very influential book, ranking 67th in a 1999 Modern Library readers poll of the best nonfiction books. But Lane was not satisfied with it, so despite continuing interest, she refused to allow it to be reprinted after only 1000 copies were made. That continuing interest led Weaver to ask Lane’s consent to use her ideas, but retell it in his own way, which she granted. Ironically, even though Mainspring was thus what John Hood called “an amateur’s paean to freedom and individual ingenuity,” it ranked 48th in the same poll.

Reader comments about Mainspring have included “Nothing I say will adequately describe how awesome this book is,” “If I ever gave a list of books people needed to read before they die, this would be in the top three,” and “Best book I’ve read in 5 years. A concise and condensed summary of recent Western civilization cultural ideas.” Such raves justify giving it some serious attention. As a beginning, consider some of its most insightful words.

  • Most of the major ills of the world have been caused by well meaning people who ignored the principle of individual freedom, except as applied to themselves…professional “do-gooders”… who would ruthlessly force their views on all others--with the abiding assurance that the end justifies the means.
  • What is the human purpose in society?...it is a matter of benefitting yourself by getting something you desire from another person who, at the same time, benefits himself by getting something that he desires from you…the peaceful exchange of benefits, mutual aid, co-operation--for each person’s gain. The incalculable sum of all these meetings is human society, which is simply all the individual human actions that express the brotherhood of man.
  • To discuss the welfare and responsibilities of society as an abstract whole…is an oversimplification and a fantasy. The real human world is made by persons, not by societies. The only human development is the self-development of the individual person.
  • Even today, many civilized persons…have harbored the pagan belief that the sacrifice of the individual person serves a higher good…in the false ideal of selflessness--which emphasizes conformity to the will-of-the-mass--as against the Christian virtues of self-reliance, self-improvement, self-faith, self-respect, self-discipline, and a recognition of one’s duties as well as one’s rights. Such thinking is promoted under the banner of social reform, but it gives rise to the tyrants of “do-goodism”…who slaughter…the very people who look to them for the more abundant life and for protection against harm.
  • It is highly presumptuous of any mortal man to assume that he is endowed with such fantastic ability that he can run the affairs of all his fellowmen better than they, as individuals, can run their own personal affairs.
  • Every living thing must struggle for its existence, and human beings are no exception. The thin defenses of civilization tend to obscure the stark realities; but men and women survive on this earth only because their energies constantly convert other forms of energy to satisfy human needs, and constantly attack the nonhuman energies that are dangerous to human existence.
  • In the last analysis, there can be no progress except through the more effective use of our individual energies, personal initiatives, and imaginative abilities…
  • It all comes back to the effective use of human energy…the decision to act and the action itself are always under your own control.
  • Your freedom of action may be forbidden, restricted, or prevented by force…But the fact remains that no amount of force can make you act unless you agree--perhaps with hesitation and regret--to do so.
  • Individual freedom is the natural heritage of each living person.
  • Freedom cannot be separated from responsibility.
  • Your natural freedom--your control over your own life energy--was born in you along with life itself. It is a part of life itself. No one can give it to you, nor can you give it to someone else. Nor can you hold any other person responsible for your acts. Control simply can’t be separated from responsibility; control is responsibility.
  • Man has enormous powers…to make new things and to change old things into new forms. He not only owns property but he also actually creates property…without ownership, there is little incentive to improve it.
  • Free minds are inventive minds.
  • Overlords develop their ambitious plans, enforced by the firing squad and supported by huge predatory armies…but they are contradictory to the nature of human energy. They are always at the expense of individual initiative; they always result in oppression, leading to human degradation and war.
  • In America…Free men were to have an opportunity to live their lives, plan their own affairs, and work with one another--not under the lash of coercive authority but under the discipline of enlightened self-interest and moral responsibility.
  • Americans had no overall plan. They had something more important. They had personal freedom to plan their own affairs; and the avalanche of human energy resulting from that freedom.
  • This country had been covered by...a tumultuous multitude of free men…living under the weakest government in all the world. The people who had been left to shift for themselves--who had learned the lessons of realism…were creating a new world.
  • Unrestrained majority rule always destroys freedom, puts the minority at the mercy of the mob, and works at cross-purposes to the effective use of human energy and individual initiative.

Henry Grady Weaver’s The Mainspring of Human Progress drew out how poverty was almost everyone’s fate throughout world history until the evolution of capitalism made civilization possible. That is a lesson well worth remembering, because as Weaver put it:

  • One of the best ways to ensure future progress is to keep clearly in mind the things which have been responsible for our past progress, as well as the things which may have kept America from being as great as it might have been.
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Is the Fed Propping Up the US Government?

04/07/2021Robert Aro

There are several variations of the quote:

Never believe anything until it has been officially denied.

The newest member of the Federal Reserve’s Board of Governors, Christopher J. Waller gave a speech last week about the importance of Central Bank independence, where he effectively denied the Fed’s culpability in propping up the US Government. He starts with explaining that:

Because of the large fiscal deficits and rising federal debt, a narrative has emerged that the Federal Reserve will succumb to pressures (1) to keep interest rates low to help service the debt and (2) to maintain asset purchases to help finance the federal government.

Such honesty should be commended. This emerging narrative comes as little surprise to those who’ve been following the actions of the Fed. Mr. Waller aims to dispel it as he declares:

My goal today is to definitively put that narrative to rest. It is simply wrong. Monetary policy has not and will not be conducted for these purposes.

He says the Fed acts “solely to fulfill our congressionally mandated goals of maximum employment and price stability,” and to determine appropriate monetary policy towards these mandated goals. In case it still wasn’t clear just how determined he is to dispel the idea that the Fed is nothing more than the nation’s life-support, or moves with motives beyond its dual mandate, he reiterates:

Deficit financing and debt servicing issues play no role in our policy decisions and never will… My objective today is to reinforce that message.

One way to determine validity is to compare the Fed’s actions versus its words. In the same speech, he provides various policy actions from the Fed made in concert with Congress:

The Congress has provided spending of roughly $5.8 trillion during the past year to deal with the pandemic and its effects on the economy.

Of course, a significant portion of this $5.8 trillion did not come from taxpayer dollars, but debt financing. If the Fed didn’t buy a large portion of this debt, the interest rate would be much higher. All the while, the Fed continues buying approximately $120 billion of US debt per month.

As explained, US debt to nominal gross domestic product is over 100 percent, the first time since World War II. Accordingly, per Fed policies:

The Federal Reserve's holdings of U.S. government debt has risen to around $7 trillion, with about $2.5 trillion of that total resulting from its asset purchase program aimed at smoothing credit market functioning and providing monetary accommodation.

If there is a narrative that the Fed is financing the US Government to keep rates low to service debt, or maintain asset purchases, it is hardly baseless, and one that has been reinforced through countless policy decisions and speeches.

It’s difficult to defend the apparent virtues of a Fed independent from Congress. Given last year’s various emergency lending facilities, the skyrocketing government debt (largely taken up by the Fed) and increases to the Fed’s balance sheet with spending programs run by treasury, the line between the Fed and US Government has never been more blurred. Should concern exist that a lack of independence would lead to a central bank which uses the money printer to pursue an anti-capitalist agenda, such as giving stimulus checks to people funded by government debt below market interest rates, it’s safe to say this line was crossed long ago; a line crossed when “independence” still remained intact.

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The Marxist Origins of James Burnham's Foreign Policy

04/05/2021David Gordon

A recent post by Francis P. Sempa on the University Bookman site offers valuable information on the genesis of James Burnham’s Cold War global crusading. Burnham, who worked after World War II as a CIA agent, was the dominant intellectual influence behind William Buckley’s efforts at National Review to purge Old Right advocates of a noninterventionist foreign policy from American conservatism. Sempa points out that during his Marxist period, Burnham saw the world as a struggle among rival imperialist powers.

“In a February 1938 piece in Socialist Appeal, [a Trotskyist publication] Burnham analyzed the geopolitical evolution of U.S. foreign policy…. And in Franklin Roosevelt the U.S. as it approached a world war had ‘the most daring and brilliant politician whom this country has yet produced.’ Burnham called FDR a ‘close and critical student of international politics.’ Roosevelt, Burnham continued, was a bold and imperious leader who was ‘extraordinarily sensitive to the moods of the masses, and unscrupulous to the last degree in exploiting those moods.’

Roosevelt recognized that ‘modern capitalism can work only with the extension of the function of the state into wider and wider spheres.’ The New Deal was an ‘ideology’ used “to convince the masses that the government … is their government.’ Moreover, FDR had implemented policies ‘deliberately and consciously set toward war, and toward the creation of the most favorable circumstances for the conduct of war.’ In fact, Burnham opined, ‘war is Roosevelt’s solution for the economic crisis.’ In other words, war was part of the New Deal. It would save capitalism and serve Roosevelt’s political interests. In later columns, Burnham called it the ‘War Deal,’ and called Roosevelt ‘the chief War-Monger.’

The coming world war, Burnham wrote in Socialist Appeal, will be ‘a new world struggle for the re-partition of the world among the major imperialist rivals.’ ‘All the fine moral ideals,’ he wrote, ‘from democracy to religion to national independence, are, for the imperialists, only so much grist to the mills that turn out the cynical demagogy whereby they hope once more to delude the people.’”

It would appear, though the conclusion is mine and not Sempa’s, that after World War II, Burnham decided to join the imperialists rather than continue to oppose them.

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Fedcoin to the Rescue?

04/05/2021Robert Aro

It could take several years. But “Fedcoin'' is on its way and soon will be our reality. The question is: Will Fedcoin make our lives easier or just the Fed’s?

The Federal Reserve Bank of Boston is currently working with Massachusetts Institute of Technology (MIT) on the project, with the first step expected to be revealed for the fall, as explained in the Wall Street Journal on Wednesday. We’ve been offered some details as to the direction it seems to be aiming, drawing similarities to private cryptocurrencies without the mining costs:

The Fed staffers say their efforts are mindful of private offerings but don’t seek to replicate them. For instance, the creation of Fed digital dollars wouldn’t mimic the energy intensive mining system seen in some private offerings …

Should Fedcoin require no mining, create faster transmission, have less expensive transaction fees and provide more security over existing USD, it will quickly gain widespread acceptance.

If mandated by Congress, the Fed could substantially replace most US dollars with the new digital dollar. After accounting for US government debt levels, a large percentage held by government entities and the Fed itself, the Fed could hold the supply of all Fedcoins constant, indefinitely. A new “gold standard” would be achieved, one requiring no gold.

As Rothbard said, there is no “gold fetish.” The purpose of the gold standard was not to get rich from an appreciation in price; rather, the idea was to ensure money could not be created without substantive backing.

Of course, the idea of a return to a gold standard sounds nothing short of science fiction anyway. Instead, this is what we are to expect, as another Wall Street Journal article explains:

These Fed “digital dollar” accounts would be set up as a way to speed payments to households that need support.

This was supported by an economics professor from Dartmouth, Andrew Levin, who said:

Fed accounts “would be a very significant improvement” in getting money speedily to those who need it most …

Unfortunately, from the early looks of it, Fedcoins will be used for fast expansionary capabilities, to give to those who are deemed worthy of government support.

If the USD was held at a constant supply, there would be no risk of hyperinflation, no boom and busts. There would be far less malinvestments, such as trillions spent on companies buying back their own shares. As for “the people,” rather than watch their purchasing power erode year after year, the cost of living would go down. They could actually accumulate savings.

Contrast this to the worldwide hyperinflation we’ve seen, yet ignored, for generations. Consider the status quo America, where government proposes trillion-dollar stimulus bills every other month, phrases like “debt doesn’t matter” have been normalized, all endorsed by the Federal Reserve System, which spends billions of dollars in salaries for economic planning with ideas ranging from antiquated to flat out “half-truths,” for perpetual balance sheet expansion.

The launch of a new currency gives us an opportunity to start over, to a certain degree, where we can learn from the past to build a better future.

True, the notion of holding the money supply constant is a foreign concept to most. That’s only because we’ve lost a fair bit of knowledge and economic history over the years. But just because the gold standard is not widely understood does not mean it’s not a viable solution.

If Fedcoin offers a choice between inevitable destruction (from exponential increases to the money supply) versus an unknown future under honest money, the choice shouldn't be difficult. Sadly, it seems nearly impossible to convince central planners that sound money is a better path forward. Unless there is a dramatic shift in society and the Fed’s expansionary monetary policies are reigned in, the digital dollar will be destined to expand simultaneously, if not at a quicker pace than the existing US dollar; and the opportunity for real societal change will be lost.

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88 Years Ago, FDR Banned Gold. Will a Bitcoin Ban Be Next?

04/05/2021Tho Bishop

Today is the eighty-eighth anniversary of Executive Order 6102, signed by President Franklin Delano Roosevelt, "forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States." The order was one of the several disastrous responses to the Great Depression that succeeded in escalating the financial crisis. Later in the year, the US Congress would pass a resolution retroactively supporting the legislation; however, it was the determined autocratic leadership of FDR that made way for these unprecedented measures. It would be a crime for Americans to hold gold for over forty years, until President Gerald Ford reversed the order in 1974. 

This episode has several lessons for the current financial environment, particularly given the acceleration of tyranny-by-expert rule that has taken over much of the worst this past year.

The underlying legislation that evoked by FDR’s executive order was the Trading with the Enemy Act of 1917—a by-product of World War I—despite the fact that the US was in no way in a period of war in 1932. Similarly, we have seen war on terror–inspired financial legislation increasingly used against American citizens. For example, in the name of “fighting terrorism” the US PATRIOT Act significantly increased know-your-customer laws, empowering federal regulators to use the traditional banking system to better track the economic behavior of American citizens.

In the eyes of the federal government, “antiterrorism” legislation was quickly expanded to include additional missions—such as stopping money laundering and drug crimes. Increasingly, these bogeymen have been used by policymakers around the world to erode financial privacy assets—such as cash and secret Swiss bank accounts.

On the domestic side, we have increasingly seen US corporate actors demonstrate their loyalty to the progressive political zeitgeist by proactively cracking down on various dissident political figures and conservative action groups. Bank of America, for example, has debanked various gun manufacturers and also turned over client data following the January 6 protests at the US Capitol. These moves could prove useful if BoA needs another federal bailout from a Biden-Harris administration, but highlights the degree to which the modern financial system can be weaponized against a state’s political enemies.

The same playbook is being increasingly used to target bitcoin and other cryptocurrencies that are beyond the reach of the state.

Earlier this year, Treasury secretary Janet Yellen indicated that cryptocurrencies are in her crosshairs, telling an industry roundtable that

[t]he misuse of cryptocurrencies and virtual assets is a growing problem…. I see the promise of these new technologies, but I also see the reality: cryptocurrencies have been used to launder the profits of online drug traffickers; they've been a tool to finance terrorism.

European Central Bank president Christine Lagarde has also called for global regulation of cryptocurrencies, responding to increased interest in these alternative assets. Of course, the increased interest in assets like bitcoin is itself a direct response to the monetary policy of the Federal Reserve, ECB, and other global central banks responding to government-caused economic shutdowns in 2020.

While central bankers often publicly dismiss the role of nonpoliticized assets like gold and bitcoin in financial markets, in their own circles they understand the dangers that exist in allowing the public the option of opting out of their financial schemes.

For example, at an annual Federal Reserve conference in 2016, the late Marvin Goodfriend noted the role that cash played in limiting what antisaving policies a central bank could pursue. He advocated the abolishment of cash in return, and drew comparisons to the elimination of the gold standard. In 2018, an IMF report warned that cryptocurrencies could reduce demand in fiat money, and recommended “rigorously applying measures to prevent money laundering and the financing of terrorism” in an attempt to undermine this consumer behavior.

In addition, central banks have sought to compete with the convenience of digital currency by developing their own versions. China—whose central bank has been one of the most aggressive in credit expansion since 2008—has recently released a “digital yuan,” while the ECB is working on a “digital euro.”

As I noted in 2017, this could set up a “next generation” of global currency war between private crypto and state digital currency. Since it is the nature of a state to defend its power, we should expect to see regulators and central bankers around the world escalate regulatory and legal pressure against financial assets beyond their control.

As FDR’s gold crackdown showed, tyrants know the importance of controlling money in a time of crisis.

Thankfully, so far bitcoin has demonstrated resilience against the most forceful of state actions. For example, in countries like Morocco—which has banned bitcoin entirely—peer-to-peer trading of bitcoin has skyrocketed.

What will be interesting to see is whether countries that are suspicious of international governing organizations—such as the IMF, EU, and UN—recognize the political value of private money as a check against globalist political hegemony.

We’ve seen Russia recognize the value of gold as a check against the weaponization of the dollar. Could bitcoin be next?

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The Fed’s Annual Audit Is a Long Way from Real Transparency

03/30/2021Robert Aro

The notion of “Auditing the Fed'' has been around for awhile. Technically, the Federal Reserve is audited. On Tuesday, with little to no fanfare nor media coverage, there was a press release announcing the completion of the 2020 Audited Financial Statements. Digging deeper, each of the 12 Reserve Banks received their own independent audit. But the most important one is the “Combined Federal Reserve Banks'' financial statement; a consolidated statement of the entire Federal Reserve System.

The Federal Reserve’s audit is held to the same standard as a publicly traded company. Per the American Institute of Certified Public Accountants (AICPA):

The audit is the highest level of assurance service that a CPA performs and is intended to provide a user comfort on the accuracy of financial statements. The CPA performs procedures in order to obtain “reasonable assurance” (defined as a high but not absolute level of assurance) about whether the financial statements are free from material misstatement.

This does not mean the statements are free of errors, nor every single transaction was checked for 100% accuracy. Rather, “the audit” is the standard in which the biggest companies in the world rely, giving a high degree of assurance.

The Certified Public Accountant (CPA) in this case would be KPMG LLP, one of the largest accounting firms in the world. Per the standards:

The CPA will issue a formal report that expresses an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework.

So how did the Fed do this year? As the Independent Auditor Report says, (page 1):

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Reserve Banks as of December 31, 2020...

Seems fine. Of course, this is the Federal Reserve. It never is quite easy.

The auditor report also states, as described in Note 3, that the combined financial statements were prepared:

in conformity with the accounting principles established by the Board of Governors of the Federal Reserve System, as set forth in the Financial Accounting Manual for Federal Reserve Banks, which is a basis of accounting other than U.S. generally accepted accounting principles.

It’s called the “Financial Accounting Manual for Federal Reserve Banks.” The 227-page manual describes the Fed’s very own special accounting methods, as established by the Board of Governors of the Fed…

This is not to say the statements are inherently wrong, or misleading. But it claims the statements appear to be “okay,” based on the standards established by the very entity being audited. This is definitely different from normal audit practices. But, to be fair, there is no other entity which can legally create trillions of dollars and buy assets either.

The press release also notes:

The public accounting firm also conducts audits of internal controls over financial reporting for the 12 individual Federal Reserve Banks and the Board of Governors.

If the idea is to “Audit the Fed,” it must be explained that the Fed is actually audited.

However, the “Audit the Fed” movement aims to achieve more than just an audit. Those pushing for it strive for transparency, specifically, the list of banks/entities who comprise its list of stockholders. Additional concerns include those who have dealings with the Fed in other matters. And finally, they wish to have all of the Fed’s coveted “data” used to best plan their policy, released for the public to review.

Unfortunately, none of this is disclosed in the financial statements.

Instead of looking for new ways to audit the Fed, with one simple act of congress, they could remove any protections against the Fed’s privacy or even ensure the Fed cannot refuse requests for information from the public. This would effectively put an end to all clandestine workings of one of the most opaque organizations in the country. In this regard, congress could make the Fed completely transparent, and the people, aided by the court of public opinion could conduct the audit, saving both money and time, while finding the answers we so desperately deserve.

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Are Police Departments Really Hiring White Supremacists?

03/30/2021Nick Hankoff

Bureaucracies always benefit from political hysterias. A big one today is that police forces are being infiltrated by white supremacists. Pursuing this bogeyman will fill bureaucratic coffers, while public security services get worse and more expensive.

It’s a cliche now that big government never lets a crisis go to waste, but the same dynamic often holds at the bureaucratic level with regard to public manias. These crises and manias are not uncommonly caused by the very institutions claiming to be the only ones capable of solving the matter.

White supremacist infiltration of police forces is one of the latest national hysterias. There’s almost no evidence to show it’s happening at all, but the media, political leaders, and their bureaucratic allies keep stoking up the general accusations, especially following the January 6 US Capitol protest and riot.

Facts that disprove this myth are easily outweighed by bureaucrats’ sense of opportunity to garner more taxpayer money and prestige if they pretend it is a systemic problem.

This then foments resentment among people, particularly white people but also anyone predisposed to skepticism of race-baiting. White folks who too loudly voice their opposition to these witch hunts can be more easily labeled white supremacists.

Could that be the whole point of fear mongering campaigns like this one? To create a self-fulfilling prophecy? Perhaps what’s a more likely explanation is that spawning hobgoblins can serve as a distraction from real issues that can potentially threaten the bureaucracy’s power.

Again, there is almost no evidence to support any claim of white supremacists infiltrating the police.

Earlier this month, the Office of the Director of National Intelligence released a report entitled “Domestic Violent Extremism Poses Heightened Threat in 2021.” 

In it, the only mention of law enforcement was that they, along with government personnel and facilities, are typical targets of militia violent extremists. The report also assessed the threats posed by racially or ethnically motivated violent extremists, but there was no mention of them attempting to take over police departments or even get a job in one.

Going back to October 2006, an FBI intelligence assessment titled “White Supremacist Infiltration of Law Enforcement” found “little corroborated reporting on current strategic attempts by white supremacist groups to infiltrate law enforcement communities.” 

The FBI gave itself an out, however, saying, “the possibility that infiltration has gone undetected is of great concern.”

Apparently, anything’s possible it seems if it warrants a budget increase. 

What about the protest and riot at the US Capitol though? That must’ve revealed some hidden ties of white power extremism and the police. Let’s glance at the numbers there.

Of those 324 arrested in connection to January 6, USA Today found four off-duty police officers and three former officers. That’s two percent of all those arrested. And those officers’ “ties” to white supremacy? USA Today didn’t say, despite its article running under the headline: “‘A nightmare scenario’: Extremists in police ranks spark growing concern after Capitol riot.”

A “scenario”...sparks growing concern. This is not real news. It’s fake, or if that’s too disrespectful to the pride of journalists, call it incendiary. The sub-headline partially read: “Now, charges against officers in the Capitol riot inflame fears of extremists infiltrating law.” 

Fears are certainly being inflamed. But is it the charges against officers doing that?

USA Today reports that two of the off-duty officers were subsequently fired after their social media posts were liberally interpreted to be pro-insurrection. Another officer resigned, and the fourth one was suspended without pay.

Supposedly the white supremacism connection is that these officers marched alongside members of the Oath Keepers and Proud Boys, groups which by some number of degrees are related to white supremacists. It’s a fool’s errand trying to pin down this gelatinous allegation, but most readers will assume the connection to be real and substantial, because why else would it be getting so much media attention?

What’s getting less media and political attention is the national murder rate in 2020 representing the biggest one-year increase in history, adding 20,000 more murders than in 2019, according to FBI statistics.

Obviously, there is a national policing problem. There are many policing problems. They are more tied to bureaucratism than supremacism, however. Bureaucratic supremacists are infiltrating the institutions of law and order!

The problem with government bureaucracy is its inability to precisely account for how best to deliver the goods to its consumers. In the case of policing, federal politicians and bureaucrats skew the priorities for local police, directing them to combat the War on Drugs and other such schemes.

There is no profit-loss mechanism at work with police today. The best short to medium term goal would be to localize and maximize the local community’s power as opposed to the state or federal bureaucracies. 

They have proven themselves unfit to serve, and as Ludwig von Mises put it, “he who is unfit to serve his fellow citizens wants to rule them.”

Long term goals are just as important though, and in the case of policing, they may carry just as much urgency. The total demonopolization of police must take place as soon as feasible. The infringements on individuals and their communities to organize for security as they see fit must be eliminated.

Only then will the problems of costs, lack of responsiveness, brutality, and other deficiencies be handily dealt with. The fear mongers will gin up anything they can to prevent even an inclination toward this solution, but if enough people in one area can overcome them, then these bugaboo stories might finally stop having their intended effect.

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