The U.S. Dollar has dropped to ninth place in the strongest dollars in the world, behind the likes of the Kuwaiti Dinar, Bahraini Dinar, Omani Rial, and some of the currencies of large countries like the Euro and the Pound Sterling. Our debt to GDP ratio is the seventh highest in the world. The U. S. has more debt than the next five largest debtors combined (Japan, China, United Kingdom, Italy, and France).

Is anyone, yes, anyone worried about the consequences?

Obviously not! The U.S. recently finished an election for president, the entire House of Representatives, and one-third of the Senate.  Not one candidate for federal office in 2020 made serious mention of our $28 trillion national debt. $24 trillion or 84% of our $28 trillion national debt has been created since the presidency of George W. Bush. Part I charts out the debt by president.

On top of the current debt, President-elect Biden is proposing $11 trillion in new spending. Every president has an excuse for massive debt. Trump had the pandemic; Obama the 2009 financial crisis; George W. Bush had 9/11. Biden just wants to spend so history remembers him as restructuring the country. Might history remember Biden as the president who destroyed the Dollar and bankrupted the nation?

What’s Modern Monetary Theory about?

MMT asserts when a nation has a sovereign currency, debt can be accumulated since it is owed to itself.  Money can be simply credited to another’s account (printing money in old-fashioned terms) without having to sell bonds that require interest payments. This magic process involves keystrokes on a computer. New digits are created electronically on a balance sheet allowing government to spend whatever it needs.

The foundation for such MMT magic is the belief that government creates all wealth by spending money into existence. Government spends to incentivize citizens to want more of what government wants us to have. And by commanding that all taxes be paid in the currency controlled by the government, everyone needs to earn money to pay taxes for the government services they want.

MMT economists view money creation as a valuable economic tool that does not automatically devalue currency when used to address an underperforming economy. By creating new money, jobs are created, and productivity increases. According to Federal Reserve chairs, “…government can print all the money it needs, and nothing bad happens.” Simply, MMT economists posit that when an economy has unemployment, government is not spending enough money and can spend until full employment is reached.

Under MMT, inflation is the primary risk of spending more than needed to reach full employment. When inflation occurs, MMT recognizes it will need to raise taxes and interest rates to control inflation, yet proponents ignore the implications of such recognition. However, as long as the Federal Reserve keeps interest rates near zero, there is not a need to repay the debt since no interest is due. But is there a point where the accumulated debt is so great that it cannot reasonably be serviced if interest rates rise?

Our Constitution does not authorize free money by keystroke

While our Constitution does not mandate any specific economic system, it does specify how government acquires, values, and spends our money. Politicians should understand how MMT squares with our constitutional structure before promising unlimited free money without increasing taxes or interest rates.

Our constitution starts with the words “We the People of the United States”  have created a government with certain limited powers. As to currency, our government is authorized to coin money, and regulate its value and relation to foreign currency. Our government can borrow money on the credit of the United States; however, money cannot be drawn from the treasury unless Appropriations are made by law and all expenditures accounted for. These limits impose constitutional accountability by limiting government action.

Since the currency of the United States is only as valuable as the credit of the government supporting it, there is no provision allowing government to magically create an unlimited money supply by a keystroke, and then by another keystroke use the magic money to pay bills or debt.

In the world of finance, MMT resembles a money-laundering scheme, i.e., concealing the origins of money, then passing it through a complex sequence of transfers to make the money appear legitimate. By illustration, the Federal Reserve creates money from” thin air” and transfers it to the Federal government through a series of transactions. It works like this—the Social Security Trust Fund collects more real money in taxes than it pays out. Social Security uses its excess money to purchase U.S. Treasuries from the federal government. This transaction immediately gives the federal government real money to spend. The Federal Reserve then buys the U.S. Treasuries from Social Security using the money it created out of thin air. The only real money is collected by Social Security and it goes to the Federal government, which immediately spends it. The risk of this money laundering scheme is that Social Security, its pensioners, and the Fed hold promises of repayment based on the creditworthiness of the U.S. which is constantly printing more money out of thin air and laundering it through the system.

As more dollars are made out of thin air, they become less valuable unless needed as a source of exchange in the United States. Since the Constitution contemplates international commerce and a valuable currency supported by the credit of its government, MMT is far outside the Constitutional framework that requires a strong currency for trading with the nations of the world. In fact, MMT will force the U.S. to become an insular society to ensure its currency remains valuable to citizens.

It is easy to see why Progressives are so enthralled with MMT. They believe since government creates all wealth, it has the right to tax back all wealth, after all, it’s the federal government’s money. Citizens merely exist to do what the government wants them to do. Citizens merely buy—and now are give—the services government wants them to buy or have. Such a system could be termed communism. Unfortunately, it is not communism; it is raw Democracy. People, through their representatives, just vote themselves money.

Franklin was right, we are heralding the end of the Republic.

The post I’ll Take My Share of the Money, Now! MMT Part II appeared first on The Libertarian Republic.

Thomas Catenacci on March 18, 2021

Senate Banking Committee Republicans led by Ranking Member Pat Toomey urged Federal Reserve Chair Jerome Powell not to pursue environmental policies in a letter Thursday.

Toomey and the other Republican committee members warned that the Federal Reserve potentially using regulatory authority to push an environmental agenda would be beyond its scope of authority, according to the letter sent Thursday. The senators noted several recent actions taken by the Federal Reserve that suggest the U.S. central bank could pursue climate policies.

“We question both the purpose and efficacy of climate-related banking regulation and scenario analysis, especially because the Federal Reserve lacks jurisdiction over and expertise in environmental matters,” the Republican senators wrote.

The Banking Committee Republicans referenced the Federal Reserve’s decision to include climate change in its recent financial stability report for the first time ever and its decision to join the Network of Central Banks and Supervisors for Greening the Financial System in December. The Federal Reserve also recently createdthe “Supervision Climate Committee.”

Federal Reserve Gov. Lael Brainard said last month that the central bank may begin subjecting banks to climate analysis, the letter said.

“This effort is not grounded in science or economics, but is instead a self-fulfilling prophesy: claim there are financial risks with energy exploration and other disfavored investments then use the levers of government—via the unelected bureaucracy—to ban or limit those activities,” the senators continued.

The senators added that policy-making based on future climate projections is dangerous and could hurt the economy.

Republicans’ letter preceded a Banking Committee hearing on protecting the financial system from climate change Thursday. The hearing is the first-ever hosted by the committee on the effects of climate change on the economy.

Democratic Ohio Sen. Sherrod Brown, who chairs the committee, said during his opening remarks that climate policies pursued by financial regulators could help, not hurt, the economy. However, Toomey said financial regulators taking up such policies could be cover for attacking “disfavored” businesses.

“The real objective here is to punish politically disfavored industries,” Toomey said during his opening remarks at the hearing.

“By straying beyond their mandates into the climate arena, financial regulators will pressure banks not to serve politically disfavored industries such as fossil fuel companies,” Toomey said. “Who’s next? Gun manufacturers? Conservative media? Religiously-minded businesses like Hobby Lobby?”

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Jason Hopkins 

The New York Stock Exchange (NYSE) paused trading Monday after stocks plummeted more than 10% over coronavirus concerns, triggering a 15-minute pause in trading.

The coronavirus pandemic is still wreaking havoc on the stock market, despite major action by the Federal Reserve to improve investor confidence. The S&P 500 and Nasdaq fell about 9%, and the Dow fell by as much as 2,100 points, or 9%, triggering markets to temporarily close Monday morning.

The massive sell-off came even after the Federal Reserve, in an attempt to boost the U.S. economy, slashed interest rates to nearly zero on Sunday. The Federal Reserve had also announced it would purchase $700 billion worth of Treasury and mortgage-backed securities via quantitive easing, an action that was taken during the Great Recession.

However, stocks opened Monday morning in a free fall, unable to get past concerns over the COVID-19 pandemic.

“Unfortunately this is the new reality. This report is a harbinger of what is to come,” economic analysts with the investment bank Jefferies in New York wrote Monday, according to The New York Times.

Coronavirus deaths worldwide have surpassed 6,500 according to an estimate from Johns Hopkins University. As for the U.S, the number of cases continues to surge. There are at least 3,602 individuals in the country who have tested positive for the disease as of Monday morning, and at least 66 people have died from the virus.

While the Federal Reserve is doing what it can to mitigate the economic impact, experts have noted there’s only so much that can be done given the nature of a viral outbreak.

“They can only make sure the fallout and economic impact are softened,” Yousef Abbasi, a global market strategist at INTL FCStone, said of the situation to TheNYT.

This article is republished with permission from the Daily Caller News Foundation.

Image: Global News YouTube

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On the one hand, Trump continues to insist that the US economy is “sooo strong.” He often talks up the economy in hyperbolic terms. He’s gone as far as to call it “the greatest economy in the history of our country.”

On the other hand, the president continues to call for and get the kind of Keynesian monetary and fiscal stimulus that one would expect to see in the depths of a deep recession.

Monetary Stimulus

Trump has badgered Federal Reserve Chairman Jerome Powell for months, demanding interest rate cuts. Even after the Fed dropped rates 25 basis points in July, Trump took to Twitter to criticize the central bank, insisting it wasn’t going far enough.

“What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle…”

Just a couple of days before disparaging the Fed chair’s golf game, Trump called for a 100 basis point interest rate cut.

To put Trump’s demand into perspective, a 100 basis point cut would take the interest rate down to 1 percent. That would equal the lowest level Alan Greenspan pushed interest rates down to in 2003 during the depths of the recession that followed the popping of the dot-com bubble and the 9/11 terror attacks.

In fact, the Trump economy has already benefited tremendously from easy monetary policy. Although the Federal Reserve began to normalize rates in December 2015 after holding them at zero for nearly a decade, it didn’t get very far. The central bank nudged rates up four times in 2018. But in December of that year, the stock market crashed, and the Fed reversed course after its December hike. First, it gave us the “Powell Pause,” followed by a rate cut in July. The Fed’s march toward “normal” got us to a paltry 2.5 percent.

That’s not normal.

In contrast, after Greenspan dropped rates to 1 percent during the post-dot-com bubble recession, the Fed pushed rates up to 5.25 percent before the ensuing housing bubble popped in 2007.

Spending Out the Wazoo

Fiscal stimulus in the form of government deficit spending has also helped prop up the economy. In a nutshell, the federal government has spent money out the wazoo since Trump took office.

To date, the federal government has spent over $3.7 trillion in fiscal 2019, according to the latest Treasury Department report. Year-over-year spending growth is at a nearly nine-year high. Uncle Sam spent $371 billion in July alone. That was 23 percent more than the government spent in July 2018.

With two months to go, the fiscal 2019 budget deficit has already topped the shortfall for all of 2018. And the 2018 deficit came in as the largest in six years. Ryan McMaken parsed out the numbers in a recent article published by the Mises Wire. The last time the deficit was this high was in fiscal 2012 when the budget shortfall reached nearly $1.1 trillion. In 2009, at the height of the Great Recession-stimulus-panic, the deficit reached $1.4 trillion.

Deficits typically shrink significantly during a post-recession recovery and then spike during the subsequent downturn. As McMaken notes, after the 1990-91 recession, deficits generally got smaller before growing again in the wake of the dot-com bust. Deficits then shrank during the short expansion from 2002 to 2007. During the first part of the post-Great Recession expansion, deficits shrank again. But since late 2015, deficits have only gotten larger and are quickly heading toward some of the largest non-recession deficits we’ve ever seen.

The 2019 deficit will likely eclipse $1 trillion. This is a recession-like deficit even as the economy is supposedly booming.

What Does It All Mean?

In simple terms, the “great” Trump economy is being propped up by extraordinary stimulus—both monetary and fiscal. It’s the kind of stimulus you’d expect during a steep economic downturn. And the president wants more of it.

This reveals the incoherence of his economic messaging. Why do you need extraordinary stimulus if you have the best economy in the history of forever? Why do you need interest rates set at the level they were during the recession that followed the popping dot-com bubble?

The reality is that the Federal Reserve’s easy-money policies have driven economic growth and asset prices since the 2008 financial crisis. It drove economic growth and the surge in the stock markets during the later years of the Obama administration, and it continued to drive that growth after Trump took office.

Ironically, the president accurately called the stock market a “big, fat, ugly bubble” during the 2016 campaign. After he took up residence in the Oval Office, he branded the bubble with a big Trump “T” and adopted it as his own.

This explains why Trump is so desperate for more interest rate cuts. He knows the bubble economy can only keep limping along with more stimulus. And he needs the economy to keep limping along until after the 2020 election.

Tax Cuts and Deficit Spending

This also explains why Trump has suddenly started talking about tax cuts. And there is no mention of spending cuts. In fact, Trump recently signed a bipartisan budget deal that will increase discretionary spending from $1.32 trillion in the current fiscal year to $1.37 trillion in fiscal 2020 and then raise it again to $1.375 trillion the year after that. The deal will allow for an increase in both domestic and military spending.

Tax cuts with no spending cuts mean more deficit spending. This is pure Keynesian fiscal stimulus. Again, why is this necessary if the economy is “great”?

The fact is the economy isn’t great. It hasn’t been great for years. It’s a bubble economy built on debt facilitated by easy-money central banking.

The US economy is heading for a recession. The recent recession chatter isn’t some kind of evil media plot to make Trump look bad. A recession has been looming for a long time. Trump has managed to delay the inevitable thanks to tax cuts and recession-like deficit spending. Jerome Powell lent him a helping hand with a little monetary stimulus when the Fed did a 180 on interest rate normalization earlier this year and cut rates in July. But you can only kick the can down the road for so long until you run out of road.

The economics of the Fed-induced boom-bust cycle guarantee a recession. You can’t really blame Trump, but politics being what they are, he will get the blame. And that’s mostly on him. After all, he took credit for the bubble. That means he gets the blame when it pops.

The president will undoubtedly continue to maintain this bizarre balancing act, but a fall isn’t far away.

This article was originally published on FEE.org. Read the original article.

The post Trump’s Rhetoric Reveals He Fears a Recession Is Coming. He’s Right to Worry appeared first on The Libertarian Republic.

The unmatched power and recently strong economic growth of the United States masks a dangerous hazard that could lead to our collective downfall, the panel agreed. And if left unchecked, debt could threaten the prosperity of future generations.

It’s a bipartisan issue, the panel pointed out. Americans agree, in overwhelming numbers—as in 94% of Republicans and 92% of Democrats, according to recent polling by the Peter G. Peterson Foundation—that future generations will be better off if the national debt is managed.

Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, said at the event that national debt crowds out investment as investors purchase government bonds rather than buying private assets or otherwise investing in the private sector.

Over time, he argued, that could result in “slower wage growth, slower income growth, and a smaller overall economy.”

Deficit spending tends to promote consumption, whereas the private investment Goldwein believes is crowded out otherwise would go toward elements of economic growth, such as “buildings, equipment, tools, software, and education.”

Every bond issued by government might mean a factory that doesn’t open, a building that doesn’t get built, a worker who doesn’t get trained, Goldwein said.

Meanwhile, deficit spending most often feeds less productive parts of the economy, such as public housing, college funding, and entitlement-based consumption.

The debt also exerts pressure on the U.S. government.

Goldwein said spending on interest on the debt will exceed Medicaid within a year. In just five years, it will overtake all defense spending, creating a potential threat to national security. In 30 years, it is projected to be the single-largest federal expenditure.

Monetary institutions also feel the pressure: As Romina Boccia of The Heritage Foundation said, fiscal irresponsibility encourages loose and corrupt policy from the Federal Reserve and drives it out of independence.

Already, Fed Chair Jerome Powell has made Federal Reserve “crisis policies” permanent, choosing not to sell off the glut of assets it purchased during the recession.

Although the Tax Cuts and Jobs Act of 2017 propelled strong economic growth and decades-low unemployment rates, current economic growth does not mean the debt is irrelevant.

High debt causes an erosion of economic stability and government’s ability to act in times of crises, until, as Goldwein said, “like the frog in boiling water, we may not notice it until it’s too late.”

What does “too late” look like? A spike in interest rates or another kind of shock to the bond market could likely cause a crisis to top the Great Recession, according to Goldwein.

As David Ditch of The Heritage Foundation notes, the “looming bankruptcy” of Social Security and Medicare could require the government to drastically increase deficits over a short period, possibly precipitating such a crisis.

These programs are popular, but, as Ditch said, a typical American makes $50,000 annually, “getting up in the morning, going to work, putting in [a] 9-to-5 grind, getting up the next morning and doing it again for an entire year.”

Entitlement spending and other high expenditures are pushing deficits to $1 trillion, which would be “20 million people’s worth of effort” added to the debt: a high and dangerous human cost that politicians rarely acknowledge and voters rarely act on.

To defend against the risks of high national debt, the country must be protected from the federal government’s proclivity for unfunded spending.

Ditch likened the U.S. budget process to an “all you can eat buffet” of deficit spending and argues that the government needs a proverbial diet.

Boccia highlighted fiscal restraints like those in Switzerland, Sweden, and Germany as examples of how such a “diet” might work.

The restraints work, she said, because they stick to it and allow flexibility to deal with crises, and they could work here too if Congress is willing to abide by their terms, the panelists said.

Unless significant entitlement reforms are implemented now, before America’s fiscal position becomes too treacherous, the only option available to lawmakers could be to drastically increase taxes, cut government services, or both, the panelists said. More spending now means higher taxes and a poorer quality of life for future Americans.

It is up to all of us to save the country from its Achilles heel. If America cannot stop its debt from destroying its economy, then it will be condemned to the same fate as Achilles at Plutus: remembered only for its timely and deserved demise.

COMMENTARY BY

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You simply cannot grasp the economic big-picture without understanding how Federal Reserve monetary policy drives the boom-bust cycle. The effects of all other government policy work within the Fed’s monetary framework. Money-printing and interest rate manipulations fuel booms and the inevitable attempt to return to “normalcy” precipitates busts.

In simplest terms, easy money blows up bubbles. Bubbles pop and set off a crisis. Rinse. Wash. Repeat.

In practice, when the economy slows or enters into a recession, central banks like the Federal Reserve drive interest rates down and launch quantitative easing (QE) programs to “stimulate” the economy.

Low interest rates encourage borrowing and spending. The flood of cheap money suddenly available allows consumers to consume more – thus the stimulus. It also incentivizes corporations and government entities to borrow and spend. Coupled with quantitative easing, the central bank can pump billions of dollars of new money into the economy through this loose monetary policy.

In effect, QE is a fancy term for printing lots of money. The Fed doesn’t literally have a printing press in the basement of the Eccles Building running off dollar bills, but it generates the same practical effect. The Federal Reserve digitally creates money out of thin air and uses the new dollars to buy securities and government bonds, thereby putting “cash” directly into circulation. QE not only boosts the amount of money in the economy; it also has a secondary function. As the Federal Reserve buys U.S. Treasury bonds, it monetizes government debt. The central bank can also buy financial instruments like mortgage-backed securities as it did during QE1 in 2008. This effectively serves as a bank bailout. Big banks get to remove these worthless assets from their balance sheets and shift them to the Fed’s. Theoretically, this makes the banks more solvent and encourages them to lend more money to ease the credit crunch that occurs when banks become financially shaky.

This monetary policy results in a temporary boom. All of that new money has to go somewhere. It could result in rising consumer prices (inflation), but generally, it pumps up the price of assets such as real estate and stock markets, creating a fake wealth effect. People feel wealthier because they see the value of their assets rapidly increasing. With plenty of debt-driven spending and rapidly increasing asset prices, the economy grows, sometimes at a staggeringly fast rate.

This process also creates inequality. The first receivers this new money – generally bankers and politically-connected individuals and institutions – receive the direct benefit from the newly-minted dollars. Their decisions on where to spend the money create artificially high demand in the chosen industries or asset classes. Think the housing market in the years leading up to ’08 or tech companies during the dot-com boom. This amplifies distortions in the capital structure. The first receivers also get to spend the new money before the inflationary effects take hold and prices rise. Those who receive the money later on down the line, say through pay raises, don’t get the benefits of the first users. Price inflation eats up their gains.

Meanwhile, surging economic growth, shrinking unemployment and rising stock markets driven by money-creation give the illusion of a healthy economy, but the monetary policy hides the economic rot at the foundation.

In order to sustain an economic expansion, you need capital goods — factories, machines, natural resources. Capital goods are produced through savings and investment. When central banks juice consumption without the requisite underlying capital structure, it will eventually become impossible to maintain. You can print all the dollars you want, but you can’t print stuff. At some point, the credit-driven expansion will outstrip the available stock of capital. At that point, the house of cards begins to collapse.

Imagine you plan to build a giant brick wall. With interest rates low and credit readily available, you borrow all the money you need to complete the job. But two-thirds of the way through, a brick shortage develops. You may have plenty of money, but you’ve got no bricks. You can’t finish your project.

This scenario a simplified picture of what happens in the economy during a Fed-fueled economic expansion. Flush with cash, investors begin all kinds of projects they will never be able to complete. Eventually, the malinvestments become apparent and the boom teeters and then collapses into a bust.

Of course, the Fed helps this process along as well.

Once the apparent recovery takes hold, the Fed tightens its monetary policy. It ends QE programs and begins to nudge interest rates back up. When the recovery appears to be in full swing, the central bank may even shift to quantitative tightening — shrinking its balance sheet. During the boom, governments, consumers and companies pile up enormous amounts of debt. Rising interest rates increase the cost of servicing that debt. They also discourage new borrowing. Easy money dries up. This speeds up the onset of the next recession and the cycle repeats itself.

To understand this, we can look back at the past three boom-bust cycles.

In October 1987, the stock markets crashed. The following year, inflation rose above 5 percent, prompting then-Fed Chairman Alan Greenspan to raise interest rates to a peak of 9.75 percent in late 1988.* This led to a mild recession in the early 1990s. Greenspan pushed rated down to a low of 3 percent in late August 1992 then began to slowly nudge them upward in 1994. But the Fed never got rates anywhere near the pre-recession level. With the economy plugging along, rates peaked at 6 percent in February 1995.  From there, Greenspan held rates in the 5 percent range through 2001.

As the New York Times put it, “Greenspan makes a winning bet in the mid-1990s, resisting pressure to raise interest rates as unemployment declines. He argues that increased productivity, including the fruits of the computer revolution, have increased the pace of sustainable growth. Indeed, the Fed finds itself debating whether there is such a thing as not enough inflation, and a new Fed governor named Janet L. Yellen plays an important role in convincing Mr. Greenspan that a little inflation helped to lubricate economic growth.”

In December 1996, the dot-com boom was in full swing. Greenspan actually warned of “irrational exuberance” in the markets even as he fed it with artificially low – for the time – interest rates.

Again from the NYT.

“The Fed decides that popping bubbles is not part of its job description, leading critics to charge that Mr. Greenspan’s monetary policies spawned an era of booms and busts, culminating in the 2008 financial crisis.”

And then the dot-com bubble popped in the spring of 2001.

In response, Greenspan slashed rates, eventually dropping them all the way to 1 percent in June 2003. This set the stage for the 2008 financial crisis.

The Fed began nudging rates higher in the summer of 2004. By February 2005, we were already seeing ripples of trouble in the over-inflated housing market, but the Federal Reserve continued moving rates up. Of course, mortgage rates moved upward along with the federal funds rate. More homeowners began to default. In late 2007, the bottom fell out and in 2008, the entire system imploded, kicking off the Great Recession.

By December 2008, Federal Reserve Chairman Ben Bernanke had dropped rates to .25 percent – effectively zero – and he launched what would become three rounds of quantitative easing. The Fed held rates at that historically low level for seven years.

And now we find ourselves in the midst of a news bubble. The economy is loaded up with government, corporate and consumer debt. The stock markets have been juiced to record levels. We also see other asset bubbles in high-yield bonds, housing (again), and commercial real estate, along with a lot of other assets you don’t hear as much about – such as art and comic books.

Investment strategist and author Peter Schiff says the current bubble economy has grown far bigger than it was in the months leading up to the 2008 crash.

“We have had artificially low interest rates for an unprecedented number of years at an unprecedented low rate. So, the mistakes that have been made during this time period dwarf the mistakes that have ever been made in any bubble in the past because the bubble is so much bigger.”

Janet Yellen nudged rates up for the first time in 2015, followed up with one hike in 2016. It wasn’t until 2017 that the central bank began to normalize in earnest, hiking rates seven times over the next two years. After the last hike in December 2018, the Fed funds rate stood at 2.5 percent. The Federal Reserve also began to unwind quantitative easing in 2018 by shedding assets from its balance sheet.

Last fall, the impact of rate hikes and quantitative tightening began to ripple through the economy. The stock market tanked. It was the first sign that the cycle was about to turn from boom to bust. Current Federal Reserve Chair Jerome Powell rode to the rescue, signaling that interest rate normalization was over and announcing the end of quantitative tightening. This monetary policy 180 has stabilized the markets for the time being. But it is only a matter of time before the bubbles pop and the economy moves into the downward spiral.

Not only is the existence of a central bank-fueled business cycle rooted in sound economic theory, we see the impact of Federal Reserve monetary policy in the ups and downs of the business cycle as it has played out through time.

The bottom line is that we can’t “fix” the economy by electing Republicans or Democrats. We can’t put the country on sound economic footing by tweaking this or that policy in Washington D.C. The only way to put the economy on a sound footing is to deal with the root cause of the problem — the Federal Reserve and its constant meddling. As long as the Fed controls the monetary system, there will never be a “free market” in America. The central bankers always have their fingers on the economic scales.

*Interest rate data can be found HERE.

The post How the Fed Wrecks the Economy appeared first on The Libertarian Republic.

Just before the most recent Federal Open Market Committee meeting, Trump took to Twitter to push the Fed to cut interest rates.

This wasn’t the first time Trump urged the Fed to push interest rates down. A month earlier, Trump directed pretty much the same message toward Federal Reserve Chair Jerome Powell. During an interview, Trump complained about the Fed’s 2018 interest rate increases, saying “they really slowed us down.” Trump emphasized that he wants stimulus and called on the Fed to resume Obama-era quantitative easing (QE).

Well, I personally think the Fed should drop rates. I think they really slowed us down. There’s no inflation. I would say in terms of quantitative tightening, it should actually now be quantitative easing. Very little if any inflation. And I think they should drop rates, and they should get rid of quantitative tightening. You would see a rocket ship. Despite that, we’re doing very well.

Trump also took aim at Powell and the central bank last fall as the stock market went into free-fall. He said, “The problem I have is with the Fed. The Fed is going wild. They’re raising interest rates and it’s ridiculous.” He also said the Fed is “going loco.” The next day, the president doubled down, saying, “I’m paying interest at a high rate because of our Fed. And I’d like our Fed not to be so aggressive because I think they’re making a big mistake.”

These aren’t the comments of a man who opposes central bank manipulations of the economy. These are the comments of a man who wants the central bank to manipulate the economy in a way that benefits him politically.

Ironically, the president’s call on the Federal Reserve to cut rates and resume quantitative easing (in effect, print money) sends extremely mixed messages. On the one hand, the president says the United States has the best economy in the history of forever. But if that’s the case, why would the Fed need to cut rates?

Conventional wisdom dictates that central banks should normalize rates in a strong economy. They cut rates during a recession—as the Fed did in the years after the 2008 financial crisis—to “stimulate” the economy. Once the economy recovers, the central bank gradually brings rates back to “normal,” as mainstream monetary policy prescribes.

Unless Trump wants to argue that a 2.5 percent interest rate is normal—which, of course, is absurd—his call for rate cuts in a “booming” economy doesn’t make sense. He can’t have it both ways. Either the economy is awesome-blossom, or it needs the Fed to intervene.

The Fed’s Monetary Heroin

In the wake of the Great Recession, the Federal Reserve effectively lowered interest rates to zero in 2008 and kept them there for seven years. In 2015, the central bank boosted rates for the first time and followed up with one hike in 2016. It wasn’t until 2017 that the central bank began to normalize in earnest, hiking rates seven times over the next two years. The Fed initiated its last rate increase in December of last year. The Federal Reserve also began to unwind quantitative easing in 2018 by shedding assets from its balance sheet. (For more on quantitative easing and tightening, click here.)

But last fall, the impact of rate hikes and quantitative tightening began to ripple through the economy. The stock market tanked.

In effect, the Federal Reserve spent nearly a decade manufacturing an economic recovery out of piles of debt and by pumping up asset bubbles like the stock market. It accomplished this by creating trillions of dollars in new money out of thin air and pumping it into the economy.

Rising interest rates don’t bode well during a central bank-manufactured boom built on debt. The Fed’s pivot toward tighter monetary policy pricked the bubble. Thus the chaos in the markets during the fourth quarter of 2018.

When the stock market started going down last fall, the Fed did a monetary policy 180. It announced a pause in rate hikes and an end to balance sheet reduction. That stabilized the markets—at least for the time being.

Here’s an analogy that illustrates exactly what the Fed did.

Think of artificially low interest rates and money-printing like heroin. The Fed injects the drug into the economy and makes it high. The partiers have a blast for a while. The economy booms. Asset prices climb. But eventually, everybody realizes the heroin will cause an overdose. At that point, the Fed starts to take the drug away.

We all know what happens when you take a drug away from an addict. He goes into withdrawal. The economy crashes. The bubbles burst. The boom turns into a bust. When things get really bad, the Fed rushes in with more heroin, and the cycle repeats.

We saw this with the dot-com boom-bust in the late ’90s and early 2000s and the real estate boom-bust that followed. Now the economy is in the midst of boom-bust 3.0.

Trump Wants More of the Drug

Trump seemed to understand this when he was on the campaign trail. He accurately called the stock market a “big, fat, ugly bubble.” He questioned the legitimacy of the recovery. But now the president owns the bubble. He branded the “booming” economy with a big Trump “T.” And that means Trump has a problem. If the next crash happens before the 2020 election, it will likely doom his reelection hopes.

This explains Trump’s criticism of the Fed. He wants the kind of monetary stimulus Obama got during the Great Recession in order to keep the bubble inflated until after the election. He needs the central bank to pump more heroin into the addict to keep him going—just a little while longer.

This isn’t about Trump opposing the Fed. This is about Trump using the central bank for political purposes, pretty much like every other politician.

And make no mistake—the longer the economy stays high, the harder it will crash.

This article was originally published on FEE.org. Read the original article.

The post Heed Candidate Trump, Not President Trump, on Fed Matters appeared first on The Libertarian Republic.

Cain, 73, was in the White House on Wednesday, according to people connected to the issue. Two seats on the Fed Board are vacant, but the possibility of nominating Cain raises questions of a Senate confirmation hearing centered on the sexual harassment and infidelity accusations that ended his presidential campaign.

The people discussing the matter declined to be identified because Trump hasn’t reached a decision. Cain was also considered for other top government posts.The president’s top economic adviser, Larry Kudlow, said last week that the White House wants Fed governors “who understand that you can have strong economic growth without higher inflation.”

Cain had a long corporate career and has had experience with the Federal Reserve System. From 1992 to 1996, he served as a director of the Federal Reserve Bank of Kansas City, as well as deputy chairman and then chairman.

President Trump had discussed firing Federal Reserve Chairman Jerome Powell over continually raising interest rates. The President can directly effect monetary policy through whom he picks as a chairman of the Federal Reserve, although whoever the president picks must be confirmed by the Senate.

America’s central bankers ended their quarterly meeting on Wednesday with a signal that they were pausing rate hikes, and expressed flexibility to alter their balance sheet runoff plans, which Trump has criticized. The policy rate was left unchanged.

At his press conference following the meeting, Powell said the American economy will grow at a “solid pace’’ this year, though he cited “cross-currents and conflicting signals’’ about the outlook as reasons for caution.

Mr. Cain built his 2012 presidential campaign around policy proposals like his “9-9-9” tax plan. That would have replaced the U.S. tax system with flat 9 percent business and income taxes and a 9 percent national sales tax.

Kudlow said last week that the Fed board has “a couple open seats,” suggesting Trump won’t renominate economist Marvin Goodfriend. Trump’s other previous nominee, former Fed economist Nellie Liang, removed herself from consideration earlier this month.

Goodfriend didn’t appear on a list of dozens of renominations the White House submitted to the Senate earlier this month.

The post Trump Considering Herman Cain for Federal Reserve Board Seat appeared first on The Libertarian Republic.

A bill introduced in the West Virginia House would repeal all taxes on gold and silver specie. Passage would pave the way for West Virginians to use gold and silver in everyday transactions, a foundational step for the people to undermine the Federal Reserve’s monopoly on money.

Del. Pat McGeehan (R-Chester) introduced House Bill 2684 (HB2684) on Jan. 25. The legislation would eliminate sales taxes, personal property taxes, and personal and corporate income taxes on gold and silver specie. HB2684 defines “specie” as coin having gold or silver content, or refined gold or silver bullion which is coined, stamped or imprinted with its weight and purity and valued primarily based on its metal content and not its form.

IN PRACTICE

With the passage of HB2684, West Virginia would treat gold and silver specie as money instead of a commodity. As Sound Money Defense League Policy Director Jp Cortez testified during a committee hearing on a similar bill in Wyoming last year, charging taxes on money itself is beyond the pale.

“In effect, states that collect taxes on purchases of precious metals are inherently saying gold and silver are not money at all.”

Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what taxes on gold and silver bullion do. By removing the taxes on the exchange of gold and silver, West Virginia would treat specie as money instead of a commodity. This represents a step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.

Ron Paul produced a video urging the Wyoming governor to sign its legislation into law last year. He noted that things move agonizingly slow in Washington D.C. Passing bills like this at the state level are an important step toward real monetary reform.

“It’s just to me sad that we are so far removed from the Constitution. But a little bit here and a little bit there, there is going to be a revolution in monetary policy.”

Paul emphasized that monetary reform is an important step toward reducing the power of the federal government.

“Believe me, the size and scope and interference of government would change a whole lot if we could rein in the monetary system, rein in the Federal Reserve and rein in this spending.”

Paul also offered testimony in support an Arizona bill that repealed capital gains taxes on gold and silver in that state.

“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” he said. “Paper is not money, it’s fraud,” he continued.

Passage of HB2684 in West Virginia would take an important first step toward currency competition. Eliminating taxes removes a barrier from purchasing gold and silver and using it in everyday transactions. Taxes on gold and silver add extra costs to every transaction involving the metals. This discourages their use in the marketplace. If sound money gains a foothold in the marketplace against Federal Reserve notes, the people would be able to choose the time-tested stability of gold and silver over the central bank’s rapidly-depreciating paper currency. The freedom of choice expanded by HB2684 would help West Virginians to secure the purchasing power of their money.

BACKGROUND INFORMATION

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” States have simply ignored this constitutional provision for years. It’s impossible for a state to return to a constitutional sound money system when it taxes gold and silver as a commodity.

HB2684 would take a step toward establishing gold and silver as legal tender in the state and that constitutional requirement, ignored for decades in every state. This sets the stage to undermine the monopoly of the Federal Reserve by introducing competition into the monetary system.

Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it could create a “reverse Gresham’s effect,” drive out bad money, effectively nullify the Federal Reserve, and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.

WHAT’S NEXT

HB2684 was referred to the House Finance Committee where it must pass by a majority vote before moving forward in the legislative process.

Mike Maharrey

Michael Maharrey is the Communications Director for the Tenth Amendment Center. He proudly resides in the original home of the Principles of ’98 – Kentucky. See his blog archive here and his article archive here. He is the author of the book, Our Last Hope: Rediscovering the Lost Path to Liberty. You can visit his personal website at MichaelMaharrey.com and like him on Facebook HERE

The post West Virginia Bill Would Treat Gold and Silver as Money; Foundation to Undermine Federal Reserve appeared first on The Libertarian Republic.

April 7, 2015

Government Agencies Are Out of Control

When George Washington became President, his cabinet consisted of only an Attorney General and the Secretaries of State, War and Treasury. Needless to say, in the two centuries since then, government bureaucracy has gotten completely out of control, and it has become nearly impossible to keep track of all of the country’s departments and agencies. While there are entire departments that should also be discarded, here are 10 agencies which we could easily do without. Because there are so many which are ineffective and intrusive, this is certainly not an exhaustive list.

1. National Security Agency

Despite only recently becoming known to most Americans, the NSA has been around since 1952 when it was created by President Truman. Perhaps the US governments’ most Orwellian agency, it has many times found itself embroiled in controversy, whether for spying on leaders who were in opposition to the Vietnam war or in 2013 when Edward Snowden revealed that the NSA had been collecting the phone records of billions of people.

2. Food and Drug Administration

The FDA is given the surreal power of regulating what Americans may eat, drink and medicate themselves with. This creates an environment where citizens are told that they are in fact not the sole deciders of what goes into their own bodies. Given the inefficiency in bureaucracy, perhaps the most significant failure of the FDA is that it can for years prevent certain drugs from coming to market, all while some desperate patients are willing to take the necessary risks on experimental medicines.

3. Environmental Protection Agency

The EPA has gone from a small and seemingly necessary regulatory agency to a behemoth which tramples small businesses without regard for economic realities. While even some libertarians will admit that there should be some minor regulations on pollution, the EPA has taken the power to arbitrate land disputes and environmental concerns from courts and private citizens and placed it into the hands of bureaucrats with no accountability.

4. Amtrak

Trains are clearly the transportation choice of the past, yet government keeps your dollars invested in them. As prices have gone up higher, higher subsidies have been necessary to keep Amtrak running. Even as certain routes remain barely used, certain Congressmen want to be able to tout that the train runs through their districts, leading to even more tax dollars going toward this failed project.

5. Internal Revenue Service

The IRS has a long history of abusing its power, most recently targeting conservative groups for special audits. If taxation is indeed necessary, must there really be an agency which so clearly intrudes into every aspect of our lives when tax filing season approaches? The Constitution provides that Congress may levy taxes; therefore, those few taxes which are created should be done accordingly.

6. Federal Emergency Management Agency

During Hurricane Katrina, Americans were able to see the true ineptitude of FEMA. As more layers of bureaucracy are piled upon one another, quick responses become more difficult to execute. Emergency relief should be left to private organizations like the American Red Cross, which has proven itself time and time again.

7. Transportation Security Administration

Unfortunately, this generation of Americans has been taught that Constitutional rights are suspended if one decides to travel through an airport. Every day, citizens are treated like animals and inspected without regard for their privacy or dignity. While national security is of the utmost importance, there are certainly better and more efficient ways in which safety can be ensured.

8. Drug Enforcement Administration

The War on Drugs has taken millions of lives and prisoners while consuming billions of taxpayer dollars. We do not have to approve of drug use, but we as free people have a duty to bring an end to the tyranny of the DEA. This agency has become known for its unannounced late-night raids of suspects’ homes, sometimes killing innocents or even intruding into the wrong houses. Even if certain drugs shall remain illegal, there must certainly be a better way of executing such rules.

9. Federal Communications Commission

Freedom of speech is among the most important rights in our Constitution, perhaps the reason why it is listed first. However, the FCC places barriers upon our rights to engage in and listen to speech of our choice. Most recently the FCC engaged in more unbelievable behavior as it for the first time created a regulation of the internet through “net neutrality,” which will no doubt create the possibility of a future abuse of power.

10. Federal Reserve

The Federal Reserve bank, created in 1913, is one of the enigmatic aspects of the entire federal government. Not many Americans truly understand it, yet it silently steals value from Americans’ dollars every day. Since the central bank’s creation, the dollar has lost 95% of its value. With the Fed always printing more money, big government politicians are easily able to tax and spend as much as they want without having to make hard decisions on how to account for revenue.

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