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Month: November 2015

Does the Bell Toll for the Fed? – Article by Ron Paul

Does the Bell Toll for the Fed? – Article by Ron Paul

The New Renaissance HatRon Paul
November 9, 2015
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Last week Federal Reserve Chair Janet Yellen hinted that the Federal Reserve Board will increase interest rates at the board’s December meeting. The positive jobs report that was released following Yellen’s remarks caused many observers to say that the Federal Reserve’s first interest rate increase in almost a decade is practically inevitable.

However, there are several reasons to doubt that the Fed will increase rates anytime in the near future. One reason is that the official unemployment rate understates unemployment by ignoring the over 94 million Americans who have either withdrawn from the labor force or settled for part-time work. Presumably the Federal Reserve Board has access to the real unemployment numbers and is thus aware that the economy is actually far from full employment.

The decline in the stock market following Friday’s jobs report was attributed to many investors’ fears over the impact of the predicted interest rate increase. Wall Street’s jitters about the effects of a rate increase is another reason to doubt that the Fed will soon increase rates. After all, according to former Federal Reserve official Andrew Huszar, protecting Wall Street was the main goal of “quantitative easing,” so why would the Fed now risk a Christmastime downturn in the stock markets?

Donald Trump made headlines last week by accusing Janet Yellen of keeping interest rates low because she does not want to risk another economic downturn in President Obama’s last year in office. I have many disagreements with Mr. Trump, but I do agree with him that the Federal Reserve’s polices may be influenced by partisan politics.

Janet Yellen would hardly be the first Fed chair to allow politics to influence decision-making. Almost all Fed chairs have felt pressure to “adjust” monetary policy to suit the incumbent administration, and almost all have bowed to the pressure. Economists refer to the Fed’s propensity to tailor monetary policy to suit the needs of incumbent presidents as the “political” business cycle.

Presidents of both parties, and all ideologies, have interfered with the Federal Reserve’s conduct of monetary policy. President Dwight D. Eisenhower actually threatened to force the Fed chair to resign if he did not give in to Ike’s demands for easy money, while then-Federal Reserve Chair Arthur Burns was taped joking about Fed independence with President Richard Nixon.

The failure of the Fed’s policies of massive money creation, corporate bailouts, and quantitative easing to produce economic growth is a sign that the fiat money system’s day of reckoning is near. The only way to prevent the monetary system’s inevitable crash from causing a major economic crisis is the restoration of a free-market monetary policy.

One positive step Congress may take this year is passing the Audit the Fed bill. Fortunately, Senator Rand Paul is using Senate rules to force the Senate to hold a roll-call vote on Audit the Fed. The vote is expected to take place in the next two-to-three weeks. If Audit the Fed passes, the American people can finally learn the full truth about the Fed’s operations. If it fails, the American people will at least know which senators side with them and which ones side with the Federal Reserve.

Allowing a secretive central bank to control monetary policy has resulted in an ever-expanding government, growing income inequality, a series of ever-worsening economic crises, and a steady erosion of the dollar’s purchasing power. Unless this system is changed, America, and the world, will soon experience a major economic crisis. It is time to finally audit, then end, the Fed.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

The War on Cars Is a War on Workers and the Poor – Article by Gary M. Galles

The War on Cars Is a War on Workers and the Poor – Article by Gary M. Galles

The New Renaissance Hat
Gary M. Galles
November 6, 2015
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A just-released poll of Los Angeles residents found that 55 percent of respondents indicated their greatest concern was “traffic and congestion,” far ahead of “personal safety” — the next highest area of concern — at 35 percent. So if their city government was working in their best interests, it would be doing something about automobile congestion.

It is. Unfortunately, it will make things worse.

Los Angeles’s recently adopted Mobility Plan 2035 would replace auto lanes in America’s congestion capital with bus and protected bike lanes, as well as pedestrian enhancements, despite heightening congestion for the vast majority who will continue to drive. Even the City’s Environmental Impact Report admitted “unavoidable significant adverse impacts” on congestion, doubling the number of heavily congested (graded F) intersections to 36 percent during evening rush hours.

Driving Saves Time and Offers More Opportunity

Such an effort to ration driving by worsening gridlock purgatory begs asking a central, but largely ignored, question. Why do planners’ attempts to force residents into walking, cycling, and mass transit — supposedly improving their quality of life — attract so few away from driving?

The reason it takes a coercive crowbar to get most people out of their cars is that automobile users have concluded cars are vastly superior to the alternatives.

Why is automobile use so desirable:

  • Automobiles have far greater and more flexible passenger — and cargo-carrying capacities.
  • They allow direct, point-to-point service.
  • They allow self-scheduling rather than requiring advance planning.
  • They save time.
  • They have far better multi-stop trip capability (this is why restrictions on auto use punish working mothers most).
  • They offer a safer, more comfortable, more controllable environment, from the seats to the temperature to the music to the company.

Those massive advantages explain why even substantial new restrictions on automobiles or improvements in alternatives leave driving the dominant choice. However, they also reveal that a policy that will punish the vast majority who will continue to drive cannot serve residents effectively.

How Restrictions on Automobiles Punish the Working Poor the Most

The superiority of automobiles doesn’t stop at the obvious, either. They expand workers’ access to jobs, increasing productivity and incomes, improve purchasing choices, lower consumer prices and widen social options. Reducing roads’ car-carrying capacity undermines those major benefits.

Cars offer a decrease in commuting times (if not hamstrung by city-government planning), providing workers access to many more potential employers and job markets. This improves worker-employer matches, with expanded productivity both benefiting employers and raising workers’ incomes.

One study found that a 10-percent improvement in travel time raised worker productivity 3 percent. And increasing from a 3 mph walking speed to 30 mph driving speed is a 900-percent increase. In a similar vein, a Harvard analysis found that for those lacking high-school diplomas, owning a car increased monthly earnings by $1,100.

Cars are also the only means of assembling enough customers to sustain large stores with highly diverse offerings. Similarly, “automobility” dramatically expands the menu of social opportunities that are accessible.

Supporters like Los Angeles Mayor Eric Garcetti may dismiss the serious adverse effects of the “road diets” they propose (a term whose negative implications were too obvious, getting it benched in favor of the better-sounding “complete streets”). But by demeaning cars as “the old model” and insisting “we have to have neighborhoods that are more self-contained,” the opponents of auto use do nothing to lessen the huge costs or increase the very limited benefits they plan to impose on those they supposedly represent.

Further, the “new model” of curtailing road capacity to force people out of cars is really a recycled old far-inferior model. As urban policy expert Randal O’Toole noted in The Best-Laid Plans:

Anyone who prefers not to drive can find neighborhood … where they can walk to stores that offer a limited selection of high-priced goods, enjoy limited recreation and social opportunities, and take slow public transit vehicles to some but not all regional employment centers, the same as many Americans did in 1920. But the automobile provides people with far more benefits and opportunities than they could ever have without it.

Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read. Send him mail. See Gary Galles’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Benjamin Franklin: Pioneer of Insurance in North America – Video Presentation by G. Stolyarov II

Benjamin Franklin: Pioneer of Insurance in North America – Video Presentation by G. Stolyarov II

The New Renaissance HatG. Stolyarov II
November 6, 2015
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Mr. Stolyarov discusses Benjamin Franklin’s multifaceted contributions to combating the threat of fire, including the founding of the first fire insurance company in North America – The Philadelphia Contributorship for the Insuring of Houses from Loss by Fire.

This presentation was originally prepared for and delivered at the October 26, 2015, educational meeting of the Sierra Nevada Chapter of the CPCU Society. This video and enhanced slideshow are a slightly expanded version of that presentation.

The slides can be downloaded in PowerPoint format  and PDF format.

Portrait of Benjamin Franklin by David Martin (1767)
Portrait of Benjamin Franklin by David Martin (1767)
The Fed Desperately Tries to Maintain the Status Quo – Article by Ronald-Peter Stöferle

The Fed Desperately Tries to Maintain the Status Quo – Article by Ronald-Peter Stöferle

The New Renaissance HatRonald-Peter Stöferle
November 5, 2015
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During the press conferences of recent FOMC meetings, millions of well-educated investment professionals have been sitting in front of their screens, chewing their fingernails, listening as if spellbound to what Janet Yellen has to tell them. Will she finally raise the federal funds rate that has been zero bound for over six years?

Obviously, each decision is accompanied by nervousness on the markets. Investors are fixated by a fidgety curiosity ahead of each Fed decision and never fail to meticulously observe Janet Yellen and the FOMC, and engage in monetary ornithology on doves (growth- and employment-oriented FOMC members) and hawks (inflation-oriented FOMC members).

Fed watchers also hope for some enlightening information from Ben Bernanke. According to Reuters, some market participants paid some $250,000 just to join one of several dinners, where the ex-chairman spilled the beans. Apparently, he does not expect the federal funds rate to return to its long-term average of about 4 percent during his lifetime.

In a conversation with Jim Rickards, Bernanke stated that a rate hike would only be possible in an environment in which “the U.S. economy is growing strongly enough to bear the costs of higher rates.” Moreover, a rate increase would have to be clearly communicated and anticipated by the markets — not to protect individual investors from losses, Bernanke assures us, but rather to prevent jeopardizing the stability of the “system as a whole.”

It is axiomatic that zero-interest-rate-policy (ZIRP) cannot be a permanent fixture. Indeed, Janet Yellen has been going on about increasing rates for almost two years now. But, how much more lead time will it require to “prepare” the markets? In both September and October the FOMC chickened out, even though we are not talking about hiking the rate back to “monetary normalcy” in one blow. The decision on the table is whether or not to increase the rate by a trifling quarter point!

The Fed’s quandary can be understood a little better by examining what “monetary normalcy,” or a “normal interest rate,” is supposed to be. Or, even more fundamentally: what is an interest rate?

We “Austrians” understand an interest rate as an expression of market participants’ time preference. The underlying assumption is that people are inclined to consume a certain product sooner rather than later. Hence, if savers restrict their current consumption and provide the resources for investment instead, they do so only on condition that they will be compensated by increased opportunities for consumption in the future. In free markets, the interest rate can be regarded as a measure of the compensation payment, where people are willing to trade present goods for future goods. Such an interest rate is commonly referred to as the “natural interest rate.” Consequently, the FOMC bureaucrats would ideally set as a goal a “normal interest rate” that equals the “natural” one.This, however, remains unlikely.

Six Years of “Unconventional” Monetary Policy
ZIRP was introduced six years ago in response to the financial crisis, and three QE programs have been conducted. This so-called “unconventional monetary policy” is supposed to be abandoned as soon as the economy has gathered pace. Despite the tremendous magnitude of these market interventions, the momentum in the US economy is rather lame. Weak Q1 data, which probably resulted from a weak trade balance due to a 15 percent rise of the US dollar, shocked even the most pessimistic of analysts; the OECD and the IMF have revised down their 2015 growth estimates. A long-lasting, self-sustaining growth is out of the question. This confirms the assumption that ZIRP fuels everything under the sun — see “The Unseen Consequences of Zero-Interest-Rate Policy” — except long-term productive investment.And what about unemployment and inflation that are key elements of the Fed’s mandate? The conventional unemployment rate (U3) has returned to its long-run normal level, so the view prevails that things are developing well. However, those figures conceal a workforce participation rate that has fallen by more than 3 percent since 2008, indicating that some 2.5 million Americans are currently no longer actively looking for a new job. However, should the economic situation improve, they would likely rejoin the labor force. Furthermore, the proportion of those only working part-time due to a lack of full-time positions is much higher now than before the crisis. “True” unemployment currently stands rather at about 7.25 percent.

A Weak Economy and Weak Inflation
With regard to inflation, the Fed’s target is 2 percent, as measured by growth of the PCE-index. This aims to buffer the fiat money system against the threat of price deflation. In a deflationary environment, it is believed, the debt-servicing capacity of market participants (e.g., governments, private enterprises, financial institutions, and private households) would come under intense pressure and likely trigger a chain reaction in which loans collapse and the monetary system implodes.

In many countries, and among them the US, inflation is remarkably low — partly due to transitory effects of lower energy and import prices — while low interest rates have merely weaved their way to asset price inflation so far. But, as price reactions to monetary policy maneuvers may occur with a lag of a few years, we should expect that sooner or later inflation will also spill over to normal markets.

As a response to anything short of massive improvement of economic and employment data, a rate hike is scarcely likely, and inflation in the short-term is also unlikely. Moreover, the current composition of the FOMC — which is extremely dovish — implies inflation-sensitive voices are relatively underrepresented. This gives rise to the suspicion that rate hikes are not very likely at all in the scenario in the short-term.

What Will the Fed Do If There’s Real Economic Trouble?
One is concerned about economic development, which has a shaky foundation and headwinds from other parts of the world; it appears that growth has cooled down substantially in the BRICS countries. Meanwhile, China might be on the brink of a severe recession. (Indeed, China was possibly the most decisive factor to nudge the Fed away from raising rates in September and October.) This implies that world-wide interest rates will remain at very low levels and a significant rate hike in the US would represent a sharp deviation in this environment, bringing with it massive competitive disadvantages.

The markets are noticeably pricing out a significant rate hike. The production structure has long since adapted to ZIRP and “short-term gambling, punting on momentum-driven moves, on levered buybacks” are further lifting the opportunity costs of abandoning it. In order to try to rescue its credibility, the Fed may decide to try some timid, quarter-point increases.

But what will they do if markets really crash? Indeed, they are terrified of the avalanche that they might trigger. If there are any symptoms that portend calamity, the Fed will inevitably return to ZIRP, launch a QE4, or might even introduce negative interest rates. Hence, there does not seem to be a considerable degree of latitude such that a return to conventional monetary policy could seriously be expected.

“The Fed is raising rates!” — This has become a running gag.

Ronald-Peter Stöferle is a Chartered Market Technician (CMT) and a Certified Financial Technician (CFTe). During his studies in business administration and finance at the Vienna University of Economics and the University of Illinois at Urbana-Champaign, he worked for Raiffeisen Zentralbank (RZB) in the field of Fixed Income/Credit Investments. In 2006 he began writing reports on gold. His six benchmark reports called “In GOLD we TRUST” drew international coverage on CNBC, Bloomberg, the Wall Street Journal, The Economist and the Financial Times. He was awarded “2nd most accurate gold analyst” by Bloomberg in 2011.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

More Mission Creep in an Illegal War – Article by Gene Healy

More Mission Creep in an Illegal War – Article by Gene Healy

The New Renaissance HatGene Healy
November 4, 2015
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In the 15 months since the president unilaterally launched our latest war in the Middle East, he’s repeatedly pledged that he wouldn’t put U.S. “boots on the ground” in Syria. As he told congressional leaders on September 3, 2014, “the military plan that has been developed” is limited, and doesn’t require ground forces.

Alas, if you liked that plan, you can’t keep it. Earlier today, the Obama administration announced the deployment of U.S. Special Forces to Northern Syria to assist Kurdish troops in the fight against ISIS. U.S. forces will number “fewer than 50,” in an “advise and assist” capacity; they “do not have a combat mission,” according to White House press secretary Josh Earnest. Granted, when “advise and assist” missions look like this, it can be hard for us civilians to tell the difference.

Asked about the legal authorization for the deployment, Earnest insisted: “Congress in 2001 did give the executive branch the authority to take this action. There’s no debating that.”

It’s true that there hasn’t been anything resembling a genuine congressional debate over America’s war against ISIS. But the administration’s legal claim is eminently debatable. It’s based on the 2001 authorization for the use of military force, or AUMF, the Congress passed three days after 9/11, targeting those who “planned, authorized, [or] committed” the attacks (Al Qaeda) and those who “aided” or “harbored” them (the Taliban).

In 2013, Obama administration officials told the Washington Post that they were “increasingly concerned the law is being stretched to its legal breaking point.” That was before they’d stretched it still further, 15 months later, to justify war against ISIS, a group that’s been denounced and excommunicated by Al Qaeda and is engaged in open warfare with them. Headlines like “ISIS Beheads Leader of Al Qaeda Offshoot Nusra Front,” or “Petraeus: Use Al Qaeda Fighters to Beat ISIS” might give you cause to wonder–or even debate!–whether this is the same enemy Congress authorized President Bush to wage war against, back before Steve Jobs unveiled the first iPod.

In the Obama theory of constitutional war powers, Congress gets a vote, but it’s one Congress, one vote, one time. This is not how constitutional democracies are supposed to go to war. But it’s how we’ve drifted into a war that the Army chief of staff has said will last “10 to 20 years.” Sooner or later, we’ll have cause to regret the normalization of perpetual presidential war, but any congressional debate we get will occur only after the damage has already been done.

Gene Healy is a vice president at the Cato Institute. His research interests include executive power and the role of the presidency, as well as federalism and overcriminalization. He is the author of False Idol: Barack Obama and the Continuing Cult of the Presidency; The Cult of the Presidency: America’s Dangerous Devotion to Executive Power; and editor of Go Directly to Jail: The Criminalization of Almost Everything.

Healy has appeared on PBS’s Newshour with Jim Lehrer and NPR’s Talk of the Nation, and his work has been published in the Los Angeles Times, the New York Times, the Chicago Tribune, the Legal Times, and elsewhere.

Healy holds a BA from Georgetown University and a JD from the University of Chicago Law School.

This work by Cato Institute is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

Save The Apologies, Just Stop Promoting War! – Article by Ron Paul

Save The Apologies, Just Stop Promoting War! – Article by Ron Paul

The New Renaissance HatRon Paul
November 2, 2015
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Usually when politicians apologize it’s because they have been caught doing something wrong, or they are about to be caught. Such was likely the case with former British Prime Minister Tony Blair, who recently offered an “apology” for the 2003 invasion of Iraq. Blair faces the release of a potentially damning report on his government’s conduct in the run-up to the 2003 US/UK invasion of Iraq.

Similarly, a batch of emails released from the private server of former Secretary of State Hillary Clinton show Blair pledging support for US military action against Iraq a full year before the decision to attack had supposedly been made. While Prime Minister Blair was assuring his constituents that he was dedicated to diplomacy in the Iraq crisis, he was communicating through back channels that he was ready for war whenever Bush decided on it.

A careful observer of public opinion, Blair took the surprising step of “apologizing” for the Iraq war during an interview on CNN last month.

However, there are two other characteristics of politicians’ apologies: they rarely take personal blame for a misdeed and rarely do they atone for those misdeeds.

Thus Tony Blair did not apologize for his role in pushing the disastrous Iraq war. He did not apologize for having, as former head UN Iraq inspector Hans Blix claimed, “misrepresented intelligence on weapons of mass destruction to gain approval for the Iraq War.”

No, Tony Blair “apologized” for “the fact that the intelligence we received was wrong,” on Iraq. He apologized for “mistakes in planning” for post-Saddam Iraq. He boldly refused to apologize for removing Saddam from power.

In other words, he apologized that the intelligence manipulated by his cronies to look like Saddam had weapons of mass destruction and posed a threat to the UK turned out to not be the case. For Blair, it was someone else’s fault.

But if we are waiting for any kind of apology from George W. Bush for Iraq, we shouldn’t hold our breath. Likewise if we are looking for any kind of apology from President Obama for a similarly disastrous war on false pretext against Libya, we shouldn’t bother waiting.

If they ever did apologize, we can be sure that like Blair they would never really confess to their own manipulations nor would they seek to atone for the destruction their manipulations caused.

In fact, far from apologizing for leading the United States into the Libya war based on a false pretext, President Obama is taking US ground troops into Syria on a false pretext. Let’s not forget, this US military action was sold as a limited operation to save a small religious minority stranded on a hilltop in northern Iraq. After one year and thousands of bombing runs against Iraq and Syria, Obama announced last week he is sending US ground troops into Syria after promising no fewer than seven times that he would not do so.

Here’s an idea: instead of apologies and non-apologies from politicians, how about an actual debate on the policies that led to such disasters? Why not discuss why the US keeps being drawn into wars on false pretexts? But that is a discussion we will not have, because both parties are in favor of these wars. They are ready to spend us into Third World status to continue their empire. When we get there, we will never hear their apologies.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.