Risk & the Economy

So there is this panic going on right now in the market...

 Even "safe haven" assets like gold and silver and U.S. Treasury funds are down.  Even what might seem like the most contrarian asset in existence--bitcoin--is down...

 PGIM Stable Value Bond Fund: (https://www.morningstar.com/funds/xnas/pdbax/quote)

Almost every chart you look at will have the same shape today over a 1 month time frame, stocks, bonds, gold, silver, real estate, bitcoin.  Every asset class is going down.

Why is this?

It is because of the liquidity illusion, like Warren Buffett once said, "Only when the tide goes out do you determine who's been swimming naked."

Stocks, bond, gold, silver, real estate, and bitcoin are all integrated into the global market, which is then mutualized and liquified like a giant smoothie with all of the effort and ugliness of managing individual assets that may or may not be immediately salable masked behind ETFs, bond funds, etc. managed by professionals who are bound by integrity to make available as much money as possible to people who want to exit their funds when asked to do so.  However, when the house is on fire, everyone wants to exit at the same time.  So the exits are jammed, the websites crash, the phone lines are overloaded and people get trampled.

In economic terms, people lose money.

A lot of it.


What is the underlying problem?  What fundamental truth can we learn from this?

Jonathan Tepper has an excellent blog article which succinctly sums it up:

The Irish Potato Famine is one such cautionary tale of the danger of monocultures, or only growing one crop. The potato first arrived in Ireland in 1588, and by the 1800s, the Irish had used it to solve the problem of feeding a growing population. They planted the “lumper” potato variety. All of these potatoes were genetically identical to one another, and it was vulnerable to the pathogen Phytophthora infestans. Because Ireland was so dependent on the potato, one in eight Irish people died of starvation in three years during the Irish potato famine of the 1840s.

Ultimately, his key point is regarding risk:

Risk is like energy and cannot be destroyed. It can only be transformed.

The potato of the modern economy is the "fund" or the "exchanged traded fund" in the case of stocks, or as some people refer to it as "indexing."

Why does indexing fail in times of crisis?

Because we have mutualized risk across wider swaths of the economic system.  It is socialized capitalism.  Mutualized risk is the reason every complex system fails under extreme load.  It is the sandpile theory of complex systems at work.

The global economy is a giant sand pile.  Each time a transaction is made a grain is added to the pile.  Corporations succumb to greed by borrowing money as low rates and buying back stock.  Pension funds are forced to go into riskier assets by dangerously low interest rates. Over time the pile grows until it reaches the size where it becomes intrinsically unstable until a tiny pebble, like COVID-19, is dropped into the pile and the whole thing comes crashing down around us.

Risk mitigation strategies exist to help us avoid these things.  It is why microservices are being used today to replace mutualized monolithic applications in the web services world.  It is why redundancy exists in the physical engineering world.  It is why diversification exists in the world of investing.

Why does diversification fail in times of crisis?

Because in times of crisis, funds are obligated to return money to those demanding it; and as a result are obligated to sell of any asset the is liquid enough to be sold, regardless of its intrinsic value.  And so the correlation between previously uncorrelated assets approaches 1 and people lose a lot of money.

And so the good, the bad, and the ugly all get liquidated together into the underlying currency, which is the U.S. dollar in most cases and brings us to our final chart:

So, why is this chart going up when all others are going down?

Because it is backed by the U.S. government, which has the  ability to provide infinite liquidity in the form of new money created out of thin air and released into the wild.  In the past, this has taken the form of "quantitative easing" where the Federal Reserve created money and gave it to banks as reserves hoping that they would lend it out to the broader economy, which in 2008 could not afford the debt anyway.  So the economy sank and people suffered.

I have a quote that I have been refining:

Investing is not about timing the market.  It is about having the discipline to exit before the top and re-enter after the bottom and the knowledge of where to hide in between.

The sticking point is "where to hide in between" since that changes each crisis.  Right now, the hiding place is in U.S. dollars or cash.

The problem here is that we are repeating the same mistake again.  The U.S. government has crossed Mario Draghi's line and now seems willing to do "whatever it takes" to resolve this crisis.

For better or worse, we are on the threshold of a paradigm shift.  We are about to step into the completely untested world of Modern Monetary Theory and print ungodly amounts of money and throw it out of the helicopter.  Where this helicopter money goes will determine the depth and breadth of the evolving depression, but this money printing mutualizes risk as the highest level, that of the underlying currency.

I suspect that MMT will dampen this depression to only a severe recession, but in doing so we will be setting ourselves up for an even bigger fall in 5-15 years from which the U.S. government will not recover.  History doesn't repeat, but it does rhyme, and I suspect that U.S. as we know it will not exist in 20 years.  We will find our inner-Roman Empire soon.

This is Socialism

Venezuela food shortages cause some to hunt dogs, cats, pigeons

Peter Wilson

Special for USA TODAY

Published 5:09 p.m. ET May 18, 2016 | Updated 8:29 p.m. ET May 18, 2016

LA VICTORIA, Venezuela — Unemployed construction worker Roberto Sanchez could hear a time bomb ticking as he waited in line with 300 people outside a grocery store this week, hoping that corn meal or rice might be delivered later in the afternoon.

He fears that Venezuela could explode at any minute into political and economic chaos.

“We have no food. They are cutting power four hours a day. Crime is soaring. And (President Nicolás) Maduro blames everyone but himself for the mess we find ourselves in,” said Sanchez, 36. “We can’t go on like this forever. Something has to give.”

The question is what will give first. As the economy spirals into deeper disarray, protests aimed at driving the unpopular president out of office are growing. Maduro responded over the weekend by declaring a 60-day state of emergency to combat what he said are U.S.-sponsored efforts to overthrow his socialist government.

Venezuela's Maduro: Take Fridays off, curb blow dryer use to ease power woes

The confrontation has spilled into the streets. On Wednesday, riot police in Caracas fired tear gas as they clashed with thousands of protesters seeking a recall referendum against Maduro. The anti-government protest was the third in a week.

The unrest mounts as the country faces continuing shortages of essential food, medicine and toiletries. All the bakeries here in La Victoria, 55 miles southwest of Caracas, stopped producing bread last week because there is no flour.

"People are hunting dogs and cats in the streets, and pigeons in the plazas to eat," Ramon Muchacho, mayor of the Caracas district of Chacao, said this month in a tweet that was reported in many newspapers.

Beer shortage for Venezuelans proves tough to swallow

Although Venezuela has the world's largest petroleum reserves, the country has suffered from a combination of lower oil prices and tight limits on dollar purchases that have cut off vital food and most other imports. The result has been a plunging economy and the world's highest inflation rate — above 700%.

Because Venezuela imports 70% of the goods it consumes, including most medicine, growing shortages of medicines for such ailments as cancer, diabetes, hypertension and HIV has created dire situations for many.

“My 4-year-old daughter is dying of cancer, and there’s no medicine here to treat her,” said Luis Avila, 42, a farm worker outside this industrial city. “What am I supposed to do? What can I do? Maduro has destroyed this country.”

An epic drought has also gripped this nation that relies mostly on hydroelectric dams, sparking rolling blackouts and water shortages. Hospitals have had to postpone operations and procedures because of power outages. And government employees now work only two days a week to conserve electricity.
Venezuelan President Nicolas Maduro speaks during a news conference on May 17, 2016.

“Shortages are just going to get worse in the coming weeks and months, and the government's bet that they can keep the protests and looting ... small-scale seems risky,” said David Smilde, a senior fellow at the Washington Office on Latin America. “Venezuelans are not used to hunger and do not have a lot of respect for Maduro as their leader.”

Voters in Venezuela gave the opposition a landslide victory in December's congressional elections, and polls now show a majority of the country wants Maduro out as president. His term expires in 2019.

“Venezuela is a bomb that could explode at any moment,” opposition leader Henrique Capriles warned during a Saturday rally.

Maduro, the handpicked successor of the late Hugo Chávez, discounted the chances of a recall referendum being held this year.

“They don’t want a referendum, they want a coup,” Maduro said this week during meeting with foreign journalists. “We have no obligations to hold any type of referendum in this country.”

U.S. State Department spokesman John Kirby said Wednesday that "reports of excessive use of force and violence against protesters obviously is troubling to us ... We don’t believe that that response to peaceful protest about real difficulties facing the Venezuelan people is the appropriate response."

He called Wednesday for "all Venezuelans to try to work together peacefully" to solve the country's problems.

https://www.usatoday.com/story/news/world/2016/05/18/venezuela-food-shortages-cause-some-hunt-dogs-cats-pigeons/84547888/

U.S. Saudi Arms Deals

I was dismayed to find this New York Times article[1] about U.S. arms deals with Saudi Arabia allowing them to manufacture advanced guidance components for our missile systems. 

This is not okay.

U.S. engineers worked tirelessly for years to perfect those systems, and giving the designs away is not worth any geopolitical gain.  There is zero chance that these designs will not be stolen by the Russians and the Chinese.  Zero.

We are giving away all of our hard work, and then we wonder why the rest of the world catches up so quickly.

I do not see how Trump can be so strongly against technology transfers to China and then hand over our advanced weapon systems to Saudi Arabia. 

This is unacceptable.

[1] https://www.nytimes.com/2019/06/07/us/saudi-arabia-arms-sales-raytheon.html

The Death of China in Slow Motion

The intelligentsia in China is more aware of the abrogations of freedom than the same in the United States.  Many professors in the U.S. long for communism, while those in China suffer under it.

Under Xi, China is suffering from increasing lack of diversity in thought that is brought on naturally by the lack of diversity in political viewpoints and leadership.  This, in turn, leads to a stagnation of innovation, which will lead to a stagnation in economic growth and the eventual decline of all of Chinese society.  China is now following in the footsteps of Soviet Russia.

Yet, in America, people clamor for communism without thinking about the consequences of such a system.  People are evil, and thus communism will always fail.

This article was written by a Beijing professor, named Xu Zhangrun, who is attempting to change the course of debate in Chinese politics.  He wrote a blunt and scathing article on the issues with Chinese communism:
http://chinaheritage.net/journal/imminent-fears-immediate-hopes-a-beijing-jeremiad/
This article was translated into English by Geremie R. Barmé.

Xu addresses four principles, eight fears, and eight hopes for China:

Four Principles:
 - Stability and security
 - Private property rights
 - Tolerance for personal freedoms
 - Term limits for political appointees

Eight Fears:
 - Property tremens
 - Putting politics back in command
 - Class struggle
 - A new closed-door policy
 - Excessive international aid
 - Repression of intelligentsia
 - A new cold war
 - Return to totalitarianism

Eight Hopes:
 - An end to wasteful international aid
 - An end to diplomatic extravagance
 - An end of party privileges and party nobility
 - An end of luxury provisioning
 - Requiring party officials to publicly declare their assets
 - An end to the Xi personality cult
 - Restoration of presidential term limits
 - Overturning of the 4 June Edict (regarding Tiananman Square justification)

Related article here: https://www.nybooks.com/daily/2019/04/19/a-specter-is-haunting-xis-china-mr-democracy/

The Globalist on China

The Globalist has, in the past, been somewhat known (at least in my mind) for their single-minded Liberalism.

This post is one of the most thoughtful, comprehensive and nuanced articles I have ever seen from the Globalist.

A 5 second view of the article is about how many business leaders adore China and their strong, unified policy without considering the costs of such a policy.

https://www.theglobalist.com/china-united-states-governance-society-economy-xi-jinping/

Mauldin on the Trade War

John Mauldin wrote an excellent piece here on the ongoing, insane trade war with China.

The key points are:

1. Intellectual property theft is a FAR bigger problem than deficits or trade imbalances.
2. "If other nations don’t want your currency, you can’t run trade deficits without severe economic problems. Valéry Giscard d'Estaing was right: The US has an exorbitant privilege as owner of the world’s reserve currency.  In fact, if you have the reserve currency, it is your obligation to run deficits so that the world has enough currency to conduct trade. (bold face mine)

We need to resolve the intellectual property theft crisis.  The trade imbalance is a side effect of owning the world's reserve currency.

https://www.mauldineconomics.com/frontlinethoughts/digging-a-hole-to-china

A New Facebook?

I peruse the news, as usual to keep abreast of the madness in our world, and I came across a curious article that portends a turn in past Facebook policy.

Everything before now that I have seen come from Facebook typified a company sold on the Liberal agenda of controlling minds by controlling information availability.  The arrogance of using position to dictate.  The same sin of many dead socialist dictatorships before Facebook.

But this turn is new.  It is the first sane statement that I have seen come out of the faceless, soulless machine that is Facebook.  The very same soulless machine that was dragged before Congress and cross-examined.

This is the first breath of humanity that I have seen of Facebook in a very long time.

The article is from Fox News, for which I also hold no particular love, but there is one statement in here that I picked up on:

"We remove things from Facebook that violate our Community standards, and we don't have a policy that stipulates that the information you post on Facebook must be true,' the company said Friday, according to ABC7 News.

This is the first time that I have seen Facebook take a stand for freedom of information, which is a fundamental pillar of any free society.  Like Thomas Jefferson said, "If a nation expects to be ignorant and free in a state of civilization, they expect what never was nor ever will be."

The duty of determining and defending truth lies with each individual in a society.  Shirking this responsibility remains the surest path to tyranny.

Think for yourself and judge everything that you see or hear critically in a holistic fashion.  All of our freedom depends on this!

IPCC Climate Change Technical Summary

https://www.ipcc.ch/site/assets/uploads/sites/2/2018/12/SR15_TS_High_Res.pdf

This paper is a curious representation of the credibility crisis that has infested mainstream science.  Contained within this technical summary is not one line of science that I could find.  There was no description of the methodology used to arrive at the results, no description of the measurements taken, no assessment of the biases inherent in the methodology or any assumptions made to arrive at the results, no procedure that would allow this report to be reproduced independently.

https://www.elsevier.com/connect/11-steps-to-structuring-a-science-paper-editors-will-take-seriously

It seems to me that they do not want this report to be reproduced, and that they merely wish to cry foul and harp on their particular view of the world in order to peddle influence and force people to adhere to their narrow view of what is happening.

This is not science.  This is political dogma wrapped in a scientific robe.  Congratulations, environmentalists, you have destroyed science.

Mauldin on Trade Deficits

Mauldin has yet another excellent article regarding trade and trade deficits, as he says: "I have to confess something: I run a huge trade deficit. It’s not with China or Mexico, but with Amazon. I buy all sorts of goods from them and Jeff Bezos has yet to spend a penny with me. It’s just not fair."

The U.S trade deficit is just as useful.  It does two very good things, 1) it gives us lots of cheap stuff, and 2) sends lot of U.S. dollars around the world to help maintain our currency as the world's reserve currency.

A great many people do not realize what advantages you get by issuing the world's reserve currency (like being able to run 130% debt-to-GDP without completely destroying your economy... yet).

If we pursue aggressive protectionism, it will deeply incentivize other countries to not hold as many U.S. dollars in their reserve pools and thus erode the dominance of the U.S. dollar as the world reserve currency.

This trade war nonsense is the only reason I refused to vote for Trump, because I understand the nature of trade and the advantages of our country issuing the world reserve currency.

Hopefully, Trump does not destroy this advantage with his tomfoolery.

Mauldin's article is posted below, but without images, since my email does not load images.
If you want the chart and image version, go to Mauldin's site, here:
http://www.mauldineconomics.com/frontlinethoughts/the-trade-deficit-isnt-the-boogeyman

U.S. Public Pension Crisis

I apologize to any regular reader.  I have not written as much lately.  I have been busy, which is both good and bad.

Anyway, Mauldin has an article, titled "The Pension Train Has No Seatbelts" regarding the public pension crisis in the U.S. that is packed with a lot of useful and scary data.

Most of the states in the U.S. are underwater financially, and some of them are going to go belly up very soon (like Illinois, for example).  Even the state with the highest average income (Connecticut) is short by around 50% of their stated pension obligations.

This is not going to end well.

It is why I am completely convinced that biotechnology and life and health extension must happen.  If it doesn't, our civilization collapses.

So, people of my generation need to begin to get used to the idea of living and working for the next 300 years to try to fix this insane situation.  Fortunately, biotechnology will allow us to do that.  Companies like BioTime, Asterias, and AgeX are at the forefront of this, and have been for years now.

The biotechnology age of humanity is dawning, and I --for one-- look forward to being an elf.

Syria, Russia, and Chemical Weapons, Oh my!

So, the Syrians gassed more of their people again...

The last strike we did on them was little more than a hand slap.  They got their airfield up and running again in 2 days (or so).

In order to actually punish them for this attack, we would have to spend a lot more resources.  I honestly do not think that Syria is worth it.

We need to pursue a soft power diplomatic approach here.  I would recommend going after Russia via the EU.  I am quite certain the the Europeans don't want a chemical weapons arms race, so they would likely be willing to pay a higher gasoline/LNG/propane bills to sanction the Russian energy sector.  That would hit Russia and actually leave a mark.

Any further military strikes in Syria are too costly to be worth it.

China and North Korea

I found a curious news article on the South China Morning Post that describes one Shi Yinhong international relations adviser to China's State Council's opinions regarding North Korea.

According to this article, Shi states, “North Korea is a time bomb. We can only delay the explosion, hoping that by delaying it, a time will come to remove the detonator."

This is the first Chinese official I have seen taking the possibility of war on the Korean peninsula seriously.

There was one other detail that I found interesting.  In Asian culture there is an idea of "face" that plays an enormous role in cultural interactions both within and between cultures.  This article states, "He also said Kim’s failure to meet Chinese envoy Song Tao during his trip to Pyongyang last month was a “humiliation” for China."  Meaning that Kim Jong Un effectively degraded the Chinese delegation and in doing so disrespected all of China.

Why Kim Jong Un would do this is beyond madness. China has been one of few allies the North Koreans have had, and disrespecting them in a such a manner is a sure way to ensure that China changes their stance on the North Koreans.

When this is combined with the reckless threats that Kim Jong Un has been making, these realities are finally starting to sink in for the Chinese.   The same nuclear weapons that Kim Jong Un threatens to use on the U.S. could very easily be pointed west towards China.  Perhaps that will change China's characteristically pacifistic view on North Korea.

A war of China and the U.S. against North Korea would be a very short affair, I suspect.  I also think it would be a good thing for nearly everyone except Kim Jong Un and his associates.  The U.S. cannot do a war in North Korea alone.

Insanity All Around

As I stand my ground, I find myself increasingly middle of the road when it comes to the left-right paradigm in culture.  I have neo-Nazi crazies on my right and progressive, violent liberal pinheads on my left.

In this whole debate about the historical statues and monuments of an era which few now even remember, let alone comprehend the significance of, I found a morsel of truth and sanity in this post by "Desiring God," "The Monumental Problem: Hashtag Activism and Covert Racism," by Greg Morse.

This article reminds us again of the racist machine that is turning and churning, exterminating more black children more efficiently than any scheme which Hitler could ever have imagined.

It is the duty of Christians to stand against evil, wherever it may be found on the left and on the right.  It is our duty to see, to discern, to shun, and to help extirpate it.

Review: Of Personal Liberty - Verl Engel

Few of you know that I have been actively involved in the authorship of a very important libertarian book project being written by a man who has become a close friend of mine, Verl Engel.  Of Personal Liberty was written to address one of the many avenues that the government is routinely violating our rights.  I would highly encourage all of my U.S. readers to buy and read this book.  It is an essential piece in the fight to defend our freedom as Americans.

I am going to repost my foreword here because it is the most impassioned plea that I can make for you to read this book:

Imagine lights flash behind you, red and blue, and in the moment of surprise and incrimination, you begin to pull over. The officer in blue walks up after you dutifully stop, according to seemingly countless years of custom. She immediately inquires as to your velocity, seeking to use her aura of authority to back you into confessing to a perceived crime. You relinquish your documentation when impudently requested, and in return receive a citation obliging your remittance for a state-ordained wrongdoing. 

What if you didn’t have to stop? What if the law was actually on your side? The author of this book is going to convince you that this is the case. The Constitution of the United States of America is explicit in its limitations on governmental power and authority. You—as a citizen of the United States of America—are the beneficiary of the trust that is the United States Constitution. The government—as the trustee—is forbidden from depriving people of their freedoms and unalienable rights without due process. Since the signing of the Constitution, the intervening centuries have quietly eroded the liberties of American citizens. 

The government, particularly in the new millennium, has been accelerating this process of depriving Americans of liberties. The War on Terror has overseen the greatest of deprivations, from dismantling privacy of communications to banishing the right to a fair trial—rights guaranteed in the Constitution—all under the guise of necessity and security. The specter of an omniscient state divested of any trust in its citizens and void of any duty to protect their rights is not a distant nightmare. This is the waxing reality of the twenty-first-century police state. A reality often ignored by the average man or woman on the street, who lives happily in his or her fishbowl, always under the watchful eye of the government. 

Our government, at this critical juncture, does not yet have full control of citizens’ actions, but it seeks to corral people into ill-fitting but easily definable “safe” and “dangerous” categories. The following years will testify whether history turns this intrusive government into a tyrannical government or—if the people demand—into a government that deals respectfully and honestly with its beneficiaries. 

Absolute power corrupts absolutely, and with the continuing consolidation of power in the hands of the government, the future of the United States of America as the land of the free is in jeopardy. The crux of the matter lies in how much the people are willing to concede before they stand up and say, “Enough.” If the government can keep the apathetic populace adequately anesthetized to avoid questioning the accumulation of centralized power, then the transformation can continue undeterred. The government may then, and only then, fully take on the role of provider, controller, and dictator of not only what its citizens may not do, but also of what its citizens must do. This is the goal of a secure state, to dictate “good” behavior to its citizens and extirpate any residual resistance. 

This book seeks to awaken people to the emergence of this totalitarian state. Will America return to being the land of the free, or will it manifest itself as the latest echo of authoritarian regimes proudly arrayed throughout history? As Ben Franklin has said, “Those who trade liberty for security deserve neither and lose both.” Liberty depends on the responsibility of people to see and to act to thwart tyranny.

As one of “We the people,” I humbly implore you not only to read this book but also to spend time comprehending its implications. As Thomas Jefferson said, “If a nation expects to be ignorant and free in a state of civilization, they expect what never was nor ever will be.”

Patrick Cox on Aging and Richard Fisher on Orange Swans

I had two delightful Mauldin things come in this morning.  One by Patrick Cox on aging and biotechnology, which is hardly surprising given his constant harping on the issue.  He has a couple of savage lines that ring truly to me.  First he starts off by pointing out a recent article in the Washington Post:

Last year, we began to see articles in the press conceding that overpopulation wasn’t going to end civilization. This year, we’re seeing reports on the real population problems—depopulation and aging. 

For example, The Washington Post published an article titled, “The U.S. fertility rate just hit a historic low. Why some demographers are freaking out.”

And then he goes on to contrast this article with an article from the same newspaper from 1985 when people were freaking out about "overpopulation."

This is quite a change from pieces published in the same newspaper in the 1980s. Here is the lead from an older article titled, “Global Overpopulation.”

In the face of overwhelming evidence that there is no way of fighting poverty in the Third World without more extensive family planning, the Reagan administration is cutting back its support of the most tested and experienced organizations in this field, condemning wide areas of the globe to ever bigger, ever more hungry populations. 

The point of the piece above was that more US taxes should flow to national and international overpopulation experts. Politicians who disagreed were accused of ignoring or even causing mass starvation. 

Today, almost everything about that article has been proven wrong.

 And he is not wrong.  The environmentalists and overpopulation crazies have been at this for years.  They were wrong then.  They are wrong now.  They peddle fear with an agenda.  Nothing more.   Patrick Cox goes on to rightly assert that the movements like overpopulation and environmentalism are little more than secular religions, complete with swaying somnambulant masses, adoring pundits, and exalted technocratic priesthoods.

Today, the journalists, academics, and politicians who spread overpopulation hysteria have moved on to new doomsday scenarios. Oddly, they’re still demanding immediate and massive tax monies for “experts.” It seems they’re hoping that we’ll just forget how wrong they were about population. 

Personally, I’m not forgetting. Their irrational obsession has done serious damage. They have distracted us from that fact that the shrinking population of workers can’t support the growing population of older and sicker retired people. 

This is the flipping of the demographic pyramid. Warren S. Thompson first predicted it in 1929 in a paper for the American Journal of Sociology. 

Thompson’s textbook on demographics was standard in American colleges until the 1960s. Then, it was displaced by what I view as an apocalyptic environmentalist religion.

Anyway... enough about insane liberal media.  Let's move on to something more enthusiastically optimistic.  Richard Fisher has been a Federal Reserve President and has lived in the belly of the beast for sometime and shouted, rang cymbals, produced smoke signals, and probably every other imaginable form of objection noisemaking he could prior to various insane moves by the Fed in the past, which were promptly and completely ignored by those who made the decisions...  to all of our disadvantage.  Now are are neck deep in the dung with no shovel in sight.  But Richard Fisher is apparently an eternal optimist...  I hope--in my heart of hearts--that he is right.  I must admit that I feel the fire to resist and build independently of the mad government, but I am not confident that this fire burns in enough souls in the U.S. to save us as a country.

I am going to repost his speech in full, because it is a very worthwhile read.  The link to the Mauldin site is here too.

Law is inherently violent

Finally, other people are catching up on libertarian ideas regarding law and government.

This short piece by Yale law professor Stephen L. Carter states clearly that all law is fundamentally based on violence, and that we as a society need to have a serious discussion whether all of the laws that we have on the books are worth killing your neighbor over.

Are you willing to kill your neighbor so that everyone in the country can have free health care?  Because if not, then free health care should not exist.

Something to think about.

Doug Casey on Cultural Marxism and Bioethicists

Doug Casey is a firebrand libertarian who loves to preach 'doom porn' as Kyle Rearden calls it.  I read Doug's words because he presents a vastly different -- in some ways -- view of the world than I have; and while I disagree with some of what he says, I believe his core ideas are both sound and true.

In this article, I wanted to highlight his view on how cultural marxism, which I agree with him, is a cancer upon our society.  It erodes individualistic thought and personal responsibility and foments class warfare and race-and-classcism by emphasizing groups rather than individuals.  Not only does it produce all of these toxic properties, but it also gives people a false philosophical basis upon which to attack other people, using the label-happy liberal terms such as homophobe, bigot, and racist.  These are toxic words and ideas that enable a secular form of self-righteousness that would put the Pharisees to shame.

When you are an individualist, those terms are meaningless and less than worthless.  When you culturally castrate the individual, you discourage free thought and scientific enterprise, and you erode the fundamental and key element of free society: personal responsibility.  When you, see yourself as a black, or a woman, or a white male Protestant, you enable yourself to lay blame for unpleasantness at the feet of the opposing groups who are 'oppressing' you.  This idea is as absurd as your feet crying out that they are oppressed by the rest of your body and your legs calling your nose a walkophobe for not doing its part in walking.  A society, much like a body, is made up of different and distinctly individual parts that each play a role.  When you try to make everyone into hands, your body ceases to function, because all roles are necessary for the healthy functioning of society.  Similarly, when you try to pigeonhole individuals into broad categories, you both grossly mischaracterize each individual, and you strip away the incentive for being personally responsible for your actions, both morally and economically.

In a cultural marxist world, a person who makes poor economic decisions and whittles their life away doing non-productive activities is considered 'oppressed' by those who actually work to make the world a quantitatively better place, which gives the violent State the right to steal from the productive in order to give to the lazy who choose not to produce.  In an individualist world, those who make poor economic decisions get to starve or suffer the indignity of begging from friends, family or society as a whole, and it also opens the door for people to be truly charitable to those in need as opposed to charity at gunpoint, as is current government welfare.

Similarly, in the moral realm, cultural marxism seeks to fill the void with an arbitrary and arbitrarily changing system of political correct morals that allow people to feel morally superior without requiring them to live according to any absolute moral standard.  It turns people into assholes for inclusivity and diversity and enables them to treat anyone who disagrees with them as poorly as white slavemasters in America in the 1800s treated their slaves.  While in an individualistic society, there is an implied absolute moral standard, by which all are held accountable -- governments included -- and all can then see cultural marxism for what it really is, a convenient excuse to be a self-righteous assholes to their neighbors who disagree with them.

However, with all of this said, I am not against all forms of welfare.  Voluntary welfare, or charity as it is more commonly called, is a right, good and necessary element of society.  When you espouse and live by the absolute moral standard that is laid out in the Bible, you will naturally gravitate toward charity on a personal level, and when everyone does this the entire society is transformed to actually care for the poor who are made poor by bad luck (or even those who are poor by choice, as charity is a free thing).

To conclude though, cultural marxism is cancer in society.  It has so many negative effects which are quite literally draining the life from our culture and society and will unquestionably result in the downfall of our civilization through economic collapse if we let it metastasize.

Do not be a cultural marxist!
Think for yourself.
Our society depends on it.

I have attached the entire article below, but you can read the original here:
http://www.internationalman.com/articles/doug-casey-on-the-plague-of-cultural-marxists
*WARNING: Auto-play video is on his site*

Mauldin on Taxes

Mauldin brings another savage article on taxes and tax reform here with his Tax Reform: The Good, the Bad, and the Really Ugly -- Part Five.

There are some really important points in here that I want to highlight:

( 1 )
We are in far worse shape economically than most people realize.  Including only federal unfunded liabilities, federal, state, and local debt, EACH and EVERY one of us (U.S. citizens) owes around 1.2 million dollars in government debt.

1.2 million dollars EACH.

Didn't know you were 1.2 million dollars in debt?  Well, now you do.

As Mauldin says:

Break down that national and state and local debt by the number of US citizens, and we find that we each – every man, woman, and child – owe over $70,000. Worse yet, the total debt per taxpayer is over $190,000 and rising fast. If you include unfunded liabilities, the total debt per taxpayer rises to around $1.2 million, give or take. (There are some analysts who would make it somewhat less than a million and others who would make it more than $2 million. Whatever, it’s a huge number.) By the way, that number does not include the unfunded liabilities at the state and local level, including the pensions that are theoretically guaranteed by the states. Add another few hundred thousand or so per taxpayer, depending on the state you live in. Trigger warning: If you live in Illinois or California, do not attempt to estimate this number without alcohol or heart medication nearby.

( 2 )
We are completely contradictory and dysfunctional in what we expect from our government.

   * We expect our social benefits to increase (or at least not decrease).
   * We expect our taxes to decrease.
   * We expect our economy to grow and provide good, high paying jobs.

You cannot have all of those desires at once.  Debt loads over a certain size -- Reinhart, Reinhart, & Roghoff suggest 90% -- will slow down the growth of that country, making all of our lives and goals that much more difficult to achieve.

In a peer-reviewed study, Reinhart, Reinhart, and Rogoff demonstrated that when government debt rises above 90% it begins to have an effect on the growth of GDP. That conclusion is somewhat controversial in economic circles, as some say the critical level is higher or lower. Whatever – we’ve gone well past 90%.

Understand, RR&R are not examining some theoretical proposition; they are looking at actual debt levels and actual growth levels in scores of countries and situations over a long period of history and seeing that excess debt inhibits growth. We can argue about why that is true, but the fact is that debt at the level that has already been reached here in the US makes it far more difficult to even talk about 3% or 4% growth. So when politicians talk about growing the economy by 3% a year, they are facing very strong headwinds. That sort of growth is not impossible in our circumstances, but it would be abnormal given what we know of the history of debt and growth. To grow the economy at 3% today will require tax reform beyond anything that’s being suggested. It will require real tax reform, not just tinkering around the edges.

( 3 )
We must have real, serious tax reform if we want to have any hope of fixing our problems.  Enough so, that we have to be willing to consider the unthinkable.  For Republicans this means considering a VAT and carbon tax in exchange for significantly lowering the income and corporate taxes.

My liberal friends are going to fall off of their chairs here; but, after reading Mauldin's logic, I am now in support of both the VAT and the carbon taxes.

They are both a form of consumption taxes which are far superior in incentivization to income taxes, and thus would produce positive benefits.

If you want more income and jobs, tax them less. So if you can substitute a consumption tax for an income tax, even if the two generate the same revenue, the incentive structure you create is superior under the consumption tax regime. I am going to be walking into territory that is considered heretical for Republicans, but I’m going to argue that we need to radically reform taxes by going to much higher consumption taxes and much lower income taxes. If we want to avoid a recession and really boost the economy and jobs, then we need to get “medieval” on income taxes. Don’t take a scalpel to them. Bring out the axes and chainsaws.

Mauldin recommends we start by eviscerating the income taxes and introducing a 17% VAT and a significant and increasing yearly carbon tax on all energy inputs.  I think there is a good chance this would actually work and have very positive effects for our economy and potentially help save us from certain doom that is coming if we do nothing.

Mauldin ends by reviewing his five main points:

Let’s sum up the constraints and desires mentioned above as we set out on our quest for tax reform. Admittedly, these are my constraints and desires, but sharing them will help you understand what my ultimate goal is.

1. Since too much debt at the level we currently have creates a drag on growth, we have to control the growth of debt. That’s pretty much like the admonition that when you find yourself in a hole, stop digging. At some point, maybe we could repeat the Clinton/Gingrich experience of actually paying down the debt. (Let me have my dreams!)
2. My fellow Americans want two inconsistent things: They want their entitlements and benefits to continue, and they would like their taxes to be lower. Cutting benefits will quickly result in a return to a Democratic Party-led government, and no politician on either side of the aisle has any stomach for doing more than tinkering with Social Security or really cutting healthcare.

I think Republicans will seek to find efficiencies in the way health care is delivered and thereby maybe reduce total healthcare expenses somewhat, but benefits are going to stay roughly the same. Yet somehow we need to get a handle on how to reduce the constant cost increases. So we have to figure out how to fund those benefits. And while you could probably cut $50 billion from the discretionary parts of the budget – if you include defense spending as discretionary (which would elicit anguished screams and derogatory name-calling from everyone) – we must sadly acknowledge that cutting $50 billion gets you only about 10% of the way to balancing the budget.

3. What is the appropriate size of government in the US economy? Here I am conflicted. I am truly a small-government advocate. But I also want to balance the budget and actually reduce the debt, which means (and I can’t believe I’m using these words) that we’re going to have to find additional revenues unless we are willing to take a hatchet to entitlements, which we are not.

4. We really do have to create jobs, or the future is going to get pretty bleak pretty quick. Job creation means allowing small businesses and entrepreneurs to keep more of what they make and to increase their savings. It also means radical regulatory reform. It comes down to the most basic of identity equations in economics. GDP is the sum of Consumption (C), Investment (I), Government Spending (G), and Net Exports (X – M): GDP = C + I + G + (X – M), which reduces down to Savings = Investments.

It’s more complicated than that of course, but if you want investments that will create new jobs, the best thing you can do is to stop taxing savings and income and start taxing consumption. This country doesn’t need more consumption; it needs more income. That in turn will lead to increased consumption and more jobs. This is a basic Hayek versus Keynes argument, and I come down on the side of Hayek. Which means that the vast majority of academic economists believe I am wrong.

5. We have to change the corporate tax structure to put our businesses on an equal footing with their competitors around the globe. And while we’re at it, why not make them hypercompetitive? Why not take the corporate tax rate down to 15% of everything over $100,000, with no deductions other than to comply with normal GAAP accounting principles? Really want to jumpstart things? Then allow 100% write-offs of all business investments such as research and development, equipment, and buildings (but normal depreciation on the actual land).

6. There are several types of consumption-based taxes.
a. A sales tax (which would be too high – that’s why I dismissed the concept above)
b. A border adjustment tax, which would be challenged by Europe at the WTO, and we would lose because the vote is a political vote. Further, the BAT (I’m tempted to add “Out of Hell”) would set off immediate reactions by all of our trading partners, precipitating a round of tit-for-tat changes that would quickly deteriorate into something that looks like Smoot-Hawley. A BAT would cause a global recession. Further, it would pick winners and losers here in the US. Why is an export business better than an import business? They are equally valuable to the country. And they both create jobs.
c. A value-added tax (VAT) would easily withstand a challenge at the WTO, since nearly every other country in the world has a VAT.
d. We could introduce a carbon tax on petroleum products that would gradually increase, generating significant revenues over time. As noted above, a carbon tax is just another form of consumption tax, and it has the value of making progressive Democrats giddy about doing something for the environment and climate change, which makes them more likely to go along with the real Republican goals of job creation, income tax reform, and deficit reduction.

This is a solid plan and I think it has real potential to work to help us reverse this hole we have dug for ourselves.

Trade, Debt, Deficits and the Border Adjustment Tax

I am slowly arriving at a more full understanding of the relationship between international trade, sovereign debt, and government deficits.

While dear friends of mine have been encouraging me to look at gerrymandering, which is a serious political issue and needs to be fixed, the effects of the implementation of Trump's Border Adjustment Tax (BAT) have much more grievous consequences.

First, let me address the gerrymandering issue though, since it has been on my mind lately.  Having a Goofy Kicking Donald Duck district in Pennsylvania and a Latin Earmuffs district (below) in Illinois is absurd.

This kind of gerrymandering is ridiculous and should be outlawed.  We need to take a nice square grid system and overlay it on each state and have that set the districts.  Nothing is fairer than a square grid.  The only places people can quarrel on is the grid size and the grid origin.

But a BAT disrupting global trade, currency exchange rates, and foreign sovereign debt is a far more immediate threat that risks setting off a global contagion that would eventually engulf the U.S.

The root problem in this BAT idea is that the world is not a static system.  It is a dynamic equilibrium.  If we make changes to our tax system in such a way as to affect other countries trade balances, they will respond to counteract those changes.  This BAT issue is the sole reason why I refused to vote for Donald Trump as president.

The currently certain effect of implementing a BAT is that the U.S. dollar would rise sharply in value, being predicted by both economists on the right and left.  This rise would occur due to the flow of U.S. dollars across our borders being slowed, causing lower supply of U.S. dollars circulating in the world compared to a stable demand.

John Mauldin, who I generally consider to be a right-leaning economist predicted that the dollar would rise by as much as 20% in value with respect to other nation's currencies.

As the trade deficit shrinks, fewer dollars will flow from the US to the rest of the world. That trend will make the dollar rise against other currencies, thereby nullifying the higher prices we will pay for imported goods.

Paul Krugman, who is definitely a left-leaning economist, likewise predicts a rise in the value of the U.S. dollar exchange rates.

But of course wages and/or the exchange rate would, in fact, change. If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. But there might be a lot of short-to-medium term financial consequences from a stronger dollar.

I am all for a strong dollar, but I need to nuance this view.  I am strongly in favor of an organically strong dollar, not a forced stronger dollar.  I am beginning to think that forcing the dollar stronger may have equally deleterious effects as forcing the dollar lower.  The effects are simply different and the genesis is not in the U.S.

If we force the dollar value higher, we will immediately cause a direct increase in the servicing costs of the $10 trillion in emerging market dollar-denominated sovereign debt.  This increase has the potential to sink those emerging market economies, much of whose debt is held by Western investors.  The contagion will wrap back around the world and setup a sub-prime debt crisis in sovereign emerging market debt which will inevitably result in a global recession at best or a global depression at worst.

We need to stop considering tariffs and border taxes as a means of solving our globalization woes.  These measures are not helpful in a dynamically volatile system in which other players will respond in kind of changes in the competitive advantage equilibrium currently in place.  We need to enact changes to the tax system that do not disrupt global trade or threaten the stability of emerging markets to the point of collapse.

Bannon: The Sociopath of the Right

I found an excellently written article that gave a lot of information without attempting to push an opinion on readers.  This article is "What Bannon Really Wants" published by Quartz and written by Gwynn Guilford and Nikhil Sonnad.

The article addresses what Steve Bannon, who is the Assistant to the President and Chief Strategist, worldview is and how it influences and guides Trump's administration.

As far as the article is concerned, there are a few curious points.  First, the authors point out that Bannon believes in the "great civilizational showdown" between Islamic Mideast and the Christian West.  What Bannon fails to realize is that Islam is not a unified or centralized force, any more than modern Protestant Christianity.

Not recognizing the true enemy, which is fundamentalist Islam, is a severe mistake that will have far-reaching -- both in time and space -- consequences that will be as severe as Obama's misstep of not recognizing this subset of Islam as the threat.  There are plenty of Islamic sects who do not hold the authority of the Koran as absolute and thus are more secular as a result.  Bannon's error of labeling all of Islam as the enemy is equally as mistaken as Obama's error of labeling none of Islam as the enemy.  Misconstruing this as a grand struggle between civilizations, while sensational, is also wrong.  The fight with Islam is jihadi Islam versus the world (moderate Muslims included).  From the jihadi Islamist perspective anyone who does not believe in their strict interpretation of the Koran and Islam is a legitimate target and should be killed or enslaved.

Where Bannon's worldview takes a wrong turn is in his view of utilitarianism as the ultimate form for moral authority.  This is where Bannon departs from true Christianity and truly Judeo-Christian values.  This basically establishes Bannon, and by extension Trump, as an authoritarian who seeks to use his power to enforce a specific view of the world, rather than enforcing the minimum necessary law for society to exist.  The very fact that he actually broad-banned people from specific nations shows that he is not interested in a free or individualistic society, merely his vision of a free society.

Bannon's idea that society disintigrates without Christianity or Judeo-Christian values is not entirely wrong, but also not correct.  When you remove Biblical Judeo-Christian values from society, you get authoritarianism.  Might makes right is all that is left when you remove the Christian framework from beneath society, and it is becoming increasingly clear that Bannon and Trump have no desire to rule the nation with Biblical Christian values.  They are strongmen who want to impose their version of right on everyone else, and are thus as criminal as Obama, except on the other end of the spectrum of sociopaths.