Student Loan Forgiveness

"Somebody's got to pay. Not gonna be me."
--Harry Lynch (Wall Street)

Ron Paul discusses the administration's plan to forgive college student loan debt. The plan is an overt attempt to buy votes, of course. Who is being bought?

Indebted college students, naturally. Plus all those who benefit from government subsidies to higher ed.

The plan can be viewed as a wealth transfer to the elite class. The working man is being forced to subsidize the 'educated.'

Moreover, the plan is inflationary. Loans that are forgiven don't just disappear. The liability must still be paid for. The money that can't be raised through taxes or borrowing will be...printed.

One more thing. Those who have actually paid for college now feel like suckers. In the future, more will borrow under the assumption that they won't have to pay.

Moral hazard writ large.

Death and Taxes

Now my advice for those who die
Declare the pennies on your eyes
--The Beatles

The Inflation Reduction Act allocates billion$ for the adding more than 80,000 IRS agents. It appears that this will be a new breed of tax collector.

Recruiting materials say that agents must be able to 'carry a firearm and use deadly force, if necessary.'

It is said that there are only two things that are certain: death and taxes.

The IRS, it appears, is gearing up to provide for both.

Weaponized Agencies

Trim life shadows flicker and fall
But you still can't turn away
Get up and run before you stall
Before the edges fray
--Ric Ocasek

Given that the executive branch now includes dozens of agencies with strong armed capability, it should come as no surprised that influential politicians will seek to 'weaponize' those agencies against political opponents. The FBI, CIA, and IRS are particularly attractive in this regard.

McCarthy, JFK, Tea Party, et al.

In the recent years, there has been no better example of the weaponization of federal agencies than the concerted operations to take down Donald Trump. First as a candidate, then as sitting president, and now as a former president with future candidate potential. The FBI, CIA, DOJ, and even the military has been involved.

Yesterday's actions will be difficult for even many partisans to brush off as federal agents raided Trump's home in Florida.

Actions over the past few years have escalated to the stuff of authoritarian police states. The current administration is brazenly employing federal agencies to punish political opposition.

What authoritarians never seem capable of understanding is the extent to which their aggression strengthens the resolve of the liberty-minded.

Inflation Reduction Act

I bought a novel, some perfume
A fortune all for you
But it's not my conscience
That hates to be untrue
I asked of my reflection,
"Tell me what is there to do?"
--Squeeze

As we've discussed, leftists are rarely honest with their rhetoric. They label things largely contrary of their actual effects.

Cast in point: the proposed Inflation Reduction Act. 

As Ron Paul discusses, the bill does the opposite. It increases government spending by hundreds of billions of dollars. It takes resources out of the hands of private citizens and puts them into the hands of bureaucrats.

Not only does this increase the risk of capital misallocation, but it must be funded. To the extent that citizens are taxed, it reduces economic resources available to people during an era of high price inflation and slowing economic activity.

It is a universal truth that slow economic activity motivates easier central bank monetary policy (read: inflation).

To the extent that taxes won't cover the spending, then those funds must either be a) borrowed, which taxes future incomes, or b) printed (the reason why inflation is called the 'invisible tax').

There is little doubt that the Inflation Reduction Act will ultimately result in more inflation, not less.

Love and Liberty

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart?
--Michael McDonald

Leonard Read's Students of Liberty is a thoughtful compilation of remarks made to students at Pitt in 1950. I found several points particularly interesting.

Read proposes that the history of the world is largely a history of violence. These pages have proposed similarly. Some violence is direct, such as war, while other violence is indirect, such as the violence that manifests under the guise of democracy. For example, when people vote to raise taxes to pay for a particular program, those voters are principals of violence. They contract with the strong arm of government to shake down others for resources to fund their pet projects.

The alternative to violence, Read suggests, is love. Love refers to the kindly virtues in human relations such as charity, integrity, and not doing unto others what you would not have them do unto you. This is, of course, Christ's central message. 

If we are to trends of violence toward love, then Read asserts that liberty is required. Love "generates and grows among free men; only with great difficulty among men ruled by the principles of violence. As violence begets violence so does one personal act of kindness beget another." (28) 

How does liberty grow? Read dismisses approaches such as marketing campaigns, subsidized instruction, and fear mongering programs. Instead, he advocates for self-motivated learning and improvement. Only through personal search for truth and leading by example will liberty grow.

Read admits that his 'one-individual-at-a-time' notion lacks the speed of other, more aggressive proposals, but he argues that the Students of Liberty approach is the only one that will produce durable and lasting change.

Here we are 70+ years later, and most of the approaches that Read downplayed have been tried with marginal success. Perhaps it is time to put Read's proposal to work.

I personally plan to.

Grift Horse Gone

You've been around all night
And that's a little long
You think you've got it right
But I think you've got it wrong
--Toni Basil

After criticizing the state's GOP, The Walt Disney Company (DIS) is in the process of having its longstanding favorable legislative treatment in the state of Florida revoked. Established more that five decades ago, the Reedy Creek legislation granted Disney the privilege of operating its amusement park properties outside of Orlando in a 'special district' with no local government oversight. 

The special status allows Disney to issue its own tax exempt muni bonds as well as build new developments without obstacles such as local zoning laws. Disney's competitors in the state have not been granted similar favor. For example, Universal Studies Florida, which operates its own entertainment facilities adjacent to Disney, does not have Reedy Creek-like special status.

Increasingly, corporations have been weighing in on the left wing side of political issues such as the Chinese takeover of Hong Kong, the Black Lives Matter movement, election fraud, et al. Until now, their political commentary has not been met with much push back.

Unfortunately for Disney, Florida operates differently, boasting a strong GOP party presence highlighted by a fearless governor grounded in constitutional principles. This creates an environment where state officials are alert for opportunities to surface and remove grift.

Disney's political commentary put the process in motion on Reedy Creek. Both Florida houses have voted to end the company's special district status. Governor DeSantis is expected to sign the legislation.

It appears that Disney execs looked the grift horse in the mouth once too often. 

no position

Crisis Management

"Some of you have to depart immediately. We have a crisis situation."
--Lt Mike 'Viper' Metcalf' (Top Gun)

Nice graph showing how many past Fed rate raises have ended in financial crisis--which subsequently causes the Fed to reverse course and lower rates.

This should be expected. Lower interest rates reduce borrowing costs, thus driving more debt and leverage into the system. Raising rates stresses the leverage. 

After lowering rates, the Fed can never get rates back up to where they were before. If they did so, the additional leverage accumulated during the easing phase would rupture the system when taxed by higher rates.

This is why rates have trended lower for decades, and why the Fed is now cornered.

Important Chart

There's a room where the lights won't find you
Holding hands while the walls come tumbling down
When they do, I'll be right behind you
--Tears for Fears

Have been looking for an updated version of this chart for a while. Finally found one courtesy of maven Stephanie Pomboy.

The chart continues to tell an important, if not THE, story behind the huge rise in stock prices (as well as other asset prices) since the 2008 credit crisis.

The graph plots balance sheet assets of the Federal Reserve alongside the S&P 500 Index (SPX) from 2009 thru the end of 2021. The correlation between the two series is unmistakable. Increases in the Fed's balance sheet, which has more than quadrupled in size since 2009, correspond to increases in overall stock prices.

What has caused the Fed's balance sheet to increase so dramatically? The primary driver has become known as 'quantitative easing' (QE)--a program designed to, among other things, stimulate economic activity after major calamities such as the 2008 credit collapse. 

When conducting QE operations, the Fed purchases securities (mostly Treasury and agency bonds) from financial institutions that deal in those securities. For instance, the Fed might observe $100 million in Treasuries sitting in J.P. Morgan's (JPM) inventory, and then buy them all by placing a credit of $100 million with JPM in exchange for the bonds. The $100 million in Treasuries is added to the Fed's balance sheet.

Where does the Fed get the $100 million to buy those bonds from JPM? Out of thin air, baby. It creates the money with a few clicks of a mouse. 

The freshly minted cash now in the hands of financial institutions can be used to fund everyday operations, including trading and speculation in financial securities. As implied by the above graph, a sizable fraction of this cash has gone into stocks over the past decade or so.

It should be noted that the relationship works in reverse as well. When the Fed has halted QE operations over the past decade, stocks generally move sideways along with the value of the Fed's balance sheet assets. And, although you have to squint to see it, on the rare occasion that the Fed has attempted to unwind (read: sell) assets from its balance sheet (which has the effect of removing some of that magically printed money from the financial system), stock prices have fallen.

The only time this relationship did not hold was 2018-2019. Despite Fed efforts to curtail QE and even unwind balance sheet assets during this period, stock prices continued to rise. However, as indicated by Stephanie on the graph, this period also corresponds to a time of tax cuts and deregulation that was favorable for stocks. Stated differently, the bullish backdrop essentially overpowered the bearish forces of Fed actions on stock prices.

The relationship quickly got back on track in early 2020 when the Fed embarked on a gargantuan QE program in response to the onset of COVID-19. The Fed's balance sheet has more than doubled since then to over $8 trillion. The value of the SPX has commensurately doubled as well. 

Moving forward, the relationship between QE and stock prices has important policy implications. As inflationary pressures grow, the Fed may be tempted to curtail or perhaps even reverse its bond-buying practices. Although doing so would relieve inflationary pressures that the Fed itself helped to create, stopping or reversing QE is likely to put downward pressure on stock prices. Any policy that tanks the stock market promises to be politically distasteful.

Whatever the Fed and other central banks who have engaged in QE decide to do from here to address the inflation that they themselves brought about, you can bet that they are looking at the same chart we are...

no positions

Premeditated Destruction

There's a room where the light won't find you

Holding hands while the walls come tumbling down

When they do, I'll be right behind you

--Tears for Fears

Since the beginning of the pandemic, reasoned minds worldwide have been disturbed by how events have unfolded, and by the illogical nature of policy response. Personally, I theorized about an initially random but increasingly organized movement among various factions to advance their interests as authoritarians inevitably perceive that crisis presents opportunity.

Here is an alternative theory proposed by a German analyst. I am going to list key aspects of his theory below.

The pandemic and associated events over the past 18 months were not random or accidental but planned.

The master planners consist of a complex of large IT companies (discretionary power over huge data pool), global asset managers (raw financial power), and various policymakers (state power).

This is a plan hatched out of desperation to combat threats to the complex that have been many years in the making. 

The central threat to the complex stems from increasingly futile efforts of central bankers to inflate money supplies through evermore credit creation. With interest rates now effectively at the 'zero bound' since the 2008 credit collapse, the complex have lost the primary tool for advancing (read: funding) their interests.

Because driving interest rates negative to keep the wheels on the wagon would be socially unacceptable to the people at large, the complex requires a strategy that people would accept. Their solution: create a new system using a veil of economic and social chaos.

The system involves digital currency controlled by central banking authority. No more paper money. All money would be digital. Such a system provides power over money creation, surveillance over all monetary transactions; control over what money can purchase; where and with whom money can be spent, and the times that govern purchase; power to set and collect taxes; the power to impose fines; ability to distribute funds to whomever is deemed worthy. 

Such a system is seen by the complex as necessary to keep their interests (both economic and social) alive.

Under 'normal' conditions, the disenfranchisement that such a system would create would make it subject to huge pushback by the general populace.

Therefore, under the textbook authoritarian assumption about the crisis-opportunity relationship, the complex has determined that the most likely way that their the new system can be implemented is by a premeditated series of events that create economic and social chaos.

Enter CV19. Years of prior discussion and scenario planning informed the complex that a health crisis presented the best opportunity for creating fear and submission necessary for widespread acceptance of the new digital control system. Beginning late 2019, the complex began to implement the plan.

The plan's essence has been to implement policy responses to the pandemic that disturb economic and social fabrics in a manner that gradually escalates to the point of rupture. When the system collapses, people will beg for a policy solution like the digital currency and control system.

The author is careful to note influential role of the World Economic Forum (WEF) in the complex's preparation and execution of the plan. The WEF has 'trained' nearly all leaders of the complex, and has populated the ranks with thousands more like minds set on the goal of premeditated destruction.

On an optimistic note, the author suggests that the complex's plan is destined to fail. The 'deadly virus' narrative is already collapsing, leading to increasingly illogical arguments for pandemic countermeasures that even half wits are waking up to. Protests and pushback are growing.

Put differently, the complex's plan depends on chronic ignorance among a great majority of the world's people. But in order to advance its plan, the complex must resort to increasingly absurd measures certain to alert multitudes to the crimes being committed.

Truth will win. Evil will lose.

Government Sponsored Sectors

"Ain't nobody clean. Be nice to get clean, though"
--Tripp (Glory)

Which industrial sectors do substantial trade with the federal government, both in terms of economic resources and influence (contracts, subsidies, tax breaks, monopolistic grants, favorable regulatory treatment, etc), thereby making them government sponsored sectors? It would probably be quicker to list those sectors that have not received such treatment. 

But let's list some of the largest:

military/defense

healthcare

education

We've noted those before. Perhaps think of them as the Big Three. But there are others:

finance

utilities

transports

media, particularly social media

housing/real estate

law

accounting

agriculture (e.g., corn/ethanol subsidies)

energy, greens in particular

There are others. Recently in the news: automotive working w feds on electric cars, computer chip industry getting government support for domestic factory capacity adds.

When you think about it, few sectors are truly free and clear of government influence.

Paid Leisure

All I wanna do is have some fun
I got a feeling I'm not the only one
--Sheryl Crow

Several surveys suggest 1-2 million people are abstaining from work because they have been getting the extended and expanded CV19 unemployment checks.

Why should this be surprising?

People generally prefer leisure to work. If government is willing to pay people not to work, and compensation offers a subsistence deemed acceptable, then expect long lines at the unemployment benefits window--particularly for low-skilled workers.

When unproductive behavior is subsidized, you'll get more of it.

Parabolic Decline

And there's some chance we could fail
But the last time someone was always there for bail
When will, when will we fall down?
--Toad the Wet Sprocket

Nice depiction of the gravity of our fiscal situation. Yes, debt is 'soaring,' but its actual effect is to pull progress downward--as in negative net worth.

btw, if you're wondering what the secret sauce was that brought about a brief reported surplus in the late 1990s, it was a combination of a capital gains tax windfall from the dot.com stock market runup and an accounting change engineered by the Clinton administration to count payroll taxes collected for Social Security as revenue (in reality they are trust payments). The key tell is that debt continued to increase during the 'surplus' period.

The days of smoke and mirrors surpluses are long gone, however, as even the boldest accounting chicanery cannot obscure the parabolic decline in financial position augured by our reckless borrowing behavior.

Dot Plots

Sam Gerard: Cosmo, this guy's dirty.
Cosmo Renfro: Yeah he is, Sam.
--The Fugitive

If you're connecting dots to picture what has truly gone on over the past year and a half, then it seems likely that an image of Dr Anthony Fauci will appear in the middle of it. A public health sector bureaucrat for more than 50 yrs, Fauci is the director of the National Institute of Allergy and Infectious Diseases (NIAID). He has been the chief mouthpiece of CV19 public health measures since the pandemic began.

It did not take long for Fauci to blow his credibility with anyone with reasoning capacity. His stance on several matters (e.g., travel policy, masking) flip flopped. He promoted policies grounded in dogma rather than in science. He failed to advocate for projects to obtain better understanding of the situation (e.g., seroprevalence studies, randomized trials evaluating effectiveness of various PPE). He ignored data that contradicted his viewpoints.  

Because Fauci has been an active member of the Democratic Party who strongly supported Hillary Clinton in 2016, it is easy to construe his actions as politically motivated. Indeed, failing to remove Fauci from his position of influence may have been Donald Trump's most glaring error.

Evidence is emerging that Fauci received information about the potential origin of the virus in a Wuhan lab. He also knew that the research was funded in part by US tax dollars. In both cases his subsequent actions suggest coverups. Yesterday he failed to appear before a House panel hearing to answer questions about these matters.

Undoubtedly, Fauci is seeking political cover while it is still available for him. But it will be hard to hide from what the dots plot.

1933 Double Eagle

Crapgame: Then make a deal.
Big Joe: What kind of a deal?
Crapgame: A DEAL deal!
--Kelly's Heroes

Yesterday the only 1933 double eagle decreed to be 'legal tender' by the US government sold at a small numbers Sotheby's auction for a record $18.9 million (listing here). It had previously been owned by shoe designer Stuart Weitzman, who bought it in 2002 for a then record $7.6 million.

Although the coin has not been 'slabbed' by PCGS, company experts examined it in-hand and formally assigned a grade of MS65 with a corresponding cert. Similarly, CAC has conferred a virtual 'green bean' on the coin.

In 1933, FDR issued Executive Order 6102 which essentially outlawed private ownership of gold. The mint had already struck nearly 500,000 $20 gold pieces (also known as 'double eagles' or 'Saints' after the coin's designer Augustus Saint-Gaudens) for that year, but none had left storage yet. In concordance with the president's order, issuance of 1933 double eagles was banned and the entire inventory was subsequently melted.

Well, almost the entire inventory. 

A few 1933 Saints snuck out the door. Despite tireless efforts of the 'gold police' to recover the rogue twenties, a few remained at large. One wound up in hands of King Farouk of Egypt, who repeatedly rebuked attempts by federal agents to confiscate the coin. As the mainstream media likes to tell it, after decades of due diligence (and who knows how many million$ in US taxpayer resources), the federal government finally seized the coin in what is sometimes referred to as a 'secret service sting operation.' 

In reality, the feds struck a deal with a British coin dealer with whom the coin surfaced. Rather than melting it down, the feds subsequently accepted a face value payment of $20 from private parties in exchange for a 'certificate of monetization' (above) declaring that the coin was legal tender for public trade and ownership. That ceremonial transaction directly preceded the 2002 auction. 

Did I fail to mention that the federal government and dealer shared the auction proceeds?

A few other 1933 Saints are known to exist. A couple reside at the Smithsonian Institution. About 15 years ago, ten examples were found in a Philadelphia attic and dutifully submitted to the feds by the finder. I'm sure that federal bureaucrats were more than happy to trade ten crisp $20 Federal Reserve Notes for the coins. 

Legal battles involving the the Philly hoard of ten (which, not surprisingly, has not been melted) are certain to intensify now that the market has priced the stakes in the hundreds of million$.

As for any 1933 Saints that have retained their freedom, perhaps yesterday's sale will motivate a few rogues to trade on a market where their freedom is not questioned--the black market.

Who Will Pay?

"I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more. And standing here tonight, I'm afraid that I don't...hear...a thing. Just...silence."
--John Tuld (Margin Call)

Judge Nap provides constitutional context for the federal government's spend now, pay later policies. This year the Feds have already spent $1.9 trillion in CV19 relief (although only a fraction of this spending actually went for relief. The Biden Administration is now proposing $2.3 trillion in infrastructure spending. Plus there is the annual $2 trillion in borrowing just to make ends meet.

The judge wonders who will pay for this? Corporate tax increases will be mean less workers with income to tax. This is on top of the unemployment from lockdown/shutdown policies. Moreover, the 'near certain' inflation that the judge (correctly, in my view) suggests is pending will raise borrowing costs. 

The tired old answer seems to be that future generations will be the one's paying for today's profligacy. 

However, if there are no savings/no capital for investment (how can there be when we owe?), then where will future incomes come from to pay the bills? 

Increasingly, my fear is that future generations will be paying for our mistakes by having to endure a massive depression that we designed just for them.

COVID Relief and Moral Hazard

"You're getting a free ride on my tail, mate."
--Sir Lawrence Wildman (Wall Street)

In case you've heard the term 'moral hazard' before but are fuzzy on what it means, the recently passed $1.9 trillion 'COVID relief'' bill provides a textbook example. Several states were prudent in their virus countermeasures--no lockdowns, limited restrictions on movement, etc. As a result, their economies remained just as healthy as their people.

Many states did just the opposite--draconian countermeasures that cratered their economies and tossed millions out of work.

Facing depressionary conditions, those states that implemented totalitarian policies are now looking to the prudent states for a bailout. Those states with vibrant economies are being forced to surrender production to those states that chose not to produce.

Bad behavior is being subsidized. Precisely as predicted.

This is the essence of moral hazard. Taking more risk than you otherwise would because you believe that you ill-advised behavior is insured.

Give God Everything

Balian of Ibelin: How much is Jerusalem worth?

Saladin: Nothing...everything!
--Kingdom of Heaven

In today's gospel (Matthew 22:15-21), Jesus is once again confronted by the Pharisees seeking to trick Him. Like today's intellectuals, the Pharisees sought to trap people in their words.

Approaching Jesus with Roman representatives in tow, the Pharisees asked Jesus opinion about the lawfulness of paying taxes to Caesar.

Jesus reprimanded them for being the hypocrites that they were, and then asked to see a Roman coin. "Whose image is this?" Christ asked. "Caesar's," they said.

"Then repay to Caesar what belongs to Caesar and to God what belongs to God."

Today many people, modern day Pharisees assuredly, hold up this passage as proof that Jesus condoned taxation and statism.

No way. Christ understood the sticky situation that he was in and that he needed to choose his words carefully.

To His followers, Christs words are easily construed to mean this: Give nothing to the state that it does not rightfully own (which is very little, if anything). Give everything that you own to God.

Lincoln and Tariffs

It was a shakedown cruise
And now we're sending out the news
There ain't no victory at sea
Unless it's mutiny
--Jay Ferguson

These pages have occasionally considered the myths surrounding Abraham Lincoln, often with the help of Professor Tom DiLorenzo. In this article, DiLorenzo discusses how Lincoln's position on tariffs helped vault him to the presidency.

By the 1850s, the world was largely moving away from mercantilist policy. Protective tariffs were being eliminated across Europe in favor of free trade. By 1857, the 15% average American tariff was the country's lowest import tax rate of the nineteenth century. The subsequent Confederate Constitution outlawed protectionist tariffs altogether.

Leaders in Northern states, however, were reluctant to surrender wealth gained from decades of cronyism afforded by the American System. They wanted to continue tariff protections as well as government funded 'internal improvement' projects. They also lusted for a central bank controlled by politicians similar to the Bank of England.

Lincoln was the ideal presidential candidate for the going institutionalization of the American System. He was a devout protectionist who, through his railroad industry connections, could wire himself into influential industrialists and media moguls in the North to get out the protectionist vote.

Two days before Lincoln's inauguration, his predecessor James Buchanan signed the Morrill Tariff bill into law which legally raised tariffs on some imports by 100%+ and hastened Southern secession proceedings.  The South, you see, had already borne the brunt of protective tariffs for many years. Being primarily agricultural producers, Southern states had to purchase manufactured goods either from the North (where protectionist tariffs permitted higher prices on domestic goods) or from producers abroad (whose goods were being taxed at exorbitant tariff rates). Consequently, Southern standard of living was being compromised whenever American tariffs were imposed on imported goods.

Lincoln would subsequently sign ten more tariff-increasing bills over the course of his presidency.

In his first inaugural address, Lincoln stated that it was his 'duty' to collect the newly implemented tariffs. He promised that, in one of the more thinly veiled threats uttered in presidential history, there would be no 'invasions' or 'bloodshed' as long as states dutifully collected the requisite tariff fees on imported goods. He subsequently imposed naval blockades on several Southern ports, including Charleston, to ensure tariff collection.

We know how that worked out.

Subsidizing Lockdowns

Jacob Moore: You know what moral hazard is, Ma? You know what that means?
Sylvia Moore: No.
Jacob Moore: It means that once you get bailed out, what's to stop you from taking another shot.
--Wall Street: Money Never Sleeps

Why would so many blue states and localities push for long term lockdowns when these measures would surely crush their main stream of resources: tax revenues? The answer seems obvious. They calculate that their behavior will be subsidized.

And now House Democrats are trying to make it happen.

Textbook moral hazard.

How High?

So can't you see me standing here
I got my back against the record machine
I ain't the worst that you've seen
Ah, can't you see what I mean?
--Van Halen

What sectors obtain large fractions of their overall revenues from the state?

Government itself and its associated agencies
Military contractors
Education, including public K-12 and higher ed
Health care

Resource dependence theory posits that organizations will be prone to comply with the wishes of large resource providers.

Stated differently, when the state says "Jump," the above sectors say "How high?"