Power & Market
I was taught in childhood that Democracy is by the people, for the people, and of the people, maybe it was a goof by my teachers because what I have seen is Democracy has now become Buy the people, for the selective people, and off the people. Why do we like Democracy, what’s so idiosyncratic about this system that distinguishes it from other forms of the political system? Democracy gives us freedom, the system gives us rights, and it gives hope for a liberal society. Democracy is an antonym of a Totalitarian system, maybe.
In India, politicians have so much power that they can give a person a job and can also take away his job. This is Democracy in India, the leaders here are worshipped, the normal people have to respectfully greet the politician, and people can’t speak within their rights in front of any leader too, they have to speak within the ceiling set by the “people’s” leader. Above all you a common man can’t even reply anything to swear words of that person if you want to reach home alive. People beg in front of leaders for their basic requirements and they will act like they have done some favor by spending money on the people which is taken from the system! India isn’t a democracy it tries to make itself look like one. After 75 years since independence all you will see is the rallies of politicians, the divide and rule of people in name of ethnicity, snatching people’s liberty, laws applied only to common people, large assets of politicians and their money and the list can go further.
This had to happen. This will keep continuing if the system keeps giving power more and more to the government thinking that it will uplift the people. The collectivist fallacy and people still have got some hopes for improvement.
Ironically in a dictatorship, there’s one dictator; a totalitarian, but in a democracy like India we have many dictators sitting. The netas who live a luxurious life, assassinate those that go against them, abuse their subordinates, make cronies fatter, can acquire as much wealth without facing consequences, steal the liberty of people, fund gangsters, etc…. The emergency of Indira Gandhi, Meat shop bans, demonetization, reservation, tax on cryptocurrency, and more examples can be given to prove the country’s grip on authoritarianism.
To make it very clear, Democracy doesn’t guarantee individual liberty. Democracy is one of the mediums of it. The main aim is Liberty, which is the freedom, rights, and independence of citizens. People are manipulated in such a way that they are more and more dependent on authority. The authority decides our life in many ways and one can have no clue about it. Mises and Hayek rightly rejected the concept of differentiating Political Freedom and Economic Freedom because in India there is so-called Political freedom in name of Democracy which nowadays just means voting. Mises said:
But as Hayek pointed out in 1944 in his book The Road to Serfdom, economic control is not merely control of a sector of human life that can be separated from the rest; it is the control of the means for all our ends.
It’s funny when the communists of the country who are only good to show their activism on the streets and causing a disturbance in day to day life of people are seen protesting in the current system. But, what’s your solution to this problem? Increase the role of the same corrupt government? No wonder, why their influence on the country is reducing which is quite a positive development in the country. But, socialism is still regarded as moral here and capitalism means evil, coming from a country that was saved by Capitalism in 1991!
Democracy is very important to the people of the country but what they don’t understand is, Democracy is means but not ends. Democracy is means of Liberty and Democracy solely cannot grant freedom. Democracy is for Liberty, not the other way around! Something similar was said by Hayek in The Road to Serfdom:
Democracy is essentially a means, a utilitarian device for safeguarding internal peace and individual freedom. As such it is by no means infallible or certain. Nor must we forget that there has often been much more cultural and spiritual freedom under an autocratic rule than under some democracies and it is at least conceivable that under the government of a very homogeneous and doctrinaire majority democratic government might be as oppressive as the worst dictatorship.
Many intellectuals are seen criticizing the current party in power in India for becoming authoritarian but when wasn’t the system authoritarian? Privatization in present or “equality” approach in past, whether from Left or Right, the country has always been authoritarian in the truest form, no need to distinguish from one another because you all are collectivist in a Brotherly Conflict!
Everyone must be wondering: How high will interest rates go? When will the stock market bottom? What does the future hold? Unfortunately, it all depends on the Fed. They can either slow down, stop, or reverse the Quantitative Tightening (QT) process. Let’s see the options:
So far, the Fed’s balance sheet reduction effort has been crawling, only reduced by around half of the nearly $50 billion cap per month in the first three months. Should they slow the pace further, they may have to address it formally. Nonetheless, slowing the pace of QT only offers faint hope of delaying the inevitable crisis ahead.
If the Fed were to formally stop their QT program, in order to hold the balance sheet steady, they would be in a perpetual juggling game of buying just the right amount of securities to balance off the maturing ones.
Unfortunately, whether they slow or stop QT, it won’t matter. Whether the market crashes in October of this year or March in the next, the crisis is coming. Interest rates always try to revert to what they should be in a free and unhampered market. Absent the Fed actively increasing the money supply, interest rate suppression will always be a problem.
With US debt about to cross $31 trillion, there is no way the Fed would simply slow or stop QT, nor try to hold rates steady for a prolonged period of time. It wouldn’t even work for long before the market collapses and the Fed loses control of rates entirely anyway.
Inflationism will be monetary policy so long as there is a Federal Reserve. No matter what they tell you about inflation or unemployment, and the juggling acts they play, the balance sheet is always destined to increase, and with it, all prices. Only by exponentially increasing the balance sheet can the Fed continue its interest rate suppression. Plus, the stock, bond, and housing market have been broken (because of the Fed) so it won’t be long until the Fed rescues them once again.
Even the United Nations noticed, as Reuters reports:
…warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.
Quotes from their report says:
Excessive monetary tightening could usher in a period of stagnation and economic instability...
Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble…
Recessions matter: but stock portfolios and lower interest rates do too. It is only through asset purchases can the two be found again. When the time comes, they’ll tell us (price) inflation is low and therefore warrants balance sheet expansion. Or they’ll acknowledge inflation is high, but say it was a choice between the lesser of two evils, opting to increase the balance sheet to fight a recession at all costs.
Radley Balko, a defender of liberty best known for his book Rise of the Warrior Cop: The Militarization of America's Police Forces, has been fired by the Washington Post. Balko writes: "So after nine years, I'm being let go by the Washington Post. This is disappointing but not surprising. In recent years, the Opinion leadership has made it increasingly difficult to do the reporting & in-depth analysis I was hired to do -- in favor of short, hot takes."
“Can we film the operation/Is the head dead yet/Get the widow on the set/We need dirty laundry,” sang Don Henley in 1982. Crime stories grab people’s attention more than almost anything else. What do the stats say for San Antonio?
As Mr. Henley’s “Dirty Laundry” continues, “kick ‘em when they’re up/kick ‘em when they’re down”: they’re all over the place in the last dozen years. A couple of isolated spots do pop out.
Violent crime shot up 28 percent and 26 percent in 2013 and 2016, respectively. Then it took a 17 percent dip in 2018, accompanied with a 9 percent drop in property crime. It’s notable that the economy started growing more the year before, both here and in the broader U.S.
When more people are prospering, fewer are committing crimes.
Maybe it’s a coincidence, maybe not. Take that economic growth though.
There weren’t large-scale measures or actions taken that had time to fully wend their way positively through the system. But a friendlier tone had taken power.
Signals were sent, and those matter, particularly for investment. Investment leads to hiring. And if more people are getting hired, fewer people are committing crimes.
The CR sent a different signal … kinda. The part that deals with marijuana could actually be augmented by other voluntary and/or consensual activities.
What is the logical basis for stripping someone of their freedom or property when what they do harm to no one else? If there is no collateral damage, where is the wrongdoing?
This is unlike when one party assaults another, including minor aggressions like defacing property.
Not only should such infractions be removed from any CR, but punishment by fine should be abolished. Otherwise, it amounts to little more than a rich man’s crime. Restitution for the victim should factor in, but time behind bars should be mandatory.
Is there a greater disincentive to bad behavior than a night in the pokey? As it is, the faulty half of the CR is subtly wreaking havoc.
Those with confidence in the ability of government to do good put outsized faith in bad actors who clearly lack good intentions. Not only does this include a blind spot to fraudsters who seize on public spending, but also those who see a criminal justice system with soft spots.
When you excuse minor criminal acts, you invite more of it, oftentimes on a larger scale.
Citizens are starting to regret this approach. None other than San Francisco recalled their district attorney earlier this year. The broader movement of these lenient approaches is showing signs of weakening as well.
Preliminary reports this year show a spike in homicides and aggravated assault to the tune of 27 percent each. Are Bexar County residents feeling buyer’s remorse, too? Would a new district attorney revamp the CR to be more respectful of freedom and property?
Only the candidates and the voter know.
On September 21st, the Fed announced another 0.75 percent rate hike. The target is 3 percent to 3.25 percent. The annual rate of the CPI went down in July and in August, standing at 8.3 percent. If we consider the methodology used in the 1980’s, the CPI also went down in the last months, but it is still above 15 percent, according to Shadow Government Statistics.
This decrease in the CPI is due, partially, to the use of oil from the Strategic Petroleum Reserve and the fact that the monetary aggregates have stopped increasing. Since the Fed is no longer buying government bonds and mortgage-backed securities (MBSs), the monetary base (M0) and its balance sheet are not expanding. In fact, the balance sheet has been slightly contracting since April, and M0 follows the same pattern (chart 1). M1 and M2 also stopped increasing, with a slight contraction since March after a significant increase in 2020 in 2021.
Chart 1 – Fed’s Balance Sheet and M0
Fed’s Balance Sheet (Green); M0 (Red).
Source: St. Louis Fed.
This latest 0.75 percent rate hike took the IORB (Interest Rate on Reserve Balances), which is the main rate that the Fed uses to influence the FFR (Federal Funds Rate), from 2.4 percent to 3.15 percent.
Chart 2 – FFR, IOER and IORB
FFR (Red); IOER (Green); IORB (Orange).
Source: St. Louis Fed.
Jerome Powell stated in March that, if necessary (to contain the CPI), the FOMC would resort to hikes higher than 0.25 percent in future meetings. And, so far, this is what has happened.
As in Chart 1, by the end of July, the Fed's balance sheet had barely shrunk (the Fed's assets were down by less than 1 percent). And, between the peak reached on April 13 and September 21, it shrunk by “only” $148.7 billion. However, the Fed said it will continue to reduce its assets, as announced in May. It also stated that it is determined to bring the CPI back to the 2 percent target and it is committed to continue raising rates by 0.75 percent.
The peak of the FFR in the last rate hike cycle (2015-2018) was 2.4 percent. In December 2018, there was significant turbulence in the US stock market (and started cutting rates in 2019), and in September 2019 there was a crisis in the repurchase market and the Fed started to inject liquidity into it (doing QE and expanding its balance sheet). The FFR reached 2.4 percent again last July and now it stands at 3.15 percent. Does this mean the Fed can continue raising rates without consequences? Unlikely. In the last rate hike cycle, the Fed was not only raising rates, but also shrinking its balance sheet at a higher pace, which further limited the extent to which the Fed could raise rates (since the sale of assets held by the Fed made its prices go down and its interest go up). The Fed began to shrink its balance sheet in late 2017 (and went back to expanding it in September 2019). As for the FFR, the Fed started raising it in December 2015 (but went back to cutting it in H1 2019).
Real interest rates are still negative. Even if we consider the official CPI of 8.3 percent, the real rate is -5.15 percent. In addition, another important factor that that Fed needs to address in order to bring down the CPI is the money supply. In FY 2022, total government spending was $5.35 billion. The government is still spending money on COVID-related “stimulus”, Congress has passed yet another spending bill, and we have yet to see the impact of student debt forgiveness (as the government will have to borrow more to fund it). And let’s not forget that a higher IORB means that the Fed have to pay more interest on bank reserves, which means lower profits for the Fed, which means less of these profits will be given to the government, which means that the government will have a higher budget deficit if it doesn’t raise taxes, or it doesn’t cut spending.
All this means more indebtedness, that is, more bonds issued by the government that can eventually be purchased by the Fed (since, likely, there will not be enough demand for these bonds at the current FFR level, as expenses that the federal government is incurring with interest on debt are increasing). Even in a scenario in which the central bank does not raise rates, the increase in government indebtedness tends to increase interest expenses. But this is compounded when the central bank is raising rates. If the government continues down this path, the Fed will have to decide whether to continue to raise rates (which will increase the government's interest expenses) and to shrink its balance sheet (which means that the Fed will be increasing the supply of bonds, further decreasing their prices and increasing their interest), or to give up on this plan and go back to cutting rates and increase its balance sheet to prevent the government from being unable to finance these expenditures. Historically, the second option is the one chosen by the Fed. It remains to be seen if the current scenario of a higher CPI will be enough for the Fed to break this tradition.
GDP contracted 1.6 percent in Q1 and 0.6 percent in Q2, which constitutes a recession (two consecutive quarters of negative GDP), despite the fact that the government is trying to change this consensus to deny a recession. And the Atlanta Fed has lowered its Q3 GDP growth forecast to 0.3 percent (it's still positive, but it's common for the Atlanta Fed to lower its forecasts as new data comes in). However, it is true that, if we consider a more “official” definition of recession (from the National Bureau of Economic Research – NBER), the US was not in recession at the end of Q2. The NBER, in addition to considering the period of economic contraction that must take place to be considered a recession (more than a few months), considers the diffusion (the contraction must be spread across many sectors of the economy) and the depth of the contraction. And, from December 2021 to the end of Q2, all variables used by the NBER were positive.
Nonetheless, it is undeniable that the economy is contracting (or at least it is barely growing).
The housing market is contracting (although the Fed has not yet reduced its holdings of MBSs; the Fed has only reduced its holdings of government bonds and even slightly increased its holdings of MBSs – chart 3), as mortgage rates go up.
Chart 3 – Assets in the Fed’s Balance Sheet
Total Assets (Purple); MBSs (Red); Government Bonds (Green); Federal Agency Debt Securities (Orange*).
* It is not possible to see the line at this scale, because it is a figure of “only” US$ 2.3 billion.
Source: St. Louis Fed.
Some yield curves are inverted. That is, the difference between the interest rates of bonds of longer maturity and bonds of shorter maturity is negative (usually they should be positive, since bonds of longer maturity must pay more interest as they are riskier than those of lower maturity). Historically, yield curve inversion is a leading indicator of recession (which usually occurs sometime between 6 and 24 months after the inversion). If bond investors expect a recession, they anticipate that the central bank will cut rates. This expectation causes long-term rates (10 or more years) to decrease in relation to those of shorter maturity, inverting the yield curve. Of course, this is not an accurate indicator and does not guarantee that there will be a recession.
Chart 4 – Yield Curves of US Government Bonds
30 Years-10 Years (Blue); 10 Years-5 Years (Orange); 10 Years-2 Years (Green), 10 Years-1 Year (Yellow).
Source: Trading View.
And stock indexes are trending down since last October:
Chart 5 – Stock Indexes
S&P 500 (Blue); Nasdaq (Orange); RUSSEL 2000 (Green); Dow Jones (Yellow).
Source: Trading View.
All these factors are indicators of a weakness in the US economy. The question remains: Will the Fed pivot?
As predicted, Italy made history Sunday, electing its first ever female Prime Minister. Winning a preponderance of the votes cast, the Brothers of Italy’s Georgia Meloni will presumably take the helm of the E.U.’s third largest economy at the head of a coalition right wing government. Facing a daunting economic and geopolitical environment, Meloni’s government-in-waiting hopes its promised mix of policies aimed at supporting households and businesses while toeing the line against Russia will curry favor with Italian voters and the leadership in Brussels.
Or, as CNN and any number of their trusted media allies saw fit to put it in the immediate aftermath: “Georgia Meloni claims victory to become Italy’s most far-right prime minister since Mussolini.”
Cue eye roll.
Much like the also recently victorious Swedish Democrats, the Brothers of Italy and other right-wing populist parties across Europe gave voice to voters’ frustrations over inept policy decisions made by distant elites, whether in the capitals of their respective countries or in Brussels.
In cooperation with the other parties of the coalition, such as the League and Forza Italia, Meloni’s Brothers of Italy proposes supporting the “traditional family unit,” opposing abortion, and securing Italy’s borders, while continuing to support Ukraine in its conflict with Russia.
The last was a particularly contentious point and the subject of much speculation through the spring and summer, when it became clear the Brothers were going to pick up the pieces of the Italian right that had fragmented following the League’s break with the group in 2018. With Europe being absolutely battered by the energy price inflation resultant from sanctions on Russia for its actions in Ukraine, several prominent members of the coalition had voiced a mix of concern, that the sanctions were hurting Italians rather than Russians, and opposition to continuing the policy of the Draghi government, backing continued fighting rather than negotiation.
A full decade of crises has expanded the coercive powers of the E.U. significantly, however. Floating a range of potential carrots over the summer, hinting at a secret plan to hold down Italian bond yields over what is sure to be a terrible winter, by July the Brothers had already effectively made the decision to concede on the major points of European policy in exchange for aid. Apparently not satisfied, or just looking to rub it in, European Commission Chief Ursula von der Leyen let it be known that if the new Italian government after all decided to “go in a different direction” the E.U. “had tools” for applying pressure.
Despite the expressions of public outrage, the comment provoked from, among others League leader Matteo Salvini, the Italy Meloni and her coalition are inheriting is a mess. From government finances to demographic oblivion, sky-rocketing prices, waves of incoming migrants and a structurally disadvantaged private sector, with a possible five years in power stretching out before them the new government in Rome will likely try to put off any confrontation with Brussels as the ECB is the only thing standing between Italians and freezing and the government and its financial solvency.
As such, little is likely to change. Voters seemed to know as much. For all the media hysteria, Italians weren’t flocking to the polls: an historic low 64 percent turned out.
One who didn’t, according to the Wall Street Journal, was a café owner whose restaurant had survived both World Wars and COVID but was now considering closing up permanently after receiving his utility bill: up from a few thousand euros a year ago to literally tens of thousands today. There was no one he saw worth voting for, according to the Journal’s report.
After raising the Funds Rate by 75-basis points last week, Jerome Powell, Chair of the Federal Reserve, gave candid opinions regarding inflation and the detrimental effects on households. It’s rare to agree with a central banker; yet here we are. In his own words:
So, for starters, people are seeing their wage increases, their wage increases eaten up by inflation. So if your family is one where you spend most of your paycheck, every paycheck cycle, on gas, food, transportation, clothing, basics of life, and prices go up the way they've been going up, you're in trouble right away. You don't have a cushion and this is very painful for people at the lower end of the income and wealth spectrum. So, that's what we're hearing from people is very much that inflation is really hurting.
Amazing! This is the type of real-world economic analysis we desperately need. He acknowledges that in spite of higher salaries, the benefits from wage increases are devoured by inflation, or more succinctly: the purchasing power of the dollar is decreasing. While some may have higher bank account balances, it affords them less.
He also acknowledges that many family’s paychecks barely cover basics such as gas and food, and that when “inflation” occurs the impacts are felt immensely and immediately. He’s made it clear he grasps the concept.
Seems weird though. If it’s so obvious, why maintain policies explicitly perpetuating inflation?
Powell then confesses, he has no clue how to stop inflation:
So how do we get rid of inflation? And as I mentioned, it would be nice if there were a way to just wish it away but there isn't.
Incredible! We should send him a copy of journalist and economist Henry Hazlitt’s “What You Should Know About Inflation,” which offers many viable solutions. Powell could also study the countless other Austrian economists who have vehemently spoken out against inflationism as a policy tool for the last 100 years. If that isn’t enough, perhaps reflection on the last century of failed monetary policies: perpetual dollar depreciation, the relentless boom/bust cycle, and ever increasing disparity between America’s have and have nots; in which the haves benefit from large subsidies, bailouts, and access to new money programs at society's expense. However, there seems no legitimate intent to correct course.
It's the year 2022 and the Federal Reserve is still trying to unlock the mysteries of inflation, one of the most documented catastrophic policies for quite some time. Even in 1958 Mises reiterated:
The most important thing to remember is that inflation is not an act of God; inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy…
The Fed claims diligence when it comes to meeting their arbitrary 2% annual inflation rate; but it comes at a heavy cost. The stock market will crash and a recession will be announced. Yet, no one can legitimately claim whether 2% inflation again is even possible. Of course, if we miraculously get there, it won’t matter anyway. The Fed will still exist.
A few months ago, a manifesto entitled “National Conservatism: A Statement of Principles” was published by the Edmund Burke Foundation on their natcon website and quickly republished by the American Conservative and the European Conservative.
Among its drafters we could see names such as Viktor Orbán superfan #1 and The Benedict Option author, Rod Dreher, The Virtue of Nationalism and Conservatism: A Rediscovery author, Yoram Hazony, Return of the Strong Gods author, and First Things editor R.R. Reno, and ISI Modern Age editor Daniel McCarthy, and among its signatories, a good list of Hillsdale/Claremont-affiliated Straussians such as Michael Anton, Larry P. Arnn, Tom Klingenstein, Ryan Williams and Scott Yenor, classicist, war scholar and Hoover fellow Victor Davis Hanson, Jagiellonian University professor and Polish member of the European Parliament Ryszard Legutko, TPUSA founder and activist Charlie Kirk and tech entrepreneur and right-wing would-be kingmaker Peter Thiel, among others.
This list would make such a manifesto be authoritative enough for the Right, both in the United States as well as in Europe, to be united behind its claimed principles, but contrary to its purpose, the only thing it has promoted is a plethora of responses and replies, both in its support and many times against it, and while we can dismiss liberal pseudowarnings of fascism supposedly present in the natcon statement, such as the one published in the New York Times, as well as the Washington Post’s whining about its lack of references to human rights and equality, many of the issues raised about it from people in our spheres are enough for us, liberty-minded people to consider the viability of national conservatism as a flag to rally under.
For one, these issues reveal an ideological problem with the natcon statement, for it fails to gather all similarly leaning intellectuals in the Right, with the first noticeable absence being that of the Catholic integralist postliberals (Sohrab Ahmari, Patrick Deneen, Chad Pecknold, Gladden Pappin, and Adrian Vermeule), as noted in a response released the day after by The Bulwark, which could be explained in foreign policy differences over the Russian-Ukrainian war, and on a related note, Peter J. Leithart, of the Theopolis Institute, disparages the manifesto for its excessive reliance over its “national” element over its theological one, which he considers is the actual issue at hand that should be taken care more of.
Others, such as David Tucker, disagree over inconsistencies on the statement’s clauses on religion and race and their intellectual forefather Harry V. Jaffa’s understanding of equality as assimilation under the Declaration of Independence, whereas more free-market-oriented intellectuals, such as Samuel Gregg (formerly from the Acton Institute, now affiliated with the American Institute for Economic Research) noted instead the economic problems with the manifesto, describing what feels like a contradiction between the natcons defense of an enterprise economy, their condemnation of crony capitalism and their embrace of a thinly veiled version of state capitalism, “for the common good.”
Most of these positions were summed up in an article published by National Review by mid-August, and if things weren’t enough with this discussion, the other same outlet that shared the natcon statement alongside the American Conservative in June, that is, the European Conservative, recently published an open letter signed mostly by Catholic and Anglican affiliated thinkers, critiquing the incoherence of arguing against the universalism of globalist ideologies using an equally universalist Anglo-American understanding of national traditions and its apparent elements of “free enterprise” and “individual liberty,” which are more of a feature of conservatism in the United States.
With so many of these issues already laid out in the ground, where does the national conservatism discussion leave us?
Well, for one, national conservatism seems to have left out the paleos, both our paleoconservative friends at Chronicles magazine, and us, paleolibertarians at the Mises Institute, out of the equation, which, to be honest, should not be a surprise, given that in our corner, criticisms of the natcon project have been present at least since 2019, the year where it first appeared, beginning with Chronicles’ Pedro Gonzalez expressing doubts that it might just become another case of controlled right-wing opposition to the growing power of the Left.
Mises Institute president Jeff Deist and associated scholar Allen Mendenhall followed, noting, respectively, that the natcon use of the concept of cosmopolitanism was inadequate, given that Ludwig von Mises had already explained it as “not provincial,” for “Cosmopolitanism does not require a particular worldview or political perspective … but rather respect for others’ political arrangements and cultures” and that the “national” part of national conservatism was completely wrong, for “the United States is not a nation,” but “a country whose people are connected, if at all, by liberalism.”
Does that mean we should be left out of the natcon crowd? Well, it depends, especially given that in our last three years, many things have changed in the world, for we have suffered lockdowns, the expansion of government intervention in society and the economy, contested elections in the US, and the extension of another open conflict (this time, against Russia) in which Western powers, once again, have become involved to intervene, to the detriment of their economies and their peoples.
We have also seen the heating up of our culture wars (marked by the normalization of critical race theory and the George Floyd riots), the rise of the World Economic Forum, with their stakeholder capitalism (explained as woke corporate socialism by Michael Rectenwald), their similarities with the contemporary Chinese model (arguably a form of national socialism) and their influence over Western governments, who seem to either kowtow to their credentialed expert Mandarin class or to the fear of receiving foreign business cycles caused by malinvestment and civilizational misjudgment.
With all these external contingencies, and the rise, although clumsy, of national conservatism in the US and Europe, there might be a chance to begin building bridges between our camp and theirs, and mutually benefit from a larger and organized platform among the intellectuals of the Right.
Our context is better than ever, with a cleaner, healthier image of libertarianism, reminiscent of Ron Paul’s presidential campaigns, being promoted by the Libertarian Party, now under the leadership of its Mises Caucus, something that is being noted by members of religious groups in the Christian Right, washing away the libertine reputation that still followed the LP up to our days and that had already been denounced by Rothbard and Rockwell in the ’80s and ’90s.
For those who belong to the paleo trend in politics, to identify as either a conservative or a libertarian is a difficult task, and many of us simply decide not to use said categories, and simply belong to whatever is identified as “the Right,” and that decision may come in handy when the situation asks for it.
National conservatism is an interesting attempt to appeal to right-minded (pun intended) intellectuals and politicians, but it is lagging in many areas, and it shows. Their manifesto and its many replies demonstrate there is a lack of understanding of their theological, ethical, national, and economic principles, and while we cannot (and should not) comment on the first, we can surely add to a better understanding and a sounder doctrine to the three later.
Austro-libertarianism, many times a trend left in the dark out of misunderstanding or due to the act of bad faith actors, can become the much-needed element to create coherence and cohesion in a movement that still hasn’t decided its path forward.
Our tradition, from Menger and Böhm-Bawerk, through Mises, Hayek and Rothbard, to Hoppe and Salerno, can provide with the necessary takes to make sense of what a nation really is, how to peacefully organize society along the lines of trade for prosperity; free association, and organic, spontaneous institutions; and the meaning of preservation within a long-term, low-time-preference mentality.
The natcons are demanding to expand their horizons from a merely Anglo-American political tradition into one that can truly represent the Western intellectual potential for civilization, and if we’re on character with our capitalist nature, we should be happy to offer what the Austro-libertarian sphere can offer.
The many issues of national conservatism represent an opportunity for us to step out and retake our place among the political families of what used to be, back in the day, the Old Right, and while we recognize our differences, conservatives still need our help to make sense of what they are, and it might be better to give them a hand now that they’re redrafting their doctrine than later when they have retaken all their past vices and gotten new ones from an increasingly radicalized Left.
Over the weekend, Scott Pelley of 60 Minutes held an interview with President Joe Biden. See below for some of the highlights, starting with his thoughts on the annual inflation rate which came in at 8.3% for the month of August.
(Portions of the transcript and interview may have been edited by CBS. There exists these incomplete sentences in the video and transcript. We may never know what the President actually meant).
President Joe Biden: Well, first of all, let's put this in perspective. Inflation rate month to month was just-- just an inch, hardly at all, [Transcript ends].
Scott Pelley asked if this was good news, the President responded:
No, I'm not saying it is good news. But it was 8.2% or-- 8.2% before. I mean, it's not-- you're ac-- we act-- make it sound like all of a sudden, "My god, it went to 8.2%." It's been— [Transcript ends].
In both instances the transcript abruptly ends mid-sentence, which may be unfair to the President. Nonetheless, Scott countered, saying it’s the highest inflation rate in 40 years, at which Biden said:
I got that. But guess what we are. We're in a position where, for the last several months, it hasn't spiked. It has just barely-- it's been basically even. And in the meantime, we created all these jobs and-- and prices-- have-- have gone up, but they've come down for energy.
How exactly (price) inflation is to come under control is never mentioned. To this point, Biden was asked if inflation would “continue to decline,” he answered:
No, I'm telling the American people that we're gonna get control of inflation. And their prescription drug prices are gonna be a hell of a lotta lower. Their health care costs are gonna be a lot lower. Their basic costs for everybody, their energy prices are gonna be lower.
He even invoked Fedspeak, saying:
We hope we can have what they say, "a soft landing," a transition to a place where we don't lose the gains that I ran to make in the first place for middle-class folks, being able to generate good-paying jobs and-- expansion.
This is pretty much the gist of the interview. The reporter asked real questions but was never given honest answers. To be fair, when someone doesn’t understand the cause of inflation, they cannot be expected to know how to resolve the problems inflation creates.
A lot more was discussed, such as the Trump raid, a potential war with China, and banning of assault rifles. But this exchange sticks out the most, invoking ideas that something is not quite right. According to transcript:
Scott Pelley: How would you say your mental focus is?
President Joe Biden: Oh, it's focused. I'd say it's-- I think it's-- I-- I haven't-- look, I have trouble even mentioning, even saying to myself, my own head, the number of years. I no more think of myself as being as old as I am than fly. I mean, it's just not-- I haven't-- observed anything in terms of-- there's not things I don't do now that I did before, whether it's physical, or mental, or anything else.
With Biden in charge of fiscal policy, and Powell overseeing monetary policy, our economic woes shouldn’t be surprising. However, no matter how easy it is to criticize Biden (D) and Powell (R), it’s important to remember they are only mouthpieces to an apparatus much larger. They are the figureheads of “the State,” or an entity that “does not produce anything but rather steals resources from those engaged in production.” Sure, some are better spoken than others, but this provides little comfort, even if it makes for great television.
The European Central Bank (ECB) raised interest rates for the second time this year (by 0.75 percent). The eurozone's CPI was 8.9 percent in July. In that month, the ECB raised rates by 0.5 percent and created a new instrument of monetary policy, the Transmission Protection Instrument (TPI), to counter the 'risk of fragmentation' of the eurozone.
The ECB key interest rates are the Main Refinancing Operations Rate, the Marginal Lending Facility Rate, and the Deposit Facility Rate. These rates were at 0.5 percent, 0.75 percent, and 0 percent, respectively, after the first rate hike in July. And now they are at 1.25 percent, 1.5 percent and 0.75 percent.
The ECB's balance sheet was just above €8.8 trillion by the end of June. And, in the beginning of July, it slightly decreased, standing at €8.7 trillion on September 9th.
Since 2015, the ECB has not significantly reduced its balance sheet at any time. And, since 2014, it has kept interest rates artificially low, at 0 percent (in the case of the Main Refinancing Operations Rate), close to 0 percent (in the case of the Marginal Lending Facility Rate), and negative (in the case of the Deposit Facility Rate).
Chart 1 – Eurozone Interest Rates and ECB’s Balance Sheet (2012-2022)
Main Refinancing Operations Rate (Red Line, Left Axis); Marginal Lending Facility Rate (Green Line, Left Axis); Deposit Facility Rate (Yellow Line, Left Axis); ECB balance sheet (Purple Line, Right Axis).
Source: St. Louis Fed.
The PTI is a new asset purchase program, focused on bonds of the most indebted eurozone members. As duly noted by Ryan McMaken, this is essentially a new type of QE. In order to buy these bonds, the ECB will have to increase the monetary base. It remains to be seen if the increase in the monetary base arising from this program will be accompanied by a significant increase in M1 and M2 (which are the monetary aggregates that really influence prices in the real economy).
QE, by itself, does not cause prices in the real economy to increase, but it is harmful to the economy by generating distortions in the allocation of resources, making the economy more fragile (more dependent on artificially low interest rates) and susceptible to recessions. These distortions cause resources to be wasted on unprofitable ventures (such as zombie companies), preventing the generation of sustainable ventures and reducing real wages (since indebtedness increases and more money is spent on interest to finance the debt, instead of investing in productivity, which would tend to lower prices and increase real wages). Furthermore, QE makes the prices of financial and real estate assets artificially higher.
The purpose of the PTI is to mitigate the eurozone's 'fragmentation risk'. For example, if the interest on Italy's 10-year government bond (Italy has a debt of 150.8 percent of GDP) was to increase much, it would increase the probability of Italy’s exit of the eurozone (returning to the Lira and expanding the money supply to finance the government debt). This is the so-called 'fragmentation risk'.
The PTI, therefore, is a form of 'yield curve control'. Of course, it's not official, but the effect is similar. The Bank of Japan (BoJ) has been doing a 'yield curve control' since 2016: the BoJ does not let the interest on Japan's 10-year government bond be higher than 0.25 percent. The BoJ buys these bonds, increasing their prices and, consequently, lowering their interest rates. And this is precisely what the ECB intends to do.
Interest rates on 10-year eurozone government bonds have been on an upward trend YTD. The PTI’s goal is to lower interest rates (mainly the ones of the most indebted members), if necessary.
Chart 2 – Interest Rates on 10-Year Government Bonds of Some Eurozone Members
Greece (Blue); Italy (Orange); Portugal (Grey); Germany (Yellow); France (Green); Netherlands (Purple); Ireland (Pink); Spain (Black).
Source: Trading View.
Yes, the PTI also has some eligibility requirements that are supposed to be followed by eurozone members in order for the ECB to buy their bonds under this program. However, we know that governments tend not to follow rules. And countries such as Portugal, Spain, Italy and Greece (which have higher indebtedness and more spendthrift governments) are very dependent on the eurozone’s moral hazard, which does not generate incentives for the most indebted governments to reduce their debt enough for the interest on their bonds to decrease without the intervention of the ECB. At best, in general, governments decrease their debt very gradually (as Portugal did in 2016-2019, and in 2021 after a significant increase in 2020). If governments really followed public debt sustainability rules, the PTI wouldn't even need to exist.
Furthermore, the euro has been devaluing against the US dollar since 2021 and reached parity 1/1 at the end of August, oscillating close to this level since then. This is another factor influencing the rise of the eurozone’s CPI, as a devalued currency makes imports more expensive.
The Governing Council stated that it “stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2 percent target over the medium term.” It also stated that it expects the CPI to remain above 2 percent for an extended period, estimating that the rate (excluding food and energy products) will reach 3.9 percent in 2022, 3.4 percent in 2023 and 2.3 percent in 2024. However, it also stated that the PTI “is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries.” In other words, the ECB states that it is willing to pursue a contractionary monetary policy to bring the CPI back to the target of 2 percent while committing to use the PTI (which, depending on the intensity of its use, can counteract the decrease of the CPI) if the contractionary monetary policy prevents eurozone members from financing their high debts.
Like the Fed, the ECB doesn't have much room to raise rates and shrink its balance sheet (unless these governments significantly reduce their debts). The ECB is being a little less expansionist on the one hand (by making slight increases in interest rates in relation to the high CPI) and may be expansionist on the other (by creating the PTI). Like the Fed, the ECB is just pretending to fight the high CPI. The fact that the ECB's balance sheet has stopped increasing and that eurozone's M2 is increasing at a slower pace than in 2020 and 2021 are factors that reduce the pressure on price increases, but this only means that, best case scenario, the ECB will be able to bring the CPI to lower levels. It is less likely that prices will return to pre-2021 levels. This would require a price deflation.
To really get prices to pre-2021 levels, governments would have to reduce their spending, so that their indebtedness would decrease, and the ECB would not only stop expanding the monetary base to buy government bonds, but also shrink its balance sheet (to contract the money supply). Artificially low interest rates are not the only inflationary factor.