The Empire’s Economic Death Spiral

Apparently the foreign elite ruling the imperial USA are under the impression that the only way out of its Ukrainian debacle is through. Unfortunately, this concept doesn’t work when the rapidly approaching object is not a cloud, but the ground:

The House passed a foreign aid package on Saturday as well as what’s called the REPO Act that will allow the Biden administration to confiscate billions of dollars’ worth of Russian assets sitting in U.S. banks and transfer them to Ukraine for reconstruction.

“By delivering urgently needed aid to Ukraine, the United States has reasserted itself as the leader of the free world and as a reliable partner to its allies,” said Rep. Ritchie Torres, D-N.Y. “The US has a singular obligation to help freedom fighters fight for their freedom, and nowhere more so than in Ukraine, whose self-defense against Putin’s aggression must prevail.”

The REPO Act, which would authorize Biden to confiscate the frozen Russian assets in U.S. banks and transfer them to a special fund for Ukraine, is part of the foreign aid package that was stalled for months in the House. More than $6 billion of the $300 billion in frozen Russian assets are sitting in U.S. banks. Most of the $300 billion are in Germany, France and Belgium.

On Wednesday, Speaker of the House Mike Johnson released the package which would include tens of billions of dollars in aid for Ukraine, Israel, and Taiwan.

McFaul, whose been lobbying for the REPO Act for months, clapped back at Caldwell’s assertion and said the use of Russian assets for Ukraine would send an important message to autocratic nations around the world. “There are those that say, ‘Well, this will hurt the dollar. It’s bad for our reputation.’ I have a pushback to that. I don’t want criminals investing in American Treasury bonds,” McFaul said.

Keep three things in mind here. First, Russia has a similar amount in European funds frozen that it will seize in return if the Russian funds are stolen, as well as considerably more foreign assets that can be easily nationalized. As with the previous sanctions, this act will strengthen the Russian economy at the expense of the European economies.

Second, China is already being sanctioned and is the second-largest holder of US Treasury bonds, at $800 billion. This is 40 percent lower than it was 11 years ago and is a 14-year low. This is one reason why the USA has been unable to export inflation the way it used to, and if China were to follow Russia’s lead in dumping the dollar entirely, US inflation would probably double from where it is today. Since the BRICSIA nations are already in the process of developing their own trading currency, this is a very high probability event within the next three years and will probably precede the opening of the Asian front.

And third, the central banks are, quite literally, criminal organizations, as are most of the large multinational corporations. If criminals weren’t investing in US Treasury bonds, no one would be. Furthermore, the seizure of foreign assets without full compensation would obviously be nothing less than theft by the U.S. Congress.

I suspect there may be some serious unintended consequences for the global banking system if the bill actually becomes a law and is translated into action. Because how can anyone possibly trust their financial assets to a banking system so easily suborned to a government’s whims?


The Comprehensive Failure of Milton Friedman

The author of Princes of the Yen, which presciently predicted the 2008 financial crisis, the current one, and the global currency goal as far back as 2005, was methodically demolishing all of the key narratives supporting Clown World’s economic structures eight years ago:

The first four pillars of the central banking narrative have collapsed: Banks create money out of nothing and thus reshape the economy in their image. Markets are rationed and the key factor is the quantity of bank credit. Bank credit creation for GDP transactions boosts GDP growth, no matter what interest rates do (they will follow GDP growth). Developing countries do not need to borrow from abroad, and in fact should not borrow from abroad, as this puts them unnecessarily at mercy of the foreign creditors.

As these pillars revolve around banks and money and credit, some economists may agree, but argue that economics has long focused on the real economy and purposely chose to ignore all the financial factors. In this real economy, they will argue, the most important principle is to allow market forces to act without being hampered by governments – then we will see economic growth and stability. Should this fifth pillar of the central banking narrative at least be true?

Judging by the publications of the central banks, as well as the IMF or the World Bank, one would expect so: When these Washington-based institutions send their teams of staff and hired consultants to developing countries, their job can usually be completed very quickly. Without much ado, a new country report complete with major policy conclusions is drafted. The secret of such efficient work: even before these foreign experts had travelled (first class) to the respective countries, the conclusions of their study had already been pre-determined, because they are always the same, no matter which country is concerned: The goal of the axiomatic-deductive neoclassical belief system is to find ex post justifications for the argument that government intervention is bad, and markets need to be unfettered by any form of intervention. This predetermined conclusion is then presented, in the form of ‘research reports’ or ‘studies’, to the leadership of many nations across the world, only vaguely connected to local facts and institutions.

In order to reach such conclusions, neoclassical and central bank economists worked backwards: What kind of model comes to such conclusions? Answer: A model that operates in a dream-like idealized world. What are the features that define such a world? A long list of assumptions needs to hold, creating a bizarre theoretical Neverland: perfect information, complete markets in equilibrium, perfect competition, zero transaction costs, no time constraints, perfectly flexible prices that adjust all the time, everyone is very selfish and does not care about others, and people are not influenced by others. Why do all these assumptions matter? Because neoclassical economists have proven that they all need to jointly hold true, for market equilibrium and efficient markets to exist, and for government intervention to be ineffective.

The next step in the sequence of using such models is the most important one: present in reverse order, by pretending that no pre-determined conclusions existed. Start by listing the assumptions – for sake of argument. Then present the model. Then pursue it to its conclusions, which happen to be… let’s see… Oh, amazing: this model happens to conclude government intervention is bad and only free and deregulated markets will work! Well, in that case, ladies and gentlemen, we shall need to recommend deregulation, liberalization and privatization!

That such economic charlatanry passes for ‘economics’ in leading journals, textbooks and university lecture rooms is a sad indictment not only of the economics establishment, but of academia and society at large.

But what about economies in our world, on the planet we live – as opposed to the bizarre planet described by the economic charlatans? Since none of these assumptions hold, we know that we can neither expect equilibrium nor will deregulation, liberalization and privatization trigger improved economic growth.

If our theoretical assessment of the theoretical claims is correct, we should also be able to muster empirical support for it. And it exists in abundance. In order to test these neo-classical policy recommendations of deregulation and market supremacy, we can compare the market-oriented and shareholder value-focused US and UK economies with those economies known to have always placed an emphasis on government intervention, non-market forms of resource allocation combined with social welfare systems, namely Germany, Japan, Korea, Taiwan and China. Of course we should not be influenced by the business cycle, and thus need to consider a longer time period, such as half a century. Considering therefore the half-century from 1950 to 2000, we would expect the best performance in those economies that are more market-oriented, and the worst performance in economies that have chosen to practice intervention, ‘guidance’ and the use of production cartels. What is the empirical result?

The neoclassical thesis has been rejected by the empirical evidence. In the 1950s, the designers of the Japanese economic system intentionally increased the number of cartels, in order to improve economic performance (Werner, 2003a). As we can see, as the number of cartels almost doubled to over 1000 by the late 1960s, while economic growth accelerated to double-digit figures. When, under US pressure, the number of cartels was reduced in the 1970s, growth dropped. The drop in cartels is accompanied by weaker and weaker economic growth. The deregulation drive culminated in the entire abolition of cartels by the end of the 1990s – and economic growth equally reached zero. A similar picture has been painted by the performance of many developing countries, including Argentina and African nations, which followed the economic advice of the Washington-based institutions. We conclude that the fifth of the central bank claims – that deregulation, liberalization and privatization enhances economic growth – has also been revealed to be fraudulent.

Do we Need Central Banks? RICHARD WERNER 15 January 2017

What’s intriguing about both his book as well as his paper is that it explains why both China and Russia are economically routing the bank-controlled economies of the West as well as why Japan is behaving so erratically and in such an uncharacteristic manner of late.

The great deception of liberals, libertarians, conservatives, and independence-minded Americans in general is the idea that corporate management is good and government management is bad. But the so-called Invisible Hand not only doesn’t exist, it perpetuates a gargantuan lie that directly serves the interests of the globalists, who delight in transnationalist unaccountability.

I haven’t read the book yet. But I will, especially since he is obviously far ahead of the game on the realities of how money is actually created in a modern credit economy. Ian Fletcher and I have proven Ricardo was completely wrong. Steve Keen has proven Smith was generally incorrect. So, it should come as no surprise that someone of our intellectual generation would eventually prove that Friedman was wrong as well.

At this point, it’s hardly arguable that none of us are actually free to choose very much of anything at all.


The Retreat from Japan

Goldman Sachs reverses course and exits the Japanese market:

Goldman Sachs Group Inc. is exiting transaction banking in Japan, less than a year after announcing plans to enter the business of managing cash flows for big companies in the country.

“We are stepping back from building out this business here in Japan,” Tokyo-based spokesperson Hiroko Matsumoto said in an emailed statement. “Consequently we are closing Goldman Sachs Bank USA Tokyo Branch whose sole function was to support transaction banking in this market.”

The bank will remain focused on growing its transaction banking operations in the US, UK and European Union, Matsumoto said.

I don’t know what this might signify, but I assume it is something important, perhaps even on the level of China’s 2015 decision to spurn Clown World’s invitation to become the new headquarters of The Empire That Never Ended.

What we know is that a decision by the Japanese government, or its replacement, to change sides and support China instead of the United States would be a global shift of tectonic proportions.


The End of Demonetization

The BRICS alliance – which is to say Russia and China – is taking direct aim at the ability of Clown World’s credit system to demonetize individuals, organizations, and nations of which it disapproves:

The BRICS group of emerging economies plans to create a payment system based on digital technologies, Yury Ushakov, a senior foreign policy aide to Russian President Vladimir Putin, has told TASS in an interview published on Tuesday.

According to Ushakov, the system would be “outside of politics” and would not depend on national agendas or the fiat currencies of countries around the globe.

“We believe that an important goal for the future is the creation within the BRICS framework of an independent settlement payment system that would be based on the most modern technologies, such as digital currencies and blockchain,” Ushakov stated. “It would be comfortable for any state, person and business, and would not require significant costs.” The presidential aide did not specify the details or the time frame for the development of the new system.

Now, this could certainly be a case of exchanging King Log for King Stork. But it appears the Russians and Chinese have learned from watching the demise of the UK and the USA, and that neither of them are eager to assume the crown of foreign corruption that history teaches inevitably comes with empire and ruling over foreign peoples.

And this will be a very good thing for both the BRICSIA alliance as well as the persecuted people and organizations living under Clown World’s increasingly despotic rule. As with sanctions, the practice of demonitization is going to backfire with catastrophic results for the organizations that engage in it, as they will no longer be able to compete effectively with more trustworthy competitors upon whom their clients can rely.


The US Housing Crash Cometh

Karl Denninger explains why, and in the process, also explains why people had so much money to spend over the last 3-4 years.

All Real Estate is local.

But — it got a lot less specifically-local in the last three years, and bifurcated basically two ways: Blue and not-Blue.

The problem is that the dynamic of virus restrictions along with wildly ridiculous fiscal and monetary policy drove a dynamic that was utterly unsustainable and, fundamentally, stupid as a whole although for the people doing it the act looked smart at the time. There were several elements of this:

  • Work-from-home on a near-universal basis was forced by many employers. This, in high-cost areas, drove employees to think they could arbitrage their higher salary (a result of the high cost of living where they were, such as in Chicago, New York, San Francisco and similar) and keep it while moving somewhere much cheaper, such as Tennessee or Florida. For those who pulled this it was a massive windfall, provided they could sell their home in the high-cost place.
  • Forced-low interest rates meant mortgages were extraordinarily cheap. The brokers of same — banks, independent shops and similar — feasted on the fees, both for purchase money (see above for the flow on that!) and refinances. Many of those refinances were strategically wise, being committed just a few years after origination and not materially-lengthening the amortization clock. All of them wildly increased available consumer funds for spending, however, by reducing the monthly payment amount.

These two dynamics skyrocketed home prices. The All-US index went from ~450 to 625, a roughly 40% increase in two years. That is much greater than the explosion higher during the last couple of years of the housing bubble; that was a mere 14%. There were plenty of areas, including where I live, that prices of “real” (not AirBNB friendly) single-family homes roughly doubled and some of those “short-term rental opportunities” were even more-obscene with some of them tripling in three years time.

All of this was ridiculously stupid. The premise that employees operated on — that they’d never have to set foot in an office again — was crap. As the pandemic ended so did the curtailment of occupying office space and the cities could not survive with all that office space empty; the tax revenue plus all the retail business activity associated with those people being in the buildings during the day is utterly essential to their fiscal survivability.

Those who thought they could arbitrage their cost of living while keeping their “bonused up” salary are now getting a rude shock: Come back to the office, which we have leased and have to pay for, or be fired. Except….. those employees now live hundreds or even a couple thousand miles away! Worse, they bought houses on <3% mortgages and spent the rest and, while their “price paid” is what it is nothing is moving.

Around here I looked at recent sales. Among single-family homes there are an effective zero from roughly April forward. The top of the page for this county comes up with sales from March, February, May, a couple the first two weeks of June and a couple of (wildly-overpriced cabins) recently. This is the second week of August and Memorial Day to Labor Day, which is a couple of weeks away, is prime closing season here because the kids are out of school and similar.

The market is basically locked up and the reason is quite-clear: Those who bought at the top can’t move; they have 3% mortgages and that $500,000 place has a $2,100 payment. The same $500,000 house at 7% carries a payment of $3,326!

The net present value of that payment on their house today is $316,000, a $184,000 loss!

Translation: things aren’t looking so great for your new neighbors from California who arbitraged the location delta into an overpriced home in your community. Or for the banks that hold their mortages. It should be worse than 2008.

The higher interest rates were inevitable and unavoidable. However, it remains to be seen if the minor premise was false and employers are going to be able to force their employees back into the office. I remain skeptical about the “back to the office” scenario, because I think it’s more likely that the corporations will break their leases, pull out of the cities, and decentralize. They certainly have no dearth of other reasons to do so.


Better Stick with Cash

Banks are now closing the accounts of people whose “publicly-stated views are at odds with their positions as inclusive organisations” and using spurious excuses to do so.

The 40-page file shows that the bank cited his retweet of a Ricky Gervais joke and his friendship with Novak Djokovic to raise concerns he was ‘xenophobic and racist’.

The extraordinary documents obtained by the former Ukip leader and handed to MailOnline revealed the 331-year-old bank decided to ‘exit’ him after making reference to his friendship with former Wimbledon champion Djokovic.

The tennis player, who lost in the men’s singles final in SW19 on Sunday, made headlines over his decision not to have the Covid-19 vaccine during the pandemic.

The dossier also shows the bank’s discussions considered 13 tweets, including a retweet by Mr Farage of a video of a Ricky Gervais sketch posted by Laurence Fox satirising the transgender movement. In the scene Gervais made a joke about ‘old-fashioned women – the ones with wombs’.

Mr Farage had retweeted the clip in May last year with the phrase ‘this is brilliant’ – but the document described it as a ‘transphobic comedy sketch’.

The officials noted that closing his accounts could not be justified on the basis of his wealth as his ‘economic contribution’ was ‘sufficient to retain on a commercial basis’.

But the minutes state: ‘The Committee did not think continuing to bank NF was compatible with Coutts given his publicly-stated views that were at odds with our position as an inclusive organisation.’

This is why all of the liberal “civil rights” and “freedom of speech” has been nonsense all along. As some of the earliest supporters of these fraudulent concepts admitted nearly 100 years ago, they only exist in order to permit those whose evil beliefs had been repressed to take power and begin repressing traditional views, nationalist beliefs, and the Christian faith.

And it is why every effort to create “central bank digital currency” should be opposed, and why you should stop using credit cards and debit cards for every little purchase, because the more you utilize the control system, the easier it is for the control freaks to force everyone else to do so.

Start small. Use cash at the supermarket and the gas station. Delete the financial apps from your smartphone. Wait patiently in the lines instead of using self-checkout. Don’t make it easy for them.

Because if you don’t, you’ll soon find yourself being ejected from the system anyhow, just like Niles Farage and other individuals deemed undesirable by those in control of the banking system due to a joke on social media or something similarly trivial.


Running Out of Rabbits

What can the Fed do in the face of the growing list of bank failures? Absolutely nothing, according to Karl Denninger.

How’s PacWest doing?

Oh, not so good. Let’s see…oh, looks sort of like an impending zero.

But wait — First Republic was it, right?

Sure it was.

There’s no real problem here, right? The TNX was down a full percent yesterday because….. the Fed will save it all, right?

No they won’t.

Not because they don’t want to.

They can’t this time.

Oh, you think not eh? How’s your homeowner’s insurance premium? Your car insurance? Your food bill? You know, all that stuff you have to buy? Yeah, you’re reading this and you’re probably middle class or better. You’re doing mostly ok. You’re on the right side of the bell curve, right?

Half the people are on the left, and they’re not ok. For them that 20% increase means they are taking payday loans to buy food, effectively and sometimes literally.

That ends the game folks.

If The Fed tries it we get government and social collapse.

The Federal Reserve has surprised us before with its resiliency. It has certainly kicked the can a lot further down the road than I’d anticipated it would be able to in 2008. But sooner or later, no matter how skilled the magician, the hat runs out of rabbits.

UPDATE: The short-term anecdotal evidence tends to support the hypothesis.

Two more US regional banks saw trading of their shares suspended on Thursday, amid the worst crisis to hit the country’s financial sector since 2008. Regulators halted trading in Los Angeles-based PacWest and Arizona’s Western Alliance after their share prices fell dramatically. PacWest Bancorp said late Wednesday it was in talks with potential partners and investors about strategic options after its shares dropped by as much as 60%.


Be Very Afraid

In fact, you might do well to be downright terrified. When it comes to economics news, it doesn’t get much more grim than this.

Fortunately, he only said “could mark”. He didn’t actually declare that the banking crisis had ended. So hope yet remains. It might only be that this is a sign of First Republic Bank’s survival.


Debt-Cancellation in Ancient Greece

Jesus said debts should be forgiven. So did the ancient Greeks, as Rev. Matt points out.

One of the most consistent arguments made against the policy of society wide debt forgiveness is this: “You need a Christian or believing (in the sense of ancient Israelite) nation for it to work. It cannot work in a nation like ours because it is non-Christian, so either people will not go for it, or they will abuse it and it will not work.” Almost every time I have made a case for debt forgiveness somebody makes this argument. But it is a fallacious one, both historically and logically.

It is fallacious logically because there is nothing inherent to many pagan philosophies saying that debt cannot be forgiven. Forgiveness, liberty and debt cancellation were all concepts that existed before either Israel or Christianity had graced the face of the earth. Indeed, the most ancient usage of words that can be translated as “liberty” were pagan words referring to debt forgiveness.

It is fallacious historically, because we have countless examples throughout history of ancient societies practicing debt forgiveness. From the ancient Sumerians, Akkadians, and other Near Eastern societies, on through to Greek city states and the Roman public, we see that debt forgiveness was either practiced, debated, or offered in various contexts. In fact, many ancient pagan leaders saw it, correctly, as an effective means of shoring up popular support for their reign, and limiting the damage their nobles could do to both their reign and their society.

Many examples of debt forgiveness in pagan societies can be given, here is one from ancient Athens,

“Now later writers observe that the ancient Athenians used to cover up the ugliness of things with auspicious and kindly terms, giving them polite and endearing names. Thus they called harlots “companions”, taxes “contributions”, the garrison of a city its “guard”, and the prison a “chamber”. But Solon was the first, it would seem, to use this device, when he called his cancelling of debts a “disburdenment”. For the first of his public measures was an enactment that existing debts should be remitted, and that in future no one should lend money on the person of a borrower.”

Debt enforcement and the refusal to cancel fraudulent debts such as student loans is neither moral nor Christian. Precisely how is it “progress” for a modern society to be observably less moral and less forgiving than ancient pagan societies?