At Jackson Hole, Don’t Forget about Rates

At Jackson Hole, Don’t Forget about Rates

08/25/2021Robert Aro

This Friday marks one of the most important economic events of the year. But even Jackson Hole could not escape the threat of the latest variant, as the Kansas City Fed recently announced that due to an elevated covid risk, the event is to be held virtually.

The public is welcomed to tune in this Friday, August 27, at 10 a.m. EST via the Fed’s YouTube channel. It’s encouraged to watch. We should take interest in what they have planned for us. In fact, it’s the least we can do, since tax dollars and currency debasement fund such planning activities …

Started in 1978, the Kansas City Fed explains:

The Federal Reserve Bank of Kansas City’s Economic Policy Symposium in Jackson Hole, Wyo., is one of the longest-standing central banking conferences in the world. The event brings together economists, financial market participants, academics, U.S. government representatives and news media to discuss long-term policy issues of mutual concern.

When the wealthiest people in the country meet in seclusion in one of the wealthiest counties in America, it makes sense they’ll discuss ideas of mutual concern. However, judging by their repeated free market interventions, it cannot be said this includes a concern for the public.

Jackson Hole always includes a topic or theme. This year’s theme: Macroeconomic Policy in an Uneven Economy. Details regarding the topic have yet to be released. But the word “uneven” has a false connotation: it sounds like they have the ability to intervene in a way that will make the economy a more “even” place.

Talk of the Fed’s expected tapering, or slowing down their $120 billion–a-month bond purchases persist on news headlines. Reuters explains that Tuesday’s rise in the global equities and Treasury yields are partly due to investors who became

less worried the Federal Reserve was set to announce a timetable for tapering stimulus measures.

The Fed’s rising concerns over variants and their decision to hold the economic symposium virtually seem to portend the recovery is not going as planned; therefore the Fed might not reveal a date as to when the taper will begin.

While the question over the tapering is a good one, money supply is not the Fed’s only area of control: What about interest rates?

Interestingly enough, the August 1 to September 30, 2007, Jackson Hole meeting sheds some light on the future. The title theme was Housing, Housing Finance, and Monetary Policy. This was only a few months prior to the formal recession, and Ben Bernanke said in a speech:

[I]interest rates have risen from the low levels of a couple of years ago, we have seen a marked deterioration in the performance of nonprime mortgages.

At the time, the Fed’s 2007 effective federal funds rate hovered around 5 percent, while the “low levels” Bernanke refers to were in 2003 at around 1 percent. Today’s rate is only at 0.10 percent.

Ultimately, rates rose from the 2003 rates to the high in 2007, and eventually the stock and housing markets crashed. Whether the rising rates and the market crashes are related, and whether the Fed is to be blamed is a matter of perspective.

Yet, we cannot forget interest rates will have to be addressed, one day. The difficulty is in conceptualizing this when the last significant rate increase occurred nearly twenty years ago. Since then, there was only one small rate increase to just over 2 percent, just prior to this recession in 2019, oddly enough. Today with rates approaching 0 percent, even 2 percent begins to sound extreme, and few can fathom 5 percent.

Also consider that on this day in 2004, the US national debt was only $7.3 trillion and now it’s at $28.6 trillion; yet it seems no one has calculated what the cost of debt would be if rates were multiples higher than today’s rates. As for the stock market, interest rates, valuation of companies, and investment decisions will change significantly if we see higher rates in the future.

This year at (virtual) Jackson Hole, it would be nice if Powell spoke about the sustainability of artificially low rates and what this means in the decade ahead. Of course, the Fed could never address the issue and commit to keeping low rates for an indefinite period of time. But what about the public’s concern with not living in a state of perpetual asset bubbles, boom, busts, and bailouts? Or did that not make it onto the agenda?

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A Central Banker Discusses Data Manipulation

3 hours agoRobert Aro

It's not often that a member of the Federal Reserve’s inner circle ditches Fedspeak in favor of something more honest. Governor Christopher J. Waller did exactly that, in his speech titled: The Economic Outlook and a Cautionary Tale on “Idiosyncratic” Price Changes and Inflation, where the latest addition to the Fed’s Board talked about manipulation of (price) inflation data.

He raises some concerns:

Inflation has been running higher this year than I and most forecasters expected. It has not been high for just a month or two—it has been high all year.

Waller mentions the price of lumber and how it has “skyrocketed through May.” He also talks about how used car prices have increased substantially, and he now closely monitors housing services, such as rent. Eventually, he shares a kernel of truth:

As I mentioned earlier, a lot of commentators, including me, have deflected concerns about high inflation readings being the result of "outliers" or "idiosyncratic" price movements.

Lately, there have been many reports about how inflation rates are being skewed due to increases in lumber and used cars, which conveniently allowed overall price increases to be downplayed for some time, or worse, the idea that:

As a result, recent high inflation readings are transitory and not broad based. But there is a fallacy in doing so that one should avoid in judging whether higher inflation is indeed transitory.

He provides a simple example of some of the problems with inflation data; here are four highlights below:

Now, one could look at this data and manipulate it in several common ways. First, if one used a trimmed-mean measure of inflation, you would throw out the highest and the lowest readings for each year.

While this may help in statistical modelling, the real-world doesn’t work this way. Unfortunately, if just one product or service that someone purchases has increased in value by an extraordinary amount, the individual can’t easily “throw out" the item from their expenditure due to its high value such as fuel for a car or gas for heating a home.

A second way of manipulating the data is to say in year 1, "Look, inflation is being driven by good A, which had an idiosyncratic, outsized price increase. If you throw it out, the underlying inflation rate is 2 percent.”

By “selectively throwing out unusually high price increases,” he explains how inflation data can be shaped to meet the goal of whomever is using the data.

Third, one can justify throwing out good A in the first year by saying it did not reflect a broad-based price increase…

Again, with enough rationale, there really is no limit on just how much data can be manipulated or discarded entirely. 

Saving the most recognizable method until the end:

Finally, one could claim, correctly, that the large price increase for good A is "transitory"—it went up strikingly in year 1 but then dropped back, meaning inflation should fall back to our inflation target in coming periods. But that will mislead you in terms of understanding the true inflation rate, because you are putting zero probability that a large spike in inflation will happen to another good in the future.

Calculating inflation is problematic for countless reasons, but at least he noted several of them. Coming from a Governor at the Federal Reserve, it becomes almost praiseworthy, especially because Chair Jerome Powell has seldom, if ever, spoken this candidly about the methodology employed by the Fed. It's refreshing that the new Governor noted some of these problems and came clean with his own candid opinions on how they're trying to solve them.

But before applauding Waller, don’t forget, he’s a central banker at heart, therefore some Fedspeak is warranted:

…I continue to believe that the escalation of inflation will be transitory and that inflation will move back toward our 2 percent target next year. That said, I am still greatly concerned about the upside risk that elevated inflation will not prove temporary.

Still, the insight has been appreciated. The problem is not the statistical technique or the calculation itself, rather, it’s that these techniques are then used to make real world decisions, often devoid of economic theory or consideration for any semblance of reality.

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What the Fed Is Not Telling Us

10/21/2021Robert Aro

While Federal Reserve Chair Jerome Powell considers the ramifications of his $5 million stock sales prior to the market slump of last year, the rest of us should be left wondering: What else are they not telling us?  This week, some lesser-known members of the Fed offered some ideas worthy of consideration.

On Tuesday, Governor Bowman, at the Women in Banking Symposium asked her audience how America’s central bank can help women:

What can we do to increase opportunities for women who must balance work and home, and what could help keep them from dropping out of the labor force?

She even encourages research on the subject without mentioning where the funding for this would come from. This may be interesting for those in attendance, but it’s also a good idea to speak honestly to people. The Federal Reserve can do a lot to help women. However, the help required is at odds with actions taken by the Fed.

For example, the best way the Fed could help women is to simply leave them alone, but the Fed doesn’t want to leave people to their own devices. With less regulation, women would spend less money and time paying for unnecessary fees. They could also face fewer barriers upon entry. Even if beneficial, it’s highly unlikely the Fed would consider less regulation as a viable solution to anything. The idea of interfering less in the lives of people so they can better manage their own affairs is something not normally mentioned by central bankers. Of course, it's not surprising that the Federal Reserve would prefer people don't know about this. It would be self-defeating for them if they did!

On the same day, Governor Waller gave a speech at Stanford regarding economic outlook. The good news:

As the minutes of the September Federal Open Market Committee (FOMC) meeting conveyed, many participants judge that we have achieved substantial progress on our inflation goal.

Understand, whether it’s the cost of lumber, cars, gas or anything else we hold dear in this world, the Fed is pleased that the cost has (probably) increased this year.

There’s no easy way to say this and it’s not hyperbole or exaggeration; the Fed's goal was to erode your purchasing power, making life more expensive for you. Naturally, they will not tell you their goal is currency devaluation. But that’s exactly what it is. Rather, they will call it inflation targeting or use other words to make it sound less harmful.

Governor Quarles, also gave a speech, on Wednesday, regarding economic outlook. The state of the country similarly looks comforting from his vantage point and the pitfalls of inflationism continue to go unnoticed:

Taking all of the evidence into account, I think it is clear that we have met the test of substantial further progress toward both our employment and our inflation mandates, and I would support a decision at our November meeting to start reducing these purchases and complete that process by the middle of next year. 

This is the quintessential go ahead from Governor Quarles. He confirms he is on board with a reduction in asset purchases next month. But the vote includes the above three governors. Even though he favors reduction in asset purchases, he does clarify:

Reducing purchases and ending them on this schedule is not monetary tightening, but a gradual reduction in the pace at which we are adding accommodation.

The Fed will not be reducing the balance sheet. Instead, they will only increase the balance sheet at a slower pace than before. It sounds similar, but the difference is considerable. Yet, the elephant in the room is unmentioned. What he’s not saying is whether or not a crash in the housing or stock market will soon follow, and whether or not any more members of the Fed’s inner circle will sell millions of dollars in stocks like they did the last time the market crashed.

Between Chair Powell and those closest to him, there exists a recurring pattern of keeping interesting information away from the public, while at the same time claiming the Fed acts in the public’s interest.

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The Dangers of “Should Be”

10/19/2021Robert Aro

In this world, there exists a multitude of supranational organizations, agencies and committees which, may or may not, work in concert with each other for the purpose of central planning. Countless bureaucrat salaries are funded with the public’s money or debt, paid not to produce goods or services that have a market price; instead the goal is to rearrange society based on the notion that they possess a calculation method or some higher knowledge allowing them to know how society “should be.”

One such planner is Randal K. Quarles. Hardly a household name, he sits on the Board of the Federal Reserve’s Board of Governors, but also is the Chair of the Financial Stability Board (FSB). The FSB has a lengthy mandate including activities such as monitoring and making recommendations about the global financial system. Per note 6 of the FSB’s financial statements, they are funded by the Bank for International Settlements (BIS) and the International Monetary Fund (IMF).

The reach and authority of these worldwide organizations appears both wide and perplexing to anyone who is not on their payroll. Despite relative obscurity, the FSB produces reports for G20 nations and other countries across the globe. On Monday, Chair Quarles demonstrated the problem of these organization in his latest speech, from beautiful Madrid:

Living through the events of last year was an experience of near chaos. The world had stopped functioning the way it should, leading to unexpected—and in some cases almost unimaginable— outcomes, including in our financial markets.

This idea that an organization knows how the market should be is very dangerous and has been the source of needless hardships throughout history. Financial markets, stock exchanges, worldwide and local economies have unfathomable moving parts, all requiring the actions of individuals. A planning task force is a polar opposite of the market in which they intervene. Enjoying the benefits of government granted abilities, they remain on the sidelines, capable of providing nothing except market distortion. 

Never selfless, but always self serving, planning organizations must remain steadfast to collectivist propaganda no matter how egregious the claim. One such claim can bee see on a report from last year that speaks to the importance of anti-free market policies during the march market turmoil:

Absent central bank intervention, it is highly likely that the stress in the financial system would have worsened significantly.

A common tactic used by those who deceive is the notion that without their help, life would be much worse.

The problem is two-fold. Since this is a claim on a future that never happened, the claim is without merit. Conversely, one could attempt to envision a future without their intervention and find that it doesn’t seem all that scary after all.

We’d have to consider a world where interest rates are not centrally controlled, and where trillions of dollars of debt weren’t created to inflate asset prices, house prices, stock prices and the costs of goods and services. Imagine a future where almost $800 billion in Paycheck Protection forgivable loans didn’t exist because a handful of individuals thought it was a good idea to pay people not to work. As for the national debt, the $29 trillion mark will be passed soon. Such inflationary feats and the capital destruction that follows would never be made possible without the aid of a central planner and their monopoly banks.

Naturally, Chair Quarles shows little interest in exploring free market solutions because organizations like the FSB have no role to play in a truly free society. As explained:

…the “COVID event”— was precisely the kind of global crisis that the FSB was created for, and—as was envisaged— the FSB has played a central role. But our work is not finished.

By any metric, whether data or anecdotal, the idea behind central planning should start to weigh on the public’s conscious. A robust market will always function in the absence of government oversight, central banking and the use of a central planning committee. Whereas the central planner and all other bureaucrats need some semblance of a free market in order to redirect resources according to plan, which is unfortunate because increasing the wealth for the richest members of society looks to be the purpose of the plan.

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The Answer to Suicide Isn't a Gun Lock

10/19/2021Alan Mosley

While enjoying some Saturday afternoon college football, I was treated to about a dozen reruns of a commercial produced by the Department of Veteran Affairs (VA). Let me paint the scene for you.

A lone figure rests upon his pickup truck beside a lone oak upon a ridge in an otherwise rolling green prairie. The sky is a canvas of orange and purple as the sun sets on a peaceful day in the foothills of rural America. Suddenly, the imagery fades to a small silver case: a gun case for a pistol. Notably unloaded, the hands of the otherwise off-screen figure emerge to affix a lock to his sidearm, as even the case and separated magazine weren’t enough to keep this soldier safe.

But safe from what? The voice-over then chimes in:

A simple lock puts space between the thought and the trigger. Learn how securing your firearms can prevent suicide.

Look, I get it. The message they’re trying to convey is most suicides are an act of impulse. A veteran’s life may be saved if a little patience and deliberation is introduced into the equation. But it’s really hard to receive this advert as anything but a hollow gesture when the prescription provided by the VA is a gun lock, without an ounce of reflection on the root cause of the crisis.

According to estimates, a little over seven thousand soldiers have died during military operations since the start of the “war on terror” following the attacks of September 11. Meanwhile, suicides among both active duty personnel and veterans of those conflicts have exploded to over thirty thousand, or more than four times the number lost in combat. While these numbers are sobering, and possibly even err on the conservative side, the real focus should be on what is driving the dilemma and how best to put an end to it. With the war on terror now exceeding two decades, experts’ reasoning for the cause of the veteran suicide epidemic has evolved just as the wars themselves have evolved over those twenty-plus years. The most avid participants in regime apologism blame the diminishing public support for the terror wars for the rise in veteran mental health issues. While it’s true that Americans’ appetites for forever war are reaching all-time lows, as evidenced by the support for withdrawal from Afghanistan, no matter how mismanaged, this explanation lacks an ounce of self-awareness for how long and costly the wars have been. Others have put forth that a rash of sexual assaults among personnel and a culture of “toxic masculinity” has led to increased mental health issues among service members. Nearly one in four servicewomen have reported cases of sexual assault, an embarrassment and a disgrace to the institution. The “boys club” may be to blame in equal parts for betraying its sisters in arms and for convincing its brothers that they are weak to feel ill at ease. However, the weakest and most deceitful reason suggested may be that veterans are at severe risk of suicide because of their access to firearms. The rate of suicidal persons electing to turn to a firearm to commit the act has been used as fodder by gun prohibition advocates to attack the Second Amendment. This tactic not only belies an agenda totally divorced from concern for military veterans, but it also implies veterans are among the least qualified to possess firearms for personal use rather than among the most qualified.

There’s another explanation worth considering, and it was perfectly illustrated right as the American occupation of Afghanistan was coming to a close. In an attempt to straddle the fence between bringing the war in Afghanistan to a long-overdue end and appeasing hawks who consider “withdrawal” to be synonymous with “surrender,” President Joe Biden signed off on a drone strike against an alleged ISIS-K target. The unfortunate victims of said drone missile were not militants, but rather one Zamarai Ahmadi and his children, as even US military officials have openly admitted. Despite this admittance, no disciplinary action is expected, as senior officials continue to “stand by the intel leading to the strike.” This is quite a callous and remorseless defense of “the intel” that ultimately concluded that Ahmadi, an aid worker who helped Americans during the occupation, deserved to die for the crime of loading his white sedan with jugs of water for his family. This incident is merely a microcosm of the role unmanned combat aerial vehicles (UCAV) have played in the war on terror. According to a recent report, upwards of 90 percent of the people killed in drone strikes in Afghanistan, Pakistan, Yemen, and Somalia were “not the intended targets.” In other words, nearly nine out of ten people executed by the American government were likely innocent civilians. Service members returning home are being confronted with reports of American atrocities and war crimes; actions that they may have been party to. For some, the guilt of being responsible for creating terror abroad when they believed themselves to be in a war to end terror is overwhelming.

It’s certainly a welcome change to acknowledge the suicide epidemic among American service members. But acknowledgement of the problem without any meaningful introspection on the cause signals that the US government is more concerned with its PR problem than with stemming the creation of more psychologically damaged veterans. There may be several reasonable explanations for the trauma American troops are experiencing, but no list is complete without a willingness to confront the damage that US forces have caused, as well as the damage they have received. Regardless of your position on the cause of the crisis, or of America’s foreign policy generally, it is disrespectful and offensive to the nation’s veterans to recommend that their best foot forward against depression is to secure their firearms.

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The Sovereign State of Florida

10/18/2021Andrew Walter

There comes a time in the course of human history when political systems, having failed to uphold the responsibilities and limitations given to them by their creators, and having exceeded those by such a margin as to violate the innate rights of those under such system, should and must be dissolved for the general benefit and justice of all those under its influence.

Such is the case regarding the federal government of the United States of America, and especially in regards to its relation to the State of Florida. For, contrary to what is generally taught in the American school system, the forming of the United States of America through creation of its Constitution did not create a top-down federal government in which the States were made subordinate to its whims. In fact, ratification of the constitution only occurred after several of its signers were reassured of this. The concern was so high from delegates of certain States, including New York, that the 10th amendment was added to clearly define the powers of the federal government and leave all others to the states.

The Constitution, being a voluntary compact of the States, where each State in the union was party to the Constitution of its own accord, allows for States to nullify acts of congress or leave the union at any time, was understood to be true by not only the founding fathers but also by those in the generations prior to the southern state secession of the 1860s. Dissenting groups in the North such as the Essex Junto in 1803 and the Hartford Convention in 1814 both supported secession of Northern states far in advance of the civil war. The members of the Hartford Convention made this clear when they declared “in cases of palpable infractions of the Constitution, affecting the sovereignty of a State, and liberties of the people; it is not only the right but the duty of such a State to interpose its authority for their protection, in the manner best calculated to secure that end”. Not until the civil war did the idea of secession become taboo and it made clear, by those in positions of power and influence, that the United States was “one nation under God, indivisible” and not a voluntary contract between sovereign States to benefit each in matters of commerce and defense, etc., while recognizing each State’s right of self-governance.

Let’s turn now as to to why, over 150 years later, we should open our minds to founding principles of self-government, and recognize, as the founding generation did, the sovereign nature of the States and their subsequent right to separate from the union when it no longer benefits the welfare and liberties of their people. The cultural makeup of modern America, and the differences in values, beliefs and practices between many of the States is so great as to cause continual strife among both their people and legislators, and to every two, four and six years create a battle over whose ideas will win out and yield congressional and executive power to implement those ideas over the other. Constitutional delegate from New York Robert Yates foresaw this problem in 1787 when he observed that “In a republic, the manners, sentiments, and interests of the people should be similar. If this is not the case, there will be a constant clashing of opinions; and the representatives of one part will be continually striving against those of the other”. 

245 years after the revolutionary war and 232 years after the ratification of the constitution, Americans are more divided than ever before. The political spectrum is wide and contentious, with many on the left and on the right hating each other, with no real understanding of their views or will to collaborate and work together. Politics in the U.S. has become a pendulum where every few years we swing more to the left or right with the result being only more division. This is exacerbated by the power that the federal government, and especially the executive branch, now hold due to both the size and scope of government, as well as the relinquishing of duties by both the U.S. Congress and the States themselves. Increasingly, congress is too timid to perform duties such as declaring war or balancing the budget, and merely acts as the support and funding arm of the executive branch, which has found it can wield the power of the pen to pass executive edicts at its whim and implement its chosen programs through congress or unelected bureaucratic agencies if need be. Congressmen are more apt to serve lobbyists and donors before their constituents, and most lack principles or lose them when they enter office.

After the last year and a half, it should be clear to most people that federal government overreach is no longer an abstraction pointed to by far right conspiracists. When people can be forced home, businesses closed, economies halted, and personal health decisions tied to employment at the whim of one man, the people have given up far too much power. It doesn’t have to be this way. If people in a certain State feel one way about government and the people of their neighboring State feels otherwise, each should not be made to impose those views on the other. Each State is entitled by its own sovereignty to govern itself how it sees fit, by such local means which give people more influence over those that represent them. It is time to end this eternal fighting over control and come together as Floridians first, to do what’s best for each other and our posterity.

To this end, a group of individuals from across the State of Florida have formed the Flexit political committee to bring awareness to the issue of State sovereignty and the right of the State of Florida and other States to peacefully exit the union of the United States of America and ultimately to pass, by referendum of the people, the following amendment to the State Constitution of Florida:

Article I Section 26. Union with the States of the United States of America. 

The State of Florida is a free, sovereign, and independent State. The foundational principle that guided the several States of America to declare independence from the State of Great Britain is that government derives its just powers solely from the consent of the governed and that it is the right of the people to alter or abolish their government. The people may institute new government, laying its foundation on such principles, and organizing its powers in such form, as to them shall seem most likely to affect their safety and happiness. Therefore, it is the right of the people of the State of Florida, via referendum or through their elected representatives, to withdraw their consent to the present union among the State of Florida and the other States of the United States of America and to establish itself as a republic independent of such States and of the United States of America, possessing all the rights and privileges of a sovereign State.

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Inflation Celebration

10/14/2021Robert Aro

As reported by Reuters on Wednesday:

Yes, inflation is back, and you should probably be relieved if not outright happy.

It seems strange to start a news article with the above sentence. When they talk of inflation, they’re talking about price increases as measured through various inflation calculations. For a news source, supposedly unbiased, they seem unaware of or purposely ignore the loss of dollar purchasing power and currency debasement. What they’re celebrating is an increase in the cost of living for everyone, hurting those at the lowest level of the income bracket the most.

As one of the most trusted news sources in the world explains:

That is the verdict of the world's top central banks, who hope they have hit the sweetspot where healthy economies see prices gently rising—but not spiralling out of control.

Notice the use of euphemism or vague term sweet spot that the marriage between mainstream media and mainstream economics uses to explain concepts that cannot be conveyed. It happens frequently:

Backed by vast government spending, central bankers unleashed unprecedented monetary firepower in recent years to get this result. Indeed, anything less would suggest the biggest experiment in central banking in the modern era had failed. 

A large part of this government spending was thanks to central banks, while the monetary firepower just means expansion of the money supply, also called inflation, coupled with historically low interest rates. The word experiment is often used; this is unfortunate because those in charge of this experiment are among the richest and most powerful people in the world. It’s easy for them to experiment because they will never suffer the consequences of failure, unlike the rest of society, who do.

The possibility of repeating 1970s stagflation was dismissed as quickly as it was mentioned:

The current inflation rise is not without risk, of course, but comparisons with 1970s style stagflation—a period of high inflation and unemployment combined with little to no growth—appear unfounded.

Despite noting that:

On first look, current inflation rates do indeed look troubling. Price growth is already over 5% in the United States … well above policy targets and at levels not seen in well over a decade.

But according to the author the price increases we’re seeing are only temporary and due to the reopening of the economy, acceptable because an expert from the European Central Banks is quoted as having said:

The current inflationary spike can be compared to a sneeze: the economy’s reaction to dust being kicked up in the wake of the pandemic and the ensuing recovery.

Over half a dozen other central bankers are said to be relieved that "price pressures are finally building and policy normalisation, a taboo subject for years, is back on the agenda," while one policymaker who asked to be left nameless said that "[i]f inflation doesn't rise now, it never will…. These are the perfect conditions, this is what we worked for."

For all the meetings, planning, review of data, and deliberation, at last central bankers of the world are rejoicing over what they have done with our money. Debt levels, money supply, interest rates, and prices are in territories some thought were unimaginable. The theory or model behind any of this is still not explained by our planners.

Where some see victory, others see a time bomb. It would have been nice if Reuters had mentioned some of the problems associated with inflationism as economic policy. But who wants to put a damper on things? For now, it’s a celebration of central planners and how they brought their long sought after inflation back to the West, with the hope that the years that follow will similarly go according to plan, lest they’re forced to intervene again.

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Does the Fed Need More Progressives?

10/11/2021Robert Aro

The Federal Reserve System will need people to fill the gap left by the retirement of the regional presidents for Dallas and Boston, both stepping down after public disclosure of trading activities. Fed vice chair Richard Clarida is also under scrutiny over several millions of dollars' worth of trades. The Fed could be hiring, or promoting people, in the not-too-distant future.

If past experience is an indication of future outcomes, then someone who doesn’t ask too many questions, yet has an interest in climate change, could be a good candidate. The name that keeps coming up in news headlines looks to be Fed governor Lael Brainard. CNBC reports:

Federal Reserve Governor Lael Brainard's increased influence ahead likely means substantial changes and challenges for the nation’s banking system.

Considered a progressive who favors tighter reins on financial institutions, particularly the Wall Street powerhouses …

Progressive. Much like someone calling themselves a liberal, or socialist, a progressive is one of those self-identifiers that can include a long range of beliefs, many or most of them requiring the threat of violence, theft, or coercion.

The article supports the idea of a Federal Reserve looking for such traits. Ed Yardeni from the research firm which bears his name speaks of Brainard as someone who can move up even higher in the ranks at the Fed:

Everybody can see that the Fed has been moving toward a more progressive stance, and it wouldn’t be a big shock to see that she gets more power either as Fed chair or as vice chair for regulation.

Since it’s not enough to set a nation’s monetary policy, the Fed also monitors and directs the entire US banking system. As Yardeni explains:

To the extent that the Fed’s always more focused on monetary policy than regulation, now one of its new mandates from the progressives is to pay more attention to regulating the banks.

All this talk about being progressive, yet no one has explained where these ideas come from nor where they lead. They might sound progressive to voters and the public at large, but very rarely is it explained how this ideology is beneficial.

Here’s an example of this in action. A few days ago Lael Brainard gave a speech on climate change. She noted that:

Current voluntary climate-related disclosures are an important first step in closing data gaps, but they are prone to inconsistent quality and incompleteness. 

Sounds reasonable. Should a financial institution or any other company voluntarily wish to partake in climate-related disclosures or calculations, there’s certainly nothing wrong with this.

But now, let’s see the progressive in action. Notice the key word as she continues:

Consistent, comparable, and, ultimately, mandatory disclosures are likely to be vital to enable market participants to measure, monitor, and manage climate risks on a consistent basis across firms.

Mandatory. This is the tool of the progressive, the socialist, the liberal, and many of those considered to be on the left or right; the state can impose actions which are mandatory, or forced on whomever it pleases.

The affairs at the Fed have yet to be sorted. But one thing is clear. No matter the name of the ideology, it will limit individual freedom and support the collective, operating under the pretense that it is for the greater good, but in reality is beneficial for only those at the top. From the Fed chair on down, this is the way of the state.

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Wisdom from Piketty

10/11/2021David Gordon

The famous French socialist economist Thomas Piketty thinks we aren't  moving toward equality fast enough.  In his Long Live Socialism!, he says this to illustrate how much work remains to be done: "The poorest 50% of the world's population is still the poorest 50% of the world's population" (p.13 of the Amazon Kindle edition).

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Canada’s 2021 Election: Trudeau’s Miscalculation

10/11/2021Lee Friday

Justin Trudeau was widely criticized for calling an election during a pandemic, but he thought that his oppressive covid policies would play well with the voting public, which would then reward his minority Liberal government with enough additional seats to give them majority status. He was wrong. The Liberals won the election, but they did not achieve majority status. So much for reading the minds of the voters.

The Conservative (in name only) Party repeated their 2019 performance by winning the popular vote and finishing in second place. Which brings us to the surprise of the election: the People’s Party of Canada (PPC).

In 2017, Maxime Bernier narrowly lost the Conservative Party leadership convention—or it was stolen from him—because of his opposition to Canada’s socialistic supply management system that forces consumers to pay artificially high prices for eggs, dairy, and poultry products. In 2018, Bernier left the Conservative Party and founded the PPC because of his dissatisfaction with the Conservative Party platform, which he described as “intellectually and morally corrupt.”

In the 2019 election, the PPC, which has a distinct libertarian flavor, received 1.6 percent of the popular vote. In contrast, it took the Green Party twenty years and six elections to garner 1.6 percent of the popular vote. In the September 20, 2021, election, the PPC did not win any seats, but they increased their share of the popular vote to 5 percent (the Greens got 2.3 percent), which is a remarkable and unexpected achievement for a party that is barely three years old.

The PPC distinguished themselves with a platform that stood in stark contrast to the platforms of the Liberals and Conservatives. More importantly for this particular election, it is likely that the PPC’s opposition to authoritarian pandemic policies was the primary catalyst for their impressive performance.

So Trudeau’s decision to call an election backfired on him because he did not get the majority control that he wanted. But it also backfired on him because it gave many people an opportunity to express their dissatisfaction with his authoritarian pandemic policies by voting for the PPC. Thus, his failed attempt to secure a majority government has strengthened the profile of the PPC. Bernier should send Trudeau a thank-you note.

None of this is to suggest that the PPC is a white knight for freedom-loving Canadians. When it comes to politics, a healthy dose of skepticism is always advisable. Political parties come and go, and are often co-opted. Would Bernier keep his promises if he won an election? We don’t know.

What we do know is that Canada’s three main national political parties (Liberals, Conservatives, and the New Democratic Party [NDP]), all leftist, are concerned that the three-year-old PPC increased its share of the popular vote by more than threefold in just twenty-three months. They should be concerned. A rising PPC on the right may not bode well for Canada’s bipartisan leftist politics, because Bernier, who is not a rookie, is well versed in libertarianism.

In a recent interview with Jordan Peterson, Bernier provided a few examples of his libertarian leanings. He decries the woke culture. He opposes business subsidies and favors free market incentives. He acknowledges the contributions of Mises, Rothbard, and Hayek as he blames the central bank for the business cycle. He wants to reduce the Bank of Canada’s inflation target from 2 percent to 0 percent. He understands that consumers’ purchasing power is reduced by the inflation tax. Thus, he opposes fiat currency, and supports the gold standard. He likes cryptocurrency because he favors money competition. He favors radical decentralization at the federal level, thereby increasing the level of provincial autonomy, which brings government closer to the people in the various regions. This includes healthcare, where he wants to eliminate the federal government’s role.

Trudeau gift wrapped a higher public profile to the PPC, but it remains to be seen whether Bernier seizes this opportunity to explain the PPC’s libertarian ideas to many more Canadians before Trudeau—or his replacement—announces the next election. More to the point, if he wins an election, will Bernier stay true to his libertarian principles, or will his name be added to Canada’s long list of political sellouts? Only time will tell.

However, the Liberals and Conservatives—for whom integrity has no meaning—are worried that Bernier will actually stick to his principles, and use his extensive libertarian knowledge to explain to Canadians the myriad ways in which big brother government is detrimental to their well-being.

We don’t know if the PPC is the real deal, but for now, politicians on the left are rightfully nervous. At the very least, after a year and a half of pandemic lockdowns and restrictions, a healthy dose of entertainment is a welcome relief—and it’s always fun to watch politicians squirm.

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The Magic of the Keynesian Multiplier

10/10/2021Frank Shostak

By popular thinking, the key driver of economic growth is increases in the total demand for goods and services. It is also held that the overall economy’s output increases by a multiple of the change in expenditure by government, consumers and businesses. The popularizer of this way of thinking John Maynard Keynes, wrote,

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course by tendering for leases of the note-bearing territory), there need be no more unemployment and with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.1

An example will illustrate how an initial spending increase raises the overall output by a multiple of this increase. Let us assume that out of an additional dollar received individuals spend $0.9 and save $0.1. Also, let us assume that consumers have increased their expenditure by $100 million. Because of this, retailers' revenue rises by $100 million. Retailers in response to the increase in their income consume 90 percent of the $100 million, i.e., they raise expenditure on goods and services by $90 million. The recipients of these $90 million in turn spend 90 percent of the $90 million, i.e., $81 million. Then the recipients of the $81 million spend 90 percent of this sum, which is $72.9 million and so on. Note that the key in this way of thinking is that expenditure by one person becomes the income of another person.

At each stage in the spending chain, people spend 90 percent of the additional income they receive. This process eventually ends, so it is held, with total output higher by $1 billion (10*$100 million) than it was before consumers had increased their initial expenditure by $100 million.

Observe that the more that is being spent from each dollar, the greater the multiplier is and therefore the impact of the initial spending on overall output will be larger. For instance, if people change their habits and spend 95 percent from each dollar the multiplier will become 20. Conversely, if they decide to spend only 80 percent and save 20 percent then the multiplier will be 5. All this means that the less that is being saved the larger is the impact of an increase in overall demand on overall output. Note that on this way of thinking an increase in savings weakens the pace of economic activity. Following this way of thinking it is not surprising that most economists today are of the view that by means of fiscal and monetary stimulus it is possible to prevent the US economy falling into a recession.

Is the multiplier a real thing?

Are increases in savings bad for the economy, as the multiplier model indicates? Take for instance Bob the farmer who has produced twenty tomatoes and consumes five tomatoes. What is left at his disposal is fifteen saved tomatoes, which are his savings. With the help of the saved fifteen tomatoes, Bob can now secure various other goods. For instance, he secures one loaf of bread from John the baker by paying for the loaf of bread with five tomatoes. Bob also buys a pair of shoes from Paul the shoemaker by paying for the shoes with ten tomatoes. Note that savings at his disposal limit the amount of consumer goods that Bob can secure for himself. Bob’s purchasing power is constrained by the amount of savings i.e. tomatoes at his disposal, all other things being equal. Now, if John the baker produced ten loaves of bread and consumed two loaves his savings are eight loaves of bread. Equally, if out of the production of two pair of shoes Paul uses one pair for himself then his saving is one pair of shoes.

When Bob the farmer exercises his demand for one loaf of bread and one pair of shoes he is transferring five tomatoes to John the baker and ten tomatoes to Paul the shoemaker. Bob's saved tomatoes maintain and enhance the life and wellbeing of the baker and the shoemaker. Likewise, the saved loaf of bread and the saved pair of shoes maintain the life and wellbeing of Bob the farmer. Note that it is saved final consumer goods, which sustain the baker, the farmer and the shoemaker, that makes it possible to keep the flow of production going. Now, the owners of final consumer goods, rather than exchanging them for other consumer goods, could decide to use them to secure better tools and machinery. With better tools and machinery, a greater output and a better quality of consumer goods can be produced some time in the future.

Note that by exchanging a portion of their saved consumer goods for tools and machinery the owners of consumer goods are in fact transferring their savings to individuals that specialize in making these tools and machinery. Savings sustain these individuals whilst they are busy making these tools and machinery. Once these tools and machinery are built this permits an increase in the production of consumer goods. As the flow of production expands this permits more savings all other things being equal, which in turn permits a further increase in the production of tools and machinery. This in turn makes it possible to lift further the production of consumer goods. So contrary to popular thinking, more savings actually expands and not contracts the production flow of consumer goods.

Can an increase in the demand for consumer goods lead to an increase in the overall output by the multiple of the increase in demand? To be able to accommodate the increase in his demand for goods the baker must have means of payment i.e. bread to pay for goods and services that he desires. Note again that the baker secures five tomatoes by paying for them with a loaf of bread. Likewise, the shoemaker supports his demand for ten tomatoes with a pair of shoes. The tomato farmer supports his demand for bread and shoes with his saved fifteen tomatoes. The baker’s increase in the production of bread permits him to increase demand for other goods. In this sense, the increase in the production of goods gives rise to demand for goods. People are engaged in production in order to be able to exercise demand for goods to maintain their life and wellbeing.

Note that what enables the expansion in the supply of final consumer goods is the increase in capital goods or tools and machinery. Savings in turn enables the increase in tools and machinery. We can thus infer that the increase in consumption must be in line with the increase in production. From this, we can also deduce that consumption does not cause the production to increase by a multiple of the increase in consumption. The increase in production is in accordance with what the pool of savings permits and is not constrained by consumers’ demand as such. Production cannot expand without the support from the pool of savings i.e. something cannot emerge out of nothing.

Let us examine the effect of an increase in the government's demand on an economy's overall output. In an economy, which is comprised of a baker, a shoemaker and a tomato grower, another individual enters the scene. This individual is an enforcer who is exercising his demand for goods by means of force. Can such demand give rise to more output as the popular thinking has it? On the contrary, it will impoverish the producers. The baker, the shoemaker, and the farmer will be forced to part with their product in an exchange for nothing and this in turn will weaken the flow of production of final consumer goods. Not only does the increase in government outlays not raise overall output by a positive multiple, but on the contrary this leads to the weakening in the process of wealth generation in general. According to Mises,

[T]here is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens' spending and investment to the full extent of its quantity.

Murray Rothbard in his Man, Economy, and State discussed the absurdity of the Keynesian multiplier.

The theory of the “investment multiplier” runs somewhat as follows:

Social Income = Consumption + Investment

Consumption is a stable function of income, as revealed by statistical correlation, etc. Let us say, for the sake of simplicity, that

Consumption will always be .80 (Income).

In that case, Income = .80 (Income) + Investment.

.20 (Income) = Investment;

 or Income = 5 (Investment).

The “5” is the “investment multiplier.” It is then obvious that all we need to increase social money income by a desired amount is to increase investment by 1/5 of that amount; and the multiplier magic will do the rest….

The following is offered as a far more potent “multiplier,” on Keynesian grounds even more potent and effective than the investment multiplier, and on Keynesian grounds there can be no objection to it. It is a reductio ad absurdum, but it is not simply a parody, for it is in keeping with the Keynesian method.

Social Income = Income of (insert name of any person, say the reader) + Income of everyone else. Let us use symbols:

Social income = Y

Income of the Reader = R

Income of everyone else = V

Let us say the equation arrived at is: V = .99999 Y

Then, Y = .99999 Y + R

.00001 Y = R

Y = 100,000 R

This is the reader’s own personal multiplier, a far more powerful one than the investment multiplier. To increase social income and thereby cure depression and unemployment, it is only necessary for the government to print a certain number of dollars and give them to the reader of these lines. The reader’s spending will prime the pump of a 100,000-fold increase in the national income.

Does the introduction of money make the multiplier possible?

The introduction of money does not alter our conclusions. Money only helps to facilitate trade among producers— it does not generate any real stuff. Paraphrasing Jean Baptiste Say Mises wrote that,

Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.2

When an individual increases his spending by $100 all it means is that he has lowered his demand for money by $100. The seller of goods has now acquired $100, which he can employ when deemed necessary. We can also say that the seller's demand for money has increased by $100. Likewise, if the seller will now spend 90 percent of $100 all that we will have here is a situation wherein his demand for money has fallen by $90 whilst somebody else's demand for money has now risen by $90. In addition, all other things being equal, if individuals have increased their expenditure on some goods then they will be forced to spend less on other goods. This means that the overall spending in an economy remains unchanged. Only if the amount of money in the economy increases, all other things being equal, spending in money terms will follow suit. However, also in this case the increase is not because of some multiplier but because of the increase in money supply. The increase in monetary expenditure because of an increase in money supply cannot however produce the expansion in real output as the popular story has it.

All that it will generate is a reshuffling of the existent pool of savings. It will enrich the early receivers of the new money at the expense of last receivers or no receivers at all. Obviously then, a loose monetary policy which is aimed at boosting consumers' demand cannot boost real output by a multiple of the initial increase in consumer demand. Not only will loose money policy not lift production, but on the contrary it will impoverish wealth generators in exactly the same way as the enforcer in our previous example.

Summary and Conclusion

John Maynard Keynes's writings remain as influential today as they were eighty-five years ago. His ideas remain the driving force of economic policy makers at the Fed and Government institutions. These ideas permeate the thinking and writings of the most influential economists on Wall Street and in academia. The heart of the Keynesian philosophy is that what drives the economy is demand for goods. Economic recessions are predominantly the result of insufficient demand. In the Keynesian framework, an increase in demand not only lifts overall output but that output increases by a multiple of the initial increase in demand. Within this framework, something can be created out of nothing.

  • 1. J.M. Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1964), p. 129.
  • 2. Ludwig von Mises, "Lord Keynes and Say's Law," in The Critics of Keynesian Economics, edited by Henry Hazlitt (Irvington-on-Hudson, NY: Foundation for Economic Education, 1995), p. 316.
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