Power & Market

Canada's Export Guarantee Program: More Risk for the Taxpayer

05/11/2019Eddie Fizor

The CBC (Canadian Broadcasting Corporation) broadcasts select NHL games on Hockey Night in Canada. These are "free” to watch on TV or stream online. "Free" is placed in quotations because the CBC’s advertises that their content services can be streamed for “free” by the public. It is worth noting that the CBC's annual share of revenue for 2018 was roughly 1.2 billion. Hockey fans may attempt to recuperate their tax dollars by watching as much hockey as possible.

The aforementioned gives context, but it is not the CBC which is the main focus of this article, but a commercial advertisement which is played during CBC’s Hockey Night in Canada.

The advertisement is for Export Development Canada (which is also funded by tax dollars).

A quote from the EDC website:

Our Export Guarantee Program can help your bank provide you with additional access to financing. We share the risk with your bank by providing a guarantee on the money you borrow, encouraging them to increase your access to working capital.


The Future is Uncertain

When an entrepreneur identifies a market in which they believe a profitable enterprise can be undertaken, the entrepreneur will invest their available funds. If the entrepreneur possesses insufficient funds, then a bank may choose to act as lender and direct additional funds toward what they may also believe to be a profitable endeavour.

[RELATED: "Mises Explains The Aggravating Role of Export Credit Agencies" by

In this instance, it is both the entrepreneur and the bank who will bear the risk. If the risk is too high, then the bank may choose not to loan funds to the entrepreneur.

What happens when Export Development Canada steps in to "de-risk" the project? EDC is funded by taxpayers. This means that projects will be undertaken with someone else’s money (the tax payer). Neither the entrepreneur nor the bank will fully bear the risk involved. What if the venture turns sour? EDC explains, "we share the risk with your bank by providing a guarantee on the money you borrow."

In the end, someone must bear the risk. So, who will it be?

If the entrepreneur utilizes his own funds, then he has a vested interest. This also would apply to a bank acting as lender. The claim that “risk doesn’t stop you,” identifies the  EDC not as “ risk experts,” but as “experts” in promoting risky ventures, underwritten with tax dollars.

Here's the advertisement which is aired during Hockey Night in Canada:

Risk Doesn’t Stop You When You’re With EDC

None of the entrepreneurs in this commercial appear to be concerned with risk. This should be a reason for concern on the part of the viewer. Such ads are misleading and promote a false of reality. The bearing of risk is unavoidable in any entrepreneurial endeavor. Future is uncertain. Resources are scarce.

Man shrugs his shoulders, "30,000 brake pads NO DEPOSIT. I said, why put the brakes on now?"

Indeed, why not? Why demand a deposit for surety? If the deal goes sour, someone else is left paying for your losses. It is easy to make risky decisions when the error of your way does not return upon your own head.

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Can Modern Man Re-Create Notre Dame?

04/16/2019Ryan McMaken

The Notre Dame cathedral in Paris isn't the first historically significant church to go up in smoke. The Basilica of Saint Paul's Outside-the-Walls — after standing for more than 1,400 years — was almost totally destroyed by fire in 1823. It housed the tomb of the Apostle Paul, and was a major basilica, second only to St Peter's as a pilgrimage site. Thanks to a construction worker, the church was accidently set on fire. 

Its destruction was a great disaster at the time, and an international appeal went out for assistance in its reconstruction. The world responded and the church was rebuilt to the original design. Today, it is a beautiful church, and it remains the site of the Apostle's tomb. It also still contains many works of art preserved from the Middle Ages and other elements from the original church.

Today, few pilgrims to Saint Paul's are much perturbed by the fact it is not entirely the original fourth-century structure. Most ancient churches are really a mixture of (relatively) new and much older elements. Old Saint Peter's Basilica, built by Emperor Constantine, stood for 1,200 years before being shamefully neglected and knocked down by the popes. It was replaced by the new basilica now known as (new) St Peter's. Although I personally wish the old basilica had been rebuilt — and the new basilica never constructed — few people nowadays complain about the new St Peter's value as a work of art. It has itself now become "ancient." When it comes to important churches, renovations and changes take place. It's not the end of the world. 

But maybe the destruction of Notre Dame is different. Those who built the new Saint Peter's figured they were perfectly capable of building something even better than what came before. They had Michelangelo.

But what about today? Perhaps many observers of Notre Dame's destruction suspect modern artists and architects aren't up to the task of recreating or surpassing the artisans of the thirteenth century. That would be a grim realization, indeed. 

What strikes me as especially significant about Notre Dame is that its reconstruction will have to take place in a world colored by a worldview that is far, far removed from the one that produced the original. Notre Dame was built in the High Middle Ages — an era when Europe invented the University. It was the time of Aquinas, and of Francis of Assisi. It was a time of immense interest in new technologies and new types of learning. Much of which made Notre Dame possible. It was also, of course, a time of widespread Christianity.

Europe today, however, has largely rejected Christianity and mocks it regularly in Europe's artwork, politics, and scholarship. Thus, the worldview that created Notre Dame is anathema to the modern European mind. Europeans may value the physical building that is known as Notre Dame, but Europeans have been happily burning down Notre Dame in spirit for centuries. 

Given the widespread disdain for the medievals who built it, why do we hear so much about what a wonderful thing Notre Dame is today?

The answer lies in the fact that modern Europeans have redefined the building as a safe, watered-down version of what it was meant to be. 

We're told Notre Dame is just a symbol of France, and of Europe. We're told it's a work of art, and that it's a great place for people watching. It gives us "a sense of community." And perhaps most importantly, it's a world famous tourist attraction.

Some who have pledged to rebuild the structure have been explicit in this. One wealthy donor announced today: "Notre Dame is an extraordinary landmark and an immeasurable symbol of Paris. It represents love and unity, bringing people together from all over the world no matter who they are and where they come from."

Nevertheless, for all the attempts to redefine Notre Dame today as something of non-religious importance, the fact remains the building was constructed as a church. It was made as a place to say Mass, to pray to what Christians regard as the eternal God, and to confect the Eucharist. That is, the building was created primarily to provide a holy place for the priests to participate in the process of making Christ physically present in flesh and blood on the altar. The artwork, structure, and design were all made to focus the senses and attention of visitors on this reality.

Yes, Notre Dame was also built to showcase and advertise the wealth and power of those who built it.  But this wealth and power could have been equally well advertised through the construction of palaces, and military outposts, and other civil buildings.

The fact that so many resources and so much artistic fervor were put into the construction of a church, however, reminds us that European civilization — many within it, at any rate — took their religion seriously, even if their devotion was hampered by vices such as the usual human desires for prestige and bragging rights.

But those who will rebuild the church are likely to regard New Notre Dame as something far different from a monument to an ancient deity. In reading the words above about the rituals Notre Dame was designed for, most modern day Europeans and Americans will scoff at the very idea that anyone believed in all that superstitious "god stuff." Words like "Eucharist" and "Mass" are quaint relics from absurd notions passed down by semi-barbarian medievals. (Ironically, moderns will mock medieval Europeans for their alleged ugly backwardness, even while praising their beautiful churches in the next breath.)

The contempt for the idea of Notre Dame as a place good for anything loftier than civic pride and tourism has been recently illustrated in the fact the mass media and the global pundits assign virtually no value at all to other French churches. For example, most media outlets have largely ignored the fact that French churches are increasingly targeted by vandals. According to the International Business Times:

A total of 875 of France's 42,258 churches were vandalized in 2018, with a small fire set to the Saint-Sulpice church in Paris in March, according to French police.

In the same week that the fire broke out at the Saint-Sulpice church, another 11 churches were vandalized. According to the Ministry of the Interior, a total of 1,063 anti-Christian acts were recorded in 2018 alone.

We only hear about Notre Dame because it's famous. Its status as a church is of little importance.

And this, ultimately, is what sets the reconstruction of Notre Dame apart from the reconstruction of St. Paul's or St. Peters. It will be rebuilt and placed in a culture that regards it primarily as a museum or a community center. Notre Dame has been domesticated. It's been made ideologically safe.

The way Notre Dame is treated today is not unlike what many political theorists do when they regard religion as superstitious nonsense, but nonetheless tolerate it for its supposed societal benefits. Religion, they cynically claim, can have its advantages. It keeps the rubes in line by imposing on them a moral code. It distracts the mob from their troubles. It's all fine so long as it doesn't challenge the status quo.

And who can be surprised that a French church is popularly regarded in such a way? Only 51 percent of the French population claim to be Catholic at all. Among those, only five percent attend Mass regularly. In other words, virtually no one in France is much interested in Notre Dame beyond it's mundane perks.

None of this is to say I oppose the reconstruction of the church. It's a good thing if the Church is rebuilt. It is good to have a beautiful church in the center of Paris. It's good that many people value the church on some level, even if they mock what it was intended to be.

But as I'm lectured by pundits and columnists about the need to value Notre Dame as a symbol, I can't help but think of the Catholic novelist Flannery O'Connor who took exception to the idea that the Eucharist was a mere symbol, and not the flesh and blood of the Christian God:

Well, toward morning the conversation turned on the Eucharist, which I, being the Catholic, was obviously supposed to defend. Mrs. Broadwater said when she was a child and received the Host, she thought of it as the Holy Ghost, He being the ‘most portable’ person of the Trinity; now she thought of it as a symbol and implied that it was a pretty good one. I then said, in a very shaky voice, ‘Well, if it’s a symbol, to hell with it.’ That was all the defense I was capable of but I realize now that this is all I will ever be able to say about it, outside of a story, except that it is the center of existence for me; all the rest of life is expendable.”

This sort of radical devotion on the part of O'Connor will strike most modern Westerners as unpleasantly radical. Perhaps even extreme. Or worse yet: intransigent. We're not supposed to have convictions like this anymore, or take religious propositions seriously. That's all for a past "dogmatic" age we're now supposed to condemn. And it is condemned, by exactly the sorts of people now singing the praises of Notre Dame. They tell us the most important thing about Notre Dame is that it's a symbol. Flannery O'Connor might have disagreed. 

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College Admissions Scandal: More Meddling by the Feds

03/13/2019Peter G. Klein

As with the federal investigation into college basketball recruiting, the college admissions scandal announced yesterday seems to fall into FBI jurisdiction only because of the overly broad mail and wire fraud statutes and federal racketeering laws — which make every tort or contract violation into a federal crime. Put differently, if rich parents bribed Yale or Stanford to take their kids, this is between those schools and their employees who took bribes, the kids and parents who lied on their applications, and possibly the other kids who attended (or were denied admission) around that time. Why is the US taxpayer funding this investigation?

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Carabini's Liberty, Dicta and Force

03/04/2019Gary Galles

About a decade ago, I first met Louis Carabini when he sponsored a Mises Circle event in Newport Beach, California. At that event, I picked up a copy of his small book, Inclined to Liberty. Not long afterward, I had read it, been impressed with its insight and Mr. Carabini’s ability to turn a phrase, and had even done a bit of a teaser article to encourage others to read it.

Now, a decade later, I have read another short book of his that is similarly insightful, with well-worked ideas and language. It is Liberty, Dicta, and Force , although its subtitle may bring out its theme best: Why Liberty Brings Out The Best in People and how Government Brings Out the Worst. The themes of both books, in fact, are well-represented by two sentences on p. 22:

Those inclined to liberty accept their lives as their own responsibility, take responsibility for their actions, and view those claiming to be their masters as charlatans. Being responsible for your life includes being wary of the state, just as you would be wary of any other form of intrusion.

I believe that, as with Inclined to Liberty, the best way to stimulate more — and more careful — reading of Liberty, Dicta and Force would be to highlight some of Mr. Carabini’s most on-the-money and inspirational words. With that in mind, consider some of my favorites.

  • Hobbes and Madison imply…that governments are needed to curtail man’s worst behavior; however, in actual practice, governments instead encourage man’s worst behavior…government provides a political safe harbor for the most abhorrent acts committed on its behalf.
  • Each political group [has] as its essential common theme the use of dicta and force to gain obedience…Dicta and force are the heart and soul of governments.
  • Those in government see solutions to problems they are certain will work. Yet …when their solutions are adopted and enforced the problems either get worse or create other problems worse than the ones for which the solution was designed.
  • The worthiness of any given solution in …the marketplace…is determined by potential beneficiaries. In contrast, a top-down political process is a one-size-fits-all solution in which worthiness is predetermined by the designer.
  • Allowing freedom to whatever extent government decrees requires the subjugation of some to the will of another…those who so prefer a master require everyone else…to be subject to the same master.
  • In the political world, those who demand respect are enforcers to be dreaded, not leaders to be followed.
  • We are awash in double-standard political jargon that manipulates our minds into transforming uncivil private behavior into civil public behavior…The same act that would land a private person in jail is praised when done by a so-called public one.
  • Why do people today have a deeply held conviction that slavery is inhumane and demeans the very essence of life, yet will condone and even enthusiastically endorse enslavement when the state is the master?
  • [Our] natural inclination toward cooperation and away from force tends to bring out the best behavior in people. In direct contrast, government authorities insist that dicta, obedience, and punishment are necessary to bring out the best behavior in people who, if left to their own volition, would become savages in a lawless society.
  • In the upside-down political world… cheaters gain entitlement to that which they did not work to produce, while those who would ostracize them as cheaters are disentitled to that which they have worked to produce.
  • Myriad government welfare programs have been devised…with a common thread of predation as the means to improve human welfare. Yet, despite the negative consequences of such programs, politicians remain convinced that predation — taking from some to give to others — if done their way, can…actually improve social welfare.
  • Politicians use the word “fairness” to shroud the act of theft in an aura of righteousness.
  • One would have to be most gullible to fall prey to the devious political tactic of criminalizing wealth, victimizing poorness, and moralizing theft.
  • If [people] were truly convinced about the validity of their beliefs, they would welcome scrutiny as an opportunity to showcase them and demonstrate the invalidity of the opposing view.
  • It is counterproductive to use dicta and punishment to command good behavior and conformity to another’s prescribed standards.
  • Government force is incapable of accomplishing that which volition accomplishes naturally…The tragedy that sensible people are able to avoid when left alone is the very tragedy governments perpetuate.
  • The tragedy of communal access to human resources is exemplified in a political democracy, where free riders have equal say about the distribution of resources as do those who produce them.
  • The state only exists at the expense of the working, cooperative members of society, while disrupting…their natural proclivity to orderliness.
  • Liberty is a concept of non-subordination that those who embrace politics find most difficult to accept because without subordination political governments would not exist.
  • The belief that there is a plan that if implemented will bring about a better society begs for someone with exceptional insight who knows the plan and can make it a reality. With that mindset, people open their door to every sort of political pundit claiming to be that messiah, ready and willing to implement his or her miraculous plan if given the chance.
  • Real people…do not become more brilliant, energetic, efficient, moral, creative, or superhuman by way of the state…the very opposite is engendered in people at the hands of the state.
  • Using force to make people behave better will only make them behave worse!
  • Outside the political world, people have myriad differences of opinions and preferences they can express without repressing the expression and preferences of others. The market seeks out every kind of expressed preference as an open invitation to provide satisfaction…In contrast, the political world is a battlefield where you had better shoot down the other guy’s preferences before he shoots down yours.
  • If political democracy were as wonderful as many claim, the threat of physical force would not be needed to gain allegiance. Only this threat gives politicians an audience because without it, people would, for the most part, mind their own business.

In Liberty, Dicta and Force, Louis Carabini makes a forceful case that “There are no stronger or more peaceful means for bonding humans of different cultures than the synergism of open markets, where interactive trading is neither forced nor prohibited.” Consequently, it provides one of the central reasons for why “Liberty is not something to be doled out by, or subject to, a superior authority.” Americans would profit by learning, or re-learning, that increasingly counter-cultural conclusion.

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Confidence in British Politics is Collapsing, That May Not Be a Bad Thing

02/26/2019Claudio Grass

One of the most commonly cited arguments initially against Brexit, and now against a no-deal scenario, is the towering threat of businesses leaving the UK. A great many campaigners and leading figures of the Remain camp have warned voters time and time again of the dangers to British industry and ultimately to their jobs. They will often point to early evidence of such a shift, to companies moving either their headquarters or part of their operations to Germany, the Netherlands or other EU member states. They also like to highlight the concerns of various business leaders that have taken the Remain position, while some have supported the idea of a “People’s Vote”, a second referendum that they hope will reverse the original decision.

The dire warnings and the near-apocalyptic visions of post-Brexit destruction have managed to gather wide media coverage, with panic-stricken headlines like the BBC’s “Brexit threat to sandwiches” and the Independent’s “Butter, yogurt and cheese could become occasional luxuries after Brexit”. However, what is hardly ever mentioned is the failure of most of these projections to materialize, at least so far. What is also frequently omitted in the discussions over the fears of businesses leaving the UK, are the departures that already took place while the UK was still in the EU.

Much Ado About Nothing?

Early in the Brexit campaign, Remainers published extensive research and projections regarding the potential job losses and company relocations should the Leave camp prevail. After it did, the numbers kept coming, with predictions of a mass exodus of jobs and business. The finance sector soon emerged as the one most likely to suffer the heaviest losses, with terrifying analyses like that by Oliver Wyman, warning that a hard Brexit could result in a loss of 75,000 jobs and £10bn of tax revenue. And yet, by last September, only 630 UK-based finance jobs had actually moved, according to a Reuters survey, a mere fraction of the estimates. More recent projections have been slashed, reflecting a much milder impact and highlighting the degree of exaggeration in previous predictions.

Overall, the concerned voices and the doom-and-gloom narratives coming out of the business world have also been largely proven hyperbolic and inaccurate, at least up to this point. Moreover, strong counterarguments have gained traction, as a few well-respected and successful businessmen and women have publicly adopted a much calmer and more confident outlook for the post-Brexit reality in the UK. Sir James Dyson, billionaire inventor, has described his expectations for trade as “enormously optimistic”, while Sir Jim Ratcliffe, the wealthiest man in the UK, also expressed similar views: “The Brits are perfectly capable of managing the Brits and don’t need Brussels telling them how to manage things”.

The Split in the Business World

At the same time, it has become apparent that the interests of small businesses and large corporations are not at all aligned when it comes to Brexit. Among the most vocal and fervent Remainers and supporters of the idea of a second referendum, one finds a large share of executives and representatives from the corporate arena, together with industry lobbyists. On the other hand, small and family business owners are much more likely to support to be optimistic over Brexit. According to the Daily Telegraph’s Business Tracker, small firms have a positive outlook, despite mounting concerns over Brexit, as positive sentiment vastly overshadowed negative sentiment in 2018.


All in all, small business owners have been inclined to be more Eurosceptic than their much larger and multinational counterparts. That sentiment reinforces the idea that Small and Medium Enterprise (SME) owners are much more in touch with the realities on the ground than senior figures in FTSE companies or Tech entrepreneurs, whose views were statistically massively out of sync with the public.

Official figures from YouGov, also indicate that the smaller the company, the less likely they are to support retaining EU membership. Such findings are even more significant when one considers that SMEs account for 60% of all private sector employment in the UK and 47% of private sector turnover.

Sins of Omission

During the many debates on the future of the business world, a lot of attention and airtime is given to the fears that businesses will leave as a result of Brexit. However, the ones that have already left during the country’s membership, are seldom mentioned. Although various claims and reports on this issue are riddled with inaccuracies and have wildly exaggerated the number of these relocation cases, there is still a factual basis and numerous solid examples of instances when EU funding or other incentives encouraged companies to move operations out of the UK.

In 2012, Ford relocated the production of Ford Transit vans to a factory in Turkey, a move that was facilitated by an £80m loan approved by the European Investment Bank and cost the UK more than 500 jobs. In 2011, Twinning’s Tea tried and came very close to securing a €12m grant for a factory in Poland, while planning to cut 400 jobs in the UK. The grant was denied at the last minute, after accusations of breached EU rules and the subsequent media attention. In 2018, EU leadership in Brussels approved a bid by Slovakia to provide €125m in funding for a new Jaguar Land Rover plant, a move that has raised considerable objections and concerns over lost jobs in the UK.

Lost Faith in Government

As the government’s approval rating has taken a nosedive since the negotiations began, the public’s doubts over the leadership’s ability to handle the exit process and to deliver on what they voted for have spiked. After Theresa May’s performance during the talks with the EU and her failure to secure the assurances she promised, confidence in her government has plummeted. Official statements and commitments have largely lost their credibility, to the point that despite repeated assurances against a no-deal exit, the public still believes this is the most likely scenario. Moreover, a survey by the Enterprise Investment Scheme Association (EISA) showed that 59% of UK investors do not think the government is doing a good job in negotiating a deal that would protect the interests of the UK’s financial services sector.

Source: Bloomberg, Opinium

At the same time, the EU is sticking to its extremely hard stance on the matter, firmly refusing any meaningful concessions and sharply focused on making an example out of the UK, rather than achieving a sustainable and mutually beneficial deal. Recent comments by European Council President Donald Tusk exemplified this vindictive position, as he gleefully mentioned a “special place in hell” for “those who promoted Brexit”.

No matter how this ends, the damage already done to the British public and the country’s social cohesion is considerable. Deep divisions, fuelled and aggravated by both the media and by political figures, will not heal easily. Civilized conversation and free debate on the topics that really matter have long given way to personal attacks and name-calling. Such a devolution and corrosion of civil dialogue is bound to have a lasting and widespread impact on British society and on the country’s political future.

However, despite all the noise, one thing is clear: the United Kingdom will eventually regain its national sovereignty, one way or another. Delays are likely, and so are potential political maneuvers to void the public’s will, which are destined to fail. Today, the main focus might lie in a Hegelian dialectic, in divisive tactics and in massive fearmongering campaigns, nevertheless, the country is on track to free itself from the centralized authority of Brussels. The only real question is how this regained freedom will be channeled. Will the government use it to enforce an even more centralized system than today on a national level, or will it empower the individual and take a turn towards more personal responsibility and self-determination?

Either way, it is bound to be a bumpy and eventful road ahead for the UK and for the EU as well, as the scars of Brexit are still fresh. Dissatisfaction with Brussels is far from a confined phenomenon and dissenting voices continue to get louder all over the continent. From an investor’s perspective, preparing for the very likely political and economic turbulence that awaits is essential. With European markets under pressure, a near-impotent Central Bank and a currency that will struggle when the next downturn commences, physical precious metals and their lack of counterparty risk provide a much-needed hedge and a way to protect one’s wealth.

Although it’s impossible to predict the ultimate outcome of this historic turning point, Britain appears to be on the right track, especially if the British people will remember and hopefully be guided by Lord Acton’s words: “Liberty is not a means to a higher political end. It is itself the highest political end.”

Originally published at ClaudioGrass.ch
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Central Banks Get Scared: Forget About Promises to Reduce Balance Sheets

02/22/2019Ryan McMaken

After two years of a lot of aggressive-sounding talk about reducing the Fed's balance sheet and raising the target interest rate, the Fed in recent weeks has reversed  itself, and declared that now's a time to take things more slowly.

At the January FOMC meeting, officials:

 widely favored ending the runoff of the central bank’s balance sheet this year while expressing uncertainty over whether they would raise interest rates again in 2019, minutes of their January meeting showed.

“Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year,” according to the record of the Federal Open Market Committee’s Jan. 29-30 gathering released Wednesday.

This just represents more of the "we'll return to normal someday!" routine we've been getting from the Fed for about a decade. Over that time, we've repeatedly heard that once the economy is strong again, the Fed will reduce its balance sheet back to normal levels, and will raise the Fed Funds rate back to what had historically been more normal rates. Yet, after years of near-zero rates, and a Fed balance sheet of more than $4 trillion, it looks like the Fed lacks the resolve to do anything about it. Yet, if the economy isn't strong enough right now, with record-low  unemployment, and surging job growth, when will it be strong enough?


The lack of Fed action has long been an indication of how weak the US economy has long been, in spite of headline numbers that suggested strength. In reality, incomes and wealth growth only reached former peak levels in the past three years, with most of the period of 2009-2016 being in negative territory when compared to 2000 or 2007.

But after what looks like three years of real growth, the Fed is still worried that even the mildest hawkishness on monetary policy will undue the moderate gains of the past decade.

For a sense of how far the Fed has come from more "normal" times, we can see how total assets remain near all-time highs, as the Fed attempts to manufacture demand in the economy:

And then there is the Fed Funds rate, which, in spite of 18 months of increases, remains well below where it was prior to the most recent two recessions:


Worldwide, we're seeing some similar hesitation from other central banks.

Yesterday, "Bank of Japan Governor Haruhiko Kuroda said the central bank would “of course” consider easing monetary policy further if the economy lost momentum toward achieving its 2 percent inflation target, the Asahi newspaper reported on Friday."

Meanwhile, the European Central Bank shows no signs of budging from its extremely accommodative monetary policy. Overall, it looks like European growth is flatlining.

Overall, if we look at major central banks worldwide, we see that only in the US and Canada have central banks done anything that might be considered "tightening." And even in the US and Canada, rates remains quite low. And in no cases do we see any significant moves toward reducing central bank assets.


This is apparently the best the central banks can do in a time of "expansion."

A summary of the most recently set rates:

  • USA: 2.5%
  • Canada: 1.75%
  • UK: 0.75%
  • Australia: 1.5%
  • China: 4.35%
  • ECB: -0.4%
  • Japan: -0.1%

Note: All graphs by Ryan McMaken. Here are the specific key rates discussed here, with links:

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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?”


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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Crony Capitalism in Scientific Research

02/07/2019Hunter Lewis

My wife and I read a quirky newsletter you won’t find online called the Belly of the Beast. It is the source of this startling but then again not surprising information: Academic researchers publish 2-3 million papers a year, most of it funded by governments. Most of the results of the this research are published in copyright protected journals owned by private companies, especially the giant German company Elsevier, companies that together are thought to earn over $25 billion. To read the research, you need to subscribe, and some of the journals charge as much as $5,000-10,000 a year for the subscription. Individual articles may be purchased separately, but there are stiff fees for them such as $40 each. Academic libraries often use public funding to pay the subscription or article prices.

There are some other peer reviewed "open access" journals, but researchers may have to pay a stiff fee to be put up on line by them, for example $3,000, and they are generally less "prestigious" than the print publications. A documentary film on this subject may be found at paywallthemovie.com . The film teases that you will have to pay $39.95 to see it, but you won’t actually have to do so. By the way, the government giving away billions for research and then allowing private publishers to skim billions from it is far from the whole story. If government funded research at a university results in a patentable invention, such as a drug, the university is granted all the rights to the patent. The university then sells or licenses the patent to a drug company. The government, having doled out so-called public funds, does not share in any of the profits.

Why is government perfectly happy with these arrangements? Because government is working hand in glove with the private interests directly profiting from the arrangements. Politicians benefit through campaign contributions, donations to their captive non-profits, and future jobs. Bureaucrats receive trips or other benefits or the prospect of future, remunerative jobs from the same private interests.

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Come on Mr. Krugman, Give Real Libertarianism a Chance

01/30/2019Walter Block

Professor Paul Krugman asked a very important question in his January 10 New York Times essay “Trump’s Big Libertarian Experiment; Does contaminated food smell like freedom?".  In his opinion piece, Krugman maintained that the recently concluded governmental shutdown demonstrated the hypocrisy of Republicans. The Nobel Prize winning economist also defended a plethora of government programs such as the Small Business Administration, food stamps, the FDA and socialized medicine.

As a libertarian, I strongly and enthusiastically support his claim of Republican hypocrisy. With regard to most of the rest of his assertions, I respectfully disagree. Let us consider the specifics.

Mr. Krugman noted that according to Ronald Reagan government was the problem, not the solution. Yes, Ronald Reagan’s rhetoric was strongly libertarian. But talk, no matter how eloquent, is cheap. When he was governor of California, that state’s budget increased, not the other way around. Ditto for when he was president of the United States and federal spending zoomed. Krugman is absolutely correct in asserting that “Republicans have echoed his rhetoric ever since,” but they do not follow through. They held the Presidency and both houses of congress for the last two years, and nary was there any noticeable reduction in government expenditure. However, fair is fair: President Trump did eliminate a few onerous business regulations and lowered tax rates somewhat.

But Krugman’s claim that the shutdown in effect provided some sort of natural experiment for libertarianism is wide of the mark. The idea, here, is that with government out of the picture, if the libertarians are correct, the free enterprise system will quickly ride to the rescue and take up the slack. But no. When government is giving it away for free down the street (courtesy of the long suffering taxpayer), it is difficult, just about impossible, for private firms to provide goods and services competitively. The latest shutdown lasted longer than any previous one. The strong expectation is, now that it has ended, that there will either be a compromise on the wall (a trade for the status of the DACAs), or Trump will build it as part of his claim of national emergency. A much fairer test of this “big, beautiful libertarian experiment” would be if there were a credible announcement that the government would end these initiatives on a permanent basis. Even better would be an announcement from Trump that he would work with Congress to establish free enterprise zones with an eye on actually experimenting with true libertarianism. 

This is the entire point of free enterprise zones: government taxes, regulations, prohibitions, do not apply in a small test area, say, the size of Rhode Island, maybe located in the wilds of Alaska, Nevada or Wyoming, or in that entire state. There would be no laws there against drugs, sex between consenting adults; no welfare for anyone; the whole libertarian nine yards would be implemented. I challenge Mr. Krugman, a fair minded man, to call for exactly this sort of “experiment” instead of the present one he offers almost tongue in cheek, which does not at all qualify for that honorific. Ceteris was hardly paribus, during the recently ended shut down.

Krugman mentioned that SBA loans and farm subsidy checks were no longer being sent out during the partial shutdown, but he was curiously silent as to whether or not he favors these elements of “crony capitalism” that Republicans, but certainly not libertarians, support. The case against them is easy to make for left-liberals: They take money from all taxpayers, and direct the funds to the relatively rich. Libertarians oppose welfare programs both for the poor (they can creative incentives for family break up) and for the wealthy. We all have a word for compelling some people to give money to others against their will: theft. But only libertarians employ it when the government is involved as intermediary. This opposition holds true whatever the wealth of donors and recipients. Both of these programs, farm subsidies and SBA, should be abolished in their entirety; immediately, if not sooner. Moreover, they are both elements of central planning and government picking winners (Solyndra, anyone?). Have we learned nothing from far better “natural experiments” than the one alluded to by Krugman: that between East and West Germany, North and South Korea? 

Let us now consider the Food and Drug Administration, a shibboleth amongst so-called “progressives.” Why should we be forced to put all our eggs in one basket: to trust the views of but one institution for the all-important task of ensuring safety regarding these products? It is a basic premise of economics 101, to which even Mr. Krugman should adhere, that competition brings about a better result than a compulsory monopoly. That applies to all industries, certainly including the one tasked with ensuring food and drug safety.

Then there is the question of why FDA pronouncements should be compulsory. Why not, merely, advisory? How does it help the consumer to reduce options among medications? Our friends on the left side of the spectrum favor “choice” in the debate over abortion. Why not here, too? The FDA, along with programs such as compulsory Social Security, are profoundly incompatible with democracy, yet another favorite of this sector of the political spectrum. If people are so stupid as to require prohibitions of medicine deemed inappropriate by the FDA, not merely warnings, and cannot save for a rainy day or for their retirements, then it cannot be reasonable to give them the right to vote. On the other hand, if we entrust them with access to the ballot box, we cannot also logically think they need FDA advice, let alone prohibitions, or nanny state requirements that they save their money (put the Ponzi scheme elements of social security to one side). But even governmental advice is highly problematic. Nowhere in the Constitution is there provision made for government to function as an Ann Landers.

Then, too, brand names are a source of security for quality of food and drugs. Who is really more responsible for insuring excellence, Pfizer, Heinz and McDonalds, or the FDA? If the former fail us, they will be heavily penalized, even bankrupted. When the latter fails they keep on going, just like the Energizer Bunny. (The Army Corps of Engineers is still in charge of the Mississippi River, even though it was the failure of their levies which led to the deaths of some 1900 people in late 1920s; were a private enterprise responsible for such a horror, it would have long ago have been replaced by a different business firm).

Nor must we sweep under the rug past FDA mistakes. For example, it failed to warn pregnant women of the morning sickness medicine thalidomide, which created birth defects. That was a Type I error, approving of a negative. Once burned, twice shy. As a result of that horror, the FDA has been busy manufacturing all sorts of type II errors: refusing to allow people to use safe medicines. That is, not until after years and years of very expensive testing. This pushes pharmaceutical prices through the roof, and deprives needy patients for long durations of unavailability. Many unnecessary deaths can be attributed to this failure of theirs. No, the FDA is nothing to brag about. It should be terminated and ashes sowed where once it stood. Milton Friedman indeed hit the nail precisely on the head when he condemned “the F.D.A.’s existence as an unwarranted interference in the free market,” as Krugman accurately states.

By the way, contrary to Krugman, Friedman always characterized himself as a small l libertarian, not a conservative. His intellectual and moral soldier in arms, Friedrich Hayek, wrote an essay “Why I am not a conservative.”

Professor Krugman opines that “libertarian ideology isn’t a real force within the G.O.P.; it’s more of a cover story for the party’s actual agenda.” This is only partially true. There are several libertarians now in the congress: Senator Rand Paul and Congressmen Justin Amash, Walter Jones and Thomas Massie. Dr. Ron Paul was a long time member of the latter institution. There is also the Congressional Freedom Caucus composed of many other libertarians as well as conservatives. Senator Paul is now widely discussed (not only within libertarian circles) as Donald Trump’s Vice Presidential running mate for 2020, instead of Mike Pence. Yes, libertarianism sometimes serves as a fig leaf for Republicans, but, this philosophy plays a role just a little bit more vital than that.

No truer words were ever said about all this than Krugman's: “In the case of the (Republican) party establishment, that agenda is about redistributing income up the scale, and in particular helping important donor interests. Republican politicians may invoke the rhetoric of free markets to justify cutting taxes for the rich and benefits for the poor … but they don’t really care about free markets per se. After all, the party had little problem lining up behind Trump’s embrace of tariffs … Stick it to the bums on welfare, but don’t touch those farm subsidies.” But this, of course, does not at all apply to libertarians.

Next consider health services, whether Medicare, Medicaid, Obamacare or the single payer system of Canada and much of Europe. Basic supply and demand analysis indicates that when prices are held below equilibrium, demand exceeds supply. Every freshman economics student can tell you that this means there is a shortage. And, a shortage there is, in these systems. In Alberta, Canada, both a woman and a horse she owned had kidney stones. Her pet was treated right away (there is no veterinary socialism in that country); were it not, she would have been arrested for animal cruelty. As for her, she had to endure several long months of pain, until she was treated. That is but one sad story in this tip of the iceberg.

Why is medical care so expensive in the U.S.? It is so for two reasons. One, we have covered above: the FDA boosts prices of medical drugs. Two, even more important, the strongest labor union in the country, the American Medical Association, practices restrictions on entry, similar to what the taxi cab crony capitalists attempt to do against Lyft and Uber, and downtown hotels vis a vis Airbnb. They strictly limit the intake of medical schools and their number. They strive mightily to ensure that highly qualified foreign doctors are not allowed to practice in this country. Eliminate their unwarranted powers, and there will be no felt need for medical socialism. Relative prices of computers, television sets, and other products of the somewhat free sectors of the economy continually fall. Next, perhaps, to banking, the health industries are the most highly regulated and prices remain high, there.

Professor Krugman ends on this note: “Knowing that the food you’re eating is now more likely than before to be contaminated, does that potential contamination smell to you like freedom?” I say, in contrast, if you want to be free of tainted food and drugs, the last thing we should rely on is the FDA. Yes, eliminate it, and allow the “magic of the market” as Ronald Reagan would say, to bring us security in this regard.

Originally published at Real Clear Markets
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California Housing Funk Crosses Border to Nevada

12/27/2018Doug French

Las Vegas survives on visitors and immigrants. The housing market depends upon those escaping California taxes and regulation with thousands in home equity to bid up home prices in Nevada, in general, and Las Vegas, specifically.

The actual numbers, provided by WolfeStreet.com, are; 47,500 Californians moved to Nevada in 2017, while 23,800 Nevadans moved to the golden state. That’s a net 23,700 inflow from California or roughly 2,000 per month last year.

Why this matters is, as builder Toll Brothers indicated in a recent earnings call,

“California has seen the biggest decline. Significant price appreciation over the past few years, fewer foreign buyers in certain communities, and the impact of rising interest rates all contributed to this slowdown.”

Wolfe Richter writes ,

In California’s case, foreign migration is largely from Asia. These people come for jobs, particularly tech jobs, education, and opportunity, or to get themselves and some of their assets away from the long arm of their government.

And now the greatest fear of the housing industry in California is that this inflow from Asia is going to slow down. Even a small slowdown, with domestic out-migration as large as it is, could create massive demand problems for the housing market.

With California being Nevada’s primary feeder market, what happens in California won't stay there, but migrate to Nevada.

In fact, it already has. Eli Segall writes in the LVRJ ,

A total of 7,003 single-family houses were listed without offers at the end of November, up 1.2 percent from October and 54.3 percent from November 2017, according to a new report from the Greater Las Vegas Association of Realtors (emphasis added)

Andrew and Dennis Smith write in their latest Homebuilder’s Research Market Letter,

Resale listing inventory has sharply increased since August of this year. After sitting under two months worth of listings for roughly 17 straight months, our friends at Residential Resources are currently reporting 3.0 months worth of supply in the resale market. While historically a figure of six months has always been considered “normal,” some analysts now say we might need to put that number closer to four months with the efficiencies technology has injected into the home buying process. So, perhaps some might say that Southern Nevada is closer to a “normal” market than previously thought, at least in terms of supply.

Smith and Son also address the topic of builder cancellations,

This topic came back to mind a few weeks ago when we reported a cancellation rate of 29.5 percent across a sampling of 235 active new home communities. This was the highest weekly figure going back to at least 2015. A few days later a large scale builder told us they had their worst month for cancellations in memory, prompting a call from their corporate office.

Nevada went California blue in last month’s election. The Silver state has adopted the Golden state’s housing blues as well.

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