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

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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

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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

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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.

Today’s War Against Deflation Will Make Us Poorer – Article by Frank Shostak

Today’s War Against Deflation Will Make Us Poorer – Article by Frank Shostak

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The New Renaissance HatFrank Shostak
October 29, 2015
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The yearly growth rate of the US consumer price index (CPI) fell to 0 percent in September 2015, from 0.2 percent in August and, 1.7 percent in September last year.

The yearly growth rate of the European Monetary Union CPI fell to minus 0.1 percent in September from 0.1 percent in the previous month and 0.3 percent in September last year.
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Also, the growth momentum of the UK CPI fell into the negative in September with the yearly growth rate closing at minus 0.1 percent from 0 percent in August and 1.2 percent in September last year.

The growth momentum of China’s CPI eased in September with the yearly growth rate falling to 1.6 percent from 2 percent in August.

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Deflation Fears Gain Steam
Consequently, many experts are expressing concern regarding the declining growth momentum of the CPI and are of the view that rather than tightening the monetary stance, central banks should loosen their stance further in order to counter the emergence of deflation, which is regarded as a major threat to economic well-being of individuals. For most experts, deflation is bad news since it generates expectations of a decline in prices. As a result, they believe, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the slump.
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Will Reversing Deflation Prevent a Slump?

If deflation leads to an economic slump, then policies that reverse deflation should be good for the economy, so it is held.

Reversing deflation will simply involve introducing policies that support general increases in the prices of goods, i.e., price inflation. With this way of thinking inflation could actually be an agent of economic growth.

According to most experts, a little bit of inflation can actually be a good thing. Mainstream economists believe that inflation of 2 percent is not harmful to economic growth, but that inflation of 10 percent could be bad for the economy.

There’s good reason to believe, however, that at a rate of inflation of 10 percent, it is likely that consumers are going to form rising inflation expectations.

According to popular thinking, in response to a high rate of inflation, consumers will speed up their expenditures on goods at present, which should boost economic growth. So why then is a rate of inflation of 10 percent or higher regarded by experts as a bad thing?

Clearly there is a problem with the popular way of thinking.

Price Inflation vs. Money-Supply Inflation
Inflation is not about general increases in prices as such, but about the increase in the money supply. As a rule the increase in the money supply sets in motion general increases in prices. This, however, need not always be the case.

The price of a good is the amount of money asked per unit of it. For a constant amount of money and an expanding quantity of goods, prices will actually fall.

Prices will also fall when the rate of increase in the supply of goods exceeds the rate of increase in the money supply.

For instance, if the money supply increases by 5 percent and the quantity of goods increases by 10 percent, prices will fall by 5 percent.

A fall in prices cannot conceal the fact that we have inflation of 5 percent here on account of the increase in the money supply.

The Problem Is Really Wealth Formation, not Rising Prices
The reason why inflation is bad news is not because of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process. Here is why:

The chief role of money is the medium of exchange. Money enables us to exchange something we have for something we want.

Before an exchange can take place, an individual must have something useful that he can exchange for money. Once he secures the money, he can then exchange it for the good he wants.

But now consider a situation in which the money is created “out of thin air,” increasing the money supply.

This new money is no different from counterfeit money. The counterfeiter exchanges the printed money for goods without producing anything useful.

He in fact exchanges nothing for something. He takes from the pool of real goods without making any contribution to the pool.

The economic effect of money that was created out of thin air is exactly the same as that of counterfeit money — it impoverishes wealth generators.

The money created out of thin air diverts real wealth toward the holders of new money. This weakens the wealth generators’ ability to generate wealth and this in turn leads to a weakening in economic growth.

Note that as a result of the increase in the money supply what we have here is more money per unit of goods, and thus, higher prices.

What matters however is not that price rises, but the increase in the money supply that sets in motion the exchange of nothing for something, or “the counterfeit effect.”

The exchange of nothing for something, as we have seen, weakens the process of real wealth formation. Therefore, anything that promotes increases in the money supply can only make things much worse.

Why Falling Prices Are Good
Since changes in prices are just a symptom, as it were — and not the primary causative factor — obviously countering a falling growth momentum of the CPI by means of loose a monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation, and hence for the economy.

In order to maintain their lives and well-being, individuals must buy goods and services in the present. So from this perspective a fall in prices cannot be bad for the economy.

Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth then this should be seen as good news. The less non-productive bubble activities that are around the better it is for the wealth generators and hence for the overall pool of real wealth.

Likewise, if a fall in the growth momentum of the CPI emerges on account of the expansion in real wealth for a given stock of money, this is obviously great news since many more people could now benefit from the expanding pool of real wealth.

We can thus conclude that contrary to the popular view, a fall in the growth momentum of prices is always good news for the wealth generating process and hence for the economy.

Frank Shostak is an Associated Scholar of the Mises Institute. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies. He received his bachelor’s degree from Hebrew University, master’s degree from Witwatersrand University and PhD from Rands Afrikaanse University, and has taught at the University of Pretoria and the Graduate Business School at Witwatersrand University.

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.

On Soda Taxes and Purported Health Benefits – Article by Peter Van Doren

On Soda Taxes and Purported Health Benefits – Article by Peter Van Doren

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The New Renaissance HatPeter Van Doren
October 27, 2015
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This week, the New York Times editorial board wrote in support of greater taxes on sweetened drinks, citing new research from a team Mexican and American researchers. They praise the novel design of the tax, which is levied on drink distributors rather than consumers. This caused the tax to be included in shelf prices, making the increase in total cost clear to consumers. The research found that soda consumption fell 12 percent in a year, and 17 percent among the poorest Mexicans.

The Times admits that we do not know whether any health benefits will actually result from soda taxes.  In this article in Regulation, the University of Pennsylvania’s Jonathan Klick and Claremont McKenna’s Eric Helland examined the effects of soda taxes. They conclude that a one percent increase in soda taxes led to a five percent reduction in soda consumption among young people.  But consumers substituted to other beverages.  A 6-calorie reduction in soda consumption was accompanied by an 8-calorie increase in milk consumption and a 2-calorie increase in juice consumption. Thus, the tax on soda led to an increase in overall calorie consumption, which offset the benefits of falling soda consumption. Moreover, there was “no statistically significant effect of soda taxes on body weight or the likelihood of being obese or overweight”.

Peter Van Doren is editor of the quarterly journal Regulation and an expert in the regulation of housing, land, energy, the environment, transportation, and labor. He has taught at the Woodrow Wilson School of Public and International Affairs (Princeton University), the School of Organization and Management (Yale University), and the University of North Carolina at Chapel Hill. From 1987 to 1988 he was the postdoctoral fellow in political economy at Carnegie Mellon University. His writing has been published in the Wall Street Journal, the Washington Post, Journal of Commerce, and the New York Post. Van Doren has also appeared on CNN, CNBC, Fox News Channel, and Voice of America.

He received his bachelor’s degree from the Massachusetts Institute of Technology and his master’s degree and doctorate from Yale University.

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

House Benghazi Hearings: Too Much, Too Late – Article by Ron Paul

House Benghazi Hearings: Too Much, Too Late – Article by Ron Paul

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The New Renaissance HatRon Paul
October 26, 2015
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Last week the US House of Representatives called former Secretary of State Hillary Clinton to appear before a select committee looking into the attack on a US facility in Benghazi, Libya, in 2012. The attack left four Americans dead, including US Ambassador to Libya, Chris Stevens.

As might be expected, however, the “Benghazi Committee” hearings have proven not much more than a means for each party to grandstand for political points.

In fact, I would call these Congressional hearings “too much, too late.”

Four years after the US-led overthrow of the Libyan government – which left the country a wasteland controlled by competing Islamist gangs and militias – the committee wants to know whether Hillary Clinton had enough guards at the facility in Benghazi on the night of the attack? The most important thing to look into about Libya is Hillary Clinton’s e-mails or management style while Secretary of State?

Why no House Committee hearing before President Obama launched his war on Libya? Why no vote on whether to authorize the use of force? Why no hearing after the President violated the Constitution by sending the military into Libya with UN authorization rather than Congressional authorization? There are Constitutional tools available to Congress when a president takes the country to war without a declaration or authorization. At the time, President Obama claimed he did not need authorization from Congress because the US was not engaged in “hostilities.” It didn’t pass the laugh test, but Congress did next to nothing about it.

When the Obama Administration decided to attack Libya, I joined Rep. Dennis Kucinich and others in attempt to force a vote on the president’s war. I introduced my own legislation warning the administration that, “the President is required to obtain in advance specific statutory authorization for the use of United States Armed Forces in response to civil unrest in Libya.”

We even initiated a lawsuit in the US District Court for the District of Columbia asking the courts to rule on whether the president broke the law in attacking Libya.

Unfortunately we got nowhere with our efforts. When it looked like we had the votes to pass a resolution introduced by Rep. Kucinich to invoke War Powers Resolution requirements on the president for the use of force in Libya, Speaker Boehner cancelled the vote.

Why were there no hearings at the time to discuss this very important Constitutional matter? Because the leadership of both parties wanted the war. Both parties — with few exceptions — agree with the ideology of US interventionism worldwide.

Secretary Clinton defended the State Department’s handling of security at the Benghazi facility by pointing out that there are plenty of diplomatic posts in war zones and that danger in these circumstances is to be expected. However she never mentioned why Benghazi remained a “war zone” a year after the US had “liberated” Libya from Gaddafi.

Why was Libya still a war zone? Because the US intervention left Libya in far worse shape than it was under Gaddafi. We don’t need to endorse Gaddafi to recognize that today’s Libya, controlled by al-Qaeda and ISIS militias, is far worse off – and more of a threat to the US – than it was before the bombs started falling.

The problem is the ideology of interventionism, not the management of a particular intervention. Interventionism has a terrible track record, from 1953 in Iran, to Vietnam, to 2003 in Iraq, to 2011 in Libya and Syria. A real Congressional hearing should focus on the crimes and mistakes of the interventionists!

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 Fed Can’t Raise Rates, But Must Pretend It Will – Article by Thorsten Polleit

The Fed Can’t Raise Rates, But Must Pretend It Will – Article by Thorsten Polleit

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The New Renaissance HatThorsten Polleit
October 26, 2015
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Waiting for Godot is a play written by the Irish novelist Samuel B. Beckett in the late 1940s in which two characters, Vladimir and Estragon, keep waiting endlessly and in vain for the coming of someone named Godot. The storyline bears some resemblance to the Federal Reserve’s talk about raising interest rates.

Since spring 2013, the Fed has been playing with the idea of raising rates, which it had suppressed to basically zero percent in December 2008. So far, however, it has not taken any action. Upon closer inspection, the reason is obvious. With its policy of extremely low interest rates, the Fed is fueling an artificial economic expansion and inflating asset prices.

Selected US Interest Rates in Percent
Selected US Interest Rates in Percent

Raising short-term rates would be like taking away the punch bowl just as the party gets going. As rates rise, the economy’s production and employment structure couldn’t be upheld. Neither could inflated bond, equity, and housing prices. If the economy slows down, let alone falls back into recession, the Fed’s fiat money pipe dream would run into serious trouble.

This is the reason why the Fed would like to keep rates at the current suppressed levels. A delicate obstacle to such a policy remains, though: If savers and investors expect that interest rates will remain at rock bottom forever, they would presumably turn their backs on the credit market. The ensuing decline in the supply of credit would spell trouble for the fiat money system.

To prevent this from happening, the Fed must achieve two things. First, it needs to uphold the expectation in financial markets that current low interest rates will be increased again at some point in the future. If savers and investors buy this story, they will hold onto their bank deposits, money market funds, bonds, and other fixed income products despite minuscule yields.

Second, the Fed must succeed in continuing to postpone rate hikes into the future without breaking peoples’ expectation that rates will rise at some point. It has to send out the message that rates will be increased at, say, the forthcoming FOMC meeting. But, as the meeting approaches, the Fed would have to repeat its trickery, pushing the possible date for a rate hike still further out.

If the Fed gets away with this “Waiting for Godot” strategy, savings will keep flowing into credit markets. Borrowers can refinance their maturing debt with new loans and also increase total borrowing at suppressed interest rates. The economy’s debt load can continue to build up, with the day of reckoning being postponed for yet again.

However, there is the famous saying: “You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.” What if savers and investors eventually become aware that the Fed will not bring interest rates back to “normal” but keep them at basically zero, or even push them into negative territory?

If a rush for the credit market exit would set in, it would be upon the Fed to fill debtors’ funding gap in order to prevent the fiat system from collapsing. The central bank would have to monetize outstanding and newly originated debt on a grand scale, sending downward the purchasing power of the US dollar — and with it many other fiat currencies around the world.

The “Waiting for Godot” strategy does not rule out that the Fed might, at some stage, nudge upward short-term borrowing costs. However, any rate action should be minor and rather short-lived (like they were in Japan), and it wouldn’t bring interest rates back to “normal.” The underlying logic of the fiat money system simply wouldn’t admit it.

Selected Japanese Interest Rates in Percent
Selected Japanese Interest Rates in Percent

The Fed — and basically all central banks around the world — are unlikely to accept deflation clearing out the debt, which would topple the economic and political structures built upon it. Fending off an approaching recession-depression with more credit-created fiat money and extremely low, perhaps even negative, interest rates is what one can expect them to do.

Murray N. Rothbard put it succinctly: “We can look forward … not precisely to a 1929-type depression, but to an inflationary depression of massive proportions.”

Dr. Thorsten Polleit is the Chief Economist of Degussa (www.degussa-goldhandel.de) and Honorary Professor at the University of Bayreuth. He is the winner of the O.P. Alford III Prize in Political Economy and has been published in the Austrian Journal of Economics. His personal website is www.thorsten-polleit.com.

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.

Lifespan Challenge: Support the MitoSENS Mitochondrial Repair Project Research Fundraiser – Video by G. Stolyarov II

Lifespan Challenge: Support the MitoSENS Mitochondrial Repair Project Research Fundraiser – Video by G. Stolyarov II

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The New Renaissance HatG. Stolyarov II
October 21, 2015
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Mr. Stolyarov, author of “Death is Wrong” and Chief Executive of the Nevada Transhumanist Party (NTP), challenges all members of the NTP and the general public to donate to life-extension research – particularly, the ongoing MitoSENS Mitochondrial Repair Project for which crowdfunding is currently being conducted on Lifespan.io.

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Giving Thanks and Looking Forward – Article by Bradley Doucet

Giving Thanks and Looking Forward – Article by Bradley Doucet

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The New Renaissance HatBradley Doucet
October 15, 2015
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Expressing gratitude, according to self-help gurus and neuroscientists alike, is a sure route to being a happier person. Thanksgiving, then, should be the happiest of all holidays—and not just because of the turkey dinner with all the fixings and the football-watching marathon. In addition to the good things this holiday brings, it also contributes to well-being by encouraging us to give thanks for the good things in our lives. And when I do stop and think about it, I am grateful for a great many things.

On a personal level, I’ve got loving and beloved friends and family, a happy and sane home life, relatively good health, and work that I find meaningful and stimulating. I grew up in an overwhelmingly French-speaking town, but went to English schools all my life, allowing me to become almost perfectly bilingual, and now I live in one of the safest big cities in the world. I had the pleasure of spending years formally studying music, philosophy, and economics, all of which I now have the privilege of continuing to study informally these many years later.

On a political level, I’m grateful to be living here and now, in this country and century. Canada is one of the most economically free countries in the world, and not coincidentally, one of the wealthiest. Thanks to a newfound liberty and dignity for inventors and businesspeople starting just a couple of hundred years ago in northern Europe, an explosion of innovation and rapid economic growth has made almost everyone much better off today than anyone could have conceived of back then. Furthermore, in much of the world, the lot of women and minorities has improved dramatically. And despite the impression left by a media formula that still favours bad news over good, violence of all kinds continues to decline.

If I sometimes complain—and I do, about things both big and small—I like to think it’s because I can see an even better world just around the corner, and I know we could get there a lot faster if we would only tweak a few things. Of course, as often as not, I complain because I haven’t been managing my sleep schedule properly and I’m just cranky. Assuming that my motives are always noble is an example of a self-serving bias, by the way, one of many that can get in the way of objectivity and clear-headedness, and thereby keep us from that better tomorrow.

I do see a better world, though, and I look forward to moving toward it, in fits and starts, as we humans are wont to do. I look forward to the continuing spread of Enlightenment values and sensibilities: reason, science, peace, and trade. I look forward to the further democratization of human life through that most democratic of institutions: the market. Instead of imposing majority (or plurality) preferences on each other in alternating cycles as the pendulum swings from left to right, the market allows multiple options to coexist peacefully. The more we can allow each other the freedom to live our lives as we see fit, without trying to force our values down each other’s throats, the more experiments in living we can carry out, with all the benefits that we know experimentation brings.

It is important to note that this better world does not rely, as Marxist and other utopias do, on a violation of human nature. We are flawed and fallible creatures, which is a good reason not to invest in some of us the power to rule over others. We tend to act for ourselves in the first instance, and for others only in widening and weakening circles of empathy, but how could it be otherwise? As long as we do not initiate force against each other, this egoism can spur us to serve each other through positive-sum trade, and can even be a fountainhead of creativity.

I look forward to a time when the legitimacy of peacefully pursuing your own interests is more widely recognized. On a related note, I look forward to a time when actions are not judged primarily by their “good” intentions, but by their actual effects. Many altruistic or seemingly altruistic acts do more harm than good, and many egoistic ones are immensely beneficial. To judge according to intentions alone is to care more about appearing virtuous than about actually working toward a better world.

We have already come so far, and I am truly grateful to the giants of the past who gave so much of themselves—altruistically perhaps, but with a deep and healthy egoism as well, I am convinced. And I look forward with optimism, in this age of information, that we will do what it takes to continue to evolve our institutions and bring them more in line with the accumulated knowledge and wisdom of humankind.

Bradley Doucet is a writer living in Montreal. He has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also is Le Québécois Libre’s English Editor.

The Poison Apple Called TPP – Article by Jeffrey Tucker

The Poison Apple Called TPP – Article by Jeffrey Tucker

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The New Renaissance HatJeffrey A. Tucker
October 14, 2015
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Let’s say you have a trade deal that completely eliminates 18,000 existing tariffs between 12 countries that are otherwise hectoring each other with punishing trade barriers. To a person with a brain, this sounds amazing. Unless you are a luddite, a nativist, or a unionist, there seems to be every reason to support it. Trade is good. Global commerce is good. Fewer trade barriers are a good thing.

But let’s say that this same treaty binds all 12 signatory nations to an egregious imposition of government privileges for reactionary corporations who are paying to keep their cartels in place. I’m speaking here of big media, big music, and big pharma. They all live and breath to keep their “intellectual property” and to crush and destroy what they call “piracy,” which is actually the same thing as free-market competition.

What if this wonderful trade treaty was just a stalking horse for the dramatic expansion of these corporate monopolies? What if the whole point of the treaty were to use the language of growth and globalism to fight and crush the pressures toward universal information sharing that are inherent in the digital age?

I’m speaking here of the Trans-Pacific Partnership. Like the Nafta and WTO battles before it, the TPP is being marketed as a free-trade agreement. The partisans have lined up for and against it on that basis. But this is all so much distraction. The true core of the treaty is protectionist in the extreme. It protects a handful of powerful industry players against genuine market competition.

The rumors about the Intellectual Property provisions have been flying for years. But no one had seen the results of the endless and secretive negotiations. Then Wikileaks got involved. It released the full draft text of the IP sections. It turns out to be far more than the usual prattle and the expected sop to a few deep-pocketed industries.

The IP sections of the TPP attempt to impose — by force of blackmail  — the worst of American law as it applies to copyright, patent, and trademark, and do so in industries where there is otherwise some freedom left in the system.

The Digital Millennium Copyright Act, for example, puts the burden of proof on websites and internet service providers to make sure their content does not violate copyright. The book could be 75 years old and completely out of print but if a web bot discovers a PDF on the site, the government can force its immediate shutdown. This system pertains in the US right now but the TPP guarantees its enforcement in 12 countries in the Pacific Rim — some of whom host sites that are major sources of free information on the planet today.

The biggest revelation from the leaked document concerns big pharma. Their dream is pretty simple: they want to end generic drugs and the manner in which they distribute copies of named-brand products at much lower prices. In foreign countries, generics are a key to life. They are the way that people benefit from improved medical technology without paying exorbitant US prices.

The TPP would go a long way toward illegalizing generics for a whole class of pharmaceuticals. It all comes down to the rules that are used to decide whether generics can be produced at all. In the US, there is a practice called “linkage” that makes it impossible to produce drugs if there are any unresolved patent disputes. Linkage does not apply in most nations party to the TPP.

Politico explains:

Some of the most contentious provisions involve “patent linkage,” which would prevent regulators in TPP nations from approving generic drugs whenever there are any unresolved patent issues. The TPP draft would make this linkage mandatory, which could help drug companies fend off generics just by claiming an infringement…. In an April 15 letter to Froman, Heather Bresch, the CEO of the generic drug company Mylan, warned that mandatory patent linkage would be “a recipe for indefinite evergreening of pharmaceutical monopolies,” leading to the automatic rejection of generic applications. The U.S. already has mandatory linkage, but most other TPP countries do not, and Bresch argued that U.S. law includes a number of safeguards and incentives for generic companies that have not made it into TPP.

What’s even more remarkable is how the TPP would actually expand linkage to cover new classes of drugs in the US.

Politico explains again:

The opponents are also worried about the treaty’s effect on the U.S. market, because its draft language would extend mandatory patent linkage to biologics, the next big thing in the pharmaceutical world. Biologics can cost hundreds of thousands of dollars a year for patients with illnesses like rheumatoid arthritis, hepatitis B and cancer, and the first knockoffs have not yet reached pharmacies. The critics say that extending linkage to biologics—which can have hundreds of patents—would help insulate them from competition forever.

The costs of this treaty, then, will not just be felt abroad. The costs will further institutionalize the pharmaceutical monopoly in the US, making people pay far more for drugs than they currently do, and even curbing research and development beyond what the major industry players are willing to endure to bring a product to market.

And it’s not just about the US. It’s about the countries party to this agreement. They are being blackmailed by the American ruling class, badgered and bribed to accept bad law in exchange for market access. This is not how trade is supposed to work.

But from the ruling-class point of view, this is the whole point of trade treaties. Any country can have free trade anytime it wants. It only needs to stop punishing imports and start making good stuff that others want to buy. You have to ask yourself: what is the real point of these thousand-page documents, the years of negotiations, and all this secrecy? Why did the first public appearance of any aspect of the TPP have to be released on Wikileaks?

What is it that they don’t want us to know?

Patent attorney Stephan Kinsella explains: “What is happening here is that the US, at the behest of the American RIAA (music industry), MPAA (Hollywood), and Big Pharma industry, is using its hegemonic/superpower status to foist American-style IP law onto other countries, for the benefit of these special interests. This has been going on for decades now… Once TPP is ratified, as I expect it will be, US-style draconian IP law will be put into force in countries that comprise about 40% of world GDP.”

Adam Smith nailed it: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Those who have watched these negotiations say that the American negotiators have basically operated as lobbyists from the American pharmaceutical industry. This is why Doctors without Borders has come out so strongly against TPP. And this is also why the Electronic Freedom Foundation has come out so strongly against it as well.

The best case for the TPP is that many bad guys are against it. But that doesn’t mean that true liberals should be for it. In politics, what looks like a shiny red delicious apple can be poisoned to the very core.

Jeffrey Tucker is Chief Liberty Officer of Liberty.me (http://liberty.me/join), a subscription-based, action-focused social and publishing platform for the liberty-minded. He is also distinguished fellow of the Foundation for Economic Education (http://fee.org), executive editor of Laissez-Faire Books, research fellow of the Acton Institute, founder of the CryptoCurrency Conference, and author of six books. He is available for speaking and interviews via tucker@liberty.me.