Power & Market

A Just Society Is a Society Based on Political Liberty

12/31/2020Gary Galles

Listen to the Audio Mises Wire version of this article.

As we approach the calendar turn to 2021, many Americans’ thoughts will turn to New Year’s resolutions. Those I hear about from others typically revolve around things like getting in shape, quitting smoking, consuming fewer intoxicants, spending more time with family, etc. Of course, I have no objection to anyone trying to be better. But I also think that, at a time when proposals to undermine the rights that comprise our liberties have been ever more commonplace, resolutions to better defend and advance our liberties would make all of America better.

To help motivate such resolutions, I would turn to Lord Acton, who wrote, “Liberty is not a means to a higher political end. It is itself the highest political end…not for the sake of a good public administration…but for the security in the pursuit of the highest objects of civil society, and of private life.” And given the inexhaustible creativity politicians show in undermining our liberty, and with it our ability to pursue our own highest goals as we wish, one powerful weapon of defense is to focus on some absolutely essential aspects of a good life and a good society that are possible with liberty, but not in its absence.

So, with apologies to John Stuart Mill’s On Liberty, consider what only liberty offers individuals and the society they comprise, including what only economic liberty offers us.

Only Liberty

Only liberty is consistent with a society in which “thou shall not kill” and “thou shall not steal” are honored.

Only liberty is consistent with all individuals being of transcending importance, equally “made in the image of God.”

Only liberty provides equal respect for every individual’s inalienable rights.

Only liberty prevents some from ruling over others, who are sacrificed to the interests of those in power.

Only liberty is consistent with true peace between individuals and societies.

Only liberty allows moral and ethical development and improvement, increasing our integrity and generosity, because we cannot improve or grow without the freedom to make our own choices.

Only Economic Liberty

Only economic liberty—private property and free markets—allows the use of productive knowledge that no central planner, whether a single person or a group, can effectively employ.

Only economic liberty enables the greatest degree of human creativity and productive discovery, by allowing anyone the possibility to discover new and improved options and offer them to others without artificial restriction.

Only economic liberty guarantees that arrangements are mutually acceptable to those involved, given their circumstances and preferences, rather than coercive impositions by those more powerful on those less powerful.

Only economic liberty offers people the greatest incentives to do for others, even when they don’t know them or may not like them.

Only economic liberty allows adjustments to changed circumstances by way of price changes, without requiring coercion or nasty political battles for control.

Only economic liberty unlocks the potential for economic growth to the greatest possible extent, as history attests.

Asking what only liberty can do for us helps us see why resolving to better protect and advance it is so important. Liberty is essential to creating the most peaceful, prosperous, and profoundly improving society we can have. When combined with Acton’s recognition, that “Liberty alone demands, for its realization, the limitation of the public authority, for liberty is the only object which benefits all alike, and provokes no sincere opposition,” it can lead people to ask, “How could I even think of giving up the irreplaceable benefits of liberty for things that are so much less valuable?” And that question is crucial because, as Leonard Read powerfully expressed it in “Freedom and the Fate of Nations”:

it is only in an essentially free society that certain trends have the possibility of prevailing: self-responsibility, improved morals, a passionate striving for intellectual excellence, a will to overcome obstacles, an energetic enthusiasm turned toward self-improvement, and abounding entrepreneurial spirit, competition and free pricing.

Note: This article is adapted from a chapter in Gary Galles’ latest book, Pathways to Policy Failures, just released by the American Institute for Economic Research.

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The Angel Gabriel and Monetary Inflation

12/29/2020Robert Aro

Listen to the Audio Mises Wire version of this article.

Six hundred dollars, two thousand, or how about one million per person? How much money should a government give its people to get the wheels of commerce turning again?

If starting with the premise that many are struggling because they don’t have enough money, the obvious solution for government is to “give them more money.” Unfortunately, this idea has never worked and will never work. The idea of money creation for the purpose of wealth creation is nothing new. In 1912, when Mises published The Theory of Money and Credit, he cited David Hume, who in the eighteenth century discussed what would happen if overnight “every Englishman [were] miraculously endowed with five pieces of gold.”

Years later, Murray Rothbard used the ideas of Hume and Mises in works such as The Austrian Theory of Money and The Case against the Fed in what became known as the “Angel Gabriel model.” In The Mystery of Banking Rothbard uses the model to show that an increase to the money supply confers no social benefit to society:

The Angel Gabriel is a benevolent spirit who wishes only the best for mankind, but unfortunately knows nothing about economics. He hears mankind constantly complaining about a lack of money, so he decides to intervene and do something about it. And so overnight, while all of us are sleeping, the Angel Gabriel descends and magically doubles everyone’s stock of money.

If such an injection to the money supply were to happen today, many distinguished economists, politicians, and central planners might very well praise such “stimulus,” saying it’s exactly what the economy needs!

In the morning, Rothbard explains, everyone would be ecstatic to find they are now twice as rich as they were the previous night because they now have twice the amount of dollars in their “wallets, purses, safes and bank accounts.” They would go out to spend their money, but as the day went on they would find prices getting higher and higher. Eventually, he insists, they would find that:

Society is no better off than before, since real resources, labor, capital, goods, natural resources, productivity, have not changed at all.

The notion of “increasing the money supply” overnight, carries further implications such as unpredictable changes in prices and consumer preferences, plus a whole host of economic problems. But the overarching idea is that an increase in the money supply does not lead to better societal outcomes, specifically because there is no such thing as an “optimal money supply.” Therefore, whether the money supply is doubled or halved, it does not equate to a society that is twice or half as rich. These ideas were formulated centuries ago. Yet they appear to be lost on those who hold a monopoly on our currency.

Consider our real-life Angel Gabriel policy expected next year, only this time, rather than a $600 check per person, imagine $1 million is sent instead. Once the money is received, most people will find an increased demand to buy assets such as real estate, land, or stocks. Most people would not significantly increase their purchases of household items like hair dryers, bed sheets, or even eggs. We have no reasonable method to anticipate how much prices will change; but we can anticipate there will be countless changes to prices. The level of price distortion and economic chaos the $1 million per person would unleash remains unfathomable to those in developed economies. Whatever the outcome, it would be disastrous.

While $1 million per person sounds extreme, we can similarly say that even though $600 per person is understandably less extreme, the same economic chaos and negative outcomes exist, the only difference being the degree of damage. We can say $1 million destroys the economy at a quicker pace than $600. But this does not take away the fact that both outcomes are bad, nor does it mean $600 is good because it is “less bad,” than $1 million.

The real question becomes: Why do we use economic policies that have no known positive effects, only detrimental ones?

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2020: A Visual of the System

12/28/2020Robert Aro

The mechanism propping up (or holding down, depending on perspective) this apparatus known as the US economy can be visualized in a few charts, allowing us to see how fragile “the system” really is. In the last week of the year we see:

Total Assets

The Fed’s balance sheet now stands at an all-time high of $7.4 trillion. Meaning over 3 trillion digital dollars were created this year for the purpose of buying and lending to specific persons or organizations. “Liquidity” or “stimulus” are normally cited as the reasons behind this expansion.

Securities Held Outright: US Treasury Securities

To provide more context for what the Fed bought with $3 trillion this year, look no further than US Treasurys and mortgage-backed securities (MBS). The Fed currently owns $4.7 trillion of US Treasurys, making the Fed a significant holder of the US government’s current $27.5 trillion debt.

Securities Held Outright: Mortgage-Backed Securities:

As for MBS, the balance currently sits at $2.1 trillion, meaning the Fed created roughly $600 billion in order to subsidize the housing market this year.

A true elephant in the room, it seems, MBS purchases are seldom, if ever, discussed, scrutinized, or even written about. With the housing crisis apparently having been resolved over a decade ago, it seems odd for the Fed to continually make monthly purchases to support this market. But as long as the housing market stays strong and rates remain low, it's safe to bet that few people will ask questions.

M2 Money Stock

Given the exceptional rise of the Fed’s balance sheet this year, some may be left wondering: What happens after the Fed expands the balance sheet?

It’s tough to trace several trillions of dollars; however, looking at the supply of money allows us to conceptualize its path from the Fed into the system. Here we see the M2 money supply, now sitting at $19.2 trillion.

Looking at the data shows the money supply increased by nearly $5 trillion for the year. Considering the newly created $3 trillion from the Fed eventually entering the banking system, coupled with money creation by commercial banks, $5 trillion seems as good a number as any. Also keep in mind that, since March 26 of this year, reserve requirements at depository institutions have been set to zero. So the money creation by the banks could have been a lot worse!

While this financial system may work well for many, like anything else which favors the rich and well connected, it works for them just a little bit more than for everyone else. The advantage is given to those who get access to newly created money first.

Currency in Circulation

When the currency in circulation is compared to the M2, the fragility can be seen with a deeper perspective. At year end 2020, there exists $2.1 trillion of coins/bills, of which approximately 10 percent was created in this year alone.

Note the similar parabolic rise in all the above charts and understand that “parabolic moves” don’t normally end well. But when “the end” will come remains anyone’s guess. Nonetheless, when people say our money is not really there, it’s very much true. That only 10 percent of our money exists in a physical form while 90 percent is digital means this entire system could collapse should a sizable amount of people simply ask for their money back. Of course, a bank run could never exist in a cashless society…

Perhaps that’s why it’s so important the population remain calm and trust the system, its central planners, academic influencers, and the mainstream media. Especially in 2020, during this time of crisis, when the public looks for leadership, the role of the state is of paramount importance!

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$900 Billion More Dollars: Coming Soon!

12/21/2020Robert Aro

A Sunday night surprise came just in time for the holidays! Congress finally agreed to a $900 billion “COVID Stimulus Deal” as reported by news agencies across the country. Per CNBC, the bill will:

send new federal assistance to households, small businesses and health-care providers for the first time in months and fund the government through Sept. 30.

It’s worth noting how this is presented: $900 billion is the supposed “COVID package,” yet the entire bill is expected to be over $2 trillion. In days ahead, should the bill pass, we will undoubtedly see surprises as to where our money is actually being allocated on our behalf.

Here are some highlights of what we know so far:

$30 billion into “procurement and distribution” of vaccines

$82 billion into schools and colleges

$13 billion into enhanced Supplemental Nutrition Assistance Program benefits

But a relief bill cannot be a relief bill if it doesn’t include direct payment to the general public. In this one we see:

direct payments of $600 to most adults and $600 per child

In the Fed’s Paycheck Protection Program (PPP), as of August 8, $525 billion has been distributed. However, the proposed bill includes $280 billion, nearly one-third of the total, allocated for the PPP. Federal Reserve chair Jerome Powell made it clear, at the last Fed Committee Meeting, that:

These are lending powers, not spending powers. The Fed cannot grant money to particular beneficiaries. We can only create programs or facilities with broad-based eligibility to make loans to solvent entities with the expectation that the loans will be repaid.

Regardless of who does the spending or lending, the list of programs, whether bailouts for some, relief for others, or stimulus for the masses, always amounts to the same thing; the idea of increasing the supply of money and credit for the purpose of bettering our lives. As one of the most antiliberty/pro–big brother years in recent memory comes to a close with rising reported covid cases and the “hope” of vaccine efficiency, it feels as though we’ve seen it all. It’s safe to say nothing shall surprise us ever again, especially when it comes to what the government and the Fed can do to “better our lives.”

The reality is, whether the bill is for $900 billion, $2 trillion, or $12 trillion, it will never be enough. It will hardly meet its objectives anymore than the Fed, which promises to provide low rates and an accommodative stance until its inflation and employment goals are met. Whether the stimulus check is $600 or $6,000 per person, it too will never “be enough.” And to make matters worse, the stimulus may never end. There is a very real cost to this government intervention, the Federal Reserve's monetary schemes, and this exponential increase to the money supply.

Sure, Senator Chuck Schumer will claim: “The American people have a great deal to celebrate in this legislation.”

But I must disagree. Consider a $600 direct payment. It requires a handful of elected officials to decide on a seemingly arbitrary number. They must then somehow determine who is eligible and what the cutoff will be. Once this is settled, it becomes lumped in with $2 trillion of other interventionist ideas sold to the American people as a cause to celebrate.

Of course, the public must take this “free money.” But what seems to not be discussed is what happens after it is received. If spending or saving the money really made a difference, then wouldn’t our troubles have been alleviated by now? Or maybe it doesn’t work that way. Perhaps it’s a slow dose of stimulus, not too much to overheat things and not too little to slow things down, but just enough, that “Goldilocks” zone, a perfect sweet spot just to keep the wheels of commerce turning at just the right amount…but for whom?

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Employment Discrimination at Starbucks Is a Matter for Private Contracts

12/18/2020Ninos P. Malek

Listen to the Audio Mises Wire version of this article.

The attorneys for Betsy Fresse have filed a lawsuit claiming that Starbucks fired her for not wearing a “Pride” shirt while working at her New Jersey store. Fresse, a Christian, believes that marriage is between a man and a woman and that the shirt would go against her Christian convictions. Fresse claims never to have discriminated against customers and there is no mention of her actively proselytizing. She simply refused to wear a particular shirt.

Apparently, Fresse’s manager told her that she did not have to wear the shirt; however, she later received a termination notice. Starbucks denies that the refusal to wear the shirt had anything to do with it. A spokesperson for Starbucks said, “Other than our green apron, no part of our dress code requires partners to wear any approved items that they have not personally selected.”

One of the company’s values is “Creating a culture of warmth and belonging, where everyone is welcome.” In addition, their website states, “We’re committed to upholding a culture where inclusion, diversity, equity and accessibility are valued and respected.” Those who take Fresse’s position would argue that Starbucks is acting hypocritically by not being inclusive of traditional Christian principles.

What is the free market, classical liberal view of this situation? Did Starbucks fire her for not being “progressive” or for holding a “bigoted, old-fashioned” view? Or did they terminate her for something related to job performance?

As I have argued before in a mises.org piece, a private company should have the freedom to determine its own policies—hiring, code of conduct, performance requirements, wages, and dress code. A private company does not owe anyone a job—it is a privilege to be hired. Of course, the government would enforce voluntary contracts, and if there were a breach, then the employee would have a case.

Therefore, even if Starbucks made it a requirement to wear a “Pride” shirt, this would not violate employees’ rights because it is not a right to work for a private company. Fresse’s Christian convictions do not trump the company’s right to determine its own policies. Those supporting Fresse might ask, If Starbucks did require employees to wear a shirt with a particular message, isn’t that forced speech and a violation of her free speech right to not wear it?” However, the question ignores that Starbucks is a private employer and that only government and public institutions can violate free speech rights.

Just as homeowners have the right to clearly state and specify the rules of speech and behavior of their guests based on whatever criteria they wish, private employers should have that same right. If a guest violates the agreed-upon rules, the homeowner can order a guest to leave. This would not violate the guest’s free speech rights, or any other rights, since homeowners can create and enforce their own rules and it is a privilege, not a right, to be at someone else’s house. The free market view is that one’s business should operate under the same philosophy as one’s own home. Just as the homeowner is free to determine the “house rules,” as ridiculous, restrictive, or offensive as one might think them, a private business should have the same right. Nevertheless, just as the homeowner could face a situation where nobody might want to come over due to his or her particular rules, a business could face the punishment of the market—customers choosing a competitor.

Fresse’s Christian stand probably was the real reason for her termination, as her view does not fit the Starbucks culture. It would not be a surprise if the Seattle-based company’s CEO and executives did not share the traditional Christian view of marriage and sexuality. Of course, this would also mean not supporting the Muslim or Orthodox Jewish or Mormon positions either. However, I suspect Starbucks would tread more lightly if one’s Muslim beliefs were the basis for refusal to wear the shirt.

Advocates of true “free market capitalism,” including those with deeply held religious views, would not call for government regulation of Starbucks’s hiring even if they were upfront about religious discrimination. If Starbucks’s official policy were “We do not hire close-minded people who believe in an outdated view of marriage and sexuality,” this would not justify government sanction under a classical liberal philosophy. Now, if the government—the only entity that can legally use force—compelled companies to discriminate against a particular group or ordered companies to hold particular philosophical positions or forced employees to wear shirts with particular messages those actions would violate individual rights and undermine true free enterprise.

In a true free market, a private company has the freedom to create and enforce its own policies. If a job applicant disagrees with the philosophy or polices of the private employer, they would simply choose not to work there. Of course, nothing is free, including discrimination. Starbucks would risk the loss of business, with customers voting with their dollars somewhere else, and they would potentially lose excellent, highly qualified employees.

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Why "Phishing" Is No Justification for Interventionism

12/18/2020Derek Zweig
In their book Phishing for Phools, Robert Shiller and George Akerlof introduce the idea of a “phish.” They argue that there are legitimate wants/needs and then there are things people don’t actually want but can’t help themselves around (i.e., addiction, present bias, etc.). Phishing is when companies tailor their products/advertising to the latter. Unfortunately, this definition is somewhat vague, being much broader than other definitions of phishing. Cases of fraud seem to be included in the phishing category. Product differentiation via low quality inputs too. As a rule, Shiller and Akerlof conceptualize phishing as a transaction that always benefits the seller, not the buyer.

A primary point of the book is that phishing is an inherent issue of the profit motive. Even in a perfect Pareto equilibrium, phishing can still occur. As economic growth rises and production expands, phishing too may find a larger market. Accordingly, the authors believe phishing is inherent to, and encouraged by, a capitalist system. Phishing is even suggested as an important source of asset price volatility and bubbles. This predictably evolves into a discussion of the role of government in combating phishing.

How do companies phish? Reputation mining for one. Once companies have established a positive brand, they may use their reputation to push subpar products on their consumers. While certainly possible, this marks another point of contention. A brand itself is neither good nor bad. When a brand is associated with a high level of quality or reliability, a loyal consumer base will follow. However, a brand can just as easily be associated with poor quality or reprehensible standards, leading to a consumer base equally committed to avoidance. Why would a company with a good brand, which may take years/decades to establish, purposely soil its reputation with a phish?

This leads naturally to the question: How can one tell the difference between a phish and a legitimate purchase? The reader is left to induce a generalization of phishing from a series of examples. However, many of the seemingly clear-cut cases provided could easily fall under the category of fraud, and the authors make no distinction between paternalism and fraud. As a result, what is considered a nonfraud phish is seemingly defined in line with the authors’ preferences. There is little discussion of scale or use case.

Loosely speaking, anything can be a phish if used in an abusive way or at an inappropriate dosage. The vices of some may be enjoyed in moderation by others. A clean separation of legitimate and illegitimate production is not obvious, and not explicitly addressed by the authors.

Therein lies the vague definition. Everyone defines a phish differently. And since snake oil salesmen are pervasive, consumers become keen to phishing attributes, meaning everyone has developed a unique set of heuristics to avoid them. As the authors acknowledge, consumers are often aware of having been phished. Repetitive purchases, competitive marketing, boycotting, and lawsuits help weed out phishes. So again, will companies really ruin a positive brand for a quick, short-lived buck? Some might, but to say that phishing is an inherent problem with capitalism without acknowledging the plethora of ways the system deals with it is at least one sided.

Not that people never make suboptimal decisions (as with, say, addiction), but the proposal that leaders can dynamically determine what’s ideal for heterogeneous subgroups and enact locally optimal paternalistic solutions, is optimistic. By the authors’ own admission, legislation has failed to eliminate phishes even in highly regulated industries, and it may even be the source of phishes in cases of regulatory capture or incompetence. I could be convinced that there are special cases that are more clear cut, but as a universal problem I find phishing trivial.

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We’ll Know Trump Is a Fraud on Free Speech If He Doesn’t Pardon Assange

12/16/2020Ryan McMaken

Listen to the Audio Mises Wire version of this article.

Back in May, President Donald Trump signed an executive order designed to partially repeal some of the legal shields provided for social media firms by section 230 of the Communications Decency Act. Essentially, Trump accurately sees that large social media firms like Facebook and Twitter exercise editorial control over the content on their sites and are thus not public platforms in the manner required for the Section 230 protections.

From a general policy standpoint, Trump is right to do so. Section 230 is an artificial, arbitrary legal protection granted to huge media firms that push their own editorial positions just like any newspaper or broadcasting operation. Yet social media firms receive these legal protections because they masquerade as neutral public platforms.

But let’s not kid ourselves. Contrary to Trump’s claims, his executive order does not "defend free speech from one of the gravest dangers it has faced in American history." When it comes to threats to free speech, Facebook is a joke compared to the United States government. How many people has Facebook jailed? How many people face federal prosecution because they said something executives at Twitter didn’t like? The answer, of course, is zero.

Meanwhile, Trump tried to portray himself as a great defender of “free speech,” explicitly claiming his executive order would “uphold the free speech rights of the American people.” But this is a man who has done nothing to protect the free speech rights of real journalists who expose real evils committed by the American regime.

I speak of course of Julian Assange, and so long as Trump refuses to pardon Assange, we’ll know that any of Trump’s claims of being a defender of “free speech” are utter nonsense. Claiming that Facebook is “one of the gravest dangers” to free speech while simultaneously working to keep Assange locked in a hole in a British prison should be regarded as darkly comedic.

Yet journalists like Julian Assange face imprisonment for merely making factual statements.

Ron Paul helps us understand the stakes:

Assange is now literally fighting for his life, as he tries to avoid being extradited to the United States where he faces 175 years in prison for violating the “Espionage Act.” While it makes no sense to be prosecuted as a traitor to a country of which you are not a citizen, the idea that journalists who do their job and expose criminality in high places are treated like traitors is deeply dangerous in a free society.

To get around the First Amendment’s guarantee of freedom of the press, Assange’s tormentors simply claim that he is not a journalist. Then-CIA director Mike Pompeo declared that Wikileaks was a “hostile intelligence service” aided by Russia. Ironically, that’s pretty much what the Democrats say about Assange.

The same “deep state” bureaucrats who have long attempted to destroy the Trump presidency also seek to destroy Assange. Yet many of the same people who proclaim their undying loyalty and support to Donald Trump also continue to drink the deep state Kool-Aid and repeat tired bromides about how Assange (and whistleblower Edward Snowden) supposedly endangered American lives or American spy operations by exposing the blatantly unconstitutional and immoral operations and war crimes carried out by US personnel.

Trump hater and former CIA director John Brennan couldn’t ask for a more helpful gang of “useful idiots” than these pro-Trump defenders of the unaccountable security state.

Of course, the Espionage Act itself is unconstitutional and immoral. It’s the product of Wilson-era prowar hysteria. There is no exception in the Bill of Rights for government limitations on information that embarrasses the American regime. The act of journalism is most laudable when it does precisely this. And unlike most American journalists, who spend their time celebrating the regime, Assange actually exercised real free speech.

Trump still has time to redeem himself, however. Before he leaves office, he could pardon Assange, Snowden, and even Chelsea Manning (who only received a commutation from Barack Obama).

If he takes free speech seriously at all, Trump will do this. But if he does not, a great opportunity will be missed, and we’ll know that for Trump, free speech is really little more than a campaign slogan.

Moreover, if Trump really is an opponent of the deep state that sought to destroy him, he will seek to assist those who have exposed its crimes. As Paul reminds us:

Edward Snowden and Julian Assange are not criminals. They are heroes for telling us the truth about what criminals in government were doing in our name and with our money.

The fact is we were lied into war over and over again. While those wars were profitable for the military-industrial-Congressional-media complex, they snuffed out the lives of hundreds of thousands of innocent people overseas and robbed our own children and grandchildren of trillions of dollars wasted on neocon lies. And meanwhile, as Ed Snowden showed us, the intelligence community declared us the enemy and set up an elaborate internal spy network that would make the East German Stasi green with envy.

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How Austrian Economics Can Be Used in Managing Organizations and Businesses

12/15/2020Peter G. Klein

Professor Peter Klein of Mises.org and Yousif Almoayyed, a contributor to Economics for Entrepreneurs, joined Financial Repression Authority's YouTube channel to discuss how insights from Austrian economics can help with business management and organization. 

Click here to watch.

For more content like this, check out Economics for Entrepreneurs.

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Understanding the Fed's Balance Sheet

12/15/2020Robert Aro

The Fed’s balance sheet could easily be replaced with the phrase abracadabra; truly, there is little else in the world which works as magically as it does. Often cited, seldom understood, few seem to realize that as the balance sheet expands, so too does the power of this central bank at the expense of the entire nation.

As of mid-December 2020 the Fed’s balance sheet stood at $7.2 trillion. These trillions of dollars are considered to be an “asset” owned by the Federal Reserve; hence the accounting term “balance sheet” is both normally and appropriately used. Assets are a fundamental part of any balance sheet, as defined by the Financial Accounting Standards Board (FASB):

Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

The Fed must first purchase something tangible such as US Treasurys or mortgage-backed securities (MBS) in order for them to become assets. The other part of the definition requires an asset to provide “future economic benefit” to the Fed.

Despite the news of this year’s various covid spending programs, the brunt of the balance sheet continues to be composed of the $4.6 trillion of Treasurys and the $2.0 trillion of MBS held; in other words, debt.

The future benefit to the Fed is that these principal amounts remain owed to it and will continue to generate interest income so long as the principal is outstanding. When we talk of the Fed’s balance sheet, we are talking about one of the largest accounts receivable balances in the world!

To further conceptualize this, the Fed created around $7 trillion and gave it to someone, or some entities, to “do something” with. The trillions, for all intents and purposes, have digitally left the Fed and have been received elsewhere. The idea here is that at some later date, the Fed will get back its $7 trillion, but until that time the Fed will continue to benefit from receiving interest payments from the borrower(s).

Conversely, there are those who owe the Fed that $7 trillion, plus interest. The principal owed plus interest (when rates are positive) means the debtor will always owe more money than initially borrowed; which is how, after all these years, the US debt outpaces the money supply.

A handful of people, which the general public is not part of, received a massive amount of money at rates close to or maybe even at zero. While good for these few, there is a slight problem with borrowing trillions from a central bank specifically: What do you do with a trillion dollars and a great rate?

If the intent is to make a return on money, it can be lent at a higher cost than what it was borrowed for, or assets can be purchased to make a profit before paying it back. Thinking along these lines, we can see why trillions of dollars have not gone into Main Street households for goods such as toothpaste and toilet paper but rather into stocks, bonds, and real estate.

Especially for nations whose central banks own equites, like Switzerland, it’s easy for some to defend this process, looking favorably upon central banks making money. However, profit made by a central bank comes at the expense of society as a whole—through currency debasement, distortions throughout the market, and the boom-and-bust cycle, to name a few. We can be sure the “gains” of a central bank come at a very real, yet still grossly misunderstood, cost to society.

The asset acquisition process of a central bank has various names, sometimes called stimulus, liquidity injections, QE, etc. These terms sound very official, yet can be reduced to a simple idea, the act of money creation for the purpose of purchasing or lending. Contrary to the narrative, there is nothing new or inventive about this intervention. This idea of “expanding the balance sheet” can be summed up as nothing more than theft. Those who understand economic history will know it by a different name: inflation.

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Thanks to Central Banks, Christmas Is Coming Early

12/14/2020Robert Aro

It seems Christmas came early for many this year. On Thursday, the European Central Bank (ECB) announced an additional $605 billion to its ongoing stimulus program. Under the bank’s Pandemic Emergency Purchase Programme (PEPP), the total asset purchases are now valued at $1.85 trillion euros, now set to run to March 2022.

The Governing Council of the ECB reiterated its temporary stance on the programs, expressing it would conduct net purchases until its Governing Council judges that the "coronavirus crisis phase is over."

They also stated their low to negative rates will remain until its inflation targets get “close to, but below” 2%. 

Earlier in the week the Bank of Japan bested the ECB, unveiling a $708 billion stimulus package. From what we’ve been told, it will include “subsidies for green investment and spending on digitalisation,” as well as “promoting domestic travel and spurring consumption,” plus support for promoting carbon neutrality initiatives.

The newly elected Prime Minister of Japan, Mr. Suga explained it as follows:

We have compiled these measures to maintain employment, sustain business and restore the economy and open a way to achieve new growth in green and digital areas, so as to protect people's lives and livelihoods.

This new package would bring total stimulus spending to $3 trillion for the year!

What about the neighbors to the north?

In Canada, there is a newly announced $100bn CAD (approximately $77 billion USD) package which promises to “kick-start the country's post-pandemic economy,” as reported by the BBC. While this pales in comparison to the stimulus offered by the ECB and Japan, the Canadian Minister of Finance called it:

the largest economic relief package for our country since the Second World War.

Some of that money will be used for vaccine agreements, as Ms. Freeland noted:

“Canada has secured the most diverse vaccine portfolio in the world."

Providing assurance there will be enough for each Canadian to receive 10 doses, free of charge.

Between free vaccines, green spending, carbon initiatives, bailouts for restaurants and bond buying, world governments are putting trillions of dollars to work for their people, just in time for the holiday season.

As for the USA, as of Thursday CNBC reported the headline:

McConnell rejects bipartisan Covid relief plan while House adjourns until next week.

It seems Capital Hill is taking their time approving the estimated $900 billion stimulus bill, which would make it the largest out of the newly announced initiatives.

Across the globe, governments and their central banks decided the economy must occasionally receive monetary “stimulation” especially in times of crisis. We are presented these billion-dollar packages, under the auspices of the helping hand of government. We are told this will be “free” in some cases, and that this money will help us “kick-start” the stalled economic engine. However, few people dare ask where this money comes from or the consequences of these economic plans.

The mainstream economic community fails to point out this money is not from tax dollars, but from a debt burden and increase to the money supply, causing numerous side effects; this stimulus, possibly being a cure worse than the disease. Worse yet, a large part of this debt burden is taken up by each nation’s respective central bank, such that, without central banking support, these programs would hardly be possible.

This holiday season, let’s remember that anything given by a government or a central bank has been taken from someone else, or at least taken from our future. There is no such thing as a free gift from government because they have no money of their own. As for central banks, their gifts are even less appealing, because they can only “help” by distorting price and profit mechanisms through currency debasement and manipulation of interest rates.

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