Trump Nominates Another Obama-Approved Federal Reserve Nominee
Trump Nominates Another Obama-Approved Federal Reserve Nominee
In no area has President Trump differed more from his campaign rhetoric than the field of monetary policy. Yesterday Trump announced the nominations of Richard Clarida and Michelle Bowman to the Federal Reserve Board of Governors, with the former to fill the role of Vice Chair. Clarida’s nomination in particular illustrates how uninspiring Trump’s appointments have been, as he was a finalist for a Fed governorship under Obama until he withdrew his name from consideration. Interesting enough, doing so resulted in Jay Powell, Trump’s new Fed Chair, to fill the position.
Richard Clarida, a former Bush Treasury official, currently serves as a Columbia University professor and an adviser to Pacific Investment Management Co. He is a New Keynesian who has published a great deal on “Optimal Monetary Policy.” (Guido Zimmerman has an interesting QJAE article on the topic which references some of Clarida’s work.)
In terms of his policy views, he offers an interesting contrast to fellow Marvin Goodfriend – whose nomination has currently been stalled in the Senate. To Clarida’s credit, he reject’s Goodfriend’s support for negative interest rates – going so far as to question their legality for the Fed. In his advisory role at Pimco, his analysis has questioned the effectiveness of contemporary monetary activism. As he co-wrote in a June 2016 analysis:
In recent years we have described “riding a wave” of central bank interventions, as a range of unconventional policies have been rolled out across countries, driving asset price returns. This wave-riding has worked well in the past. Looking out over the secular horizon, however, diminishing returns to central bank interventions – and the potential for policy activism to do more harm than good, notably in the case of negative policy rates – advise against such an approach.
Of course he also differs in one area where Goodfriend is good, the use of the Fed’s balance sheet. Goodfriend has warned that the Fed’s buying of non-Treasury assets, like mortgage backed securities, gets it into the business of allocating capital. Instead, Clarida thought the Fed was too modest in buying up assets following the financial crisis.
As Matthew C. Klein of Barons notes:
Clarida thought the Fed could effectively respond to downturns by committing to buying as many bonds – including mortgage bonds and corporate bonds – as necessary to "cap" interest rates at the levels it wants:
Much of the existing literature either misses entirely or under-appreciates how robust an LSAP [large-scale asset purchase] program can be at lowering bond yields and/or credit spreads...a central bank can everywhere and always put a floor on any nominal asset price (or set of nominal asset prices) for as long as it wants...So long as the central bank is willing to buy an unlimited volume of those bonds (potentially including the entire outstanding stock) at the interest rate it wishes to put a ceiling on, it will succeed. And of course, the above reasoning also applies directly to an Lsap program targeted at corporate bonds or mortgage backed securities.
The Fed successfully capped U.S. government borrowing costs in the 1940s, and this experience was cited by the Fed's staff in mid-2003. While the idea failed to gain traction among American policymakers, the Bank of Japan has successfully used "yield curve control" to limit yields on Japanese government bonds since 2016. Clarida's position in 2010 suggests he would be keen on something similar, perhaps also including mortgage bonds and corporate bonds, should he be at the Fed during the next downturn.
In terms of Fed reform, Clarida is likely to be an ally for House Republicans who have pushed to make the Fed adopt a rules-based monetary policy framework. Clarida has long written about the advantages of a rules-based framework and even has his own “forward-looking” version of the Taylor Rule.
As a voting Fed member, Michelle Bowman will also have an impact on the future of monetary policy – but as far as I can tell she has made no public comment on the subject. Rather than being an economist, she’s an attorney who had a long career as Washington staffer. Her employers include Senator Bob Dole, House Transportation Committee, the House Oversight Committee, FEMA, and Homeland Security Secretary Tom Ridge. Not the best resume for draining the swamp.
It's Biden vs. Texas, and Texas Is Right.
In what can only be a surprising move, Texas Governor Greg Abbott has openly defied the White House and invoked Article 1 section 10 of the US constitution as a reason to ignore the Biden Administration's demand that the State government cease erecting a border barrier along the Texas-Mexico border.
For months, the federal government has ratcheted up threats against the state government and condemned Texas for erecting razor-wire barriers and other impediments to migration. The White House has sued to force the demolition of these barriers in further efforts to increase foreign migration into Texas. Texas took legal action of its own against the federal order. However, on Monday, the US Supreme Court ruled that the Federal government could proceed with its plans to cut the razor-wire barrier.
Texas officials, however, have refused to grant federal agents access to the border. This extends a Texas policy that has essentially ejected federal personnel from a 2.5 mile stretch of the Rio Grande in Eagle Pass which has been used extensively by coyotes, cartels, and migrants as an entry point into the US.
The situation continues to escalate, and now Washington Democrats are demanding that Biden "take control" of the national guard and turn it against the state government.
The situation is shocking because Republican-controlled state and local governments rarely show any willingness to oppose federal usurpations of local authority. For decades, the standard operating procedure of Republicans has been to instantly surrender the second anyone in Washington utters the phrase "supremacy clause" or the Supreme Court makes a ruling. Democrats, on the other hand, routinely scoff at federal supremacy, such as with "sanctuary cities."
This is a rare instance in which a Republican-controlled state government has not immediately bent the knee in the name of national unity and "law and order."
So, what exactly does the Texas governor's declaration say? Overall, it makes the case that the Biden administration has been ignoring federal immigration laws and illegally withdrawing border-control operations from the Texas-Mexico border. Abbott concludes:
Under President Biden’s lawless border policies, more than 6 million illegal immigrants have crossed our southern border in just 3 years. That is more than the population of 33 different States in this country. This illegal refusal to protect the States has inflicted unprecedented harm on the People all across the United States.
If that were all, we'd just chalk this up to a document that amounts to little more than a letter to the editor. But then Abbott says that the US Constitution provides a remedy for the situation:
the Framers included both Article IV, § 4, which promises that the federal government “shall protect each [State] against invasion,” and Article I, § 10, Clause 3, which acknowledges “the States’ sovereign interest in protecting their borders.
The final paragraph is where it gets interesting. Abbott writes:
The failure of the Biden Administration to fulfill the duties imposed by Article IV, § 4 has triggered Article I, § 10, Clause 3, which reserves to this State the right of self-defense. For these reasons, I have already declared an invasion under Article I, § 10, Clause 3 to invoke Texas’s constitutional authority to defend and protect itself. That authority is the supreme law of the land and supersedes any federal statutes to the contrary. The Texas National Guard, the Texas Department of Public Safety, and other Texas personnel are acting on that authority, as well as state law, to secure the Texas border.
Abbott is essentially saying that federal supremacy in this case has been rendered null and void by a federal refusal to enforce federal law.
Can he get away with it?
For clarity, let's look at Article 1, section 10. It reads:
No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.
The key phrase here is "unless actually invaded." Whether or not the current flood of migrants across the border constitutes "invasion," as stated here, is perhaps debatable. However, what is self-evident here is that it is up to the state government to determine for itself whether or not the state is being invaded. After all, the whole point of the section is to grant certain powers to states outside the authority of the federal government. If the federal government also gets to determine for itself whether or not the state is being invaded, then the section is pointless.
So, an honest reading of this text ought to preclude the Biden administration or US Supreme Court coming back and saying "you're not being invaded, now do what we say."
The governor's letter is also well-worded in the way that it declares the state's actions to be directly authorized by the US constitution and therefore not subject to mere federal statutes. This will be useful in resisting any federal attempts to federalize the Texas National Guard.
That is, if the Biden administration attempts to take control of the Guard, as it is generally authorized to do in federal law, Abbott could say "our right to command the national guard under Article 1, Sec 10 supersedes your claim to federalize the Guard under federal statute."
After all, the details of the president's authority to "call forth the militia" relies primarily on federal statutes, and not on the constitution. Historically, state governments have had wide latitude to veto presidential attempts to use state troops. Those state veto powers were largely abolished in the past fifty years by conservatives, Cold Warriors, and other Pentagon simps.
The way the Abbott declaration is worded, his could be making a case that he has constitutional authority over presidential attempts to seize control of the national guard.
The Situation Has Moved Beyond Legal Arguments
As the situation progresses, we are likely to hear much from legal scholars about what court said this and what judicial text said that. Yet, in crises situation like the current one, legal rulings will grow increasingly irrelevant as the situation progresses. Politics and public opinion will take over as the real criteria for what is feasible for each side.
At this point, the Biden Administration is clearly motivated to move into Texas, take control of the situation, and throw the border open. In an election year, however, this will be problematic for Biden with many constituencies. Many will see the situation for what it is: a powerful Washington establishment, with no skin in the game in southern Texas, shows up to tell the locals that they are hereby ordered to house limitless numbers of unscreened migrants in their own neighborhoods, and for the taxpayers to cover the cost. With the legacy media on his side, Biden may be able to get away with it.
Here's what should happen, though. Any federal agents that attempt to intervene with state agents on the border should be arrested and tried for obstruction and trespassing under Texas law. Federal attempts to take control of the National Guard should be declared non-starters by the governor under Section 1, Article 10.
It's unclear what Washington's next move would be. After all, the feds are used to unquestioning obedience from state governments. It is a sure thing that the White House would immediately seek out retaliatory action, such as denying Texans access to federal funds—which Texans already paid for through their payroll and income taxes. The Defense Department will send its stooge generals to threaten state authorities for not taking orders from the Pentagon—in a manner similar to its opposition to the Defend the Guard bills.
If the Supreme Court keeps issuing rulings that are subsequently ignored, then the SCOTUS will just make itself look ridiculous. It will likely avoid this, and thus the situation will rest on political realities, not legal ones. What is nice to see, however, is that the aura of authority around the central government is gradually being pierced and destroyed. Such things are long overdue.
The FBI Has Lowered Its Already Low Standards
The New York Post reports:
An alarming deterioration in recruitment standards for the FBI has been exposed in a report delivered to the House Judiciary Committee by an alliance of retired and active-duty agents and analysts.
Diversity, equity and inclusion (DEI) requirements pushed by FBI Director Chris Wray have degraded recruitment standards in all areas including “physical fitness, illicit drug use, financial irregularities, mental health, full-time work experience and integrity,” and pose a threat to the FBI’s ability to protect America from harm, say the authors.
The headline reads that the change in hiring standards puts the "country's safety at risk." The article goes on to recount in detail how new recruits are overweight and unable to run even 1.5 miles. But, according to the report, these people are hired anyway because they check a few DEI boxes.
I get what the author, Miranda Devine, is trying to say. She's trying to criticize the DEI ideology by saying that it leads to lower quality agents at the FBI. I agree with her that DEI is a bad thing. However, her attempt to portray the pre-DEI FBI as an agency of "the best and brightest," or as an agency that's key to the "country's safety," is nothing more than the official mythology.
If the DEI change means anything, it just means that the standards for hiring at the FBI have fallen even lower than they were before. Now, instead of just hiring tyrannical control freaks who robotically serve every whim of the regime, the FBI is now hiring tyrannical control freaks who are also fat and lazy. Some might claim that's an improvement. At least the new recruits may take more time off from violating the basic human rights of Americans.
Here are the questions that really matter for an FBI hiring manager:
- Are you willing to spread made-up nonsense about Russian collusion?
- Are you willing to spy on and conspire against a presidential candidate and his staff?
- Are willing to harass and threaten parents who disagree with the local school board's attempts to teach more Marxism in schools?
- Are willing to spy on Catholics and work to cultivate a network of informants in parishes to "rat out" Catholics who are too "traditionalist"?
- Are you willing to steal the private property of innocent people just because you feel like it?
- Are you willing to look the other way after receiving multiple reports about a doctor sexually abusing girls and young women?
If can answer yes to all these questions, you would probably make a great FBI agent. Now, with new DEI guidelines implemented, you can do all these things and also be in horrible physical shape—so long as you are a black woman or trans man.
Sadly, Devine at The New York Post has bought into the pro-regime propaganda that has long attempted to make FBI agents into consummate professionals who care deeply about their country and are "the best and the brightest." This was never true. The FBI has always been a trash organization, an unconstitutional waste of money that has largely functioned as the nation's secret police. Indeed, under J. Edgar Hoover, it employed tactics remarkably similar to those used by the KGB: it collected anything and everything it could on elected officials and other powerful Americans to use as leverage. The agency employed this illegally obtained data to ensure that few in Congress would ever be willing to go against the FBI.
The FBI has always been a cudgel used by the regime against peaceful Americans who oppose the regime's pet projects, such as the Vietnam war. The FBI was the agency at the center of COINTELPRO, an illegal spy effort designed to destroy antiwar activists in America. The FBI tried to get Martin Luther king to commit suicide. The FBI initiated the siege that led to the Waco massacre of dozens of women and children.
Moreover, the idea that the FBI keeps America safe is pure fantasy. The FBI is unnecessary to enforce laws against violent crime. Violent crime is already illegal in every US state, and every US state has its own state police. Secondly, the FBI, more so than any other agency—with the possible exception of the CIA—let the 9/11 bombings occur right under its nose. And how could they not? The FBI's "watchlist" includes the names of over a million Americans. While the FBI was busy hunting down people like Randy Weaver for petty gun crimes, it failed to notice real terrorists planting bombs under the World Trade Center—as occurred in 1993.
Yet, the old myth of the highly professional, ultra-America-loving FBI agents endures, and The New York Post would have you believe that FBI agents were top notch until DEI came along.
As a final note, it may be instructive to recall the case of FBI Agent Chase Bishop. Agent Bishop was dancing at a Denver night club in 2018. When he attempted a back flip, his gun fell out of his pocket, hit the ground, accidentally discharged, and wounded a bystander. Bishop pled to second-degree assault and avoided jail time. The regime's faithful servants usually receive special treatment from the regime's judges. Even thought it is illegal in Colorado to carry a gun while intoxicated in Colorado, Bishop was never charged with any gun crimes, and he received his gun back shortly after his conviction. It appears Bishop is still employed by the Bureau. This all occurred during the Trump years and was certainly before the new era of DEI. In other words, drunk guys dropping loaded guns while dancing is the FBI's "best and brightest." It's nothing new, and the taxpayers will continue to fund these people's assaults on liberty, their outsized salaries, and their grotesquely large pensions until the FBI is finally abolished.
Javier Milei and the "Battle of Davos"
"Balls, we need balls" is probably the most famous phrase of German goalkeeping legend Oliver Kahn. Balls, too, are needed by someone who is patronizingly introduced by Klaus "The Great Reset" Schwab in Davos, only to tell the assembled political and economic elite to their faces that they betray the liberal-libertarian principles that have made the West great. And Javier Milei, Argentine president, and a goalkeeper in his youth got these balls.
His speech, and it is not difficult to predict, will go down in history. It is by far the most watched speech of this year's WEF. Elon Musk has recommended the speech several times on X.
Here it is in brief:
The West is in danger because it has opened up to socialist ideas. It is capitalism that has catapulted humanity out of mass poverty and created unimagined prosperity. Capitalism not only creates tremendous wealth, while socialism leads to poverty, it is also a just order, unlike socialism. Capitalism is morally superior to socialism. Socialists use the mantra of "social justice," but it is neither social nor just. "Social justice" is in fact unjust because it is financed by taxes and is thus based on coercion and the threat of violence. It is anti-social because it makes people poorer. This is because redistribution reduces the incentive to be productive. The pie is getting smaller than it would have been otherwise, because redistribution destroys the entrepreneurial discovery process. Socialism has always and everywhere failed, economically, socially and culturally. And it has cost over 100 million lives.
Neoclassical theories prepare the ground for socialism. Neoclassicists compare their model to reality and call any deviations of reality from the model "market failure"; they don't realize that in fact their model is failing. They should dispose of their models. There is no such thing as a "market failure". The market is a mechanism of social cooperation through voluntary barter. The market can't fail.
When the socialists realized that the workers under capitalism were not impoverished, but getting richer, they changed their strategy. Today, the class struggle between capitalists and workers is replaced by alleged conflicts between men and women; or between man and nature. In order to save the environment, population growth is to be controlled; Abortion is encouraged.
The neo-Marxists have transformed public opinion in a long process of taking control of the media, universities and even international organizations. As everyone in the audience knows, the WEF is one of the latter. Socialist ideas must be fought head-on and loudly. There are many varieties of socialism in the broader sense. Socialists are not only those who call themselves socialists, but also social democrats, Christian Democrats, communists, Keynesians, Nazis, nationalists, and globalists. They are all united by their belief in regulations and the state. The real heroes of society are the entrepreneurs. They are creators of prosperity who can take pride in making profits by satisfying the needs of others. They should not ally themselves with the state, not even through the WEF. The state is not the solution. The state is the problem. The state is a danger to freedom.
This brief outline shows the breadth of topics Milei covers in his 23-minute speech. Step by step, he dismantles the statist worldview. He is the charismatic, eloquent thinker and leader that libertarians have long waited for. A stroke of luck for liberty. He recognized the importance of the Kulturkampf early on. This cultural war is about ideological hegemony (Antonio Gramsci, 1891 – 1937). In this war, the demands of the left, such as egalitarianism, genderism, feminism, relativism, nihilism, centralization, and atheism, collide with the value of liberty; but also with the institutions that make a capitalist society flourish in the long term, such as private property, natural hierarchies, traditions, the family, and Christianity.
This culture war must be taken up, loudly, self-confidently, uncompromisingly, always and everywhere; and in this Milei is a unique role model. Not only has he successfully embraced the culture war in Argentina, he has also reaped the fruits of cultural change in the form of the presidency. Like all libertarians, he is actually disgusted by politics. But he took the sacrifice upon himself. He was not above fighting for the ideas of freedom in the intrigues of politics.
The culture war is to be waged at all possible levels, not only in university halls, books, talks at conferences and media contributions; but also in politics. Without the political stage, one is deprived of a very effective tool for influencing public opinion and culture. The statists are happy when they are among themselves in parliament and can plan their interventions in civil society undisturbed. That's why Milei finally decided to enter the political arena; and, by his election, gained incredible attention to libertarian ideas. Terms such as libertarianism or anarcho-capitalism are now socially acceptable. The spiral of silence has been broken, and more and more people are identifying themselves as Milei supporters and supporters of the ideas of freedom. Even more people will turn to the ideas of freedom once the libertarian reforms in Argentina bear fruit. The discourse is moving in the direction of freedom. Culturally, a lot has been set in motion. Milei's allegorical "chainsaw" has become popular all over world. The libertarian wave has now even reached Davos and the World Economic Forum.
What happened in Davos was unthinkable not long ago: an anarcho-capitalist president looks globalists in the eye, rebukes them for their socialist ideas and sings an ode to freedom, capitalism and free enterprise. And he quotes Israel Kirzner and Alberto Benegas Lynch Jr., two Austrian economists. He criticizes the 2030 Agenda, neo-Marxism, feminism, abortion, taxes, socialism, mainstream media, warns of the destruction of Western values and speaks of God as the Creator. Pure culture war. ¡Viva la libertad, carajo!
Don’t Tax the Rich. End the Fed!
Select politicians, government officials, economic elites, and experts arriving at the annual World Economic Forum meeting in Davos, Switzerland were greeted with an open letter signed by more than 250 billionaires and millionaires. The signers request their respective governments raise their taxes.
The letter signers are concerned about “inequality” that they say “has reached a tipping point.” The cost of this inequality “to our economic, societal and ecological stability risk,” the letter continues, “is severe — and growing every day.” They may have a point. Since the 2008 market meltdown, resentment against those at the top of the income ladder has been growing. However, this is not because people are envious of those able to profit in a free market. Rather, the resentment is rooted in the corporatist system that rewards those who manipulate the political process.
If the signatories to the letter want to truly end the type of inequality that fuels populist rage, they should stop calling for tax increases and instead call for an end to government programs and policies that benefit the rich and powerful. Included are programs like the Export-Import Bank that subsidize large corporations, health and safety regulations that cartelize markets while failing to protect consumers, and interventionist foreign policy that enriches the military-industrial complex while making the rest of us poorer and more vulnerable to terrorist attacks.
The Federal Reserve is the leading cause of inequality. This is not surprising considering it was created at the behest of bankers and rushed through Congress just before Christmas when few Americans were paying attention. Many Americans became aware of how the central bank tailors its policies to benefit the financial elites following the 2008 meltdown. Then, the US government, enabled by Fed money printing, bailed out large financial institutions while average Americans suffered.
The Fed had been helping big firms for many years. In the 1990s it was common for the Federal Reserve, then under the leadership of Alan Greenspan, to pump money into the market in response to apparent crises. This was named the “Greenspan put” by the financial press. The new money would help some companies and their wealthy owners, while reducing most Americans’ purchasing power.
Middle- and working-class Americans suffer the brunt of inflation, which is properly defined as the central bank pumping money into the economy thus reducing the dollar’s purchasing power.
In a free market, most people will be able to have a satisfactory standard of living and recognize that the “super rich” earned their fortunes by offering goods and services that served the needs and wants of consumers while providing good jobs at good wages to fellow citizens. In contrast, in a “mixed economy” supported by a fiat money system, the average person will suffer a steady erosion of his standard of living thanks to the central bank’s inflationary policies, while the crony capitalists prosper. This is a recipe for social instability.
Those concerned with the detrimental effects of rising resentment of income inequality should support repealing all federal programs that reward crony capitalists — including programs masquerading as providing national defense. They should also work to audit then end the Fed.
Attention Austrian Scholars: New Book Series in Austrian Economics
Philipp Bagus and I are delighted to announce the launch of a book series dedicated to advancing scholarship in Austrian Economics. We invite you to be a part of this exciting endeavor. The “Palgrave Studies in Austrian Economics” series, published by Palgrave Macmillan, gives prospective authors a prestigious outlet for their book-length manuscripts. Owned by Springer, one of the most reputable publishing houses of academic works, Palgrave is committed to promoting Austrian economics to wide audiences.
The series aims to fill a crucial gap in the academic landscape, providing a high-quality and visible platform for cutting-edge research in Austrian economics and related fields.
The book series is dedicated to fostering the creation and dissemination of high-quality scholarship in Austrian economics. We are especially interested in subjects such as price theory, welfare economics, capital theory, macroeconomics, economic history, and applied economics. The series ia also open to the broader realms of Austro-libertarianism, political economy, and philosophy, especially when intertwined with economic discourse.
Proposals can include edited multi-author works, or single-author manuscripts. Manuscripts generally run around 100,000 words. (Shorter and longer manuscripts are also relevant – email either of us for more details.) Of interest to prospective authors are Palgrave Pivots – shorter manuscripts of around 25-50,000 words. This format allows for a more in-depth analysis than a journal article, but less than a traditional book. All books are available electronically as well as in hard/soft cover. Open access is also available.
We are currently accepting proposals for book contributions that align with the series' objectives. If you have research in any of the themes outlined above, we encourage you to submit a proposal for consideration.
For more submission details please do email either Philipp Bagus (Philipp.bagus@urjc.es) or myself (David.howden@slu.edu).
We look forward to receiving your innovative proposals and to the successful launch of this series that will undoubtedly shape the future of Austrian economics scholarship.
When Gold's Real, Uninflated Price Breaks Out – And How to Tell
As the Austrian School economists know full well, inflation distorts price signals unevenly. It may be tempting to try to filter out inflation from any given good or service to find its real price had the currency supply never been inflated in the first place, but this is impossible given the uneven effects. Inflationary effects on prices cannot truly be isolated and controlled for.
But what about money itself? Meaning, what about gold? Currency is always inflated on top of the existing money (currently gold) supply, so the price of gold is actually what is being falsely inflated. Therefore, controlling the price of money itself in order to find the real price (which could be seen as gold's real purchasing power) sans inflation is much more plausible by numerical or statistical analysis.
From an analysis of gold priced in terms of 1959 USD, which in effect strips out the inflation effect on the gold/dollar exchange rate, there is a massive consolidating triangle pattern going back to 1980 that is now reaching its apex. From an analysis of this pattern, it seems that gold is about to break out to the upside in current dollar terms. Below we explain how we came to this conclusion.
Chart 1 is a plot of the USD M2 currency supply from 1959 to December 2023. The dashed curve (1) is an exponential fit to that data from 1959 to 2020. The data after the 2020 COVID Pandemic does not follow the exponential trend line due to the extreme credit creation via quantitative easing (QE4) in the COVID years. Therefore we have used a 5th order polynomial fit, dashed curve (2), to model the expansion of the M2 money supply. That is, we have had to treat these two periods, pre and post 2020, separately.
Chart 1: The red data are the M2 currency supply data for 1959–2023 from the Board of Governors of the Federal Reserve System,statistical release H.6 Money Stock Measures, via FRED. The dashed curve (1) is an exponential fit to the data between 1959 and 2020. The dashed curve (2) is a 5th order polynomial fit to the data after 2020 up to December 2023. After normalisation the M2 supply becomes essentially constant (not shown). Sepia strips indicate recessions.
From Chart 1, we used the exponential fit curve, the dashed line (1), to normalise US dollars to 1959 dollars, up to 2020. So $1 in 1959 inflates according to the exponential red curve (1) in Chart 2. Because the M2 currency supply after 2020 departs strongly from the exponential in Chart 1 we have piecewise separately modelled the M2 money supply between 2020 and 2024 using the blue polynomial curve (2). This is to compensate for the absolutely unprecedented additional currency flooded into the market from the COVID period. Due to QT in 2023 curve (2) is now approaching the theoretical value of curve (1) in late 2023.
Chart 2: $1 in 1959 will deflate by the exponential (red) curve followed by the blue curve (2) as shown. This is the price inflation of 1/35 oz of gold over this time period resulting only from the expansion of the M2 currency supply. Thus the gold price is inflated by a factor of 47 by the end of 2023 in terms of current dollars. This means that the USD has lost about 98% of its value in the last 65 years. If the price of gold remains constant in terms of 1959 dollars then its current price is only rising due to inflation. However after 2020 the anomalous curve (2) had to be used to allow for the massive additional deflation of the dollar’s value in that period.
Using the curves (1) + (2) for normalised 1959 dollars, from Chart 2, we have plotted in Chart 3 the normalised price of gold as a function of time in years from 1959 to December 2023. By dividing the price of an ounce of gold by the dollar inflation factor from Chart 2, we get the price of an ounce of gold in 1959 dollars. As a result we have the price of gold over 65 years priced in 1959 dollars. The color-coding for the red and blue data is merely maintained to show the respective periods where either red curve (1) or the blue curve (2) has been used to calculate the gold price in 1959 dollars.
Chart 3: The price of an ounce of gold in 1959 dollars. The red data are the price of gold ($/oz) scaled by the USD normalisation curve from Chart 2 using curve (1) and the blue data are scaled using curve (2).The historical gold price data were downloaded from Auronum, the National Mining Association and YCharts. The horizontal solid line is the $35 price for an ounce of gold from 1959. The descending solid straight line (1) touches the tips of the peaks except in 1980 where a few points break above it. The bottom ascending solid line, in two places, touches the minimal gold price and also coincides with the same apex point in 2026. The sepia strips indicate recessions.
Before 1970 we were on the gold standard and the price of gold was essentially constant while currency was being created. Therefore, using 1959 dollars we notice the price of gold was falling in real terms, despite rising slightly in inflated dollar terms. No wonder the US government had to close the gold window, as foreign central banks were taking advantage of the low gold price and getting rid of dollars.
After 1971 President Nixon uncoupled the dollar from a fixed amount of gold and thus the real price of gold, in 1959 dollar terms, began to rise very significantly until it peaked in 1980. There was a brief period when it dipped back and nearly touched the $35 price in August 1976 but exploded upward after that.
Because Charts 3 and 4 use dollars of constant gold value (i.e. 1/35 oz of gold in 1959) we can compare the ‘real’ gold price, which could be seen as its purchasing power, over these decades. Generally, one can observe a fall in the real gold price during any recession as indicated in the sepia strips.
By June 1997 the gold price fell back to $35 (1959 dollars), dropped below $35 and stayed below it until January 2006. That was a good time to buy gold, as it was cheap. It peaked again by August 2011 and around October 2022 dropped below $35 for 2 months but now appears to be converging on an apex point of $35 in 2026. The price rally peaks have been diminishing as a function of time.
We can see recent features more clearly if we look at the same data but from 2005 onwards, as shown in Chart 4.
Chart 4: The price of an ounce of gold in 1959 dollars. These are the same data as Chart 3 but only data after 2005 are shown. The horizontal solid line is the $35 price of an ounce of gold from 1959. The descending solid straight line (1) touches the tips of the peaks and was derived in Chart 3. The sepia strips indicate recessions.
Here we have a picture of the gold price in 1959 dollars where blue data are the result of the 2020 QE4 credit expansion. The gold price met resistance along the straight line (1) (see Chart 3) in a descending triangle formation. After 2006 the price has remained above $35 except around October 2022.
What is most important is that as of the end of December 2023 it looks like the real price is about to break above line (1). This is the limit of the currently available data though. If this happens it would be the first time since 1980 this line has been broken through. That means the gold price has increased in real terms above the statutory $35 from where the inflationary era really kicked off.
Any value above the horizontal $35 line is an increase in real terms. But to break out above line (1) seems to mean breaking through some notional resistance and it signals more buyers entering the market.
Are we on the verge of such a breakout?
If the Fed starts the presses again in 2024 causing greater price inflation, the price of gold in current dollars has to explode to keep the price in 1959 dollars within the triangle in Chart 4. But all indications are the markets will ignore them and the real price will explode above the resistance line (1) in Chart 4 as the price of gold breaks out of these restraints like it did in 1980. That means a price increase in real terms. The question is, how high does the real price of gold have to go to inspire global dollar rejection and remonetization of money itself?
When the Economic Terrorists at the WEF Felt Terror of Their Own
The intentions of the World Economic Forum are not news to libertarians. We often discuss their dark plans on the Great Reset and their support of the United Nation’s 2030 Agenda, whose slogan is "You will own nothing and be happy."
Who makes up this forum? The world elites - business leaders, tech and banking executives, politicians, lobbyists, and activists of all kinds. These individuals not only wield the monopoly of state violence but go further, forming part of a dangerous public-private cartelization that grants them unimaginable positions of power, pulling the strings of governments, the military-industrial complex, and corporations. This is how they rule the course of humanity from the shadows.
In theory, their purpose is to "improve the state of the world," when in reality, it is to "improve the World’s State."
Every year, they gather in Davos to present their proposals on how they plan to intervene in our lives. While we libertarians, considering ourselves their enemies, read indignantly their brazen statements behind our screens, and we impotently shake our fists against them, exclaiming "damn socialists!" and go back to our discussion forums.
Not this time.
A self-proclaimed anarcho-capitalist figure took the stage. We’re talking about probably the most popular president in the world today, Javier Milei. Even the WEF couldn’t resist having his presence, having the very same forum’s founder, Klaus Schwab, publicly condemned libertarian ideas in the past.
He began his speech by stating that the West is in danger, co-oped by socialist ideas. He pointed to "the main leaders of the free world" as responsible for applying incorrect ideas or well intentionally wanting to be part of a privileged caste. Over the years, the foundations of civilization have been obscured by a growing tangle of totalitarian delusions and false attributions that made us forget how we achieved this quality of life.
Based on this premise, he dedicated himself to putting back on the table the elements that define the West, starting with free-market capitalism, empirically explaining its benefits and its historic gradual eradication of poverty with blinding clarity.
He not only emphasized its utilitarian superiority but also highlighted its moral component. Citing Israel Kirzner to describe the market discovery process where entrepreneurs risk their capital to offer higher quality goods to the public at lower prices, and on a particular Randian note, he revendicated their social function before a public dedicated to condemning them.
He was especially clear about the political philosophy of libertarianism centered on the individual and even more about the errors of the neoclassical economic model, blamed as the responsible for the descending spiral into poverty fueled by ever-increasing interventions, at the best Hayekian style.
Perhaps one of the most poignant moments of his speech was when he lumped all collectivists together: fascists, Keynesians, Nazis, social democrats, populists, globalists, socialists, etc., in contrast to libertarians.
He even spent some minutes demystifying the "failures of the market," knowingly that the WEF was founded precisely to "correct" such failures!
The entire WEF elite was hurt. In a scenario where year after year they preach about environmentalism, feminism, birth control, and greater government intervention in the economy, Milei glorified the role of human beings in nature, the importance of voluntary cooperation between man and woman, condemned abortion, and dismantled the neoclassical arguments for interventionism.
He concluded his words once again warning about the terrible consequences of these policies, positioning Argentinians as witnesses to his words. He invited all entrepreneurs and listeners worldwide to look to Argentina as a land of freedom and opportunities, a last bastion of the West, a vindication of the United Provinces of South America as a new home for the American spirit of liberty.
Since he showed intentions of entering politics, he was underestimated by the entire political caste despite his figure far exceeding that of anyone else. Being only a congressman, he was the most popular in the chamber for the public, even though his peers ignored him. The support he received from the people was disproportionate—even international media and people in other countries talked about him! His presidency became inevitable.
Today, that local scene is being replicated on the global stage. With such growing support worldwide, did the WEF think that by inviting him, they would intimidate an inexperienced president? Did they think that a potential poor performance on stage would burst the bubble, and people would abandon this popular figure? All they did was fuel the fire, and now, they have a bigger problem.
At this moment, Milei's speech video surpasses the rest of the speakers tenfold or more. Journalists from around the world, who cover the WEF year after year, claim to have never seen a reception similar to what the libertarian is experiencing.
This could mark a before and after in the political history of the world. There is still much to see from Javier Milei, but until this moment, we can call him the world leader of freedom ideas.
Krugman's New Favorite Inflation Expectations Measure
Paul Krugman is desperate to declare victory over inflation and that a soft landing has been achieved. His latest victory lap op-ed cites the Atlanta Fed’s survey of Business Inflation Expectations (BIE), which has settled down to 2.2 percent for the coming 12 months.
The BIE reflects about 200 Atlanta-area business executives’ responses to survey questions. The graph above shows the mean response to “Projecting ahead, to the best of your ability, please assign a percent likelihood to the following changes to unit costs over the next 12 months.” They are given a set of options that include “Unit costs down” up to “Unit costs up very significantly.” An average inflation expectation is then calculated based on the responses.
Krugman says that this is a superior measure of price inflation expectations compared to consumer expectations: “You see, surveys of consumer expectations are fine, but ordinary consumers don’t have strong incentives to think hard about how much prices will rise in the near future. […] Business expectations, however, are both well-informed and important.”
Once again, just a quick look under the hood reveals that Krugman is reaching for evidence to back up his own views instead of doing impartial macroeconomic analysis. He claims that this measure is “a better predictor,” but that is dubious.
Consider the fact that this measure forecasted 3.0 percent price inflation for June 2022, when official measures of price inflation turned out to be 8.9 percent (CPI), 22.4 percent (PPI), and 7.1 percent (PCE).
The Atlanta Fed likes to compare the BIE to a GDP-based price index, shown below:
But we must be careful here, because there are two y axes: one for the BIE and one for the GDP price index. While they have calculated a correlation of .96, the realized price inflation data is more exaggerated than the BIE data. The left axis ranges from one to five while the right axis ranges from zero to 8. The data may be correlated, but that doesn’t mean that Paul Krugman can imply that the BIE is an accurate, one-to-one predictor of price inflation.
The BIE data seems to be consistently muted compared to all the official inflation measures. This is most plainly seen when we compare the BIE to PPI. (You may wonder why Krugman didn’t just use the current PPI to make his case that inflation is dead. PPI has been negative for the past few months!)
It’s easy to see why this measure is consistently muted when you look at the way the data is calculated based on the survey responses.
As a reminder, the respondents are asked to “assign a percent likelihood to the following changes to unit costs over the next 12 months.” Notice that “Unit costs up very significantly” contains everything greater than five percent. This means that if a respondent thinks that there is going to be a ten percent increase in unit costs, it is coded as five percent. There’s no way for a respondent’s high inflation expectation to be translated into anything over five percent. This is why the minimum calculated mean is 1.4 percent and the maximum is 3.8 percent over the 13-year series.
Krugman has chosen an inflation expectations measure that is restricted by design. It will hover around two percent no matter what the respondents’ real inflation expectations are.
If you look at other measures of inflation expectations, you’ll see why Krugman chose the one he did.
The University of Michigan measure has recently spiked up to 4.5 percent.
Source: "Surveys of Consumers, University of Michigan, University of Michigan: Inflation Expectation© [MICH], retrieved from FRED, Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/series/MICH/
Another well-cited measure from The Conference Board indicates 5.6 percent consumer inflation expectations as of December 2023.
But 4.5 percent and 5.6 percent don’t help Krugman’s case.
Terry Tomkow, R.I.P.
The philosopher Terrance Tomkow (1950-2024) passed away last Friday night, January 12, 2024. He was best known as a philosopher of language and made important contributions to metaphysics, the philosophy of science, and the free will problem. For most readers of the Mises page, though, what will probably be of most interest are his posts about the origin of property rights. These posts advance a new and philosophically deep theory that is broadly compatible with libertarianism.
Terry Tomkow was an outstanding philosopher who combined great analytic power with creative insight. He was also a wonderful friend, and I will miss him.
New York Fed: Manufacturing Activity Is Plummeting
The New York Federal Reserve released the results of its January Empire State Manufacturing Survey today, and the survey's index fell to the lowest level reported since the covid panic in 2020. Moreover, if we exclude the covid recession, we find that January's drop in the index is the largest reported in more than thirty years.
According to the New York Fed's summary:
Business activity dropped sharply in New York State, according to firms responding to the January 2024 Empire State Manufacturing Survey. The headline general business conditions index fell twenty-nine points to -43.7, its lowest reading since May 2020. New orders and shipments also posted sharp declines. Unfilled orders continued to shrink significantly, and delivery times continued to shorten. Inventories edged lower. Employment and the average workweek declined modestly. The pace of input price increases picked up somewhat, while the pace of selling price increases was little changed. While firms expect conditions to improve over the next six months, optimism remained subdued.
Drops of this magnitude have always been connected to recessions in recent decades. With the index more than 43 points into negative territory, the index is down below anything reported during the Great Recession, and it's well below what we saw with the index during the 2001 "dot-com" recession. Only the covid recession, during which businesses were forced to close, do we find the index at such low levels.
Admittedly, the index can be prone to some sizable one-month swings, but it is notable that the January reading is the second month in a row during which the index fell by a substantial amount. The index fell 23.6 points in the December survey, and then another 29.2 points in the January survey. This is the largest two-month drop since covid, and the first time since covid that a 20-point-plus drop was not followed by a sizable increase.
Given the ongoing worsening of economic indicators (see here, here, and here for some examples) this outsized drop in the index likely points to an expected result of the rapid drops in in the money supply the economy experienced in 2023.
For more, see: "The Money Supply Continues its Biggest Collapse Since the Great Depression"
Without a return to easy money, the manufacturing sector is unlikely to see a resurgence soon. As with so many other sectors in the US economy, the manufacturing sector has made itself heavily reliant on easy money rather than on sound traditional fundamentals. Thus, the future of the sector is tied primarily to Fed policy and easy money. As Nasdaq reported last month, "easing inflation and high expectations of rate cuts in 2024 are likely to bolster conditions for higher manufacturing activity and output." When it comes to anticipating future prospects, manufacturing firms—many of which are zombie companies or near-zombie companies—the only salvation lies in rate cuts allowing these firms to get their debt back under control and provide access to cheap lending once again. Unfortunately for manufacturers, without that, we are likely to see further deterioration in the manufacturing economy.