Farewell, Steve Bannon

Farewell, Steve Bannon

01/10/2018Ryan McMaken

It's been a bad few months for Steve Bannon. He was fired from his White House job in August. Then he supported Roy Moore and other political dead ends in an attempt to put himself forward as the leader of "Trumpism." Bannon then decided to provide a variety of juicy quotations denouncing Donald Trump in order to help Michael Wolff with his anti-Trump expose. Shortly thereafter, Bannon backtracked and apologized. After that, Bannon lost one of his most prominent sources of funding — the wealthy Mercer family. Finally, to cap it all off, Bannon was fired from his position as an adviser and radio host at Breitbart, where he had long enjoyed positions of leadership. 

This year-long run of total failure comes at the end of a remarkably short period of fame for Bannon, who, prior to Andrew Breitbart's untimely demise in 2012, was neither especially influential or well known. 

In his short period at Breitbart, Bannon did, however, manage to cozy up with Donald Trump and many within his movement, and turn this into an influential position at the White House. Bannon quickly faded as an influential figure in Washington.

In spite of Bannon's short and not-especially-notable tenure as a senior political adviser, Bannon continues to benefit from myths about his status as a kingmaker in Washington and around the nation. But, as Barbara Boland notes this week at The American Conservative, the myth was always just that — a myth. 

Bannon — always a relentless self-promoter — also managed to create the impression that he was the purveyor of some new kind of insightful and revolutionary political plan and vision. The idea was that he was going to create a Republican majority that would persist for generations. 

Upon closer inspection, however, there was never anything especially insightful, creative, or unique about this vision. It has always been nothing more than a re-tread of economic populism in which the Republicans would buy votes with lavish government spending on pensions and other social programs that are allegedly attractive to the "working classes." This would be coupled with economic nationalism opposed to free trade and devoted to aggressive foreign policy. 

David Stockman explains how Bannon's position was just the usual warfare-welfare state vision dressed up in nationalist and culture-warrior rhetoric: 

The last thing America needed was a conservative/populist/statist alternative to the Welfare State/Warfare State/Bailout State status quo. Yet what Bannonism boiled down to was essentially acquiescence to the latter — even as it drove politicization deeper into the sphere of culture, communications and commerce.

Stated differently, the heavy hand of the Imperial City in traditional domestic, foreign and financial matters was already bad enough: Bannonism just gave a thin veneer of ersatz nationalism to what was otherwise the Donald's own dogs' breakfast of protectionism, nativism, xenophobia, jingoism and strong-man bombast.

As Stockman correctly notes, Bannon never exhibited any real understanding of how central banking, Wall Street cronyism, and economic policy were driving the American cultural and economic trends that Bannon so often condemned. 

Instead, Bannon took to blaming people who do understand economics — i.e., Austrian-school economists and various free-market activist types — for various national ills, and for leading the Republican party astray. Says Bannon: 

 And then the Republicans, it’s all this theoretical Cato Institute, Austrian economics, limited government — which just doesn’t have any depth to it. They’re not living in the real world.

Later, Bannon returned to the theme, claiming that free-market ideas don't matter, and that "it is workers, not libertarian theorists, who are the backbone of the country.” (It's unclear if Bannon intends to imply that all libertarians are pie-in-the-sky "theorists" or if he is willing to admit that many libertarians do, in fact, work for a living.) This sort of right-wing Leninism-Maoism functions on the idea that "the working man" is all that matters, and that entrepreneurship, capital, and markets, are all somehow at odds with ordinary people being able to make a living. Not surprisingly, Bannon proposed to prop up the working classes with prohibitions on free trade, on migration, and by protecting federal social programs — thus expanding the debt burden and tax burden on everyone. 

The realities of economics matter little, though, when your political ideology relies primarily on sentimentalism. Bannon bases much of this position on his own nostalgia for the good ol' days in "an observant Catholic family" in a working class neighborhood. 

For Bannon, though, his devotion to this worldview never gets much beyond politics. Indeed, Bannon has an odd way of expressing his supposed devotion to the Catholic social milieu he praises. Divorced three times, Bannon apparently couldn't be bothered to personally do much toward creating the “typical fifties-sixties Americana neighborhood” that he says he wants to re-create. And this well illustrates the problem with turning to politics to cure every social ill. Erecting trade barriers and trashing immigrants isn't going to rehabilitate the American family, or convert people to a devout religious life. That sort of thing requires a lot of difficult non-political action. Were Bannon committed to getting government off the backs of people so they could pursue these goals voluntarily — via decentralization or other practical measures — that would be a good thing. But that has never been Bannon's goal. 

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Comey's Book Tour Is All About 'Truth' — but His FBI Tenure, Not so Much

6 hours agoJames Bovard

In his ABC interview last Sunday, former FBI chief James Comey boasted endlessly of his devotion to truth, which he said “has to be central to our lives.” Touting his role in bringing down Martha Stewart, he declared, “The truth matters in the criminal justice system.” But, when he was FBI boss from 2013 to 2017, his agency duped the American public whenever convenient.

In 2014, Comey declared that “We do use deception at times to catch crooks, but we are acting responsibly and legally.” His comment was spurred by revelations that an FBI agent had masqueraded as an Associated Press reporter and fabricated an AP story. The Associated Press complained that the FBI’s tactics undermined “the vital distinction between the government and the press," while the Reporters Committee for Freedom of the Press protested that the ruse “creates the appearance that it is not independent of the government.” But Comey declared the technique was “proper and appropriate,” allowing such scams to continue.

The AP charade was chump change compared to the FBI’s next media flim-flam. After a high-profile confrontation between federal agents and Nevadan ranchers in 2014, the FBI created a bogus independent film crew that spent almost a year hounding the Cliven Bundy family and their supporters, taping their comments to propel federal charges against them. The feds eventually arrested and prosecuted Bundy family members.

This past January, federal judge Gloria Navarro dismissed all charges, denouncing “flagrant” and “reckless” misconduct by federal prosecutors. The FBI was exposed for lying for more than three years regarding its deployment of sniper teams around the Bundys’ ranch prior to the Bundys summoning supporters to protect them.

The Justice Department inspector general last month exposed Comey’s arguably deceitful tactics regarding his campaign to outlaw private encryption, which he perennially portrayed as a grave peril to public safety. After a Muslim couple gunned down 14 people in San Bernardino, Calif., the FBI invoked a 1789 law to sway a federal judge to order Apple to write anti-encryption software that would hand the FBI the keys to break into the terrorist’s iPhone (and all other iPhones).

Read the rest at The Hill
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Money-Supply Growth Rebounds to 10-Month High

9 hours agoRyan McMaken

In March, growth in the supply of US dollars increased at the highest rate seen in ten months. This comes after a year-long period of falling growth rates, at the end of which money-supply growth fell to a near-ten-year low of 2.6 percent, year over year. 

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By March of this year, however, growth rates had headed upward again, rising to a year-over-year growth rate of 5.1 percent. 

The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

Meanwhile, the more commonly used measure of money supply, M2, continued to experience falling growth rates through the first part of this year. In March, M2 increased 3.9 percent, year over year, making it the smallest increase in M2 in 87-months. 

Part of what pushed the Austrian measure of money supply upward was an increase in treasury deposits at the Fed. 

The inclusion of deposits at the Fed is a key difference between M2 and the Austrian measure of the money supply, and growth in these deposits has added to the differences seen in growth between M2 and the Austrian measure. 

In March, treasury deposits at the Fed hit a 15-month high, rising to 273 billion. The highest level for treasury deposits ever reported occurred in November of 2016, at a total of $394 billion. 

What does the trend in money supply indicate? 

Historically, a sizable drop in money supply growth rates suggests that a recession is on the horizon — but not on the immediate horizon. 

In this graph, provided by RealForecasts.com, we see how dips in the money supply growth rate often precede recessions, but with a lag period of a year or so. In many cases, money supply growth is trending upward again by the time the recession officially begins. 

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Does the recent downturn and subsequent uptick indicate a recession? 

It's difficult to say how long the current boom period will last. Home prices continue to sail upward for now, although we do see volatility in the stock market. Unemployment data doesn't point to anything catastrophic at this time. 

Some indicators suggest problems, however. Delinquencies in auto-loan debt continue to trend upward, and growth in commercial loans remains new multi-year lows. 

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Canada is Not a Free Trade Zone

04/19/2018Tho Bishop

When lampooning the various arguments for trade barriers, Murray Rothbard would like to try to use the arguments offered against foreign trade to trade between states themselves.

As he wrote in Making Economic Sense:

The best way to look at tariffs or import quotas or other protectionist restraints is to forget about political boundaries. Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever. Suppose, for example, that each of the United States were a separate nation. Then we would hear a lot of protectionist bellyaching that we are now fortunately spared. Think of the howls by high-priced New York or Rhode Island textile manufacturers who would then be complaining about the "unfair," "cheap labor" competition from various low-type "foreigners" from Tennessee or North Carolina, or vice versa.

Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on interstate trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.

If we think about it, it is clear that a call by New York firms for a tariff against North Carolina is a pure rip-off of New York (as well as North Carolina) consumers, a naked grab for coerced special privilege by less-efficient business firms. If the 50 states were separate nations, the protectionists would then be able to use the trappings of patriotism, and distrust of foreigners, to camouflage and get away with their looting the consumers of their own region.

Unfortunately such "absurdity" has been ruled to be the law of the land in Canada. As the National Post reports:

After a legal battle fought all the way to Canada’s highest court, a New Brunswick man’s quest to be able to buy slightly cheaper alcohol in a neighbouring province has failed.

In a unanimous decision handed down Thursday, the Supreme Court of Canada ruled provincial trade barriers are constitutional as long as they’re aimed at a valid purpose within the province’s jurisdiction, with only an incidental effect on trade. Canada’s constitution simply “does not impose absolute free trade across Canada,” it declared....

On its face, the case was about booze. But had the challenge been successful, the precedent could have struck down a massive swath of provincial trade barriers, from agricultural supply management to e-commerce to environmental controls. Crown attorneys from every province had lined up at the Supreme Court to argue against the challenge, with the federal government siding with them.

The ruling declared that allowing “full economic integration” within Canada would “significantly undermine the shape of Canadian federalism, which is built upon regional diversity within a single nation.” Federalism means there must be “space to each province to regulate the economy in a manner that reflects local concerns,” the court ruled.

As Maxime Bernier, a Conservative Member of Parliament and a student of Austrian economics noted, "Sad day for defenders of economic freedom in Canada."

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Waco: 25 Years Later

04/19/2018James Bovard

25 years ago this morning, FBI tanks were busy collapsing the home of the Branch Davidians atop their heads. FBI was also gassing the children, women, and men - leading to a conflagration that left 76 people dead. Waco shows that it is not an atrocity if the U.S. govt. does it - that federal aggression against Americans will often be ignored by the media - and that Congress cannot be trusted to expose federal outrages.

Read more from Jim Bovard at The Hill: Bitter lessons 25 years after Waco, Texas, siege

 

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Gratitude and Wonder for the Internet

04/18/2018Gary North

This is a simple video, cheap to produce, and free to post. It is about the fact of its own existence. The talking head is the remarkable investigator James Corbett.

A Moment for Wonder

We are witnessing an incomparable transformation of world civilization, and we barely recognize it. We are too busy to recognize it. We are hard-pressed to think through the implications of it for our own lives, let alone the lives of seven and a half-billion other people. But the transformation is taking place. We have gone through it, almost oblivious to the fact that we have been going through it. We almost take it for granted. That was Corbett's point.

I want to make another point. The most important unanswered question that any historian can ask is this one: what made possible, beginning around 1800, compound economic growth per capita of about 2% per annum? Historians rarely ask this question. None of the ones who have attempted to answer it have come up with a plausible answer. Yet that phenomenon has led to the creation of the world that would be completely unrecognizable to anybody born in 1800. This has taken place within the lifetime of three generations. I have come back to this point repeatedly. John Tyler was born in 1790, and he became President in 1841. I have interviewed his grandson, Lyon Tyler. Both Lyon and his brother Harrison are still alive. This is inconceivable.

The 2% per annum per capita real economic growth that has taken place over the last two centuries was imperceptible to the people living through the transformation. Year-by-year, the world got richer, and the only exception was the decade of the 1930's. Yet people did not perceive the transformation. Gadget by gadget, the world was completely changed, but people only noticed the gadgets that applied to their lives. There is more to life than the compounding of gadgets, yet the compounding of gadgets ultimately transformed the world.

Corbett's point applies to the last two decades. Here, breakthroughs were made, based on Moore's law, which have changed our lives. Moore's Law accelerates a lot more than 2% per annum. It accelerates at something close to 50% per annum. Despite this, we have lived through the repercussions since 1965 in the field of silicon technology, and we have adjusted without any problem. We barely notice what is taking place around us. We take it for granted. That's why I thought Corbett's video was impressive. Using digital technology, he made his point in such a way that we understand it. He did it simply by using a piece of digital music. At first, it was not clear what he was getting at. But, by the end of the presentation, it was clear what he was getting at.

To his sense of wonder, I add a sense of gratitude. I am a writer. Writers want to find readers. In the history of mankind, up to 1996, writers had to find either a publisher that would print and distribute their materials, or else they had to become direct response marketers who could seek out an audience through the use of mailing lists. I tried the first approach, and I failed. I tried the second approach, and I succeeded.

Today, as the extraordinary experience of Jordan Peterson indicates, all you have to be is good. Never before in the history of man has the principle outlined in Albert J. Nock's 1936 essay, "Isaiah's Job," been truer: the Remnant will seek you out. To use the words of the voice that spoke to Kevin Costner, if you build it, they will come. Warning: if it's not any good, they won't stay long unless they are crackpots. Of course, there is always a large number of crackpots. You may get an audience, but they won't be worth recruiting.

We now are being pressured to restructure our lives. We do it voluntarily. People who use Facebook and social media, which I do not, have had to re-budget time in their lives. The way we communicate has changed. We are told that the way people get elected has changed. There is nothing that the critics can do about it. That really is the bottom line. All the handwringing about the supposed Russian involvement in American politics is essentially irrelevant. The two main candidates used the system to the hilt. Trump used it cheaper. He won. The candidates will always use the best tools available.

There is nothing anybody can do about it that is significant. The establishment doesn't like it. The people who were the pioneers of the transformation want to be in the establishment. More or less, they have been adopted by the establishment. But our lives are changing in a completely un-predictable way. The geniuses who created Facebook, Amazon, and all the other digit-based institutions have been financially successful, and they have solved little problems to make their empires grow. But they have no control over the direction in which history is moving, because, visibly, there are so many new directions in which it may be moving. So many different groups use Facebook that there is no way of knowing which group is going to be successful. Everybody has some eschatology. Everybody has some theory of the future. But, with respect to specific predictions about how old movements are going to use specific new technologies, nobody has a clue.

Let me give a recent example. Google, renamed Alphabet, has a subsidiary: Waymo. Waymo has developed the new technology of self-driving cars. I have thought myself radical in saying that I think self-driving cars are going to be widespread in 2025. Little did I know. Waymo has just ordered 20,000 self-driving Jaguars, which will be delivered between now and the end of 2020.

Waymo Live Unveil Highlights: Self-Driving Jaguar I-PACE

My wife understands their strategy. She says they're going to appeal to rich people whose time is valuable. Waymo thinks that their cars will be driving a million trips a day in 2020. If this turns out to be true, there will be tremendous pressure on everybody else whose time is valuable to either use Waymo or else buy self-driving cars of their own. Other companies, such as Uber and Lyft, are going to have to compete by using self-driving cars.

Let's talk politics. If the rich people find that self-driving cars save them money, then they are going to make certain that politicians vote for policies that will enable the spread of self-driving cars. That's another reason why Waymo is buying Jaguars. Anyway, that's my theory.

For articles on this, go herehere, and especially here.

NYC cab drivers demand action to stop suicide crisis

New York City cabbies are going to be out of business in 48 months. They see what is coming. They are desperate for politicians to save them. It will not work. Some have begun committing suicide.

This protest is futile. Moore's law is relentless. Self-driving cabs are coming. We must adjust. Despair is futile. Politics is futile. An unplanned, widespread, international process of innovation is irreversible, short of a total breakdown of world civilization. This is unlikely.

Hayek called this the spontaneous order. The free market is replacing politics in the realm of economic planning. The state is on the defensive.

The central planners are holding up signs: "Stop!" The process will not stop. They will be run over.

It is a time for gratitude, not just wonder.

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The Mises Lecture That Inspired Ron Paul to Run for Congress

04/18/2018Tho Bishop

It's amazing what you can find in the Mises digital archives.

Here is a lecture by Ludwig von Mises on Socialism that he gave at the University of Houston. In the audience was a doctor from Lake Jackson, TX. After listening to this talk, he decided to run for Congress.

This was the only time Ron Paul met Mises, as he notes in his book Mises and Austrian Economics: A Personal View.

Because of my interest in individual liberty and the free market, I became closely associated over the years with friends and students of Mises, those who knew the greatness of Mises from a long-term personal friendship with him. My contact, however, was always through his writings, except on one occasion. In 1971, during a busy day in my medical office, I took a long lunch to drive 60 miles to the University of Houston to hear one of the last formal lectures Mises gave—this one on socialism. Although 90 at the time, he was most impressive, and his presentation inspired me to more study of Austrian economics.

Between Mises's Austrian accent and the recording quality of the 70s, it's not the easiest to understand. But still, a very neat piece of history. 

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Historical Controversies Podcast: Season 3

04/18/2018Mises Institute

Today, Chris Calton kicked-off the third season of his Historical Controversies podcast, which will recount the controversial history of the American Civil War.

The complete series (including Seasons 1 and 2) is available on iTunes, YouTube, Soundcloud, Google Play, Stitcher, Mises.org, and via RSS feed.

If you enjoy the podcast, please leave a positive rating and review.

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Peak Politico

04/18/2018Tho Bishop
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Trump Nominates Another Obama-Approved Federal Reserve Nominee

04/17/2018Tho Bishop

In no area has President Trump differed more from his campaign rhetoric than the field of monetary policy. Yesterday Trump announced the nominations of Richard Clarida and Michelle Bowman to the Federal Reserve Board of Governors, with the former to fill the role of Vice Chair. Clarida’s nomination in particular illustrates how uninspiring Trump’s appointments have been, as he was a finalist for a Fed governorship under Obama until he withdrew his name from consideration. Interesting enough, doing so resulted in Jay Powell, Trump’s new Fed Chair, to fill the position.

Richard Clarida, a former Bush Treasury official, currently serves as a Columbia University professor and an adviser to Pacific Investment Management Co.  He is a New Keynesian who has published a great deal on “Optimal Monetary Policy.” (Guido Zimmerman has an interesting QJAE article on the topic which references some of Clarida’s work.)

In terms of his policy views, he offers an interesting contrast to fellow Marvin Goodfriend – whose nomination has currently been stalled in the Senate. To Clarida’s credit, he reject’s Goodfriend’s support for negative interest ratesgoing so far as to question their legality for the Fed. In his advisory role at Pimco, his analysis has questioned the effectiveness of contemporary monetary activism. As he co-wrote in a June 2016 analysis:

In recent years we have described “riding a wave” of central bank interventions, as a range of unconventional policies have been rolled out across countries, driving asset price returns. This wave-riding has worked well in the past. Looking out over the secular horizon, however, diminishing returns to central bank interventions – and the potential for policy activism to do more harm than good, notably in the case of negative policy rates – advise against such an approach.

Of course he also differs in one area where Goodfriend is good, the use of the Fed’s balance sheet. Goodfriend has warned that the Fed’s buying of non-Treasury assets, like mortgage backed securities, gets it into the business of allocating capital. Instead, Clarida thought the Fed was too modest in buying up assets following the financial crisis.

As Matthew C. Klein  of Barons notes:

Clarida thought the Fed could effectively respond to downturns by committing to buying as many bonds – including mortgage bonds and corporate bonds – as necessary to "cap" interest rates at the levels it wants:

Much of the existing literature either misses entirely or under-appreciates how robust an LSAP [large-scale asset purchase] program can be at lowering bond yields and/or credit spreads...a central bank can everywhere and always put a floor on any nominal asset price (or set of nominal asset prices) for as long as it wants...So long as the central bank is willing to buy an unlimited volume of those bonds (potentially including the entire outstanding stock) at the interest rate it wishes to put a ceiling on, it will succeed. And of course, the above reasoning also applies directly to an Lsap program targeted at corporate bonds or mortgage backed securities.

The Fed successfully capped U.S. government borrowing costs in the 1940s, and this experience was cited by the Fed's staff in mid-2003. While the idea failed to gain traction among American policymakers, the Bank of Japan has successfully used "yield curve control" to limit yields on Japanese government bonds since 2016. Clarida's position in 2010 suggests he would be keen on something similar, perhaps also including mortgage bonds and corporate bonds, should he be at the Fed during the next downturn.

In terms of Fed reform, Clarida is likely to be an ally for House Republicans who have pushed to make the Fed adopt a rules-based monetary policy framework. Clarida has long written about the advantages of a rules-based framework and even has his own “forward-looking” version of the Taylor Rule.

As a voting Fed member, Michelle Bowman will also have an impact on the future of monetary policy – but as far as I can tell she has made no public comment on the subject. Rather than being an economist, she’s an attorney who had a long career as Washington staffer. Her employers include Senator Bob Dole, House Transportation Committee, the House Oversight Committee, FEMA, and Homeland Security Secretary Tom Ridge. Not the best resume for draining the swamp.

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Bring Back Interest Rates!

04/17/2018Jeff Deist

Let interest rates rise. Better yet, let interest rates function in the marketplace, wholly independent of central bank attempts at rate-setting or targeting.

How? Not through a laughably small and slow process of Fed tapering, but through a wholesale and aggressive selloff of assets still polluting the Fed's balance sheet since it began aggressively those assets from commercial bank in 2008.   

This was the critical point made by all three speakers at our event in Nashville this past weekend: interest rates need to rise before any true economic recovery can occur. The manipulation of interest rates by the Fed and other central banks causes untold distortions throughout the entire economy. Unless and until we address this problem, no fiscal or monetary policy changes will make much sense or have much salutary effect. Money and credit will continue to flow into less than optimal uses, investors will be forced to continue chasing yields in the casino equity markets, and Congress (plus other western legislatures) will continue to produce trillion dollar annual deficits without much worry about debt service. 

Perhaps worst of all, the world will continue to believe a fairy tale: that the Fed effectively recapitalized US commercial banks in the 2008 crisis and through successive rounds of QE without pain or consequences. Are we really to believe the monetary base underpinning the world's reserve currency can be quadrupled in less than a decade without causing lasting damage? That gross overspending by Congress can be wished away simply by having the Fed provide a ready market for Treasury debt at miniscule interest rates? Or that interest rates should have no connection to the savings habits of society? 

It all strains credulity, which is precisely why monetary policy relies so heavily on technocratic jargon and opaque processes: they want to confuse or bore us into not paying attention. And thus the can is kicked down the road, politically and policy-wise. That's how we became a high time preference society almost by stealth.

You can watch these engaging presentations by Dr. Robert Murphy, Carlos Lara, and myself here.

These excerpts from my talk attempt to remind the listener that none of this is normal, in fact quite the opposite. Not too long ago prosperous societies were based on the notion of capital accumulation, of producing more than they consumed, making the next generation better off in the process.

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This is the fundamental and foundational change that has to occur. We need real, positive interest rates, meaning rates above inflation rates. We have to reward saving if we intend to have a growing or sustainable economy.

It is not exaggeration to say interest rates drive civilization.

They are the most important signals in an economy. Everything flows from them, because the cost of borrowing money effects the cost of almost everything.

This is the fundamental and inescapable starting point for building not only a real economy but a real culture. Every healthy society accumulates capital, every healthy society produces and saves more than it consumes and borrows. The human desire to leave something to future generations explains why all of us sit in splendor today, in this restaurant, enjoying conditions our great grandparents could not have imagined.

To do this you need actual real interest rates, market prices for money. Savers and borrowers, supply and demand, need to meet. We have a mechanism for this, it’s called the market. Without market prices you have socialism, the opposite of markets.

So why do so many otherwise free-market economists not object to monetary central planning?

The most important interest rate is the Federal Funds rate, the rate at which commercial banks borrow from each other overnight if they need to meet reserve requirements for their loans. The Fed controls this rate, or “targets” it, by manipulating the amount of reserves banks have in their accounts with the Fed. Banks with high reserves don’t much need to borrow from each other, so the Fed Funds rate stays low. And since 2008 commercial banks have received interest on excess reserves parked at the Fed, which encourages high balances and keeps rates low.

All commercial interest rates — e.g., the interest you pay on your mortgage — flow from the Fed Funds Rate on a cost-plus basis.

But when the Federal Reserve effectively keeps interest rates lower than they would be naturally, it creates a terrible disconnect between lenders and borrowers. And this disconnect causes unbelievable distortions throughout the economy. As David Stockman says, because of central banks there is no honest pricing of goods anywhere — we simply don’t know, for example, what a barrel of oil or a bushel of wheat or a Honda Accord should cost. The Fed has distorted the single most important price in the entire economy — the Federal Funds rate.

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