The Government Declares War on Market Prices Just When We Need Them Most

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Price Gouging Summed Up Market prices are the foundation of civilization. They are the signal that tells producers how much of any one thing to produce. They tell consumers how much to consume or whether to consume a product at all. The reason retailers don’t normally throw away eighty percent of their stock is because market prices tell them how much to have on hand at any one time to meet current demand.

When they miscalculate and buy a little too much, they still don’t typically waste their stock. They put it on sale and meet the demand at a lower price.

To the extent the market is allowed to set prices, producers generally produce what consumers want to buy in the quantities they want to buy. When all supply is consumed and large amounts of consumers are not left with unmet demand, it is referred to as the market “clearing.”

The government is always and everywhere at war with market prices. Regulations creating barriers to entry limit supply, artificially inflating prices. Price controls, including “anti-price gouging” laws override market prices, creating shortages. Subsidies to producers (farm subsidies, for example), allow producers to limit supply, artificially inflating the price.

Federal Reserve monetary inflation juices up demand, both on the consumer side and the producer side, creating overconsumption, low savings rates, malinvestment and imprudent debt. This ongoing war on the market price of money, a.k.a. “the rate of interest” does all sorts of damage in the real economy. It directs companies to borrow money to expand production of products for which there is no real demand. That in turn sends workers into these zombie industries.

Even without an external problem like the coronavirus (and the much more harmful government response to the coronavirus), bubbles created by monetary inflation eventually pop. Then all the malinvestment is exposed, the imprudent debt defaults, and the workers employed in unprofitable ventures get laid off. This is the market telling everyone where the mistakes were made.

Right now, we have two economic crises at once. We have state governments literally ordering people to stop producing goods and services in an attempt to combat the spread of the virus. Whether that is the best course of action is a subject for a different time. That it is doing massive economic damage is indisputable.

That damage has caused a second crisis: it has popped the economic bubble blown up by the Federal Reserve over the past twelve years. The market is responding by trying to adjust prices to their market levels. It is lowering the artificially high prices of stocks. It will lower the artificially high price of real estate. The price of oil has fallen both because of the anticipated reduced demand and the increased supply from Russia and OPEC increasing their oil production.

But not all prices are falling. Given the surge in demand, the market is trying to raise the price of items like toilet paper, certain medical supplies and other essential items.

All these price adjustments by the market are essential for our well-being. They are the cure for the economic disease caused by the government response to the virus and the previous twelve years of monetary inflation and artificially low interest rates.

What is the government doing in response? It is escalating its usual, conventional war on market prices to a nuclear war. It is punishing suppliers of essential goods for raising prices. It is ramping up monetary inflation to historic levels to keep stock prices artificially high and unprofitable businesses alive to go on producing products for which there is no demand. At a time when market prices are more essential to our survival than ever, the government is doing more to override them than ever.

This is not an academic theory that only works on a graph in a classroom. This plays out before our very eyes in the form of essential goods not available to us at any price.

Why is there no toilet paper available? Ask most people and they will say it is because of “hoarders.” These are people who bought far more than they needed in anticipation of future shortages. The people who arrived at the store after the toilet paper is sold out vilify them. Others might just call them prudent.

The same people who vilify hoarders also vilify “price gougers.” They don’t seem to grasp the obvious cause/effect relationship here. If it weren’t for artificial limits on price, i.e., “anti-price gouging” laws, the price of toilet paper would rise dramatically with the surge in demand and the so-called hoarders would not be able to buy nearly as much. That would leave far more for everyone else. The toilet paper market would find the optimal price level where the greatest number of people could get what they need.

We may be able to laugh off the shortage of toilet paper, but when it comes to food, water, medical supplies and other important items, shortages are no laughing matter. Why are there not enough ventilators right now? Because government regulation raises the price of entry into the market and lengthens the lead time for new production. If not for these artificial barriers, hundreds of new ventilator producers would seize the opportunity to enter the market and sell ventilators.

Instead, the government is considering ordering companies who make related items to make ventilators instead. That will only result in less efficient production of ventilators and shortages in the products those manufacturers would otherwise produce.

This is only the tip of the iceberg in terms of the government overriding market prices. Every economic policy the government undertakes is at its root an attempt to do so. Every single one makes us poorer than we would be if the government did nothing.

The free market doesn’t produce perfect outcomes. It’s an imperfect world. But a free market produces the best possible outcomes in the real world of scarcity and occasional disasters. Prices are the lifeblood of the free market. They are what make it produce the best outcomes. Every time the government overrides market prices, it makes things worse – in most cases, unfortunately, to thunderous applause.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

The State and Federal Governments’ Coronavirus Response Will Dwarf Economic Damage Done by FDR

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depression-1 During the 1930s, FDR managed to prolong the depression he inherited for over a decade by unleashing a vast array of wrongheaded economic interventions on an economy trying to correct itself from the malinvestments that occurred during the 1920s.

Whenever a financial bubble pops, prices fall from their artificially high levels, seeking their true, market level. This is the market’s way of liquidating the malinvestments and imprudent debt that resulted from prior central bank monetary inflation, which artificially raised prices and lowered the cost of borrowing and investing.

Many of FDR’s New Deal interventions proceeded from the economically idiotic belief that preventing prices from falling would help. So, for example, he used taxpayer funds to pay farmers to produce less crops at the same time many were going hungry. By lowering the supply of crops, he hoped to raise their prices.

But he never ordered people to produce nothing at all.

Today, the federal and state governments are doing just that, albeit for supposed public health reasons rather than economic ones. State governments are in many cases ordering most of their populations to stop producing anything whatsoever, while the federal government promises to reimburse their losses.

Reimburse them with what money, you ask? Good question.

Regardless, the economic devastation that will result from this economy-wide shutdown will dwarf the damage FDR did during the so-called “Great Depression.” If simply limiting production caused a decade-long crisis (and it really didn’t end until after WWII), ceasing production altogether will obviously be worse. How much worse depends upon how long the insanity lasts.

As far as that is concerned, never underestimate a government.

A Free Thinker’s Guide to Voteball 2020

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2020 election It’s fitting the disastrous but highly entertaining Iowa Caucuses were scheduled one day after the Super Bowl. With the football season over and hockey and basketball far from their own playoff seasons, a large portion of the inhabitants of this continent need something to fill the gap. What could be better than the presidential primaries to take the place of quarterback sacks, slam dunks and breakaways for an entertainment-dependent public?

That was a rhetorical question.

Not all Americans are as fanatical about sports. There is a contingent so uninterested that they playfully chide those who are by referring to all organized athletics, whether amateur or professional, merely as “sportsball.” But that group isn’t nearly as large as the one completely uninterested in politics, regardless of how interested politics is in them.

Almost half the population doesn’t bother to vote in presidential elections. More than half skip Congressional, state and local elections. This august coalition needs its own dismissive, snooty-hip term for all things political. I humbly offer “Voteball.” As the great Nigel Tufnel would say, “It really puts perspective on things, though, doesn’t it.”

Interested or not, Voteball 2020 is upon us and it won’t go away until November 4, when with any luck an 11^th season of the Walking Dead will be there to provide amusement a little more connected to reality. In the meantime, politicians, their surrogates, the media and even many of our neighbors will wage a full-frontal assault on our psyches.

Football, baseball and hockey players all wear helmets for safety. In Voteball, even the spectators need to protect themselves. In lieu of hard plastic headgear, I humbly offer the following safety tips:

First and foremost, remember Horton’s Law: Politicians can be counted on to keep all their bad promises, and abandon all their good ones. And don’t forget Mullen’s Corollary: Any minor good done by the current administration will be undone by the next. This will help prevent irrational exuberance over those occasional good promises made amidst all the bad ones.

Mark Twain once wrote, “No man’s life, liberty or property are safe when the legislature is in session.” Most of the candidates running for president or Congress are already legislators. In President Trump’s case, he signs the bills legislators write, making them laws. So, as bad as the campaigns might be, don’t forget that every minute they spend campaigning is a minute they aren’t doing something worse.

English is not the primary language during Voteball season. From now until November, you’ll have to learn to translate a foreign language I call “Dronespeak.” It is important to avoid inadvertently adopting this language yourself as it can permanently warp your thinking. Here are a few examples of Dronespeak expressions to avoid:

“The Trump economy.” The economy is an incredibly complex combination of billions of individual decisions, partially overridden by thousands of government interventions. How well or poorly it might be doing at any given moment has very little to do with anything the president has done, no matter how much credit he or she tries to take. This isn’t directed at Trump. There was no Obama economy, Bush economy, or Clinton economy either. America prospers despite presidents and governments, not because of them.

“The commander in chief.” Yes, the president is commander in chief of the military and it’s perfectly appropriate to use this term when speaking of a strictly military issue. But it’s becoming more and more common to simply refer to the president this way in any context, as if he were commander in chief of the citizens. What an awful concept.

“Run the country.” Voteball doesn’t determine who will “run the country.” This is closely related to the “commander in chief” meme. The president doesn’t run the country. He or she runs the government, which causes enough problems on its own. Let’s not encourage any ambitions beyond that.

“My president.” “The president” is best; “our president” is questionable. “My president” is terrifying. It sounds a lot like those who say they have a personal relationship with God. Theological debate on that concept is fine, but can we agree applying it to a politician is blasphemy in a supposedly free country?

“We.” If Voteball in general is a war on your soul, presumptive use of the first-person plural pronoun is the enemy machine gun fire. It will be flying at you nonstop from every direction and it only takes one hit to take you out. Anytime anyone begins a sentence with, “We need,” “We must,” “We believe,” or “We all agree,” the proper response is, “Who is we?” Or, you could just refer them to Wemus.

This is by no means exhaustive but hopefully this short guide will not only help keep you safe from the dangers identified above but will give you the tools to identify and mitigate many others. Taking just a few precautions can make all the difference in enjoying a safe and entertaining Voteball season.

Like those 1950s monster movies, the DC empire trots out the same tired old script to justify war with Iran

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soleimani funeral

For those of you too young to remember, the Iraq War – now considered at the very least a mistake by just about everyone – was justified at the time with propaganda including the following:

1. A preposterous claim Saddam Hussein was involved in 9/11

2. Claims Saddam had “weapons of mass destruction” and was planning “imminent attacks” on the US that could occur “within 45 minutes” (BTW, the definition of “imminent” has been greatly expanded since then)

3. Claims the Iraqi people would thank us for the invasion, later supported by laughable tight shots of a few dozen people (in a city of about 8 million) supposedly celebrating the arrival of US troops in Baghdad.

Like all those 1950s movies about nuclear missile testing creating giant monsters to destroy American cities (a giant octopus, giant ants, a giant lizard, etc), the DC empire simply dusts off the same, tired old script, changing only the names and places. And Americans flock to the ticket booth; then chant USA! USA! all the way to their seats.

This time around, we have Pence claiming Soleimani was involved in 9/11, Pompeo saying the Iraqi and Iranian governments will be upset but the people will thank us (take a look at some pictures of Soleimani’s funeral), and the persistent, decades-old claim Iran is just months away from developing a nuclear weapon.

The United States has not had a war on its soil since 1865. While that is a good thing in and of itself, it seems to have produced generations of Americans who require virtually no justification to support yet another war on somebody else’s soil.

Donald Trump was supposedly elected to end “endless wars.” His destruction of Jeb Bush in a South Carolina debate and subsequent win in its primary was one of the most extraordinary moments of his candidacy. So, why aren’t his supporters holding his feet to the fire as he morphs into George W. Bush? Could it be he was elected in spite of, rather than because of, his sincere-at-the-time promise of a less interventionist foreign policy? Perhaps Trump’s voters elected him purely based on his mercantilist economic and hardline immigration rhetoric, with foreign policy being a non-issue for most. It’s hard to find evidence to the contrary.

And why the seeming abandonment of that “America First” foreign policy (which was itself riddled with wiggle room) by The Donald himself? Is it possible that the Lindsey Grahams of the Republican Party, while no longer in the majority (or are they?), nevertheless represent enough votes in the Senate to join with Democrats in removing him from office and are using that leverage to bend Trump to their will?

That certainly seems more plausible than the monster movie script.

Sam Cooke’s “Rosa Parks Moment”

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sam_cooke_billboard There are a lot of reasons to watch Remastered: The Two Killings of Sam Cooke (available on Netflix), least of which is speculation about the circumstances of his death. The best reason to watch this documentary is the story of Cooke’s life, the story of a very different kind of civil rights leader of the 1950s and ‘60s. Cooke didn’t seek racial justice through political action; he pursued it through success in the business world.

“One of these days, the world is going to know Sam Cooke, and I’m going to help my people,” he said, as quoted in the film.

The Life of Sam Cooke

Cooke was born in Mississippi, but his father, Reverend Charles Cook, moved the family to Chicago early in Sam’s life. Rev. Cook started a church in the Bronzeville section of Chicago, which at the time was home to hundreds of small businesses owned by African-Americans.

Bronzeville was a beautiful place. In that corridor from 43rd and State Street to 51st Street, there must have been two to three hundred black businesses that were vibrant—segregated, of course, all black. It was like a black Wall Street,

said Spencer Leak, himself a black business owner whose family’s funeral home held the first funeral service for Cooke (there was a second funeral in Los Angeles).

So, Sam Cooke grew up in a neighborhood teeming with black entrepreneurs, looking up to a father who himself had made his own way in a world that didn’t exactly set the table for him.

Read the rest at Foundation for Economic Education…

Impeachment Hearings: The elephant in the room Republicans and Democrats won’t acknowledge

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Ukraine_0 “Republicans Try to Shift Focus to Hunter Biden During Debate on Trump Charges” complains the New York Times, as if the younger Biden’s conduct is completely immaterial to the impeachment case against President Trump. It seems having a father running for president is an absolute defense against…well, anything.

Judge: “On the charge of murder in the first degree, how does the defendant plead?”

Defense Attorney: “Your honor, his father is running for president.”

Judge: “Case dismissed. Next on the docket?”

But even more bizarre than the Democrats exasperation at examining Biden’s conduct related to Trump’s request for an investigation by the Ukrainian government is the complete silence of all involved on the real elephant in the room: Washington, D.C.’s involvement in creating that government in the first place.

In case you’ve forgotten, Washington employs regime-change-by-mass-protest far more often than the clumsy bombing/invasion method (although they’ve done plenty of that, too). Wars cost money, lives and international goodwill. Better to work through “non-governmental organizations” (NGOs) – a.k.a. CIA front groups – to foment unrest, riots, or open rebellion. The Obama administration elevated it to an art form, using it throughout the Middle East’s “Arab Spring,” and perfected it in Ukraine, according to Consortium News.

By the way, if you don’t think that’s what is going on in Hong Kong today, then I have a really nice bridge to sell you. Granted, the empire’s goals are more modest there. They certainly couldn’t achieve separating Hong Kong from China; but they managed to get a slew of “pro-democracy” candidates elected in local races. The Chinese aren’t stupid; they know what’s going on.

Well, back in 2014, that’s exactly what went on in Ukraine. Democratically-elected president Victor Yanukovych dragged his heels on a trade deal with the European Union which would have affected Ukraine’s relationship with Russia, its largest trading partner. Since keeping Russia on its knees has been the goal of the U.S. and it’s so-called NATO allies since the dissolution of the Soviet Union in 1991, no resistance to the trade deal or absorption of Ukraine into NATO would be tolerated.

So, the Obama administration did in Ukraine what it had been doing throughout the Middle East. It ran the regime-change-by-protest program. We know this because Obama administration officials were recorded talking about it, the recording later leaked to the public. Yanukovych fled the country, new elections were held, and a pro-EU, pro-NATO U.S. puppet was elected. All this happened just before Hunter Biden joined the board of Ukrainian gas company, Burisma Holdings Ltd.

So, Washington overthrows an elected government, installs a NATO puppet, and begins sending said puppet foreign aid to resist “Russian aggression.” Some of that foreign aid flows to Burisma, which is paying then-Vice President Biden’s son $50,000 per month for his complete lack of knowledge of or experience in the fossil fuels industry.

Nothing to see here, folks.

Now, that is a story the public would find compelling, especially because it’s true. If the Republicans really wanted to see Deep State heads roll; if they really wanted to “drain the Swamp,” this is the story they’d tell. But they won’t and neither will the national media.

The Republicans, Democrats, and the national media are all agents of and apologists for the rotting, bankrupt American empire. And they’ll take us all down with it when it falls, rather than speak against it, even when doing so could help their team.

Give Americans a Chance to Vote for Congress and the President on Different Days

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voting President Trump continues to draw enormous crowds at rallies across America’s heartland even as Nancy Pelosi’s House Democrats continue to move towards impeachment. National polls show all the leading Democratic candidates extending their leads over Trump, but national polls can be misleading. The U.S. doesn’t hold a national election and Trump remains extremely popular with his base. Despite the Democrats’ leads in the polls, another recent survey found that a majority of Americans believe Trump will be reelected.

However the election turns out, a large portion of America is going to be very angry.

It would seem our system of government isn’t working for the vast majority of Americans, most of whom identify as either conservative or liberal, if not Republican or Democrat. The right is enraged the Democrats are trying to overturn the results of the 2016 election, as they see it, while the left is enraged – well, Trump just seems to enrage them, period, no matter what he does.

Unfortunately, neither of America’s largest political tribes seems able to conceive of stripping the federal government of any of the enormous power it holds, most of which is arguably illegitimate per a strict reading of the Constitution, past SCOTUS rubber stamp decisions notwithstanding. The left has suggested eliminating the Electoral College and packing the Supreme Court with progressive-minded judges, both moves which would result in even more concentrated power in Washington. Meanwhile the right has lined up behind Trump’s use of flimsy “national emergency” reasoning to usurp everything from war powers to gun control to tariffs from Congress.

So, if the political acrimony can’t be diminished by reducing the power of the federal government and major constitutional changes are unlikely to succeed, what can Americans do besides go on hating each other until something worse than Twitter rants become the norm?

One answer may be to make it easier for Americans to get what their voting patterns consistently say they want: gridlock.

Nonstop anger has been a constant in American political life for this entire century. But if you ask most Americans what the opposing political party has actually done that has offended them, there are only a handful of concrete answers.

For the left, it was the Iraq War, the Patriot Act and tax cuts during the Bush administration; for the right, Obamacare more than anything else during Obama’s reign. President Trump hasn’t really signed any significant new legislation besides the 2017 tax reform. That and his handling of immigration under existing law are probably the only two concrete things Democrats could come up with for why they hate him so. The rest is just personality politics.

All these successful bills over which Americans have vehemently disagreed in recent decades share one thing in common – they were all passed when one party held the White House and both houses of Congress. And except for the 2002 and 2004 elections, while America was still in hunker down mode after the 9/11/2001 terrorist attacks, American voters consistently have reacted by taking away at least one house of Congress from the party holding the White House.

Contrary to what the media constantly tell us or what the hardcore minority bases in either party might say, the American electorate as a whole seems to prefer gridlock to Congress “getting something done.”‘

Congress already possesses the power to override state election laws, “except as to the Places of chusing Senators.” Congress asserted this power in 1845 to mandate all states hold presidential elections “the Tuesday after the first Monday in November.” It subsequently designated the same day for House and Senate elections.

Congress should reverse the latter statutes and mandate the opposite – that congressional elections must be held on a different day from presidential elections. If a constitutional amendment could succeed making that mandate even harder to overturn, so much the better.

Holding presidential and congressional elections on different days would allow voters to avoid playing “Washington Roulette” – voting for the president and Congress all at once and hoping there isn’t a one-party-sweep bullet in this years’ electoral chamber. Certainly, Americans could still elect one party to the White House and both Houses of Congress if they wanted. But recent electoral history suggests they wouldn’t if they could help it. And had separate elections been the rule for the past forty years, the legislation most unpopular with one side or the other might never have been passed.

“Get out the vote” proponents would complain that making Americans show up at the polls twice would reduce voter turnout, but that just begs the question of whether capturing the votes of those who would pass merely based on convenience really results in better elected officials. It would also likely be argued that separate elections would harm lower income earners who might not have the flexibility to get off from work to vote. That can easily be overcome with expanded polling hours.

What get-out-the-voters are really worried about is exposing how few Americans really care about federal elections. Most Americans already skip the midterms and only a slim majority vote in most presidential elections. Holding the presidential and Congressional elections on separate days would probably lower turnout for both and quell the perennial talk of a “mandate” from any one election for either party. That would be a bonus.

Americans have nothing to lose and everything to gain by holding their presidential and congressional elections on different days. Before taking drastic steps everyone will eventually regret, they should try this minor adjustment and observe the results. There is no better way to return “power to the people” than by giving them the option to impose gridlock on the federal government at their discretion.

Trump Winning the Trade War Would Make China Stronger, Not Weaker

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trump china We don’t win anymore,” said candidate Donald Trump numerous times during his 2016 presidential campaign, referring to America’s trade relationship with other countries. Trump and tens of millions of his supporters hold the protectionist view that trade, like all human relationships, is a war that must be “won.” Rather than exchanges that leave both parties better off, protectionists see trade as a zero-sum game in which one side benefits at the other’s expense.

Fair Trade Over Free Trade

The president has said on more than one occasion that he supports free trade, but he insists it must be fair, meaning that China or other partners reciprocate any relief from tariffs and other burdens placed on their exports. And it is true that China has not treated American exports to China the way America has treated Chinese exports to America.

China has been more protectionist and is likely engaging in some subsidization and/or other government assistance to its exporters, even if it and its effect on America’s trade deficit with China are greatly exaggerated. Americans would be better off with zero tariffs and completely free trade regarding its imports.

Regardless, Trump and his supporters draw completely the wrong conclusion. Persuading Xi Jinping to adopt free trade policies would make China’s economy stronger, not weaker.

Read the rest at Foundation for Economic Education…

‘They robbed the trust fund’ perpetuates the delusion Social Security isn’t a welfare program

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Nothing gets the delusional American public worked up like reports Congress has “robbed the Social Security trust fund.” The trust fund is a scam, designed to make people who don’t want to believe they’re getting benefits from a welfare program feel better about getting benefits from a welfare program. It’s one thing to sort of go along with the pretense as a way of compartmentalizing that reality. It’s another to get self-righteously angry about supposed theft from this psychological pacifier.

The Social Security Act is itself a promise to tax people in the future to pay you and me benefits in the future. Now, in order to convince us rubes the government is instead going to pay us out of the money we contributed, the government said it was setting up a “trust fund.”

Now, everyone knows the dollars they contribute now won’t even pay their newspaper subscription 40 years from now because of inflation. So, the government told us they would “invest” the annual surplus over present liabilities in treasury bonds, which would “earn” interest to offset inflation. That means the government spends the dollars taken from us today and replaces them with a paper promise (the treasury) to pay us back the principal plus interest in the future.

The fact that our contributions were always partly used to pay present benefits, even when Social Security was running a surplus, should have made it obvious to everyone that the government would have to tax someone else to pay at least part of our benefits (the portion of our contributions paid out to previous beneficiaries) when we became beneficiaries. But most people don’t want to acknowledge that because they want to labor under the delusion Social Security isn’t a welfare program.

The reality is even the trust fund treasuries can’t pay us benefits without taxing someone else. As opposed to corporate bonds, which pay back the principal and interest from the increased production underwritten by the borrowed money, government bonds (treasuries) can only pay back principal and interest one way : by taxing people in the future even more than you’re paying in today. That means 100% of Social Security payments have always come from taxing someone else. Not a single dollar comes out of the money we pay in, which is spent by the government the moment it’s taken out of our checks.

So, the “trust fund” was always just a bunch of paper promises to tax people in the future to pay you and I benefits in the future, just like the Social Security Act itself. Periodic reports it’s being “robbed” by Congress or will be exhausted by some date in the future is just noise. With or without a trust fund full of government bonds, every payment sent out today requires someone to be taxed today or new money to be borrowed by the government today (which can only be paid back by taxing someone in the future). That means Social Security is a welfare program, no different from Food Stamps or Aid to Dependent Children.

If you don’t like the idea that every American over a certain age ends up on welfare, stop whining about the bogus trust fund being robbed and do something about the real problem. Stop refusing to elect anyone who even suggests Social Security might have to be cut and instead start making privatization a condition of your vote. It is completely immoral to continue forcing young people entering the workforce to subsidize a 20-40 year vacation for us. And the first step in solving our problem is admitting we have one.

The Federal Reserve has crossed the balance sheet Rubicon

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Fed balance sheet (2) Federal Reserve Chairman Jerome Powell tried once more to tell U.S. markets what they wanted to hear, saying the Fed would ‘soon announce measures to add to the supply of reserves over time.”

A little history lesson for my younger readers:

Back in January 2008, the Fed’s balance sheet was approximately $880 billion in assets.Those were mostly securities (exclusively or mostly U.S. Treasury bonds) purchased in the past during monetary expansions (when the Fed buys a security from a member bank, it takes in the security and gives the member bank U.S. dollars, meaning there are more dollars available to lend out into the economy).

During its various rounds of “quantitative easing” and other inflationary programs in the years after the 2008 crisis, the Fed’s balance sheet increased to over $4.4 trillion. This was a once-in-a-lifetime thing, said the Fed at the time, and the balance sheet would quickly be “normalized” when the once-in-a-lifetime crisis was past.

Well, the Fed began normalizing its balance sheet in late 2017 (with the president screaming bloody murder the whole time) and got down to about $3.7 trillion – still over four times what it was in January 2008.

The normalization effort didn’t last long. Despite Powell’s comments, the Fed actually began adding to its balance sheet again in August. It’s now back to $3.945 trillion – a $200 billion increase in just two months. In other words, the Fed just added to its balance sheet in those two months 1/4 of what it added during its first 95 years of existence (1913 – 2008). This in an economy the Fed says is strong.

The Rubicon is in the rear view mirror. Where this monetary mayhem will take us is anyone’s guess.