Role Reversal

 

Starting around 1989 the Soviet empire started to crumble. The time period between the forming of NATO in the late 1940’s and the retreat of Russia from Eastern Europe and the eventual collapse of communism in Russian is known as the Cold War. There was a great power confrontation in Europe that did not result in war. Essentially, US-led NATO stood its ground to prevent further Soviet expansion from the territory it occupied at the end of World War II and waited for the inevitable collapse. Now, perhaps not everyone saw the collapse of the Soviet empire as inevitable. But all one had to do was view the Soviet empire for oneself, up close and personal, which is what I did in the early 1970’s as a young Air Force officer.

 

The State of the Communist Economy

 

The Russian economy at that time is painful to describe. Moscow and Leningrad (St. Petersburg), the so-called “jewels of the Soviet Union” were depressing of the spirit. Everything was shoddily built. There were very few cars on the streets. There were no retail shops deserving of the name. Lines formed in the middle of the night awaiting the opening of the few bakeries. I saw this for myself from my hotel window on the Nevsky Prospekt in Leningrad. GUM, the “world’s largest department store” near Moscow’s Red Square sold nothing that was equal to what could be found in any garage sale in the West. Actually that should not be a surprise, since at one time all those garage sale goods were marketable.  I did not visit Berlin, but those who did say that crossing the Brandenburg Gate from West Berlin to East Berlin was shocking. The very idea that the Soviet economy and lifestyle was in any way superior was ludicrous. It took brutal police powers and the infamous Berlin Wall to prevent mass exodus to the West.

 

The Peaceful Collapse of the Soviet Empire

 

I’m sure that life only got worse in the years between my visit to the Soviet Union in the early 1970’s until its final collapse. And the collapse occurred without a shot being fired between the Great Powers. The collapse came very quickly and without warning. Author Amity Shlaes was a reporter for the Wall Street Journal Europe at the time. Returning to New York from Berlin she called her boss between planes in London and was told to return to Berlin. Something was happening. She told her boss that she had just left Berlin and that nothing was happening. Her boss told her to go back for a few days anyway. She did as ordered and witnessed the German people tearing down that despicable insult to humanity.

 

How the US Enforces the American Empire

 

The American empire is not enforced by walls with armed guards to prevent its citizens from escaping but, instead, by the almighty dollar. Since the enthronement of the dollar as a reserve currency in 1944 at the Breton Woods conference and then the establishment of the Petrodollar in the early 1970’s, almost all international trade has been conducted in dollars. Thusly, dollars are held by every country’s central bank to settle international trade flows. Alasdair Macleod of Goldmoney.com calculates that foreigners hold around $31.8 trillion in US liabilities, of which $5.8 trillion is held by “official” institutions. (Refer to US Treasury TIC figures here and here.) But the US has abused this “special privilege” by printing dollars out of thin air. It has funded its empire of hundreds of bases worldwide with excess dollars. Furthermore, it has enforced compliance with its expansionist foreign policy by freezing dollar accounts held by foreign central banks, foreign businesses, and foreign individuals whom it dislikes. By cutting them out of the international financial messaging system known as SWIFT it has created great hardship on nations held to be offensive to the US.

 

Today the Roles Are Reversed

 

But these nations have discovered America’s Achilles Heel and are doing something about it. The almighty dollar rests on a base of sand known as fiat money, which is not redeemable in a desirable commodity such as gold or silver. This characteristic has led to inflation of the dollar over the past fifty years at an ever accelerating rate. Such inflation causes the exchange value of the dollar to shrink. Since President Nixon took the US off the gold standard in the fall of 1971, the dollar’s value against gold has shrunk by ninety-eight percent. No one believes that this debasement will end or even slow down. In fact the US seems determined to accelerate the dollar’s depreciation to pay for its military adventures and expanding welfare programs. Combining the debasement of the dollar with the trade sanctions has created an intolerable situation for those currently in America’s bad graces.

 

But these nations are countering American hegemony by deploying their own arsenal—not nuclear weapons but gold. Like America and NATO during the Cold War, these nations are standing their ground and arming themselves with an alternative and better reserve currency; i.e., a currency backed by gold and to be used at least initially for settling international trade. Russia has been working on the framework of a new trade settlement currency for quite some time and now China and others, such as Iran, India, Brazil, and South Africa are joining the project. There is nothing nefarious per se about establishing an alternative trade settlement system. One may call it rational self interest. It is a peaceful project but its results may be devastating for countries that depend upon a stable dollar. Those who join the new system will no longer need to hold dollars. This fall in the demand to hold dollars will lead to an inevitable fall in its purchasing power, perhaps even to its total collapse. This could happen literally over night and without warning, just like the fall of the Berlin Wall.

 

Blinded by Fallacious Ideologies

 

Of course, no one in a position of power in the US understands anything about real money and real finance. They are blinded by the promise of Keynesian economics and Modern Monetary Theory that posits that creating aggregate demand (Keynesianism) funded by massive money printing (Modern Monetary Theory) is the sure path to economic progress. They fail to acknowledge that the steady fall in the purchasing power of the dollar and the rise of an alternative trade settlement system are the inevitable consequences of their blindness. I see nothing that can stop the continued debasement of the dollar, now coupled with arrogant and harmful financial sanctions, that will prevent the peaceful establishment of an alternative international reserve currency and all the consequences that it will bring to an unprepared US dominated world.

My letter to the Cato Institute

Re: Cato's Letter, Winter 2023, Volume 21, Number 1..."Liberty, Optimism, and Superabundance" by Lawrence Summers

"I was skeptical about Larry Summers writing in your latest Cato's Journal about "Liberty, Optimism, and Superabundance". Turns out I was right. After endorsing the "incredible outcomes" that "markets and science produce", he claimed that this "is not to say that those outcomes cannot be made better through collective and planned action." Really? Such as building a better ball point pen, an example Summers used to highlight market success? How about the collective and planned programs of Social Security and Medicare, which CATO admits must be reformed. But wait! Ms. Romina Boccia is going to tell us how to fix these disasters. How? By the turning them into nothing more than welfare programs; i.e., taxing the successful and handing out benefits to "those who most require taxpayers' support." What a novel idea. Whatever happened to independence and self-reliance?"

Patrick Barron

My letter to the NY Times re: A tale of two healthcare systems

 From: Patrick Barron

Sent: Sunday, January 29, 2023 9:54 AM
To: NY Times <letters@nytimes.com>
Subject: A tale of two healthcare systems

 

Dear Sirs:

Your January 29, 2023 New York Times Magazine contains two articles about healthcare. The first article was written by David Wallace-Wells and uses the failures of Britain's healthcare system as evidence that "austerity" doesn't work. (Five hundred patients per week are dying because of E.R. waits. Ambulances are taking an hour and a half to respond to stroke and heart-attack calls. Ten times as many patients spent more than four hours waiting in emergency rooms than in 2011. Waiting lists for scheduled treatment passed seven million—more than ten percent of the country—prompting nurses to strike.) There follows in the same magazine a report by Helen Ouyang about how America's healthcare system is moving toward more "hospital at home" care. Such a market-based response to changes in how healthcare is provided seem almost impossible in Britain's National Health System. The difference is that between socialism and capitalism. Britain's system is more socialistic and almost impervious to change. America's is more capitalistic and, therefore, more adept at meeting the changing needs of patients.

Patrick Barron

20 McMullan Farm Lane

West Chester, PA 19382

610-793-3605

My letter to the NY Times re: How the U.S. Amassed Debt of $31 trillion

Re: Mr. Jim Tankersley's front page, above-the-fold, article of "How the U.S. Amassed Debt of $31 trillion, published on Sunday, January 22, 2023.

I was disappointed that Mr. Tankersley never did answer his own question. Reporting that both Republicans and Democrats spent more and more year after year does answer how that can happen. So, let me enlighten Mr. Tankersley and the Times' readers. The Fed's monetary base, composed of bank reserves and cash, grew from $.910 trillion on September 2008 to $5.419 trillion on November 2022. M3, the most inclusive metric of the nation's money supply, grew from $7.840 trillion on September 2008 to $21.352 trillion on November 2022. (These numbers can be found on the website maintained by the Federal Reserve Bank of St. Louis.) Since the government and everyone else expects the annual federal budget deficit to exceed one trillion dollars per year until the cows come home, we can expect these monetary metrics to keep growing. But that doesn't quite answer the question, does it? The real answer is that taxes and the bond market cannot absorb a trillion dollars per year in increased debt; therefore, as in the past, the Fed will monetize the debt; i.e., it will print money out of thin air. Raising interest rates will not help, although the Fed should get out of the business of trying to control interest rates. The only relief will come from drastic—and I mean DRASTIC—cuts to federal spending.

There...now Mr. Tankersly and the readers of the Times know "How the U.S. Amassed Debt of $31 trillion.

Patrick Barron

Policies to Restore US AND Britain's Reputations in 2023

 

The Imperative for Change

 

The purpose of this essay is not to convince the reader of the necessity for change. It is to present some common sense policy changes to prevent or perhaps mitigate the economic harm that has been done to Western economies, especially to the US and the UK, since the end of World War II. Please watch Godfrey Bloom and Alasdair Macleod interviewed recently by Sonia Poulton. The twenty-two minute video describes the current financial and reputational weakness of the West. The interview is the first one under the heading of “Videos” on Godfrey Bloom’s website. For a more in-depth analysis of the financial threat to the West, please go to Goldmoney.com/research and read any of Alasdair Macleod’s weekly essays from the past few months.

 

In the Poulton interview Alasdair Macleod ably describes the financial implications of currency debasement and the West’s deindustrialization policies. Godfrey Bloom describes the reputational damage stemming from the West’s “sanctions” against Russia plus the consequences of deindustrialization due to the foolish pursuit of a Green New Deal. In this essay I do not wish to convince the reader of the seriousness of the current situation, which these gentlemen do so well, but rather to present policies that must be changed to stop destruction of the West’s economies and reverse the harm to their reputations. Reputation means more than others thinking highly of us. A good reputation for honesty, fair dealing, and adherence to the rule of law is absolutely essential in order to participate fully in the entire international community both for trade and comity.

 

There is no need to point out that none of the policy changes listed below will be enacted by either of the two main political parties in America or the UK, as currently led. Either one of the two leading parties in each country must change leadership or a third party must emerge. There is precedence in both America and Britain for the emergence of a new party. In the mid 1850’s the American Whig Party was thrown on the scrap heap of history when it was supplanted by the anti-slavery Republican Party. In the first half of the twentieth century Britain’s Labour Party supplanted the Liberals. It has happened before and it can happen again.

 

The following “policy imperatives” assume that such internal change has occurred and now the new ruling party must mitigate and eventually reverse the damage done by its predecessors over so many years. The task will not be easy, nor will it be painless, but it must be done.

 

Policy Imperatives

 

1.      Drastically cut government spending. The dollar and the pound’s purchasing power are steadily weakened by the need of the Treasury to borrow more money than internal taxes and the bond markets will absorb. Currently the central banks “buy” the excess debt with money created out of thin air. This leads inevitably to more money chasing fewer goods, which results in higher prices and the boom/bust credit cycle, among other economic damages.

2.      Abolish the so-called “Green New Deal”, which is based upon the schlock science surrounding “climate change”. The Western economies not only must end the destruction of their industrial economies, but they must revive the entrepreneurial spirit in individuals by eliminating regulations on business activity that does not directly cause real harm to people. For example, the West must end such practices as elevating the sanctity of other living organisms through mandating costly and time consuming environmental impact studies. The US should abolish the Occupational Safety and Health Administration (OSHA), and the UK should abolish its Health and Safety Executive (HSE). Both countries have well established common law precedents to protect and compensate workers from on–the-job injuries.

3.      Reinstitute the gold standard. The currency must be seen as a proxy for real money; i.e., gold. This means that the currency cannot be expanded unless the central bank has more gold with which to back it. There is a long list of economic benefits to be derived from a stable currency, but perhaps the most important benefit is spending discipline. The government’s myriad spending orgies will face the real-time discipline from the taxpayers and the markets.

4.      House the nation’s gold, which is used to back its currency, in a neutral and internationally supervised place—for example, Switzerland—that will redeem the nations’ currency for gold upon demand. The governments must not be allowed a means by which to suspend currency-for-gold redemption. Remember, gold is money and all else is credit. If a nation’s credit is questioned—i.e., the market fears that there is insufficient gold to redeem its currency or that the government may suspend redemption--then demand to hold it for settlement purposes will drop or even evaporate completely.

5.      Return stolen property to its rightful owners. Theft is a violation of law at every level. The Western powers confiscated Russian property as part of the so-called “sanctions” following Russia’s invasion of Ukraine. This insult to justice must end. Neither country has declared war on Russia, yet the sanctions are well-known tools of war. Ending sanctions is both a moral and an economic issue. If the world believes that its property can be seized for some act for which a country’s government disapproves, international trade of all varieties will fall drastically for such country and become difficult to recover. Who in the world can trust such a country again?

6.      Adopt a non-interventionist foreign policy. The world is full of controversies that often lead nations to war. Unless their interests are directly threatened, the US/UK must not intervene in foreign disputes but remain neutral, even if these disputes lead friendly foreign nations to war with one another. There is no way that the Western powers can honestly adjudicate these never-ending disputes. The best way to support warring parties is to provide honest peace brokers, such as the Church, a safe place to parley. Otherwise, keep out.

 

Conclusion

The Western world has violated international norms of fair dealing so that their reputations are close to long-term destruction. Their currencies are poised to fall in value due to unprecedented money printing over several decades. They foolishly believe that there is nothing that the rest of the world can do. They believe that the rest of the world must kowtow to whatever international norms the US/UK dictates. But they are horribly wrong. The rest of the world is moving beyond dollar hegemony and beyond the reach of US/UK sanctions. It is building a new reserve currency for settlement of international trade. This non-Western world is much larger than the West in terms of population and commodities. More importantly, it is willing to exploit its commodities for the benefit of its citizens, whereas the West has placed its commodities off limits due to its belief and commitment to schlock environmental science of impending environmental doom. The process can be reversed, but such a reversal requires new leadership. Nothing else can be done unless new leaders can change policy. The West does not need to “rule the world” in order to be peaceful and prosperous.

Who Has Better Ethics, the Social Security System or Bernie Madoff?

 

According to Wikipedia, Bernie Madoff ran the world’s largest Ponzi scheme, with losses estimated to be as high as $65 billion. Madoff promised to invest his customers’ money in productive enterprises and pay them generous returns, when in fact he spent the money and manufactured fake statements. His generous returns to his customers were made with money from new customers. Eventually the scheme collapsed when money from new entrants slowed down. There were no productive investments to pay off his customers.

 

Like Madoff’s scam, Social Security is a vast Ponzi scheme. Although it claims to have “assets” of close to $3.0 trillion, these “assets” are not productive assets, such as factories, farms, or valuable commodities. They are book entries only and differ little from what Bernie Madoff was reporting to his customers. The government has spent the accumulated taxes of eighty years and now pays out what it receives in monthly taxes on retirees. According to some fiduciaries, soon monthly taxes will not cover retiree benefits. This could spell big trouble for Social Security.

 

Voluntary vs. Coercion

 

The main difference between Bernie Madoff’s scam and Social Security is that all of Madoff’s victims gave him their money voluntarily. They were victims, of course, but no one forced them to give Madoff their money. Many may have been gullible, avaricious, or both. But they entered into Madoff’s plan with their eyes wide open and were not coerced into doing so. They now receive nothing, and their initial investments are gone, probably never to be recovered or, if so, only fractionally after many years of legal machinations.

 

Compare Madoff’s scam with Social Security. All who earn incomes, whether wages or personal profits, are required by law to pay into the Social Security System. Failure to do so will result in fines and possibly jail. Like Madoff’s plan, all participants receive periodic statements explaining how much they and their employers have contributed and their current anticipated monthly payout upon retirement.

 

The main difference between the Madoff scam and Social Security is NOT that Social Security has accumulated real, productive assets and Madoff did not. Neither owned productive assets. The main difference is that Madoff did NOT force his customers to join his scam under the threat of violence; whereas, that is exactly what the Social Security System does. Therefore, if either system can be considered more ethical, or perhaps less unethical, it is the Madoff scam. Madoff was a confidence man, but he did not force anyone to join his scam. Targeted investors could join or not. But that definitely is NOT the case with Social Security. Yet Madoff is a modern pariah and Social Security is lauded by many as the savior of the impoverished elderly.

 

Current Victims Demand that Others Continue to Be Victimized

 

If both systems are Ponzi schemes, why was Madoff jailed and not the lawmakers and administrators of Social Security? If the Madoff plan can be unceremoniously shut down, why can’t Social Security be shut down just as unceremoniously? The answer most people give is that they were forced into paying for someone else’s benefits, so someone else can do the same for them. In other words, since they were victims they have a right to victimize others. I call this very common response to be highly unethical. At some point the Social Security Ponzi scheme must end and, when that happens, some will lose. Would a victim of the Madoff scam feel justified in allowing Madoff to peddle his snake oil to more victims just because he was a victim? I think not. Likewise, Social Security recipients have no ethical leg to stand on; neither do those who have been forced to pay into the Ponzi scheme for many years and have yet to receive any payouts. Being a victim certainly does not make it ethical to victimize someone else. Therefore, the only ethical thing to do is end Social Security right now. No more checks. No more taxes. Fire all the employees, destroy all the records, and sell all the buildings and office equipment. Cut out this unethical financial cancer that will destroy the body politic.

 

 

Consequences of the End of World Dollar Hegemony

 

In my previous essay I explained how over time the US abused its responsibility to control the supply of dollars, the world's premier reserve currency for settling international trade accounts among nations. This abrogation of its duties is leading to the likely adoption of a new reserve currency, commodity based and controlled not by one nation but by members, all watchful that the currency is not inflated.

 

Let us continue the analogy of an individual receiving a "magic checkbook" which allows him to write as many checks for as much money as he desires. Receivers of these checks could only pass them along to others through the normal course of trade. Over time the owner of the magic checkbook becomes increasingly irresponsible. He funds all kinds of welfare and warfare initiatives. Naturally dollar reserves build to levels completely unnecessary for peaceful exchange. Prices start to rise at a faster and faster rate. Then a reform consortium assembles a team to offer an alternative currency. Why, one may ask, is that such a problem for the dollar and dollar users?

 

A Lesson in Supply and Demand from the Weimar Republic

 

A successful alternative reserve currency would dilute demand to hold dollars. When demand for dollars drops, its price must drop unless and until its supply drops. (A drop in the dollar's "price" is just another way of stating that its purchasing power falls; i.e., more dollars are required to buy the same goods and services.) Through irresponsible use of the magic checkbook you have obligated yourself to funding a free-for-all of entitlements; i.e., Social Security, Medicare, and the military-industrial complex being the largest by far. Politically, it may be almost impossible to cut any of these three categories of spending to the extent necessary to arrest the dollar's drop in purchasing power.

 

The world has seen all this before, and not just in less developed nations like Zimbabwe. The US will find itself in the same trap as experienced by Germany's Weimar Republic following World War I. The Reichsbank, Germany's central bank, printed papiermarks in order to placate powerful constituencies within Germany. As the Reichsbank printed more money, the purchasing power of papiermarks dropped. And herein lay the trap. Rising prices led powerful constituencies to demand increases in pay and benefits. Industrial labor unions, government civil servants, welfare recipients, old age pensioners whose life savings were being decimated--all demanded more money. Strikes and violence became endemic. So the Reichsbank printed more money...which, of course, simply led to higher prices and another round of payment increases...which led to even higher prices, etc., etc. until the papiermark became worth more as wallpaper than money.

 

Why did the Weimar Republic government continue to increase payments, and why did the Reichsbank continue to print papiermarks? Many sophisticated answers have been advanced, such as that the government and the Reichsbank deliberately destroyed the papiermark in some kind of roundabout plot to thwart the financial terms of the Versailles Treaty in which a defeated Germany was ordered to pay reparations to the Allied powers. But the simplest answer is that both believed that there was no other choice than to increase payments and print money in a crisis. It was felt that powerful constituencies must be placated in the short run. But short run tactics just made things worse. There was neither the political will nor the economic understanding of the need to end excessive spending and currency debasement and endure the pain thereby induced.

 

The Lack of Both Political Will and Economic Understanding in the US and the UK

 

I fear that the same is true today. In fact the seeming lack of adverse consequences (all in the long term) and advantages of money printing in the short term have led to a knee-jerk response by the US Treasury and the Federal Reserve Bank to increase the money supply and lower interest rates in the face of any economic problem, even higher prices themselves. As a example, just look to Britain. Its energy shortages have caused prices to rise. The government's response has been to pledge payouts to households! That's right. No pledge to dismantle barriers to increased energy production...just a pledge to increase the government's deficit, which requires more money printing! As the saying goes, you can't make this stuff up.

 

One thing is certain though. What Britain can do, the US can and will do in spades. Hyperinflation is a real possibility. Remember, the Reichsbank in Weimar Republic Germany actually had to print physical money. The US Federal Reserve Bank need only click a few buttons on a computer. As prices rise, powerful groups demand more money. Police, firemen, road workers, etc. demand that they not suffer a lowering of their lifestyle. Since government is spending someone else's money, it accedes to these demands.

 

Back to our British example. The exchange value of the pound has been plummeting in currency markets, leading to serious consequences. The Bank of England was forced to raise interest rates and now government debt has become unaffordable. So the Bank, as handmaiden to the government, has applied the only politically permissible remedy that it knows: its computers' money-printer is forced into overdrive, just to keep up.

 

What Happens on the Ground

 

Where in reality does government get its money? State and local governments get money from state and local taxes. So captive property owners get increased tax bills to pay for maintaining public school teachers, police, etc. Social Security recipients must be compensated, of course, so payroll taxes are increased, which depresses business. American products become less competitive on the national and world market. The price spirals continue to destroy all in their path until the dollar loses all purchasing power and society descends into chaos. And not one politician in a thousand understands what happened or, if he did understand, did not have to political will to do anything about it; i.e., reduce public spending, liquidate the Fed, and tie the dollar to our still significant gold reserves. It can be done.