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San Bernardino - And the First AND Second Amendments

Posted on Friday, December 4, 2015 No comments

Friday, December 4, 2015

The mass shooting in San Bernardino has now brought us to a place where we have to take seriously the potential for our neighbors to be radicalized by the Islamic State, resulting in loosely connected “lone wolf” attacks on “soft targets.”

However, it has also brought us to a place where “rhetorical circumspection” is necessary to avoid fertilizing the ground for this radicalization.

For this reason I support the circumspection of our law enforcement professionals.  From their perspective, careless rhetoric runs the risk of gripping our communities with fear.  ISIS knows this well, and seeks to create and exploit an environment of fear to further radicalize our Muslim neighbors – with whom we have lived peaceably over the years.

It seems other conservative voices out there do not get this.

Make no mistake, the Obama administration is in an impossible bind.  Their reticence to use language that might inflame our communities is likely rooted in an understanding of ISIS' tactical goals.  Sow fear in our communities and use that fear to further radicalize the Muslim members of our communities. This circumspection is wise - unless it leaves us ignorant and defenseless.

They are in a bind because they actually think we can defend ourselves with pieces of paper.  We see this at every turn with this administration.  The movements of chemical weapons in Syria was a "red line" - until it wasn't.  And when it wasn't his red line all of a sudden, it was the "international community's" red line because of a treaty.  He apparently thinks Bashar al Assad retires in the evening to read treaties and the latest policy memos from team Obama.  Thousands of Syrians have found out that treaties cannot stop a shell loaded with chemical weapons.

Obama apparently thinks his policy fantasies of what the 21st century is supposed to look like is sufficient to defend the freedom of the people of the Ukraine while Vladimir Putin conducts diplomacy through the barrel of a gun.

And so he is in a bind because ideologically he cannot appeal to what is now the obvious and only way we can preserve our American ideals - by upholding both the First and Second Amendments to the United States Constitution.

Last week I declared my candidacy for California's 52nd Congressional District.  This means I am running to take an oath to "uphold and defend the Constitution of the United States."  In the context of today's news, that means this:

The First Amendment: I am obligated (whether I an running for office or not) to vocally and vigorously defend my Muslim neighbors' natural right to practice their religion peaceably, in public and in private.  This means I must support the effort to be circumspect in our rhetoric that we not play right into the hands of ISIS and end up contributing to the radicalization of a population among whom we have lived peaceably for many years.

The Second Amendment: I am obligated to vocally and vigorously defend our natural right to keep and bear arms.  There will always be a gap in time from when a threat emerges – be it an attack like San Bernardino or someone breaking into a home – and when police arrive to help.  The responsibility for public safety during that gap in time cannot be shouldered by the police; they cannot be everywhere at once.  The responsibility for public safety is first the responsibility of the public.  The gun culture is not a culture of violence; it is a culture of responsible self-reliance.

The President's repeated calls for more gun control is perfectly consistent with his policy fantasies elsewhere.  California's gun control laws are already some of the strictest in the nation.  We have now seen clearly that in the face of a determined individual or individuals what we already knew.  Laws written on paper do not make very good bullet proof vests.

We must defend the First Amendment rights of our Muslim neighbors, and must speak against any and all efforts to dehumanize them by painting them with the broad brush of terrorism.  But we must also insist on our Second Amendment rights to protect ourselves, our families and our neighbors from the few who have perverted Islam.

A citizenry properly vetted, trained and licensed to keep and bear arms is the best way to secure the freedoms we have peaceably enjoyed – both Muslim and non-Muslim – as Americans.



The Cloud in the Silver Lining?

Posted on Friday, November 6, 2015 No comments

Friday, November 6, 2015

The media was crowing today about the "best jobs report this year" (CBS Evening News).  Talk is starting to turn on whether this will be considered enough for the Federal Reserve to start raising interest rates in December.  But as one financial outlet put it:
It is difficult to find the cloud in the silver lining as economists are often wont to do. It leaves no doubt about the December meeting being live despite the year-end considerations that some had seen tying the Fed's hands.
Uh, actually not so difficult after all...


The blue line in this graph tracks the overall, seasonally adjusted Civilian Labor Force Participation Rate.  In creating the graph from the St. Louis Federal Reserve's web site, I chose to start at June 1977 because the rate then was the same as it is today (as shown on left side Y axis).

The blue line is often explained by appealing to the retirement of the Baby Boomers.  Unfortunately the red line blows that explanation right out of the water.  The red line is the Labor Force Participation Rate for those 55 and over.  If had been able to plot the Federal Funds Rate on this chart by norming the Y axis interest rate percentages to the labor force participation percentages, my hunch is that we would see a tight correlation between dropping interest rates and increasing labor force participation on the part of those over 55.  This should not be hard to understand: potential retirees know full well that their savings will not last at current interest rates.

It is the green line - Labor Force Participation Rate for those 25-54 - that explains the blue line.  Both track roughly together at their respective levels.

To gauge the overall trend, the numbers from the BLS can be plotted in a spreadsheet (I took only the 25-54 and 55+ age groups as a sample), totalled and then each year's percentage gain plotted as a series.  Here is the graph:


The yellow series on top is the percentage share of job growth among those 25-54 years old.  In January 2005 it was above 80%.  It has dropped to below 75% today.  The blue series is the same share of gains for those above 55.  It was below 20% in January 2005.  It is now above 25%.  This is not the trend of a healthy economy.  It is certainly not a silver lining without a cloud.

Hang on to your wallets!

Posted on Friday, September 18, 2015 No comments

Friday, September 18, 2015

The decision of the Federal Reserve to leave the Federal Funds Rate at 0.00%-0.25% included a foreboding little tidbit in what is called the "dot plot" chart the Fed includes with its guidance.

Each dot in this graphic represents the expectations of a member of the Federal Open Market Committee (FOMC - also known as the "Bishops of the Temple of the Free Market").  The horizontal lines represent where they think the Federal Funds Rate will be looking forward. That rate, then, influences the "bond market" - which in turn determines the everyday interest rates we pay for things like mortgages and auto loans as well as what we receive for money we keep on deposit.

The most interesting thing about this month's dot plot is the existence of a single dot - one unidentified member of the FOMC - below the zero line for 2015 and 2016.  This means one FOMC member thinks the Fed will have to set a negative interest rate - which means the big banks will have to pay the Fed to hold on to their reserves - as soon as before the end of the year and then keep it there through 2016.

But if you pay attention to the Orwellian language games played by the 'political-financial complex' it becomes clear that we have already arrived at the beginning of this. JP Morgan Chase is now charging a 'balance sheet utilization fee' against large deposits. In other words, while they are paying interest on those deposits at sub-1% rates, they are now charging a 1% 'balance sheet utilization fee'.  Put these two things together and it washes out to a de facto 'negative interest rate' in the -0.25% to 0.50% ballpark - exactly what that one dot suggests be done.

Before getting into why these things are happening, let me just put the implications out there in everyday terms: YOUR CASH IS AT RISK!

This is already the norm in Europe.  The European Central Bank 'pays' -0.20% interest - or charges 0.20% on deposits it holds.  The ECB can do this out in the open because European society is generally oriented to look to the State to manage the economy.  That, in turn, produces a view of money that sees it as principally a tool of the State.

Here in the U.S., though, our social compact is built on a foundation that views money as a measure of wealth belonging to individuals.  The 'Federal Reserve Note' makes it possible to exchange that wealth efficiently.  Our money, rather than the State's money, is a utility enabling everyday commerce, not a tool used by the political-financial complex to impose an order preferred by elites.  Indeed, a government "by and for the people" presumes this particularly American view of money.

This is why all but one FOMC member has yet to openly predict negative interest rates.  Instead, they have to coin a euphemism to at least attempt to establish negative interest as an acceptable norm by calling it 'balance sheet utilization'. The manner in which the Treasury, the Fed and the banks colluded to prop up the debt-driven status quo during the last financial crisis should make it clear that these kinds of decisions are being made in concert with the Treasury and the Fed.

And the Bloomberg article linked to above has accurately captured the economic implications. It has also captured the political implications, but has badly oversimplified them as merely being a Tea Party agenda controversy.  Thomas Jefferson opposed the very idea of a central bank, and was very skeptical about the merits of "paper money." His concern centered around the integrity of the 10th Amendment.  In a letter to George Washington urging him to veto a bill establishing a central bank, Jefferson wrote:
I consider the foundation of the Constitution as laid on this ground that “all powers not delegated to the United States, by the Constitution, nor prohibited by it to the states, are reserved to the states or to the people.” To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, not longer susceptible of any definition.
Lastly, the dot plot might also explain why the Dow is getting hammered once again.  If you look at the grouping of dots and think of the 'standard deviation' (or the 'bell curve') the 2015 plot looks 'normal'.  It means expectations on interest rates follow what one would otherwise expect in a 'normal' situation.  But 2016 and 2017 form a 'narrow' shape, which if looked at from the point of view of a standard deviation from the norm, means there is nothing 'standard' about the dot spread and therefore nothing 'normal' about the expectations.  The plot does not 'normalize' until the 'longer run' expectations are plotted out.  All of this basically tells us that 2016 and 2017 are not expected to be 'normal' and they have no idea whatsoever what the 'longer run' looks like.

This is where a 'statist' view of money has gotten us.  It is going to be painful, and the only answer which bears the promise of restoring a meaningfully prosperous future for our kids is to recover our original understanding of money and put proper restraints on the money supply.

The Future of Europe is Where it Belongs: The Hearts of the Greek People

Posted on Monday, September 7, 2015 No comments

Monday, September 7, 2015

Greek Prime Minister Alex Tsipras has played the part of Volumnius and has fallen on his sword. Later this month the Greek people need to make sure they decide once and for all what dies and what lives. What should die is the fraud that is a Europe built on a foundation of 'sovereign debt'. What should live is a wholly new idea of Europe reborn where Europe was first born - in the hearts of the Greek people.

Polls show that Greeks overwhelmingly want to remain part of Europe.  But this will clearly come at the cost of their sovereignty if the terms of the 'deal' with their creditors stands.  In this upcoming election, the people of Greece need to look past that 'deal' and see the underlying fraud that is modern Europe for what it is - and then decide if this is really what they have in mind when they think of Europe.

The foundation of this fraud is the idea that economic prosperity can be delivered by political society.  Tsipras is partly to blame - and socialism as a political ideology shares the rest of the blame - for foisting this upon the people of Greece. By reckoning the State to be the most significant unit of society - which removes all natural restraints on the size and scope of government - Greece has spent a generation getting to where they are today. The ever-present, insufferable and stifling public sector has sucked dry the innovative spirit of the Greek people - exactly as it has done everywhere else government is allowed to grow unchecked and as it is doing here in America.  Greece has been left to the impotence of the public sector to generate economic growth.  That impotence should now be obvious.

This fraud is furthered by an obvious double-standard.  To start with, you cannot have irresponsible borrowing (Greek political society) without irresponsible lending (the ECB and Greece's other creditors).  If the idea of Europe in play here is the idea of a just society living at peace with one another then the risks involved in lending must be shared between both creditor and debtor. This can be best understood by looking at exactly what 'financial sovereignty' entails.

For the creditor (or the 'saver/lender' - mainly Germany) financial sovereignty is rooted in purchasing power.  The Germans are loath to see Euros printed to rescue debtor economies because each newly minted Euro subtracts from the purchasing power of the Euros they have saved. Debt forgiveness - the dreaded 'haircut' in the bond market - is an even worse outcome for the creditor because the value of the Euro is tied to the value of what it measures.  It does not measure anything of otherwise real value like gold or silver.  It does measure sovereign debt.  So if those debts are subject to haircuts, the value of that debt goes down and with it the value of the Euro.  The nature of the Euro as a currency union only magnifies this effect.  Sovereignty for the creditor means protecting the Euro at all costs.

For the debtor 'financial sovereignty' means being able to decide how much is spent on what public priorities.  The 'Troika' has utterly eviscerated any sense of financial sovereignty among the people of Greece. The creditor now enjoys all rewards and assumes no risks. Clearly, some are more sovereign than others.

The answer is conservatism as a political and economic philosophy.  But this is not a banker's conservatism demanding 'austerity'.  It is a conservatism rooted in community.  It is a philosophy that makes the distinction between political society and civil society, and believes that civil society will always be superior to political society when meeting social needs, and that economic prosperity is the result of the creativity and innovation of civil society.  Here is what I think a truly conservative plan for Greece might look like:

1) Repudiate the debt!  Yes, I just identified repudiation of debt as a conservative position.  Here is why: Conservative economics is rooted in human freedom. The fraud that is modern Europe has just exposed its moral nakedness for all to see in this so-called 'deal' between Greece and the 'Troika'.  It reveals to all that while the rewards of irresponsible lending are privatized among the financial sector, the risks are socialized among the people of Greece.  There is nothing moral nor conservative about Greece subjecting itself to this sort of theft.

2) Repudiate the public sector! The administrative nakedness of political society should now be obvious.  Conservative political philosophy starts with the conviction that the role of government is to do for the people only those things the people cannot do for themselves, and to otherwise leave civil society free to innovate and improve things in the real economy and to share the resulting wealth with those in need.  Far from everyone being on their own, repudiating the public sector means those who need help will enjoy the dignity of being lifted up by someone who knows their name. This, then, will mean lower taxes and more opportunity to innovate, improve things, and create real wealth.

3) Repudiate 'fiat money'! The mathematical nakedness of today's central bankers is increasingly on display as the Chinese bubble has burst - as their finance minister has said over and again this past weekend, much to the chagrin of other central bankers.  We are witnessing the death throes of this idea you can just print money 'hand over fist' - as we Americans like to say.  This money-printing and lending enterprise has brought the world to a cliff and no one really knows what the future will look like.

Until someone finally decides to lead and chart out a new path forward.  The people of Greece - once again - have the opportunity to lead the world away of this cliff and into a prosperous future where economies are organized around the creation of real wealth instead of the inflationary pretense of feeling wealthy.

Lastly, a call to all Greek cartoonists: How about Greece, in the person of Jesus, standing with his back to the reader, holding his whip, steaming mad over the σπήλαιον λῃστῶν ('den of thieves' - aka the Troika) that has become the temple of the free market.  (Read Matthew 21:13 for the reference.)  This is what it would look like if Jesus were to come to save Greece - and the rest of Europe from the fraud that is its political society and its money.

UPDATE: Huge thanks to Dino Deroukakis in Greece for the graphic above!  Better than a million likes on Facebook.

Watch Your Back - Meaning Your Access to Cash

Posted on Sunday, September 6, 2015 No comments

Sunday, September 6, 2015

A couple weeks ago the Financial Times came out with an article arguing for the end of 'cash'.  They are using the term 'barbarous relic' - a term John Maynard Keynes used for gold as a form of money - to de-legitimize cash as the source of our economic problems.

To most of us, Keynes is either a complete unknown or a vaguely familiar name - someone we heard about while the news was on as background noise while we were preparing dinner.  And our memory of the idea of gold (and silver) as the foundation of the money supply is all but non-existent seeing as it has been nearly 50 years since the gold held on our behalf was effectively stolen from us by the 'financial-political complex'.  (I'll channel a little modified Dwight Eisenhower here.)

But it is extremely important that we understand some of what is going on here, so I'll try to simplify things:  The Financial Times calls the legitimacy of cash into question:
The existence of cash — a bearer instrument with a zero interest rate — limits central banks’ ability to stimulate a depressed economy. The worry is that people will change their deposits for cash if a central bank moves rates into negative territory.
Note the refined academic vocabulary - 'bearer instrument with a zero interest rate'. You and I call it the dollars in our wallet.  The difference in description is telling and very important.  To say cash is a 'bearer instrument' is a deliberate propaganda attempt to take the simplicity of the money in our wallet and turn it into something academic and complex.  The point is to convince us that we are not smart enough to understand its implications.

The next part is even more revealing.  To note that cash "limits central banks' ability to stimulate a depressed economy..." reveals quite a few important things:  First, it reveals a view of money that sees it as a tool of the state to impose particular views about what a healthy economy looks like. Those views, I can absolutely guarantee, are very different when seen from Wall Street then when seen from Main Street.  Money, when viewed from Main Street, is a utility that is contrived by civil society (meaning you and I agree to exchange it) to facilitate everyday commerce.  It is crucial that we get our heads wrapped around this difference if we are going to defend ourselves from a possible attempt to ban cash.

To digress a little so as to explain: Economic growth comes when raw materials are made into things that are needed and useful.  To do this, you have to have capital (which includes land).  But the transformation of raw materials into other useful things requires something else: labor. When labor uses capital (or capital uses labor - depending on how you look at it) 'value' is 'added'.  Money, represented most commonly by cash, is how we measure that value and exchange it with one another.  This is just a somewhat technical way of explaining what is said above, and needs to be said again and again and again: Money is a utility (something of use) contrived by individuals in civil society to facilitate everyday commerce.  It is not a tool of the state the enforce the sensibilities of the financial-political complex (i.e. the 'elite') as to what a healthy economy looks like.

The article further reveals itself as essentially a propaganda hit piece: 
The second feature of cash is that, unlike electronic money, it cannot be tracked. That means cash favours anonymous and often illicit activity; its abolition would make life easier for a government set on squeezing the informal economy out of existence.
Again, there is a lot here - and some things that are conveniently missing. To start with, the idea that cash cannot be tracked is nonsense - our dollars all have serial numbers.  What cannot be tracked is everyday economic activity. No mention is made of the relative percentage of circulating cash which is facilitating "illicit activity" over and against the whipping cream and pound of shrimp I just bought with cash about an hour ago.  That number would be so small as to make throwing the baby out with the bathwater look like a reasonable proposition. And no mention is made of what the "abolition of cash" would mean for personal freedom.  "[M]aking life easier for government..." is blithely assumed to be a worthy end in and of itself.  (Our Founding Fathers would roll in their graves at this thought.)  And to suggest that "squeezing the informal economy out of existence" is desirable is to say that activities which might otherwise expose the intellectual nakedness of central bankers and their academic economist colleagues must be suppressed literally at all costs.

The article uses the example of Greece and tax collection, and it is, indeed, the absolutely perfect example. Greece shows us what happens under confiscatory tax regimes: all of the creativity which ought to be directed toward innovating and improving things in the real economy is directed instead into tax avoidance - an artifact of allowing the political economy to swallow up the real (civil) economy whole.  This is an awfully inconvenient truth for the financial-political complex, therefore it must be suppressed by the banning of cash.

Benjamin Franklin was asked what he and his colleagues had created.  "A republic, if you can keep it," he responded. We have already allowed ourselves the first false luxury which threatens it: Almost fifty years of deficit spending means we have voted ourselves the treasury - the day Franklin said would herald the end of the republic.  The second, and final step to losing it entirely would be to stand by quietly when the political-financial complex takes away our access to cash.

Wall Street Hypocrisy Knows No Bounds

Posted on Thursday, September 3, 2015 No comments

Thursday, September 3, 2015

"Rich" is a word that can mean different things in different contexts.  Wall Street is "rich" - but not just in terms of income or wealth but also in irony and hypocrisy.

Today's MarketWatch.com tells of Wall Street types crying in their beer (seeing as the head has dissipated and the glass doesn't have anywhere near as much beer as the Fed... er... the bartender had them thinking it did) about a trading strategy called 'risk parity'.  This is just a fancy word for 're-balancing' - you know, that thing they taught you about at work when your 401(k) administrator made their annual presentation.  Apparently this is now automated and is blamed for causing excessive selling on the downside.  Here is my favorite quote.  I have added the boldface:
Kolanovic warned that rapid rebalancing by such funds could make for chaos as 'price insensitive flows', determined by algorithms and risk limits, threaten to push the market away from fundamentals.
Now that is rich.

Since when has the 'market' been aligned with the 'fundamentals'?  For at least 20 years now, starting with the 'Greenspan Put' (I'll explain that in a second) the market has traded to Federal Reserve sentiment and intentions, not to market fundamentals.  As I have pointed out numerous times, the Case/Shiller Price-to-Earnings Ratio shows this clearly.  The recent downturn has seen it drop slightly, but it is till higher than only three other times since 1890.  The upswings cannot be explained by companies all of a sudden becoming more valuable.  The timing of the upswings makes it clear that it is a 'sink' for the inflation of the money supply each time Wall Street speculation gets ahead of itself - which is happening more and more often - as a result of the inflation of the money supply.

David Stockman, former budget director during the Reagan years, calls out the insufferable whining as well here. (Interestingly, Stockman calls the sham that has become of the market "card counting" just as I have done for quite a while.)

For the rest of us it will help to understand a few terms we will likely be hearing again on the news.  This 'Greenspan Put' is one:  A 'Put Option' is essentially an insurance policy.  If you own Microsoft  stock (MSFT - which closed out at $43.50 today), in a volatile environment you might want insurance again the possibility it drops over 10% within the next week.  A 10% drop would be a 'strike price' of $39.55.  If I 'sell' you a put option on MSFT I am agreeing to buy your shares at the strike price if it falls to that level within a certain amount of time. Under this arrangement two things might happen:

1) The 'expiration date' of the option might arrive without the stock dropping to the strike price.  In that event the option has 'expired' and I have collected the premium and booked it to my investment account, but you retain the stock.

2) The stock drops to the strike price before the expiration date.  In this case you can exercise your 'option' (which I have sold to you for the premium) to require me to take the stock off your hands at the strike price.  I still collect the premium. But I am also on the hook for the cost of taking the stock off of your hands.

The 'Greenspan Put' is a Wall Street term for the Federal Reserve's willingness to expand the money supply when stocks begin to slide.  It is almost as if there is a strike point in the stock indices at which the Fed loosens the money supply, sending this extra money chasing after stocks, thus arresting the decline - and creating a subsequent bubble.  Again, the Case/Shiller PE Ratio shows this dynamic better than any other metric.

What this means is that Wall Street can speculate with increasing abandon, believing that the Fed will goose the money supply should this speculation get ahead of itself.  As the money supply is increased, the cost of money decreases, creating even greater incentive for risky speculation.  The cycle of speculative collapses only gets tighter (crises happen more often) as the volume of money increases.

This, not 'risk parity', is what makes the complaint about pushing the market "away from the fundamentals" patently ridiculous.

Lastly, I just learned that the building which houses the Federal Reserve is called the 'Eccles Building' (after Marriner S. Eccles).  This made me laugh because the Greek word for 'church' is 'ecclesia'.  It really is the Temple of the Free Market and the FOMC are the new Bishops who have turned it into a den of thieves.  Read here about what happened last time there was a fight over the appointment of bishops.

Where is Jesus with his whip when you need him?

Is the Fever Finally Breaking? Is This the End of 'Financialization'?

Posted on Saturday, August 22, 2015 No comments

Saturday, August 22, 2015

Anyone who has kids has been there.

You're standing by the bed with the thermometer to check on their temperature as you nurse them through a bout with the flu.  They are bundled up in blankets, shivering, yet sweating profusely. It is a moment of conflicting emotions because you have been there, too, and know how bad they feel.  But you also know - because you're the adult in the room - that these signals all say the fever is breaking.  You're thankful because you know they will soon be back to their normal self: playful at times - exasperating at others.

Yesterday (Friday) the Dow Jones Industrial dropped 530 points. And a good 100 of those points came in the final few minutes of trading.  And it happened on a Friday.  All of this is rather odd and does not portend well for Monday.  Usually on a sharp drop trading day, the markets gains back a little at the end of the day.  And this is especially true on Fridays.  But here we have the market - which we have to remember is made up of people with emotions - left to stew over the weekend.  Monday will probably not be pretty - unless the Fed does something dramatic over the weekend.

I am going to try to explain why the adults in the room - as opposed to the Fed and the government - should be thankful for the very real possibility that the 'fever' is breaking.  But before I start throwing up charts and their facts and figures, it is important to simplify the issues.

One of my favorite examples is the "better mousetrap."  I don't know if today's young people would immediately get the metaphor, but my generation (born in 1967) should easily understand it as coming up with an idea to improve something.  If you devise a "better mousetrap" you file a patent on your improvement so only you can bring it to the market.  If your mousetrap is a hit with the consumer, you might have to rent a building, buy equipment and hire workers to churn out your better mousetrap.  And to do that, you might need a loan.

Economic growth used to be about the better mousetrap, not the loan.  This is because the creation of wealth happens when things of use in the economy are improved - or made more useful.  The financial sector, on the other hand, does not create wealth.  It might help manage it and facilitate its exchange - but it does not create it.  I will show here that as the financial sector's share of Gross Domestic Product (GDP) increases, our economy gradually morphs into a wealth transfer economy instead of a wealth creating economy.

But as these charts show, profits in the financial sector as a share of  GDP has grown dramatically over the years.  Economists call this the 'financialization' of the economy.  It seems much easier, though, for the rest of us to simply call it a 'fever'.

A simple chart for this can be seen here.  The most important thing to notice is that the share of GDP for the financial sector is higher now than during the Great Recession.  In other words, we have done nothing to fix the real problem, which is an ever increasing dependence on the loan instead of the better mousetrap for economic growth.

But because loans are 'bought' at a price - the interest rate - there is a natural, mathematical limit called zero. In order to understand that, all you have to do is imagine how you would react if your bank started 'paying' you a negative interest rate.  This would be the same as charging you for the privilege of keeping your money with them (over and above all of the bogus fees they already charge).  Once that reality sets in, your 'mattress' becomes the logical place for your money.  It occurs to me that the 'mattress' is another metaphor the younger generation might not understand.  Their great-grand parents, though, would put their money 'under their mattress' during the Great Depression.

Before I finish up by getting into what the next financial crisis - which might have started this past week - will look like, another, even better chart will drive home what we have brought upon ourselves by allowing the financial sector to swallow up an ever increasing share of the economy.

This particular chart is helpful because it shows three important things all at once:

1) It shows the correlation between the share of overall income represented by those in the financial sector (the blue line) with the income share of the top 1%.  More on this in a moment.

2) It shows the share of overall income enjoyed by those in the top 1% of income earners (the black line).  This is the traditional indicator for income inequality.

3) It is fascinating to see where the lines cross.  The blue line (the share of overall income enjoyed by the financial sector) crosses ahead of the black line somewhere in the mid-1960's.  This matters because this is when we (in the United States) decided we could have "guns and butter."  As a result we were forced to take the dollar off the gold standard in 1971.

Traditionally, economists use the phrase "guns or butter" to describe the choice that an economy has to make between focusing on defense (guns) or social spending (butter). When my siblings and I buried our parents (seven months apart in 2010), we found our grandparents' food ration coupons from World War II.  Back then if we decided we needed to fight a war, commensurate sacrifices in terms of "butter" had to be made lest we saddle the next generation with an insurmountable debt.  There is a reason we call their generation the "Greatest Generation" that is about more than just the courage of those who defeated Adolf Hitler on the battlefield.

But in the sixties we decided not to make those sacrifices.  We were fighting the Vietnam War and building the Great Society at the same time: guns and butter.  The Greatest Generation refused to do this because they knew what it would produce - over 18 trillion dollars in debt, and with it a banking and monetary system that would come to depend on the value of that debt. That reliance on the value of debt then requires endless rounds of money printing for ever more frequent bailouts.

And the chart shows us that the people closest to all of that new money enjoy its rewards disproportionately to everyone else.  Ever since the sixties, financial sector salaries have been pulling up income inequality with them.  This makes it very easy to understand: Income inequality is salary inflation.  But only those in either the financial sector (by way of lending) and the political sector (by way of borrowing) are enjoying this salary inflation.  Everyone else (the 99%?) are being left behind...

...Until interest rates hit zero and there is nothing more central banks can do. And so here we are.

There are credible voices who believe the coming week will see a little rally starting Tuesday, after which the bottom will completely fall out.  The few whispers of Dow 5,000 are starting to increase in numbers, but are still just whispers.  Whether or not last week was the start of the next financial crisis, another crisis is mathematically inevitable - and soon. Here is why and what will then happen:

1) The more money is pushed into the system, the cheaper money itself becomes.  That 'price' is expressed in interest rates. But once you hit zero percent, there is no reason to keep money in the bank.  (In fact, even if inflation is 2% - which is nonsense and the product of gimmicked stats - then once interest rates go below inflation the rationale for keeping money in bank disappears.)  When people start taking money out of the banks, the banks will lose the 'capital' needed to offset their 'liabilities' and start getting into serious trouble.

2) The financial sector will then cry for another bailout and say they are 'deficient' in 'capital'.  This is also nonsense. They are looking for 'capital' to offset their 'liabilities'.  There are two ways of describing this problem: a lack of capital or an excess of bad debt.  It is this excess of bad debt (dot com investments using borrowed money is Exhibit A, sub-prime mortgages are Exhibit B, and now 'junk bonds' - which are just the corporate version of sub-prime mortgages - will be Exhibit C) that started us down this road of money printing bailouts.  It is the classic case of the drug addict going through withdrawal. Provide him drugs to alleviate the withdrawal (i.e. crisis) and all you have done is intensified the addiction - and the inevitable pain of subsequent withdrawal.

The question, though, is how the rest of us will respond. And by the 'rest of us' I expressly mean the adults in the room rather than the financial sector, the Federal Reserve, or our political so-called leaders.

If we are to wish the best for our kids, seeing the fever break is a relief, even though we know they will suffer a bit.  So, too, is it with the economy.  If we wish a prosperous future for our kids and grand-children, it is then on us to take the hit now as the fever breaks.  We actually do have the opportunity to change places with our kids.  We need to be adults and not let that opportunity pass us by.

Emails, State Secrets & the Integrity of the Law

Posted on Friday, August 14, 2015 No comments

Friday, August 14, 2015

As an information technology/cyber-security professional, if I ran an email server on what the National Security community calls the "Non-secure Internet Protocol Routed Network" (or NIPRNet - national security-speak for the Internet) and had emails containing Top Secret/Secure Compartmented Information (SCI) information, the very least that would happen is I would lose my security clearance, and thus my job or business.  I would also face the very real risk of jail time.

What is so staggering about the Clinton email scandal is how the former Secretary of State conducted her affairs in a way that even a junior programmer fresh out of school with an 'interim' security clearance would (or should) know to be way beyond the pale.

In order to understand why this is such a big story, we have to start with a simple observation.  And again, this is about as basic as it comes: There is no such thing as a 'classified email'

Email is a means of transmitting information.  It is the information, not the email, that is the subject of classification.  As such, it makes no difference whether the emails had any classification 'markings'.  Email systems that are used in the military and other government departments that deal with potentially classified information are configured to prompt the user to attach a classification marking (or label) on each email before sending. (Those labels would be UNCLASSIFIED, SECRET, and TOP SECRET/SCI)  This is designed to force the sender to make a judgment as to the nature of the information being transmitted.

Thus the dissembling from the Clinton camp is amazing, and actually threatens national security.  (And this from someone running for President!)  The claim that the 'emails' were not classified when they were sent is ridiculous on its face.  The information in the emails was classified before the email was even typed, thus the emails should have been properly marked by the sender.  And if some of the more sensitive emails were properly marked when sent, and those markings were removed, a serious felony has been committed both by the sender and even more so by whomever removed the markings.

But what makes this story even more egregious is the 'spillage' of information down multiple levels of classification.  Email communications within the national security community traverse different networks. It is bad enough that information classified SECRET would 'spill' from a secret network to the NIPRNet.  This does happen from time to time, but it is the responsibility of every person who comes into possession or contact with that email to recognize the spillage and report it.  But to have TOP SECRET/SCI information 'spill' all the way down to the NIPRNet is almost unimaginable.

What makes this a threat to national security is the message that is sent. The 'Bradley Manning' affair (leaking a massive trove of classified information to WikiLeaks) prompted rules pertaining to 'burning' CDs when classified information is involved.  Then came Edward Snowden.  If Clinton can get away with such an absolutely egregious disregard for the law when it comes to classified information, on what basis would the government then suppose to try Snowden if he were to return?  On what basis would the government enforce these laws at all?

Hillary Clinton is a Progressive, for whom the ends justify the means and the laws apply to everyone else but her. 

Deflation is the Monster in Little Janet's Closet

Posted on Monday, August 10, 2015 No comments

Monday, August 10, 2015

Anyone who's had kids knows that the closet at the foot of the bed is the source of much nighttime dread. (I think I might be channeling Dr. Seuss here.)

And we know as well that the solution is actually pretty simple: Open the closet and show little Janet that there is nothing to fear. (Oh well, I tried.)

We are on the cusp of what some believe will be the first of many drawn out interest rate hikes, starting in mid-September.  But each time the news suggests this is coming, the stock market takes a prolonged hit. It's like it is bedtime and 'deflation' (or at least 'disinflation' - more on these terms in a moment) is the monster in little Janet's closet.  So someone has to come out and say something like:
The interesting situation in which we are is that employment has been rising pretty fast relative to previous performance and yet inflation is very low. And the concern about the situation is not to move before we see inflation as well as employment returning to more normal levels.
Imagine you were to try to pull off something like this with little Janet who cannot sleep because she fears the monster in her closet.  Federal Reserve Vice Chair Stanley Fischer - who made the comment above to Bloomberg - is thought to be trying to walk back the sense that the interest rate hike is 'baked in'.  This doesn't quite amount to opening the closet to show little Janet that there is nothing to fear.

So I'll try to tuck little Janet into bed.

But before I do that, let's get our heads wrapped around this thing called 'deflation'. When we believe prices are going down, we naturally hold on to our money.  Why buy today when you can buy for less tomorrow? The problem is that those who make consumer goods then have extras on hand, and in order to move the product, they lower their price. (See discount stores' and Amazon's "Black Friday" in July for a recent example.)

"Aha!" we say. "I knew it! If I hold on a little longer, prices might go down some more."

And so we end up in an economic death spiral.  Our esteemed central bankers will tell us this is what caused the Great Depression.  There is some debate among economists about that, but that debate is not what really matters here.  What matters is the complete absence of two forms of expertise and experience among the Board of Governors of the Federal Reserve.  The first of these is actual 'supply chain management'.  The second is information technology.

As an information technology professional, I will start there.  The most glaring difference between today and the Great Depression - one that is so glaring it flabbergasts me that the people who are making monetary decisions do not see this - is the computer.  The two things the computer does for us that matter in this discussion are: 1) the computer gives us a far more accurate sense of the actual money supply; and 2) the computer gives us a tool for 'supply chain management'. So that brings us to the second lack at the Fed: experience in supply chain management.

The two companies which are legendary in my field of information technology are WalMart (in the brick-and-mortar space) and Amazon (in the online space).  Among information technology professionals, they are legendary for how they employ the IT field know as 'knowledge management' to manage their supply chain.  In the case of Amazon, they are now offering same-day delivery in select markets (including my hometown of San Diego, California).  They can do this because they have studied the market so thoroughly (using 'knowledge management') that they can predict what will be ordered, have those products pre-staged in town, and then deliver them in one day.  It is a spectacular example of using the computer to manage a supply chain.  Where Amazon sets itself apart with same-day delivery, WalMart sets itself apart with low prices - by employing the exact same technologies.

(If you are about to fall asleep right now with all this gobbly-gook about knowledge management, that's because this is my bedtime story as I try to tuck little Janet into bed.)

If the Fed were to have actual experience in supply chain management - or to put this another way, if they had anyone who has actually run a large business - it just might alleviate some of their overblown fears about deflation.  If we go back and look at what that is - my decision to hold on to my money and the resulting excess of supply - we see that deflation is essentially a supply chain management problem - not a monetary problem.

But when all you have is a hammer, every problem looks like a nail.

And in the Great Depression, to a large extent all they had was a hammer.  But this is not the case today.  We have computers and we have companies like Amazon and WalMart who know how to use them to calibrate supply to demand as it increases and decreases.

This, then, brings us to the reality we face today.  The idea of 'free money' is an oxymoron: If you make money free, then as more money sloshes about the economy prices will eventually rise. But if prices rise, the 'purchasing power' of your money goes down.  In order to protect from this loss of purchasing power, a lender has to charge interest - and money isn't free anymore.  If interest rates do not rise from what economists call the 'zero-level boundary' (or ZLB), the whole idea of money - and banking - begins to lose its very meaning and purpose.  So if money is 'free', it will eventually destroy itself and take the banking industry with it.

But, because 'deflation' is the monster in little Janet's closet, the Fed want to hold off on ending the days of free money. So how do we open the closet to show little Janet that monsters aren't real?  Or at least that deflation isn't quite the monster she thinks it is? First, we have to acquire a healthy skepticism for some of what is being passed off as 'data'.

The Fed gets its 'inflation' data from the Department of Labor's Bureau of Labor Statistics.  During the Gingrich/Clinton years these stats were gimmicked to suppress the growth of entitlement spending, producing the much-vaunted 'budget surplusses' of 1998-2001.  The gimmicks continue by removing 'volatile' prices like food and energy, and substituting cheaper equivalents from more expensive ones, in the Consumer Price Index.

Before getting into that a little deeper, this exposes the fiction of an independent Federal Reserve.  The Fed cannot possibly be independent when it tells us that its decisions are 'data-driven', and it then gets that data from the Executive branch - whose political interests in how the Consumer Price Index is calculated are obvious to anyone who has been paying attention. (This holds true across administrations and the major political parties.)

The underlying idea of 'inflation' is that when you have more money sloshing about in the economy (or when you 'ease' the restrictions on the 'quantity' of money - Quantitative Easing) a rise in prices will follow.  But the Fed is wondering why, with all this free money, 'inflation' has not risen.

It has. We have already seen this numerous times in the stock market and real estate: These are the first two places this easy money goes, so stocks are at historic highs and real estate is almost back where it was before the last financial crisis. In the context of the minimum wage debate we are constantly reminded of how the price of milk and eggs has risen.  But none of these things are counted in the CPI.

It is ridiculous, then, to hear Fischer complain that 'inflation' is not where the Fed would like to see it.  All one has to do is look at the Shiller PE Ratio to see that stocks are historically inflated.  A similar picture can be seen in real estate. And anyone who has made dinner lately knows the truth - which is hitting minimum wage employees the hardest.

Probably the most pressing question - from a policy-making standpoint - is whether Ms. Yellen, Mr. Fischer, and their colleagues at the Fed actually believe the inflation numbers they are fed by the Executive branch.  And if they do, why do they believe them?

If inflation is actually more along the lines of four to five percent (as would be seen using the pre-Gingrich/Clinton calculation methods) then there really isn't a monster in the closet after all.  And if the Fed had people who actually understand how information technology is used in supply chain management, the inevitable deflation which has to follow the end of free money will not be quite the monster that keeps little Janet up at night quaking under her blankie.

Is What is Happening at Planned Parenthood "Above our Paygrade?"

Posted on Tuesday, August 4, 2015 No comments

Tuesday, August 4, 2015

It was almost about this time seven years ago that President Obama was asked when he thought a baby had human rights.  His answer was criticized for being a bit flippant:
"...whether you’re looking at it from a theological perspective or a scientific perspective, answering that question  with specificity … is above my pay grade."
The videos now coming out of Planned Parenthood officials and affiliated persons discussing the matter of collecting tissue from aborted fetuses should force this question again to the forefront.  But before addressing the question further, the response from Planned Parenthood is a farce on its face.  The unedited videos are available for anyone who wishes to consider the context. There is simply no credible explanation for what we are seeing other than the "culture of death" so assiduously nurtured by Planned Parenthood.

More than Just Moral Abstractions

But this issue, honestly, is of a piece with what has become of sexuality in gender among us as social conservatives. Instead of refusing to divorce the issue from the real lives of people, we seem to want to make this yet another argument to be won, another wedge issue to drive a political agenda, or more kindling to stoke emotional passions ahead of the next direct mail campaign for donations.

Lest anyone accuse me of trying to have it both ways or to strike a middle ground merely for the lazy sake of being in the middle, let me disabuse the reader of that up front.  I believe life begins at the point of conception and I believe the unborn child is fully human in every sense that the word "human" means anything at all.

But those are nice abstractions.  Here is real life:

The point in a pregnancy probably more fraught with expectation than that initial test and then the birth itself is the first sonogram.  When our first child came, we just wanted a healthy baby; we really had nothing emotionally invested in a boy or girl.  But me being practical, the second time around 18 months later I was rooting for another boy.  Slap the bunk beds together, hand down the clothes and we'd be set!  So going into the sonogram for our second child, we were all keyed up to find out.

And then came the 'look'.

Every parent who has seen it knows what I am talking about.  The tech doing the sonogram sees something unexpected.  But they are just a technician; they cannot make any medical diagnoses or otherwise say anything at all.  So my wife and I look at each other, wondering what we will hear when the doctor comes in and looks.

At that point the doctor could only rule it down to two possibilities.  Either part of the baby's lungs were connected to the esophagus instead of the tubes going to the lungs (both come from the same 'foregut' tissue in fetal development) or a cyst was growing next to the baby's heart.  If it turned out to be a cyst, there was the danger it would push the heart out of its place and kill the baby in the womb.  That, of course, is tragic all by itself.  But if the fetus were to start decomposing in the womb, my wife's life would be threatened by sepsis.  As such the doctor felt medical ethics required that he broach the possibility of having to terminate the pregnancy.  We were not at the point of having to make that decision, but let's just say the next two days were easily the worst of our lives.

In our Evangelical social circles we have a sense of what it means personally to be 'spiritual'.  I would love for others to think of me in those terms, but I would be lying if I did not admit that we talked about 'what if'.  Those conversations included funeral arrangements, so they were very much rooted in the belief that we were talking about the life of a unique individual.  But the abortion debate - as a matter of morality and decision-making - looks very different from that perspective than it does as a political topic for debate.

We were blessed.  Two days later a birth defect specialist repeated the tests and concluded with a fair degree of certainty that it was lung tissue hooked up to the esophagus (bronchopulmonary sequestration).  Our son - Jeffrey - had surgery at three months to correct the problem.  He is 15 now, a great athlete and in terrific shape.

But there are people who end up faced with tragic choices.  As a matter of politics, the first abstract question is whether we want the government involved in these choices.  The problem is we want to segregate our political questions from their underlying moral questions.  This, basically, is what Obama sought to do by claiming the whole thing was above his pay grade (more on that in a moment).  The underlying moral question is, of course, whether or not the fetus in the womb is a human being.  It would be nice if morality and politics never intersect, but the simple fact of life is they do.

Things We Cannot Say We Do Not Know

The fight to abolish slavery is an example.  If the humanity of the black man or woman can be questioned, then the matter of 'owning' a black man or woman as property can be legitimately debated.  But if the humanity of a black man or woman is "written on our hearts" the matter must stand above any argument.  Or in other words, there are things we cannot say we do not know - the humanity of our black neighbor being one.

And the humanity of the unborn child is another.  A sonogram can show an unborn child sucking its thumb.  Not its mom's thumb, mind you - the child is sucking his or her own thumb.  The child may not be biologically or physiologically autonomous, but its moral autonomy is right there on the screen in front of us.  And with today's 3D sonograms, this is only becoming more obvious.  You can no more look at a sonogram and then claim you do not know you have looked at a fellow human being than you can talk to your black neighbor and then claim not to know you have spoken with a fellow human being.  There are, again, some things we cannot say we do not know.

So we come back to what is and what is not within our "pay grade."  Was the humanity of black men and women above the pay grade of those who brought their Evangelical Christian convictions into public policy debates to argue for the abolition of slavery?  Were civil rights for African-Americans above the pay grade of Dr. King and all the others who marched with him?  At the end of the day these issues all drilled down to the essential humanity of black men and women.

And so as we are faced with the vile, despicable perspective of Planned Parenthood - and no, you cannot explain these things away by questioning the motives of those who surreptitiously recorded the videos - there simply is no escaping these inconvenient questions. Morality itself is meaningless if these things are above our pay grade.  And culture itself is impossible without at least some foundational, common sense of morality.  It does not have to have all of the particulars of my Judeo-Christian morality, nor does my neighbor need to sit next to me in church on Sunday nor agree with me politically on election day.  But we have to be both willing and able to judge right from wrong at some level.  These videos present to us the perfect example.

As a conservative I will never be comfortable with the idea that the government could have inserted itself if the decisions my wife and I feared we would have to make - and that other friends of mine have actually had to make and grieved bitterly for having had to make them.  Keeping the government out of our lives is the very hallmark of conservative political philosophy, so we ought to be a lot less eager to blindly insert government into these kinds of things.  But we are still dealing with a fellow human being in the womb.  This is not an argument to be won in the abstract - it is a truth already written on the human heart.

And it is most certainly not above our pay grade.

The Equality Act and Religious Freedom

Posted on Friday, July 24, 2015 No comments

Friday, July 24, 2015

Yesterday (Thursday, July 22, 2015) "The Equality Act" was introduced in Congress.  This act would "outlaw discrimination on the basis of sexual orientation or gender identity in employment, housing, public accommodations, and other areas of law where discrimination is already prohibited for others," according to a MarketWatch article.

This is certain to butt up against the traditional view of religious freedom held by many Americans.  It is also certain to keep the political waters roiling, which may be part of what it is designed to do anyway. In its current form I doubt it is likely to pass the Republican Congress. But we have to have more than just a "no" vote.

The Standard "Three-Prong Test"

Federal courts have a very well-established precedent for evaluating laws which place restrictions on constitutional liberties.  In order to have a productive, reasoned debate about this issue, these liberties have to be clarified.  While we may not like having to accept the reality of a constitutional right to marriage, these are now the judicial 'facts on the ground'.

The second liberty in question is the freedom of religion, which is inescapably in question here.  The homosexual community will argue that it is not in question because the courts have already ruled that people cannot be denied things like housing (e.g. an unmarried heterosexual couple) based on religious objections to their living arrangement. Apples are being compared to oranges here, and this comparison will become clear when we look at this "three prong test."

When a law restricts the exercise of a constitutional right, the government must show three things: 1) the restriction is in furtherance of a "compelling governmental interest;" 2) the restriction is the "least restrictive means" of furthering that interest; and 3) the restriction does not place an "undue burden" on the individual seeking to exercise that right.  If a former test can not be met, the latter test or tests are moot.

Apples and Oranges

This is why, to start with, the law cannot infringe upon the religious freedom of a Christian photographer or baker unless it can be argued that there is a "compelling governmental interest" in a gay couple being served by one photographer over another, or by one baker over another.  If that first test is not passed, the other two are irrelevant.

It gets a little more complicated when it comes to service in, say, a restaurant.  While it could be argued that there are other restaurants which will serve a gay couple (the same basic argument as the baker/photographer), it can be argued (and personally, this is how I see the issue) that access to basics like food implicate a "compelling governmental interest" and so can be required by law regardless of a restaurant owner's moral objections.  If a restaurant can deny service to a gay couple, then a grocery store could as well.  If we follow the logic to its necessary end, the "compelling governmental interest" only becomes clearer the further we go along that logical path.

And it becomes easily recognized when we talk about housing.  The ability to obtain shelter is clearly a "compelling governmental interest" and so the law can require a Christian landlord to rent to a gay couple just as it now does an unmarried heterosexual couple - religious convictions notwithstanding.

Questionable Motives

If the effort is to have a reasoned debate, it is usually not helpful to question motives.  But there is a side to this matter that merits a question: Islam as a religion has the same, if not an even stronger and more uniform objection to homosexuality as does conservative Christianity.  Yet there have been no reports of gay couples seeking out the services of Muslim photographers or bakers.  Are we to conclude that we have no Muslim neighbors engaged in these professions?  Or is this a concerted effort to both marginalize and criminalize the consciences of conservative Christians?

There is an intellectual drift on the part of the American Left away from classical liberalism when it comes to religion.  We saw this in the Obama administration's original regulations on birth control and health insurance.  An exemption was granted for "houses of worship" but not for an organization like a Christian hospital.  What this amounts to is the transformation of "freedom of religion" into "freedom of worship."  These two are not the same.

We see the same pattern in this debate over gay marriage.  It is said that churches and ministers will not be required to host or officiate gay marriages.  But a Christian baker, photographer, or wedding planner will have to serve a gay couple in the preparation and performance of their wedding.  The distinction is disingenuous (and patently illiberal) precisely because it diminishes the freedom of religion into merely a freedom of worship.  The difference between the two is conscience.  For the freedom of religion to survive, our consciences must remain free to guide our actions unless a "compelling governmental interest" is otherwise implicated.  Again, the burden lies on the gay couple to prove there exists a "compelling governmental interest" in being served by one photographer, baker, or wedding planner over another.

Unconservative Moralism

But there is a flip side to this debate.  I have already written about how, if I were a baker and were in the business of baking wedding cakes, my conscience would lead me not only to serve the gay couple, but to bake them the very finest possible wedding cake.  My conscience leads me in this way because I observe from Scripture that sex and gender are characteristics we share with the animals, not with God.  We are created in the "image of God" and so we share certain characteristics with God as well - our creativity perhaps being the most important of many.

I would certainly be uncomfortable so serving a gay couple.  But my Scriptures also teach me that being redemptive is - more often than not - quite uncomfortable.  And as time passes, it only seems to become more so.  As a result it becomes ever more important that my conscience call me back to the very foundation of Judeo-Christian ethics - presenting the "image of God" in our world.  I reason that in the exercise of my creativity - be that in baking cakes, as it were - I meaningfully present the image of God.  As so, to present His image in the lives of a gay couple who are my neighbors, I would create the finest possible cake for their wedding.

My question for those who share my conservative outlook and my discomfort with homosexuality is this: Am I free to follow my conscience without a cloud of unconservative moralism hovering over it?  I am not objecting to being asked to weigh the ethical issues surrounding this topic from both sides.  I am objecting to the sense that "being right" is a valid end in and of itself.  Maybe in a court of law it is, but as I seek to be redemptive in my world, it manifestly is not.

Sovereignty and Debt: Financial War Breaks Out Into the Open

Posted on Tuesday, July 14, 2015 No comments

Tuesday, July 14, 2015

We are about to find out how far Europe is willing to go in throwing away democracy (which was, of course, born in Greece) to the keep the sham which is the Eurozone alive.

The purpose of the Eurozone, from its inception in earlier forms to the shared currency, is to prevent nationalist rivalries – mainly between France and Germany – from consuming the Continent in another arms race as a prelude to another war.  The effort has succeeded if we limit our idea of ‘war’ to bombs and bullets.  It has failed miserably if we consider the reality of a financial war.

Many commentators have already noted that we are well into the midst of such a war.  One term which has been used is a ‘currency war’ involving players such as the United States, Russia and China.  But an even wider financial war is being fought over the battlefield of economic self-determination.

This war is really no different than the First and Second Bishops War of the mid-17th century.  Having expended its wealth on the former, the British Crown (King Charles I) confiscated gold deposited in the Royal Mint in order to pay his soldiers to fight the latter. This fight was about religious self-determination – who would appoint bishops over the Church of Scotland. But in order to fight this war, Charles I needed first to win a brief skirmish over the money supply.

The gold held in deposit by the Royal Mint did not belong to the Crown, but rather to English merchants who had earned it in the course of commerce.  By confiscating this gold as a forced loan, Charles I won the initial skirmish – over the money supply – necessary to fight the rest of his war to force his appointment of bishops over Scotland.

Charles I repaid the loan, but the English merchants were tired of being dragged into the Crown’s wars and so began to deposit their gold with trusted goldsmiths.  These goldsmiths issued receipts which guaranteed the redemption of the amount of gold to its owner upon presentation.  These receipts – ‘promissory notes’ – were the forerunner for what we Americans know as ‘Federal Reserve Notes’ – the U.S. Dollar.

But even these goldsmiths were not immune to the temptation to control the money supply.  They noticed that these notes were circulating in the economy without being presented for redemption.  What happened was civil society realized the notes were useful for facilitating everyday commerce.  It was much easier to carry the notes around rather than the gold.  So the goldsmiths began issuing ‘extra’ notes and lending them out at interest.  That they did not have the gold to back the sum total of all of the notes in circulation was their dirty little secret.

There is an extremely important observation to be made at this point – and this forms the entire premise of this post: What we know today as ‘money’ originated as a tool or utility – contrived not by a monarch or by a ruling class – but by ordinary civil society to facilitate everyday commerce.  As the Greek crisis proves, what we know of ‘money’ today has now become first a tool of the State for the pursuit of inherently undemocratic political goals.

It isn’t that peace in Europe is not a worthy goal. It is, rather, that peace in Europe has to begin with civil society and only then can it become a formal relationship between the several states of Europe.  The European Union’s fallacy – the reason why the Euro is destined to fail – is that its perception of Europe is one where the State is the most significant unit of society.  Conservative political commentators in America refer to this way of seeing things as ‘statism’.  And because the European elite are essentially ‘statists’ their view of money follows: Instead of first being a utility contrived by civil society to facilitate commerce, it is first a tool of the State to impose a political order favored by elites.  Whether it be a monarch wishing to confiscate the money supply for religious purposes or an elite ruling class wishing to do so for political purposes – this theft of the money supply is theft just the same.

This is how I have come to what seems to be a decidedly non-conservative conclusion: Greek civil society must insist their parliament refuse the demands of the ‘deal’ struck between Europe and their Prime Minister Alexis Tsipras. This will certainly mean expulsion from the common currency and the reintroduction of a devalued Drachma.  But it will also put Europe in the position of having to negotiate an honest settlement on debt relief – or get nothing at all.

That this will set a precedent for the rest of debt-laden Europe – specifically the much larger economies of Italy and Spain – is really what European elites fear.  But it is important to understand why they fear this: their entire statist project will be revealed for the house of cards it is.  The world will see what happens when the ‘ruling class’ confiscates the money supply.

There have been whispers of late that the ‘cooking of the books’ that got Greece into the Eurozone to begin with was done at the behest of the European financial sector and that it may not be restricted to Greece.  It is not hard to understand why: the more countries which use the Euro, the more ‘customers’ there are for the banks.  Where the ‘extra’ notes were the English goldsmiths’ dirty little secret, one wonders whether the cooking of the books of southern European countries is the dirty little secret of today’s European financial sector.

It is also important to understand how the interests of political society and the financial sector coincide.  The first order of political society is to get elected.  Southern European political society – Greece’s included – has accomplished this by making promises which cannot possibly be kept.  The financial sector has been happy to paper over these falsehoods.  They do so by printing money and lending it out at interest in the form of ‘sovereign debt’.

But as the ‘deal’ has proven, there is nothing sovereign about this debt; indeed this debt has come at the cost of Greek financial sovereignty.  But if ‘sovereignty’ is to have a financial dimension, this must be the case for both the debtor and the creditor.  The fundamental problem with having the financial sector – with their shareholders’ investment at stake – in control of the money supply is how the financial sovereignty of the creditor nations is protected at all costs and the financial sovereignty of the debtor nation is completely exposed; some are more ‘sovereign’ than others.  If this state of affairs is allowed to stand - with no 'haircuts' for the creditors - all risk has been shifted to the debtor and no risk is assumed by the creditor.  The irresponsible lending – and therefore the irresponsible borrowing – will only continue until even the slightest breeze strews this tower of cards throughout the whole house.

To reject the terms of this ‘deal’ will be an immense sacrifice for the Greek people.  But they will have both their sovereignty and their dignity back.  The problem is you cannot feed your children and your aged with either sovereignty or dignity.  If they choose this route – and for the sake of my children and grandchildren I hope they do – they will go down in history once again as those who led the world away from the cliff that is ‘sovereign debt’.  But in order to lead in such an historic way, the people of Greece must first give birth to an energetic civil society and take the social reigns from political society so they can then have a smaller government, with a lower tax burden, and actually begin innovating, improving things in the real economy and creating real wealth again.

Political society – Greece’s included – has failed to lead us to prosperity.  It is now up to civil society to show the way.

'Sovereign Debt' is an 'ὀξύσμωρός': Repudiate It!

Posted on Monday, July 13, 2015 No comments

Monday, July 13, 2015

The people of Greek are bewildered by the 'deal' (which is really a complete capitulation) struck by the Tsipras government with Greece's creditors. From MarketWatch:

“I’m quite upset with this deal, it doesn’t feel like I live in a sovereign country anymore,” said Haris Manolopoulos, who works as a buyer in the aircraft industry. But he added: “There was no other option, really. I negotiate deals for a living and I know this: The moment you start looking for money, you are in a bad negotiating position.”

Hopefully Greece - which has given birth to much of what we take for granted politically and culturally - will learn the lesson the entire Western world needs to learn.  If so, common sense might be born there, too.

'Sovereign debt' is an oxymoron.

The etymology of that term is interesting.  At first I thought it was rooted somehow in the Greek όχι (for 'no' and which was the Tsipras government's theme in the referendum).  But it is actually a compound of ὀξύς (sharp/keen) and μωρός (dull/stupid).  And so something that is in itself a contradiction of terms is an 'oxymoron'.

The degree to which one country is indebted to another is the degree to which the debtor has ceded its sovereignty to the creditor.  This is more than just a 'feeling' in Greece now - it is a reality with talk of privatizing Greek islands - literally selling sovereignty (over territory) to pay a debt.  All Tsipras got was an agreement to administer the fire sale in Greece - under European supervision.  And so "sovereign debt" is clearly an oxymoron.

It is even an oxymoron when looked at from the creditor's point of view.  Let's take Germany as an example: The memory of the Wiemar Republic is alive and well, so Germans are loath to repeat this mistake by monetizing the debt of debtor countries like Greece.  For them it would be a matter of being robbed of their purchasing power to pay the debt of other countries.

Interesting how 'sovereignty' works both ways, isn't it?  The German demand to have their purchasing power protected is 'sovereignty' from the creditor's perspective.  The Greek demand to retain control over their financial affairs is sovereignty from the debtor's perspective.  But sovereign debt is - whether the loss of sovereignty implicates purchasing power or financial prerogatives - an oxymoron just the same.

Do the Greeks Desire to be Part of a Failing Project?

It really is only a matter of time, and the circumstances under which we will learn the needed lessons. Regardless of the time and circumstances, the lessons will be very difficult to learn, but the same road will have to be traveled regardless.

So let's say the Greek parliament does what they recommended to their people, vote όχι (no) on the slate of legislation that will be presented Wednesday.  Such a vote will be a recovery of sovereignty, but will certainly come at the cost of membership in the Eurozone. By doing so, the Greek government would actually be in its strongest position yet if the aim is to get genuine debt relief rather than to just roll over the loans.

As I noted here, most of what is beautiful in European (and American) culture (both in terms of our forms of government and our religious traditions) was born in Greece.  As such, the Greek people naturally see themselves as Europeans.

But if this week's decisions are to be about more than that past (which will not feed their children nor care for their elderly today or into the future), the Greek people might want to ask whether being part of this money printing and lending enterprise of European political society is really what they have in mind when they think of themselves as Europeans.  The Greek problem (debts that simply cannot be repaid in money at its current value) is a small version of the same problem in the other heavily indebted, but much larger economies of southern Europe.

But this problem is really one rooted in the games being played between European political society and the financial sector. European political society (Greece's included) gets elected by making social promises that simply cannot be kept. They get away with this because the European financial sector prints money and lends it out (at interest, of course) so the false promises can be papered over with - you guessed it - sovereign debt.  And there have been whispers that Greece's books are not the only ones that were 'cooked' - and perhaps even at the behest of the European financial sector itself. This actually makes sense: More countries in the Eurozone means more interest-paying 'customers' for the money being printed - and more profits for the banks. This is certainly not merely a European scam - the Federal Reserve here in the U.S. is playing the same games with U.S. political society.

Maybe it is time to call the scam what it is and put a stop to it.  What if Greece's parliament actually refuses to pass Wednesday's legislation?

It would leave the Eurozone and have to reintroduce the Drachma at a severely devalued rate.  This would be immensely painful for Greek society, but will also immediately put Greece in a more competitive place to begin creating wealth again.  But the Greek people will have to demand a smaller government, lower taxes, and develop an energetic civil society to address its social needs. As long as Greece labors under the weight of its huge public sector, political society will suck the money supply dry, leaving nothing to those who can innovate and improve things - those who can actually create new wealth.

But this would also teach the rest of Europe - Germany mainly - an extremely valuable (and needed) lesson about 'sovereign debt': It goes both ways.  The Germans were at risk of losing their sovereignty over the purchasing power of their savings.  That is the risk of irresponsible money printing and lending in the Eurozone.

Politics, Speculation and the Creation of Wealth

The implications of this sort of thing for the other countries of southern Europe is really what scares the cartel of European political society and their financial sector.  Regardless of how it would play out, interest rates would rise and the days of free money would be over.  What would this mean?

There are three basic paths money can take: It can be used to fund political preferences.  This is what happens when the money supply is routed to political society.  It can also be used to speculate.  When you can borrow for free and make up to 20% gambling on commodities, why would you bother building a factory and actually producing things? Lastly, the money supply can be used to actually innovate, produce and improve things.  This is where wealth is created - along with stable jobs.

As long as the financial sector can print money to prop up the false promises of political society, a country's money supply will go more and more to political preferences.  And as interest rates necessarily go down (no one rolls over a debt at a higher rate) the incentive only grows stronger to borrow for speculation.  Less and less money goes into actual wealth creation.

Put a stop to the scam, give birth to an energetic civil society, demand a smaller government with lower taxes, and Greece can become competitive again and begin to create real wealth for its people.  It starts by realizing that there can be no such thing as 'sovereign debt' - that debt has now cost you your sovereignty. In doing so you just might lead Europe away from a project which is destined to fail.

Vote όχι! Repudiate it!
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