Obama’s Policy of Fratricide

Hillary Clinton is making the rounds blasting Donald Trump for his recent support of BREXIT.

Her near constant refrain is that the United States must have proven leaders to avoid the calamitous decisions of the great unwashed who dare question the competence of the ruling classes – whether in Washington or Brussels.

And Barack Obama has made it crystal clear that Clinton’s policies match identically the policies of his own administration.

Which begs the question…

Does Hillary Clinton also support American troops fighting other American troops in the Middle East?

You see, as an example of the worst kind of intellectual stupor of Clinton and Obama, troops of the U.S. backed Free Syrian Army in the northern part of Aleppo Province, Syria, have been fighting against the U.S. backed Kurdish YPG fighters.

While no direct evidence yet exists indicating that any American casualties have resulted from the fratricide, it will only be a matter of time before American troops die at the hands of other American troops.

Of course, if this happens, it won’t be Clinton or Obama’s fault.

The fault of this abysmal foreign policy will fall squarely at the feet of Donald Trump!  After all, no Ivy League lawyer could ever be so stupid to pit rival factions against each other on a battlefield where no American should be deployed.  Only a capitalist could be that cruel.

Unfortunately, we’re at a point in American culture where the only thing to prevent future American casualties in the Middle East is an FBI indictment of Hillary – or the pillaging of Harvard Law School.

Either would help slow the destruction of the U.S. – but neither can get here soon enough!

The End of Socialism…

The news for Hillary Clinton doesn’t look good.

According to a June 14th poll from Bloomberg, 55% of Bernie Sanders’ supporters will vote for Hillary Clinton.  Surprisingly, 22% of the economically illiterate say they’ll vote for Trump, while 18% favor Libertarian Gary Johnson.

What is clear in this election cycle is that the political party that doesn’t usually care about moral or ethical character in their candidates suddenly finds itself with a candidate that many in the Democrat Party find abhorrent.

These are strange times, indeed.

Admittedly, it can be great fun to see socialists fighting each other over how to spend other people’s money.  The thing that makes the infighting different this time around is that we’re now witnessing, in the United States and most of Europe, what happens when socialists run out of other people’s money.  Sheer desperation at the prospect of failing to create the ever-elusive socialist utopia – something never before achieved in the history of man – usually begets violence.

Look no further than the economic failures of dozens of socialist dystopias as prime examples of the inevitable failure of socialism.  Of course, this says nothing of the more than 100 million human beings whose lives were literally snuffed out by socialist governments in the 20th Century alone.

Surprisingly, the political elites fundamentally understand that the socialist enterprise will eventually become unaffordable.  The elites instinctively know that socialism is self-destructive in the end.  But like having a tiger by the tail, they can’t let go for fear of being eaten by the millions of voters they’ve convinced that socialism works.

These voters demand ever-increasing portions of other people’s money.  They find it hard to believe that the government can’t just take money from the rich and distribute it to the “poor.”   The very idea that there aren’t enough rich people in any society to provide fat, stupid, and lazy Americans a minimum standard of living seems preposterous to them.  But, math has never been a forte of socialists.

This is where desperation begins…

Once the system gets to the point of unsustainability, the political elite typically try to suspend the laws of economics by passing more and more regulations to forestall the imminent collapse.

This is the position the United States finds itself in today.

To the chagrin of the political elite, suspending the laws of economics is as useful as suspending the laws of gravity.  You may feel like you’ve accomplished something of import, but you’re really nothing more than another of Marx’s famous useful idiots.

Capital Accumulation is the Only Way to Improve Living Standards

As Ludwig von Mises wrote in Human Action:

“It is not labor legislation and labor-union pressure that have shortened hours of work and withdrawn married women and children from the factories; it is capitalism, which has made the wage earner so prosperous that he is able to buy more leisure time for himself and his dependents. The nineteenth century’s labor legislation, by and large, achieved nothing more than to provide a legal ratification for changes, which the interplay of market factors had brought about previously. As far as it sometimes went ahead of industrial evolution, the quick advance in wealth soon made things right again. As far as the allegedly pro-labor laws decreed measures which were not merely the ratification of changes already effected or the anticipation of changes to be expected in the immediate future, they hurt the material interests of the workers.”

In other words, the only thing that can improve the living standards of workers is an increase in the capital invested per worker.  If a politician introduces a law that increases minimum wages above the level that can be supported by the market, that politician simply created institutional unemployment.  You see, less skilled workers will become unemployable, because employing them will produce economic losses.  This explains the extremely high unemployment rates in minority populations – especially in young minorities.

Only governments have ever successfully employed people for any significant time who produce economic losses.  After all, governments can increase taxes to cover the costs of useless employees – something no business could ever do.

In the end, economic interventions that end up restricting production will slow the accumulation of capital and make the success of socialism infinitely more difficult.  But to a great many of the electorate, this isn’t readily apparent.  For decades, politicians have made promises and increased the unfunded liabilities associated with these promises, and the electorate consider these promises inviolable.

But these promises are predicated on continued growth of real economic wealth – not government spending.  And without the real wealth creation through savings and investment, fulfillment of any politician’s promise is a pipe-dream.  In the end, Barack Obama’s tenure as president will be seen as an abysmal failure from a purely economic viewpoint.

The Terminal Phase of the Welfare State

Since the growth of real wealth has slowed dramatically as a result of decades of political  intervention in the economy, politicians have resorted to borrowing ever-increasing sums of money to delay the inevitable, as inter alia evidenced by the deterioration in our public debt-to-GDP ratio.

Central banks are supporting this growth by printing more money – but it should be obvious that neither the one nor the other can possibly solve the problem.  It will only further hamper real wealth generation.

An enduring myth exists that all could be fixed if only more of the wealth of the rich were confiscated and redistributed – but that tactic has failed to bring about any of the desired results everywhere it has been implemented.  This has done nothing to kill the myth, however.

At the end of the day, real economic growth has slowed to a crawl due to the efforts of central bank planners and the political elite to buy the votes of the relatively poor, uneducated, and easily led voters who have been tricked into believing politics solves real economic problems.

In the words of H.L. Mencken, “[G]overnment is a broker in pillage, and every election is a sort of advanced auction on stolen goods.”  Those who elected Barack Obama did so because they expected him to deliver the loot.  The problem is that Obama is running out of stuff to loot.  And Hillary will face an even bigger problem in finding wealth to confiscate – not that she won’t put her best efforts to fulfilling the dream, however.

As stated earlier, there is a fair amount of fun in watching socialists fight over other people’s money.  While the electorate rightly feels betrayed by the political elite, their attempts to finding answers in a bigger government are counterproductive and it makes for great TV.

This helps explain the rise of Bernie Sanders who promised to do a better job of confiscating and distributing confiscated loot to voters.  Unfortunately, the thing that unites their economic programs is utter economic illiteracy.

Sanders’ promises are based on the premise that prosperity can be obtained by political decree.  In fact, most of the elites seem to believe that any country on the brink of insolvency (like the U.S.) just needs to pillage and redistribute money more forcefully.  They simply ignore the idea that the principles that created the wealthiest nation in history are on life support.

Maybe this post is too pessimistic, but there exists no real evidence that the clash between the incompetent political establishment and the increasingly unsatisfied electorate is likely to bring about an increase in economic freedom or even to more sensible economic policies.

The much-heralded mix of socialism and capitalism that was supposed to bring forth a Utopia is spiraling toward insolvency.  What we are going to experience in the United States and in much of Western Europe are increasingly violent confrontations and more and more government repression.

People have become used to the idea that Uncle Sam is their “sugar daddy.”  Unfortunately, many Americans believe that Washington has an infinite stash of resources at its disposal, which it can shower upon voters at will.

The reality is vastly different and will soon become apparent to even the most ardent supporter of socialism.  Maybe even Hillary, too!

 

Helicopter Ben’s Bad Idea…

Helicopter Ben is up to another of his tricks…

Former Fed Chair Ben Bernanke has parlayed his less than stellar success as Fed Chair into a multi-million dollar gig at bond powerhouse, Pacific Investment Management Company (PIMCO).

PIMCO is one of the largest asset managers in the world, and has more than $1.5 trillion under management.  The global powerhouse has under-performed for quite some time, and fearing a mass exodus of clients, they made Helicopter Ben an offer he couldn’t refuse.

And they’re getting their money’s worth, too.

Since joining the firm, Bernanke has teamed with Joachim Fels, the firm’s global economic adviser, to lobby the U.S. Federal Reserve to enter the stock market.

Notwithstanding the huge legal issues involved in putting public money in the markets, the duo believe more quantitative easing (counterfeit money printing) is needed to stimulate stubbornly anemic global economic growth.

They claim the “benefits” of QE are already known, whereas negative interest rate policy (NIRP) experiments provide little in the way of measurable benefits to global economies.  Sure, Ben!

Of course, the dumb duo are hoping most Americans missed Bernanke’s comments at an economic conference in South Korea last year in which he admitted that quantitative easing failed to produce any impact on economic activity in the United States.

Actually, that last statement isn’t completely true…

Bernanke’s impotent attempt to stimulate the economy by giving banks massive infusions of counterfeit cash sent the stock and real estate markets soaring.  And at the end of the day, if people feel more wealthy – that’s a good thing, right?

Well, until the house of cards comes crashing down as it must inevitably do.  Ask Alan Greenspan how his house of cards worked in 2007-2008.

The American economy has been constrained by the Four Horsemen of the Apocalypse: Greenspan, Bush 43, Bernanke, and Obama.  Not once in the last 15-years has the economy reached anything near its norm of 5% plus GDP growth.  In fact, the current Administration talks about 1.5% GDP growth as if it’s a badge of honor – instead of evidence of massive incompetence.

The truth of the matter is that should the Fed become the shareholder of last resort, the death spiral of Keynesian monetary policy will finally, and irrevocably, rear its ugly head.  It virtually guarantees a complete breakdown in the free market pricing mechanism.

Should that happen, Americans will get an up close and personal introduction to the realities of socialism – without the false hope of pixie dust and unicorns.  Socialism is ugly.  Just ask anyone from Venezuela – the land of no beer or toilet paper.

Lest you think that no first world country would attempt such a stupid tactic, a quick look at Japan should send shivers down your spine.

As the chart below illustrates, the Bank of Japan (Japan’s version of the Fed) is projected by the government to purchase nearly 60% of all Japanese government bonds by 2019.  Keep in mind, Japan’s bond market is nearly $10 trillion in size.

JGB Bonds

Even more worrisome, the Bank of Japan isn’t confining the purchases to the sovereign markets.  The bank has moved into corporate bonds and the Japanese equity markets as well.

The resulting lack of liquidity has sent the Japanese stock market volatility to 17-year highs.  Additionally, the Japanese markets are beset with flash crashes, which have the potential to wipe out the accounts of retirees and other savers.

Yet, somehow Ben Bernanke believes that what America needs is to bring Japan’s version of crony capitalism to our own capital markets.

I must say, I have to admire the guy.  Usually someone with no real answers to economic issues goes quietly into the sunset – or runs for president.  Not Helicopter Ben.  Nope, he’s the Thomas Tank Engine of economics.  He can’t climb that mountain, but he sure thinks he can.

Retiring to a Jail Cell…

If you’re in need of evidence illustrating the wretched moral character of central bankers and other Keynesian quacks, we have it.

Evidence continues to pile-up showing that negative interest rates are forcing Japanese seniors to prison.  These are people who worked and saved for a lifetime, only to be forced to live in utter poverty by crackpot bureaucrats insulated from the consequences of their incompetence.

Here’s what’s happening…

About one-third of Japanese seniors rely on small savings in combination with their government pensions to make ends meet.  But with the Japanese government’s ill-advised attempt to increase economic demand by pushing interest rates into negative territory, these seniors are being destroyed financially.

With no hope of earning interest on their savings, their pension incomes of just ¥780,000 ($6,900/year) are wholly inadequate to provide the basic necessities of life.  So they’ve turned to a life of shoplifting in hopes of securing a two-year prison sentence typically imposed on such criminals.

Crime figures in Japan show that about 35% of shoplifting offenses are committed by people over age 60.  And some 40% of repeat offenders have committed the same crime more than six times.

Why would people who have been law-abiding citizens for decades turn to a life of crime in their golden years?

That’s easy…

While prison may not be the Ritz, it does offer three square meals, a bed, and the all the health care needs an elderly person could want.  And with two-year cost of a prison term costing the taxpayer more than ¥951 million ($8.4 million), it’s the taxpayers who ultimately pay the price.

Of course, the Japanese prison system is being stretched to its breaking point when nearly 40% of the Japanese population require some level of public assistance.  It’s the highest level of welfare assistance in Japan since the end of World War II.  And it’s a shameful indictment on any government that would foster such grotesque living standards for a once proud nation.

More importantly, it’s proof positive of the absolute failure of the Keynesian system of welfare economics to make the lives of anyone other than government bureaucrats better-off.

Which begs the question…

When do the Keynesian economists admit defeat?

There’s a simple answer to that question.

NEVER!

Admitting failure would mean that a generation of lawyers and government economists would be forced to get real jobs in the private sector and pay actual taxes.  They ‘d sooner destroy their own economies before being forced to earn a legitimate living.

You see, there’s a lot of money to be made in bringing a nation to its knees.

Now, before you think this is isolated to Japan, think again…

More than 40% of elderly Americans have little to no savings outside of their social security.  It’s conceivable that they, too, might look at a prison cell as an attractive alternative to “Dust Bowl” living standards perpetrated by the political class.

And with the failure of the effete elite political class to address the looming bankruptcy of social security, that likelihood grows stronger every day.

Minimum Wage Laws are Immoral…

Governor “Moonbeam” is in the news again.  Instead of fleecing taxpayers into paying for oil, gas, and mineral explorations on family owned property in California, the Governor of California is now forcing his own brand of immorality on taxpayers.

Moonbeam told Democratic leaders in the state Legislature that he would push for a $15 minimum wage by 2022.  His action is an effort to take control of over an issue that was to be decided directly by voters this November.

The plan would raise the minimum wage from $10 an hour to $10.50 on Jan. 1, 2017, followed by a 50-cent increase in 2018.  Yearly $1 increases would continue through 2022, and would give California the highest minimum wage floor in the country.

Of course, the plan will accomplish nothing more than decimate the lives of poor uneducated minorities in the inner cities by driving out small businesses from California.  The irony of a Democrat governor punishing poor uneducated democrats would be humorous if it wasn’t such a monstrously evil act.

You see, minimum wage laws are immoral.

To understand why, one must understand that wages are a contract between two parties: the employer and employee.  These two parties alone are responsible for negotiating a mutually acceptable labor contract.  Any third-party involvement by outsiders is an immoral intervention into the rights of the employer and employee.

What makes this funny is that it’s these same people who decry government intervention into their bedrooms who suddenly have no qualms about bureaucrats making wage decisions for a private business.

“Don’t let the state tell me whom I can marry, or whether a woman can suck the brains out of the back of a baby’s head, but by God, let the state decide how much someone earns flipping burgers!”

Politics is, and shall remain, the playground for the insufferably stupid!

Moonbeam has no understanding that wages are determined by the labor market.  Wages, like other values, are subjective.  They’re determined by supply and demand.  And therein lies the problem.

Moonbeam and others who demand to be heard on this issue continue to subscribe to the tired philosophies of the labor theory of value (Marxism), which makes the error of pinning objective values associated to specific tasks.

But wages cannot be determined by any universal standard of labor compensation.  Rather, like all commodities, labor rises and falls with subjective valuations. And because these valuations are driven by both endogenous and exogenous factors, any political attempts to standardize or regulate them will fail to produce the expected outcomes.

So, in the end, proponents of minimum wage laws make two mistakes.

First, they falsely reason that wages should be determined by what is minimally needed to support a person (living wage).  Let’s discount the fact that a “living wage” is a completely meaningless term in real economics.  The term is nothing more than a prop for those unable (or unwilling) to defend their argument on intellectual grounds. Yet, by relying on an such an objective standard, those advocating for minimum wages ignore the subjective value of real world economics.

And unless Bernie Sanders is elected, it can’t work!

Secondly, the minimum wage represents a breach in the social contract when one party (employee) enlists the help of a brown-shirted Nazi thug (the government) to force the other party (employer) to accept their terms (higher wages).

This means that employers are being compelled against their will to abide by a labor contract with which they do not agree.  This is immoral conduct by unions and activists that harm businesses and tramples the rights of citizens to be free from government intrusion into private affairs.

Since proponents of the minimum wage misunderstand the economics of wages, they falsely appeal to a standard of living to make their case for justifying their coercive acts.  The result is violence against employers and severe distortions in labor markets that lead to higher unemployment and closed businesses.

And less freedom for everyone…

 

The War on Cash Heats Up…

A few weeks ago, we told you how governments were going to declare war on cash.  They would be forced to do this, we said, in an effort to stop depositors from hoarding their cash under mattresses as interest rates go negative (or further negative in Europe and Japan).

Now comes word that businesses are beginning to take defensive actions to avoid the negative rates being imposed by global central banks.

The world’s second-largest reinsurance company, Munich Re, is pulling its cash out of the European Central Bank (ECB).  Reinsurance is the business of insuring insurance companies for unexpected claims.  And just like regular insurers, they keep lots of cash in the bank for paying claims.

Germany’s Munich Re pulled its cash out of its overnight accounts with the ECB to avoid paying the ECB’s negative interest rates.  This comes after the ECB lowered its interest rates to -0.4% from -0.3% last week.  Of course this makes sense because Munich Re can’t absorb the huge costs of paying interest to the bank on the money it has in its accounts.

What did Munich Re do with its money?

The company decided to warehouse the paper money in a vault in Germany.

Munich Re says this is a test run to see how easy and cost effective it is to hoard paper cash and keep it out of the hands of the central bank.  They expect the costs of warehousing and protecting the cash to be significantly cheaper than paying interest to the ECB for holding the cash.

Why is this important?

Negative rates discourage thrift by imposing what is effectively a tax on cash.  This virtually forces individuals and companies to pull its cash out of the banking system.  This result is a global bank run where the only people getting to keep their cash are those who pull it out first.

Here’s the bottom line…

The War on Cash is intensifying.  Soon, governments will need to get more aggressive in their need to ban cash.  They simply cannot allow companies, like Munich Re, to buck the system and avoid paying interest to central banks.

In the end, desperate economic policies beget desperate measures.  Investors everywhere need to protect themselves from the wealth destroying tactics of out-of-control central banks and the politicians who promote such stupid ideas.