Why the West Doesn't Get Russia
Why the West Doesn't Get Russia
The decision of Western countries to punish Russia for invading Ukraine by lacing her with a wave of sanctions suggests that global leaders are failing to learn from history. Sanctions are an ineffective tool to curb the ambitions of rogue actors and they are unlikely to make autocrats think twice. Non-democratic regimes are already blacklisted by the liberal political order so using sanctions to further isolate them often succeeds at emboldening autocrats to drum up political support.
Moreover, targets with deep ideological commitments motivated by an ethos of self-determination are difficult to sway with sanctions and Russia is one such actor. The current melee has demonstrated that foreign policy analysts are yet to understand the philosophy of Vladimir Putin and Russian foreign policy. Vladimir Putin is an astute student of history with regional ambitions and is also quite serious about the resurgence of Russia’s hegemony in Eurasia.
Although Putin informed journalists that he is uninterested in the rebirth of the Russian empire to avert criticisms - it’s obvious that he intends for Russia to exert greater political clout in Eurasian geopolitics. Putin envisions a multipolar world where Russia’s sphere of influence is respected by Western powers. Despite the propaganda peddled by the foreign policy establishment Putin is not a threat to American interests.
By choosing to portray herself as the world’s superpower America encourages Putin to pursue offensive tactics. To manage American influence in Eastern and Central Europe, Putin must pursue measures to undermine America’s authority in his backyard. So far, America’s strategy for engaging Russia has been unsuccessful because foreign policy technocrats are relying on a superficial account of Putin to guide policy.
The characterization of Vladimir Putin as a regressive autocratic by Western elites is an oversimplification. Being an autocrat does not make Putin a formidable foe, Putin is intimidating because he is waging an ideological battle against the West that’s deeper than economics. Philosophically and politically Russia is quite different from the West. Unlike the Latin West, Christianity in Russia is a legacy of the Eastern Roman Empire and in the Eastern Roman Empire, there was a close relationship between church and state.
Russian Christianity lacks the history of an event like Investiture Controversy that led to the emergence of separation of church and state in the West. Moreover, unlike the West, the Russian Middle Ages did not produce a slew of thinkers like Marsilius of Padua, Hervaeus, and Jean Gerson whose ideas had an inkling of enlightenment thought. Ideas like secularism, the rule of law, and free speech don’t have much pedigree in Russia.
Therefore, any measure to deter or engage Russia that fails to account for Russia’s peculiarities cannot be successful. For many on the dissident right in Europe, Russia under Putin is a countervailing force to the moral degeneracy of the West. Polls show that in Central Europe perceptions of Putin range from favorable to pragmatic.
Though there isn’t a rule asserting that a region must have a clear leader the reality is that countries usually grant leadership to a dominant power. For example, in Asia, China and India are the primary powers jostling for hegemonic status. Western technocrats refuse to admit the obvious observation that Russia is the hegemonic power in Eastern Europe and failure to do so will cause Putin to view their interference in the region as an act of aggression.
Yes, we can always upbraid Putin for corruption or violating human rights but this just amounts to empty rhetoric. Reminding the world that Putin is dangerous can hardly be considered a foreign policy strategy. Instead of criticizing Putin, Western countries must put pressure on America to reduce its footprint in Eastern Europe. The presence of military bases in Russia’s backyard signals to Putin that America is unwilling to acknowledge its hegemonic status and still clings to Cold War tactics.
If America continues to treat Putin like we are in the 1980s, then Putin will resort to defensive moves to combat her aggression. Mainstream pundits are blasting Putin for invading Ukraine, but there was nothing inevitable about this. Rather, these events likely could have been avoided had the West refrained from encouraging Ukraine to join NATO, despite knowing that Putin would perceive the decision as a threat to Russia’s security.
Professor Stephen Walt in a recent post argues that Western countries were naïve to think that Putin would accept Ukraine’s engagement with NATO:
“Had U.S. policymakers reflected on their own country’s history and geographic sensitivities, they would have understood how enlargement appeared to their Russian counterparts…During the Cold War, for example, the Reagan administration was so alarmed by the revolution in Nicaragua (a country whose population was smaller than New York City’s) that it organized a rebel army to overthrow the ruling socialist Sandinistas. If Americans could worry that much about a tiny country like Nicaragua, why was it so hard to understand why Russia might have some serious misgivings about the steady movement of the world’s mightiest alliance toward its borders?”
If America and her allies were wise, they would have told Ukraine to jettison any intention to engage NATO or better yet abolish the facility since it has outlived its usefulness. With the Cold War over, NATO no longer serves a purpose and should cease to operate. At this point to forestall a major war, Ukraine must ignore Western instigators by using diplomatic channels to appease Russia. After all, it is not too late for Ukraine to call a truce and make concessions with Russia.
Lastly, waking up to the reality of a multipolar world will save America and her allies immense trouble. Superpower status makes politicians feel good, but it incurs great expenses for American taxpayers and civilians across the world.
Was That the Dip?
A few days from now marks the one-year anniversary of the article: Will You Buy the Dip? It was there I told everyone I know that eventually the Federal Reserve will conclude its Quantitative Tightening (QT), and a new round of Quantitative Easing (QE) would emerge. This was both inherent and inevitable due to the inflationary nature of central banks. So the idea was to buy the stock market once the Fed resumed the QE process.
The question is: Did last Sunday’s announcement of the Bank Term Funding Program usher in a new easy money era, i.e., was this the dip / pivot / stock market buy signal?
Consider the last two years of the Fed’s balance sheet. Between March and May of 2022, the Fed’s assets topped out at just under $9 trillion. Since then the Fed began its slow descent into QT, where last month it reduced its balance sheet, composed mostly of US Treasuries (UST) and Mortgage-Backed Securities (MBS), by around $80 billion a month. During this entire round of QT the broad stock market made no new highs and has instead slowly declined.
The Fed’s balance sheet has also become quite interesting as of late:
Incredible! It took one year for the Fed to reduce the balance sheet by $600 billion, and in just one-week, from March 8-15, the balance sheet increased by $300 billion!
This is what I was referring to, some event or crisis occurring that would be used as an excuse to get the Fed to return to the market… but human action is complex, and nothing seems to go according to plan. The increase in the balance sheet is not a result of the Fed buying-up more US debt or mortgage securities. As far as the public is aware, the Fed is still committed to QT via rolling off its existing UST and MBS holdings.
The balance sheet increase actually came from the loans the Fed granted for troubled bank relief. Details in the Fed’s notes reveal the elements comprising the $8.689 trillion balance.
Loans amounted to $318 billion, whereas a week prior, it was only $15 billion. The current $318 billion consists of Primary credit ($152 billion) and Other credit extensions ($142 billion). The new Bank Term Funding Program only accounted for $11.9 billion.
On one hand the Fed is reducing ownership of securities owned (loans to government), but on the other hand it’s creating money to loan to banks. It would be great to know how large this temporary one-year program will get, but we’re not privy to this information. However, with no limits on how much the Fed could create, it could amount to trillions of dollars.
Like the World Bank and IMF which grant loans to bankrupt nations, only to make them worse off by ending up in more debt, the Fed appears to be engaging in a similar scheme. By lending to bankrupt institutions, the hope is that within a year from now these failed banks will be better off than they are today, paying back the Fed in full plus interest.
The new funding program may very well push the Fed’s balance sheet to new all-time highs, and if it were to expand by a few trillion dollars more, one could expect to see this reflected in asset prices. But having no idea as to how big these bank loans will get, coupled with the Fed’s continual shredding of UST and MBS holdings, I still lack conviction that the Fed is serious about pumping the stock market back to new highs at the moment. Good luck in your trades.
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How Does a Bank Collapse in 48 Hours?
“How does a bank collapse in 48 hours?” Asks the CNN headline. Especially a bank that reported a profit of $3.4 billion just last year. Murray Rothbard answered the question years ago in What Has Government Done To Our Money?, “No other business can be plunged into bankruptcy overnight simply because its customers decide to repossess their own property. No other business creates fictitious new money, which will evaporate when truly gauged.”
If you watched the Fed Chair Jerome Powell testify before the Senate and the House this month you heard over and over that banks are well capitalized. The non-sequitur inspiring the Shakespearean quote “Methinks you protest too much.”
The very next day after the hearings, shares of SVB Financial Group, parent of Silicon Valley Bank, fell 60 percent (the bleeding continued in after hours trading) after a Wall Street Journal article revealed, the bank “had sold large portions of its securities portfolio and would raise fresh capital, highlighting a broader problem for U.S. lenders who have seen rising interest rates hammer the values of their bond holdings.”
A day later Silicon Valley Bank depositors ran for the exits attempting to pull $42 billion out on Thursday, leaving the firm with a negative cash balance of almost $1 billion, regulators said. joining shareholders the same day the WSJ article appeared. The FDIC promptly closed the bank Friday morning saying: "Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank."
Almost Daily Grant’s wrote “Total deposits stood at $175.4 billion, with $151.6 billion of those uninsured. Those with deposits in excess of the FDIC’s $250,000 insurance threshold will receive a receivership certificate for their funds, with payments to follow as the regulator sells down remaining assets.” (emphasis added)
Roku, Roblox, and Blockfi are among the companies that had millions on deposit at SVB, uninsured. “The company’s deposits with SVB are largely uninsured,” Roku said. “At this time, the company does not know to what extent the company will be able to recover its cash on deposit at SVB.”
Overseas this weekend, leaders of roughly 180 tech companies sent a letter calling on UK Chancellor Jeremy Hunt to intervene. “The loss of deposits has the potential to cripple the sector and set the ecosystem back 20 years,” they said in the letter seen by Bloomberg. “Many businesses will be sent into involuntary liquidation overnight.”
While SVB was a lender to the venture capital industry and tech sector, the investments that did the bank in were bonds backed by the full faith and credit of the U.S. government. However, the value of those bonds has plunged as interest rates have increased dramatically.
Banks are able to use a little accounting trickery pokery as it concerns bonds designated “available-for-sale,” as opposed to “held-to-maturity.” The available-for-sale label allows banks to “exclude the paper losses on those holdings from its earnings and regulatory capital, although the losses [do] count in equity.” Held-to-maturity allows banks “under the accounting rules to exclude paper losses on those holdings from both its earnings and equity.”
This problem is not particular to the bank serving techland.
The Federal Deposit Insurance Corp. reported that U.S. banks’ unrealized losses on available-for-sale and held-to-maturity securities totaled $690 billion as of Sept. 30, up 47% from a quarter earlier, reported the WSJ.
Bank analyst Christopher Whalen wondered in a tweet, “Is it possible that nobody has asked Chair Powell about the deteriorating solvency of US banks due to QE? Where do you think that -$600 billion number will be at the end of Q1 '23” (emphasis added)
MarketMaven’s Stephanie Pomboy weighed in on the same subject with this tweet, “I'm puzzling to understand how THIS isn't the only thing people are talking about today????????? Someone tell me about the rabbits. and fast!”
But again on Capitol Hill and at the Eccles Building no one was uttering a discouraging word. However, FDIC Chairman Martin Gruenberg said in a December 1, 2022 speech, “The combination of a high level of longer-term asset maturities and a moderate decline in deposits underscores the risk that these unrealized losses could become actual losses should banks need to sell investments to meet liquidity needs.”
Now Gruenberg’s prophecy is coming to fruition. Silicon Valley said it decided to bite the bullet and sell holdings and raise fresh capital “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.” The fresh capital could not be had at any price.
Rothbard reminds us, “The bank creates new money out of thin air, and does not, like everyone else, have to acquire money by producing and selling its services. In short, the bank is already and at all times bankrupt; but it's bankruptcy is only revealed when customers get suspicious and precipitate ‘bank runs.’”
So the banks are well capitalized Mr. Powell? Bank depositors and ex-depositors will decide that. Silicon Valley Bank is the first this cycle to fail, but likely not the last.
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How Reporters Manipulate You
An article in the New York Times last night by reporters Jonathan Swan and Maggie Haberman is an excellent example of one of the common ways “hard news” reporters can put their thumbs on the scale and push a preferred agenda.
On Monday Florida governor, and likely presidential candidate, Ron DeSantis said on Fox News that “becoming further entangled in a territorial dispute between Ukraine and Russia” is not a vital interest of the United States.
The people who work at and manage the New York Times clearly disagree with this opinion. That’s clear to anyone who has consumed their war coverage and seen the way they frame the conflict.
However, the paper wants its reporting to continue to appear nonpolitical as can be seen in this disclaimer halfway down the article.
So how do they dissuade readers of DeSantis’s point without appearing to rebuke it? They launder their opinions through experts and notable people with the same view.
In this article, they focus on some of DeSantis’s fellow Republicans who happen to agree with the New York Times on this particular issue.
The article presents reactions from seven Republicans who strongly denounce the DeSantis statement. They rake the Florida governor’s name through the mud with their comments. They call him weak and say that he’s so wrong it’s a risk to national security.
The article also quotes a Wall Street Journal columnist who criticizes GOP noninterventionists for wanting to “surrender” to Putin.
The article has one single quote from someone who agrees with DeSantis, but only because he wants the U.S. to focus more on combating China. Pure noninterventionism is given no voice, only a dissenting interventionist.
In paragraph 23, Haberman and Swan do admit one important detail that the readers who made it that far would be forgiven for getting completely backward. The opinions of those highlighted in this piece are unpopular with the GOP base compared to the skepticism of U.S. intervention in Eastern Europe voiced by Donald Trump and Ron DeSantis.
Readers will come away from this article thinking that DeSantis said something on TV that most people, including leaders and prominent members of his own party, think was stupid.
That is the exact kind of point you’d expect from the paper’s Editorial Board. But here it’s presented by reporters writing in the “hard news” section of the supposed paper of record.
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Larry Summers Apologizes for his Rothbardian Insight and George Selgin Exhales
Larry Summers affirms the Rothbardian critique of fractional-reserve banking on Twitter...
SVB committed one of the most elementary errors in banking: borrowing money in the short term and investing in the long term. When interest rates went up, the assets lost their value and put the institution in a problematic situation. https://t.co/HxsgqpZOuL
— Lawrence H. Summers (@LHSummers) March 14, 2023
...but then takes it back...
Responding to some of the comments here: Of course banks borrow short and lend long, but properly managed and supervised banks limit duration mismatch between liabilities and assets so their capital position is not gravely compromised by rising long-term interest rates.
— Lawrence H. Summers (@LHSummers) March 14, 2023
...and free banker George Selgin breathes a sigh of relief at "Prof. Summers" retraction.
I'm glad to see, upon reading on, that Prof. Summers explains himself in the comments. Still, I was taken aback upon first seeing this tweet by him attributing SVB's troubles to its having done what all banks always do! https://t.co/EAAYc4ZrOS
— George Selgin (@GeorgeSelgin) March 14, 2023
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The Banking System is Built on Deception
There's nothing like a bank failure to get people thinking about the banking system. And though it appears the Fed has bought the nation's banks some time, the pair of bank runs on Friday and Sunday again exposed the fragility of the nation's banks.
But fragility isn't the only problem. As Rothbard hammered home decades ago, our banking system relies on a deceptive scheme, authorized and supported by the government, called fractional reserve banking.
To quickly review how fractional reserve banking works, say you deposit some of your dollars into your bank account. If the bank's reserve ratio is 5%, it then loans 95% of those dollars to other people who spend them on goods and services. The sellers of those goods and services then deposit the dollars in their own bank accounts.
Again, 95% of the dollars get loaned out and deposited in yet more bank accounts. However, all of these dollars still appear in every one of these accounts. Eventually, we'll arrive at a situation where most of the dollars you see in your bank account also show up in the accounts of many other people, appearing to them as their own dollars.
This gives the illusion that there is more money in the economy. But all that's really happened is that the bank has created new claims on the same amount of dollars. Specifically, a property claim on money stored has been transformed into a sort of callable loan that simultaneously appears available to a number of other bank customers.
Advocates of free banking argue that, on the free market, some bank customers would choose to invest in these types of collectivized callable loans. I agree. But these would certainly trade at a discount compared to cash because of the underlying risk of default.
But in today's banking system, these collectivized callable loans trade at par with cash. That indicates that enough bank customers are ignorant about the nature of their bank accounts. And banks benefit tremendously from this ignorance. They get to loan money into existence without account holders behaving any differently.
The banking deception relies mainly on concealment with a touch of duplicity. Watch banking commercials or read webpages about opening a checking account. You'll find common selling points like ease of access, security, connection to the digital financial system, a large ATM network, and the ability to send money to friends and family. All of these are also features of 100% reserve warehouse-style banking. The fractional reserve process is largely concealed from the customer, while the language used can mislead about the nature of bank accounts.
For instance, when a bank says, "your money is secure," they mean that there are measures in place to ensure only you can access your account and alert you when there is a suspicious login. What they do not mean, but what a lot of people surely understand them to mean, is that your money will not suddenly disappear from your account as it has at these banks that failed.
But that is exactly what can happen with these collectivized callable loans. It's why the funds in bank accounts are not the perfect money substitute that most people are misled into thinking they are.
Fractional reserve banking presents multiple people with what they believe to be a property claim over the same dollar. Beyond being risky and unstable, modern banks systemically rely on ignorance, deception, and government privilege. Until that changes, we remain teetering on the edge of the next crisis.
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How a Libertarian Church in the Nation of Georgia Helped Undermine Military Conscription There
Georgia is a country at the intersection of Eastern Europe and Western Asia. It was occupied by the Soviet Union in 1921 and remained part of it until 1991. Military service was mandatory in the USSR because the Soviet leadership didn't respect individuals’ lives and used them as mere pawns.
This practice remained intact in contemporary Georgia until a libertarian party called Girchi established a "Christian, Evangelical, Protestant Church of Georgia—Biblical Freedom" in 2017 to free people from being government slaves, as priests were legally allowed to avoid conscription.
Since its creation the church managed to free individuals in nearly 50,000 cases from this form of modern slavery, but recently the government introduced a new law making it illegal to avoid conscription this way. Therefore, Girchi is now battling against the government to completely cancel the military draft and make the service fully voluntary by offering willing soldiers a decent salary, contrary to how it is nowadays when the government pays them less than $25 per month.
For all these years, the immoral practice of forcibly taking 18 to 27-year-old boys and exploiting their labor has been justified with patriotic slogans and the unwillingness of the government to stop treating people like a free resource for the duration of 12 months. However, patriotism is not just a word; it's an act of showing your respect in material form to the people who voluntarily want to defend your country, because patriotism or any other virtue can only be moral if it's done voluntarily and not under the threat of force.
There's been research done on the topic of whether the size of an army is an important factor when it comes to winning the battle, but it turns out it's not the size of the army but other factors such as motivation, weaponry, and tactics that play the main role.
Therefore, concentrating only on soldier quantity without guaranteeing that the army is staffed with people who voluntarily chose this profession and are equipped with decent weaponry, only points out that the government places no value on individual lives, as unmotivated and inadequately armed soldiers are doomed to an undeserved death.
There have been cases when conscription was justified with false argumentation that it's a duty of every patriot to serve in the army. But this reasoning overlooks a simple fact that defense is a public service that's financed from the state budget, therefore it is in fact taxpayers who keep army well-fed and armed.
This, it is no more of a patriotic act to serve in the army than to be employed or run a business so then the government can take taxes in order to actually keep the army financed and functioning. Especially nowadays when modern armies are exclusively dependent of high-tech equipment and weaponry, it is foolish to hope merely on troop numbers rather than directing the funds towards a fully professional and well-armed voluntary army.
No army is as effective as the one that is staffed with people who have willingly accepted their occupation as a soldier and it is in fact counterproductive to keep unmotivated people in the army, as it’s a waste of financial resources required for the training as well as dear lives when it comes to the actual battle.
In some cases, Girchi's church was criticized from a religious perspective that it's a sinful act to help people avoid the conscription, however the Bible itself states the following in 1 Samuel 8:10:
Samuel told all the words of the lord to the people who were asking him for a king. He said: This is what the king who will reign over you will claim as his rights: He will take your sons and make them serve with his chariots and horses, and they will run in front of his chariots. Some he will assign to be commanders of thousands and commanders of fifties, and others to plow his ground and reap his harvest, and still others to make weapons of war and equipment for his chariots. He will take your daughters to be perfumers and cooks and bakers.
He will take the best of your fields and vineyards and olive groves and give them to his attendants. He will take a tenth of your grain and of your vintage and give it to his officials and attendants. Your male and female servants and the best of your cattle and donkeys he will take for his own use. He will take a tenth of your flocks, and you yourselves will become his slaves. When that day comes, you will cry out for relief from the king you have chosen, but the lord will not answer you in that day.
For anyone interested in learning more about the party feel free to follow the official Facebook page at or join a private Facebook group for discussions.
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Denying Western Provocations Risks Prolonging War in Ukraine
The war in Ukraine has become a bloody grind — and there's no end in sight.
As some Western allies express doubt that Ukraine can completely expel Russian forces, Britain, France and Germany have entertained the idea of a defense pact with Ukraine. Their hope is that the prospect of closer ties to NATO will encourage Ukraine to negotiate a peace deal with Russia. While searching for a path to negotiations is a worthwhile endeavor, recent history suggests that the proposal of a post-war defense pact could push Putin even further away from potential peace talks.
Although many in the West don’t want to admit it, it was Ukraine’s growing relationship with the West — threatening to pull the country further from Russia’s sphere of influence — that kindled the conflict in the first place. In other words, Putin’s invasion of Ukraine was not completely “unprovoked” as the media often suggests.
Eastern Europe has been increasingly tumultuous ever since the Bucharest summit in 2008 when NATO declared that Ukraine and Georgia “will become members” of the alliance. Russia’s Deputy Foreign Minister Alexander Grushko asserted that this was a “huge strategic mistake,” and President Putin called it “a direct threat” to Russian security.
Months after this declaration, a war broke out between Russia and Georgia. In 2014, the U.S. aided a coup that resulted in the ousting of Ukraine’s pro-Russian president Viktor Yanukovych, arousing Russia’s invasion and annexation of Crimea.
After the U.S. and Ukraine co-hosted military exercises with over a dozen nations in 2021, the Kremlin reiterated that NATO expansion into Ukraine is a hard red line. Despite this, weeks later the U.S. and Ukraine signed the U.S.-Ukraine Charter on Strategic Partnership, which doubled down on the 2008 Bucharest Declaration and even explicitly said Crimea is a territory of Ukraine despite being under Russian control.
In January of 2022, an agitated Russia, having amassed troops on Ukraine’s border, demanded a number of written guarantees from the U.S., including that Ukraine would never become a member of NATO. The U.S. refused. Russia invaded Ukraine less than a month later.
The West’s refusal to heed any warnings that courting Ukraine could create serious conflict played a major role in triggering this war. To be clear, this doesn't excuse Putin’s illegal invasion and the devastation that has ensued. But the media’s portrayal of the West’s supposed innocence perpetuates a false narrative.
Foreign policy expert John Mearsheimer, a professor at the University of Chicago, has written about the events leading to the war at length and argues that the West is “principally responsible for the crisis” in Ukraine. Even back in 1998, George Kennan, best known for formulating the U.S. “containment” policy during the Cold War, warned that NATO expansion was the “beginning of a new cold war” and “a tragic mistake” that would provoke adversarial reactions from Russia.
William J. Burns, the current CIA director and once U.S. ambassador to Russia, wrote to Secretary of State Condoleezza Rice in 2008 that "Ukrainian entry into NATO is the brightest of all red lines for the Russian elite (not just Russian President Vladimir Putin). In more than two-and-a-half years of conversations with key Russian players… I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests."
Admitting the West’s role in the lead-up to this war is necessary as Western governments seek to foster negotiations. Any approach to negotiations that fails to understand the causes of the war is likely to encourage extended Russian aggression.
This war was not solely instigated by a fanatic. Rather Russia viewed Ukraine’s gradual incorporation into the West and the prospect of further NATO expansion as a direct threat to its security.
So, while an agreement for a post-war defense pact between NATO allies and Ukraine might encourage Ukraine to negotiate, it would likely discourage Russia from engaging in conversation. Without an honest analysis of the causes of this war, the West risks pushing Putin further from negotiations and prolonging this brutal conflict.
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I’d Buy That for a Dollar!
What a weekend! On Sunday morning Treasury Secretary Janet Yellen told CBS there would be no bailouts. Later that day the Fed declared Quantitative Easing to infinity and beyond.
What’s going on?
Quite simply: the Fed is willing to overpay for debt (again). They call it the Bank Term Funding Program (BTFP), and as far as one can tell, its dollar value is limitless. The term sheet reads:
Program: To provide liquidity to U.S. depository institutions, each Federal Reserve Bank would make advances to eligible borrowers, taking as collateral certain types of securities.
And who is eligible?
Any U.S. federally insured depository institution (including a bank, savings association, or credit union) or U.S. branch or agency of a foreign bank…
Basically everyone (i.e., not you or main street, just financial institutions) can take part in this legal counterfeiting operation.
So what’s being traded for newly created Federal Reserve notes?
Eligible collateral includes any collateral eligible for purchase by the Federal Reserve Banks in open market operations … provided that such collateral was owned by the borrower as of March 12, 2023.
Meaning: Practically any bank can exchange US Treasuries (or even Mortgage-backed securities should they have held any on their books) with the Federal Reserve.
This program will be offered for one year at no charge to banks, and of course with no recourse!
As explained:
Recourse: Advances made under the Program are made with recourse beyond the pledged collateral to the eligible borrower.
Now here’s the rub:
Collateral Valuation: The collateral valuation will be par value. Margin will be 100% of par value.
Therefore, if Wells Fargo or Bank of America own US debt that is trading at 50 cents on the dollar, they can trade it with the Fed who will pay $1. In theory, it’s only an unrealized and temporary loss because once the US debt comes due, it will be paid in full. So the Fed won’t suffer a loss, nor will the bank.
The Fed will purposely pay an amount above market value on debt held by banks. The banks would receive this newly created money and get rid of their unrealized losses. Afterwards, the banks will have to “do something” with this new money, such as buy more debt. We can only guess but whatever the banks do with the money, it will most certainly be highly lucrative for them, push asset prices up, and further erode whatever is left of the middle class. It will also offer a new way for banks to make even riskier bets that will land them in more trouble in the future.
It is theft, moral hazard, anti-capitalistic and even antagonistic to those forced to pay taxes and work for a living. But still more questions remain, specifically: How large is this program; are we talking a few billions or trillions of dollars?
On one extreme, this program serves as a confidence booster more than anything; it’s public messaging. Very few banks will accept the generous offer. It will provide public assurance that the Fed will insure deposits, it will keep banks from panic selling bonds at a loss, and quell any ideas of bank run.
If so, then the Fed has bought a little more time until the next panic sets in.
On the other extreme, come Monday, every bank in America will be lining up to receive free money from America’s central bank. The Fed would eventually expand its balance sheet by trillions of dollars more, and they’ll tell us that it would have been worse if it wasn’t for the Fed.
…as for the Fed’s commitment to reducing the balance sheet… we’ll know the answer to this soon enough! Few things are certain at the moment, but it sure is a good day to be a banker.
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Washington Miffed as China makes Peace
For those who have followed the background noise of US activities in the Middle East over the past year, since it was last seriously in the news following the disastrous execution by the Biden administration of the long overdue withdrawal from Afghanistan, they will recall a vague haze of reported drone strikes, arms sales, and Israeli assassinations; more recently, they will recall resistance to attempts to end the U.S. military roles in Syria and Yemen, the death of the Iran nuclear deal, and the blocking of earthquake relief.
China, by contrast, with no military presence in the Middle East at all, just quietly concluded talks between the Iranian and Saudi leadership that resulted in the normalizing of their diplomatic relations.
Quite the contrast.
And despite complaints by the hawks and Israel-firsters in the Democratic and Republican parties, this deal is good for multiple reasons. First, it will help end the wars in Yemen and Syria where Iran and Saudi Arabia have been among the chief backers of opposite sides of the two proxy conflicts. Together, they’ve gone on over twenty years and killed well over a million people.
Two: it signals that China, who buys most of the oil from the Gulf monarchies these days, is going to start more actively investing political capital in the region. The only party that can be trusted by all sides concerned, as Beijing is ideally situated to mediate invariably arising disputes. There are real costs involved, and it would be good to see someone other than the American taxpayer start footing these bills.
Naturally, Washington acts like anything that happens anywhere without its imprimatur constitutes a threat to national security – much like Ted Cruz recently embarrassed himself by claiming the same about the mere temporary docking of two small Iranian warships in Brazil.
Worth noting as an aside, their permission to dock came despite months of reported pressure by Washington to deny them port and after Lula had already been to Washington to meet with Biden.
Apart from knowing that somewhere at the State Department someone is being paid a six-figure salary to harass Brazilian officials for literal months about a pair of small Iranian vessels taking port in their ostensibly independent and sovereign country, everywhere everyone seems to be taking every opportunity to try to send Washington the message that they have no interest in yet another round of so-called “great power” competition.
A minor, potential downside to the deal being done between Riyadh and Tehran is that it may complicate efforts to normalize Saudi-Israeli relations. But here it should be noted that any potential deal to get that done already looks terrible from the point of view of the average American: Riyadh’s demands include formal American security guarantees, more weapons, and a nuclear program.
Realistically, given the power of the Israel lobby, Washington’s failed policy of wasting American lives and treasure in pursuit of Israeli policy priorities in the Middle East hardly looks likely to be seriously disturbed by China’s mediation of Riyadh and Tehran’s most recent spat.
If it is going to be disturbed by anything, it will be by the new Israeli government. But that is another story.
In short, China facilitating these talks between Iran and Saudi Arabia was a good thing to see. It will help bring peace and save lives.
Or, as State Department shill Jonathan Panikoff, writing for the Atlantic Council put it:
“It should be a warning to U.S. policymakers: Leave the Middle East and abandon ties with frustrating, even barbarous, but long-standing allies, and you’ll simply be leaving a vacuum for China to fill.”
Fill with what? Peace? To replace four decades of Washington’s war?
The horror.
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Jamaica's Uncertain Political and Economic Future
Lisa Hanna has indicated her desire to exit the political landscape, but this could turn out to be a major tragedy for Jamaicans. Although her tenure as Culture Minister in the previous PNP (People’s National Party) administration was controversial, Hanna has redeemed herself with a slew of captivating proposals published in Jamaican dailies.
Unlike her peers who pander to tribal constituents, Lisa Hanna is one of the few politicians trumpeting issues that people find relevant. In her articles, Hanna discusses complex issues in a simple manner to empower the average person. Recently, Hanna pointed out that complying with the know your customer (KYC) policy of banks can be quite taxing for clients who endure the hassle of providing proof of address, financial statements, references, and other documents. Such measures are consistent with anti-money laundering regulations, though they hurt the poor according to a 2012 World Bank report.
Despite the popularity of AML regulations, they fail to put a significant dent in money laundering and erect barriers for working-class people to participate in the financial market. Many self-employed people desire a business account; however, they are unregistered, indeed they can choose to register, but being unregistered should not prevent them from opening an account. Hanna and average Jamaicans find it disconcerting that ordinary people must comply with onerous regulations, yet financial companies can ignore red flags without penalties. Moreover, these policies are not always enforced because a colleague opened a bank account with relative ease due to banking connections.
The truth is that AML requirements are crafted by developed countries and imposed on Caribbean countries even if they are inapplicable in a regional context. But luckily, citizens in developed countries are not enslaved to such regulations, because some American institutions don't require financial statements or character references to open accounts. So, there is no reason to think that Jamaica can't adopt flexible options. We should find it hilarious that politicians in both parties like to protest neo-colonialism, but only a few like Lisa Hanna are willing to confront real oppression. On another note, Lisa Hanna is embracing free market economics rather than battling for protectionism.
Speaking in parliament Hanna informed the public that the national import substitution policy has only enriched a few by creating monopolies. Hanna instead recommends improving productivity and human capital to boost agricultural production. Hanna's arguments are corroborated by a 2017 paper in the Review of Economic Perspectives that observes a link between trade openness and economic growth. The savings derived from imports are immeasurable so only fools will purchase inferior products and expensive products because they were manufactured in Jamaica.
Build Jamaica, Buy Jamaica is a nonsensical slogan and it's great that Hanna prefers economic reasoning to ignorant nationalism. Leader of the Opposition Mark Golding and Prime Minister Andrew Holness can continue to boast that they are committed to the poor, however, Hanna appreciates that entrepreneurs and innovators will propel the country into the future rather than poor people. Instead of loving the poor, she prefers to equip them with the tools to compete on a global scale. Undoubtedly, Lisa Hanna is the free-market champion Jamaica needs to be a powerhouse and she must reconsider retiring.
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