Tag Archive for: inflation

Towards A Nationalist Economic Policy

Suggesting that managed inflation and currency devaluation are pathways to greater national prosperity is bound to invite howls of derision. But critics may be ignoring factors, which, if acknowledged, might point towards consensus. At the least, it might provoke a more useful discussion.

With that in mind, here are four economic realities in America today:

1 – Despite that the word “fiat” is often used as a term of derision, all currencies are fiat unless backed by redeemable commodities. China is stockpiling gold amidst rumors they may try to tie the Renminbi to gold. Good luck with that.

2 – Throughout history, nations with the ability to sustain capital formation through financial innovation are the ones that succeeded. Prudently managed fractional reserve lending, a financial innovation, enables far more liquidity in the economy.

3 – The biggest engine of liquidity is not printing currency – there’s only about five trillion in actual printed US dollars extant in the world – it is debt formation, backed by collateral, that finances massive projects and asset acquisitions.

4 – American has been on a borrowing binge since the 1980s and total market debt – consumer, commercial and government – now stands at nearly 3.5 times GDP. This level of debt is unsustainable.

On this final axiom there should be agreement. As for the others, concerned observers might agree to disagree. Suffice to say that the economic disruption, and unintended consequences, that would accompany transition to a commodity backed currency would dwarf what we may expect in most other scenarios for the American dollar. So how do Americans unwind nearly $80 trillion in hard debt?

If one accepts the premise that this debt is unsustainable, and that further debt accumulation is no longer possible, than broadly speaking, to facilitate the inevitable rebalancing there are only two possible outcomes – inflation or deflation. The problem with deflation is there is no model of deflation that doesn’t include a complete collapse of liquidity and a near cessation of economic activity. A deflationary collapse would not simply wipe out a few big banks. It would wipe out all banking, big and small, multinational and local, because the value of the collateral that backed all their loans, no matter how healthy their reserve ratios had previously been, would have collapsed.

There is a model of inflation, however, that permits America to continue to prosper economically. It is vital to make the distinction between inflation caused by wages increasing faster than asset values vs inflation caused by asset values increasing faster than wages. Understanding this distinction, and recognizing what is at state in the choice between them, cuts to the heart of what constitutes nationalist economic policy vs globalist economic policy.

Globalist Economic Policy

For at least the last 20 years, American wages have not kept pace with inflation. Examining the core elements of this inflation offers clues to why most Americans are worse off economically than they were 20-30 years ago. And the primary driver of inflation outpacing wage growth is the financialization of the American economy. This is the reliance on creating overvalued assets (asset bubbles) to serve as expanded collateral to enable increased consumer borrowing.

Allowing consumers more capacity to borrow took momentary pressure off of consumers to earn higher wages. This served the interests of multinational corporations and international banks whose profits were optimized when they exported jobs and imported workers. By importing cheap products from overseas and stimulating borrowing on inflated home equity values, for a time, most Americans weren’t suffering the consequences of an economy running on debt instead of productivity.

It’s worth considering all the ways that financial inflation was imposed on ordinary Americans, forcing them into debt. Already reeling from the globalist tactic of exporting jobs out of their country, and importing workers (and welfare recipients) into their country, Americans also had to contend with higher prices for everything that couldn’t be imported – which are those items that use up most disposable consumer income – rent or mortgages, and utility bills. Why?

The answer to this exposes the other primary strategy of globalism, synergistic with the tactic of exporting jobs and importing low wage workers, which is climate change mitigation in all of its almost endless permutations. In the name of protecting the planet, artificial scarcity has been imposed on Americans from coast to coast, and in those regions where state and local governments are overran the most with globalists, that scarcity is most acute.

In the name of fighting climate change, globalists – oops, environmentalists – challenge the ability of entrepreneurs to do anything. To the extent new housing developments are permitted, after years, not months, and millions, not thousands, in fees, they must be confined within the boundaries of existing cities.

It is impossible to overstate how misanthropic this policy is in terms of its effect on ordinary Americans. At the same time as millions of immigrants, legal and illegal, continue to pour into the country, draconian environmental laws are cramming all new housing within the footprints of existing cities. Tranquil neighborhoods are being demolished to make room for millions of newcomers. People are being literally piled on top of each other. But the investor class sees their real estate portfolios soar. Collateral grows, enabling more borrowing, enabling more spending.

Renewable energy, also mandated by law in the interests of supposedly cooling the planet which is supposedly warming catastrophically, also creates artificial scarcity. The cost of renewable energy far exceeds that of conventional energy, which itself costs far more than it should because of permitting delays, lawsuits, and excessive regulations.

Renewable energy requires costly upgrades to the power grid. It requires storage assets to make up for the daily intermittent nature of wind and solar power. The lifecycle costs to manufacture, operate, decommission, and periodically replace wind and solar power arrays are grossly underestimated, especially when considering how these systems have to be oversized to account for seasonal fluctuations in renewable energy output. Power management systems at the grid level and within the home, extending to every “wired” appliance, also add stupendous costs. But public utilities earn far higher revenues when they deploy renewables, which, since their profit percentages are regulated, is the only way they can increase their profits. And everyone up and down the supply chain, from green entrepreneurs to high tech companies, exploit mandated market opportunities that would not otherwise exist.

Climate change panic has turned our schoolchildren into manipulated puppets and morphed a generation of environmentalists from sincere activism to militant hysteria. These minions support every piece of legislation and every lawsuit, despite the impact: higher prices for everything, artificial scarcity, and inflated collateral to keep the borrowing party going. Other significant sources of inflation, college tuition and health care in particular, have other primary causes – in particular, unionization and the inefficiencies and higher costs that come with unionization – but the pretext for demanding higher wages and benefits in the first place, or even the drive to unionize itself, stem from the reality of unaffordable homes and unaffordable energy.

Nationalist Economic Policy

It is important to emphasize that nationalist economic policy is not “conservative,” nor is it Republican. The only reason nationalists, or conservatives, for that matter, vote for Republicans is because Republicans are not Democrats. While far too many Republican politicians are still just members of the establishment uniparty, at least they haven’t had their vanguard completely taken over by international socialists and climate change zealots. But to suggest that a nationalist economic policy is further evidence of yet another betrayal of alleged Republican, “fiscal conservative” principles is to miss the point entirely.

A nationalist economic policy should have one goal: unwind American debt in a manner that will avoid a deflationary collapse while at the same time shifting the weight of ongoing inflation from financial asset inflation to wage inflation. To do this, both of the key premises of globalism have to be broken. Immigration must be limited to reduced quantities of highly skilled immigrants, and climate change alarmist legislation must be replaced with practical policies designed to promote private sector development of cheap and clean fossil fuel throughout the United States and around the world.

Reducing the supply of labor via more restrictive immigration policies will cause wages to inflate. Increasing the supply of housing and energy by reforming absurdly restrictive environmentalist laws will cause prices for these commodities to level off or at least not rise as quickly as wages. And this might be enough to slowly allow the real value of debt in the economy to erode via inflation. But why stop there?

Fiat currencies maintain their value based on the underlying economic strength of the nations that issue them. The US Dollar is the reserve and transaction currency of the world because no other large national economy has anywhere near America’s industrial diversity, demographic vitality, wealth of natural resources, top universities, broad and deep leadership in high technology, political stability, and military strength. What if devaluing the dollar would actually increase America’s underlying economic strength, and what if the only way to devalue the dollar were to continue to engage in federal deficit spending, and incrementally lower the federal reserve lending rate?

Cue the howls.

About a year ago, it was leaked to the press that President Trump was asking his economic advisers “what’s better, a strong dollar or a weak dollar?” Literally everyone, from the entire media establishment to every anti-Trump pundit, took this opportunity to ridicule Trump, as if he should have already known the answer to this question. But there is huge disagreement among experts on this question, and Trump, as usual, was displaying common sense by asking to hear both sides of the issue.

Trump’s gut instincts appear to favor devaluing the dollar. A devalued dollar means it costs relatively more to import raw materials than to extract them domestically (note to environmentalists – it’s also less hypocritical). It also means it costs relatively more to import manufactured goods than to manufacture them domestically. This not only creates jobs, it further bids up the cost of wages. These policies will also help mitigate potential negative impacts on Americans of yet another rising mega-trend, automation.

Everything Trump’s doing, restricting immigration, developing oil and gas wells and pipelines, trying to repatriate money, and negotiating better trade deals, is designed to shift the model of inflation that we’re dealing with from a bad inflation model to a good inflation model.

As for deficit spending, it’s very principled to talk about deficit spending as if it’s an evil, and it’s certainly something that’s created a problem, but at least in the short run, it is not possible to eliminate deficit spending. If wages are increasing faster than the cost-of-living, than spending on entitlements including Social Security can be indexed to stay at or below the rate of inflation, slowly reducing its share of the federal budget. Immigration reform can reduce that burden on federal and state/local budgets. Maybe military spending can settle in at somewhat a somewhat lower percentage of GDP than it did during the last cold war. We can certainly use federal money more efficiently, and probably save a few hundred billion there. But precipitously eliminating the federal budget deficit is impossible, and continuing deficit spending might actually help devalue the dollar, stimulate “good” inflation, and diminish the real value of government and consumer debt.

International Globalism vs. Nationalist Globalization

Ultimately the choice of economic policies for the U.S. comes down to only one; inflation where wages grow at a faster rate than assets appreciate. The reverse of that is the financialized economy we’ve lived with, which has enriched the globalist political donor class but impoverished everyone else in America. The catastrophic third option is deflation, which carries a high risk of cascading implosions of collateral, putting the economy into a depression era tailspin.

There is no policy without risk and without downside. Inflation, for example, will victimize holders of fixed income investments no matter what. It might as well be wage inflation rather than asset inflation, particularly since asset inflation can lead to property tax increases that are particularly harmful to people on fixed incomes. And it’s a bit disingenuous for budget hawks to attack economic solutions involving inflation, when these are typically the same folks who want to throw America’s seniors onto 401K plans. Such a strategy would imply a supreme confidence in every American individual’s ability to manage their own personal retirement portfolios, including, presumably, inflation hedged investments.

Americans, along with citizens in every nation, have a choice. They can become commodities in a global marketplace, where the assets they’ve earned and accomplishments they’ve logged have no meaning and no merit. Or they can assert their sovereignty, preserving their culture, their wealth, their independence, and the privileges they’ve earned as citizens. They can compete with other nations, they can coexist with other nations, they can cooperate with other nations, but they can survive with their identity and traditions intact.

In America’s case, the challenge is particularly complex, because of America’s leadership role in the world. The American military doesn’t have to engage in nation building. It can be more judicial in deciding when to engage in police actions. But no matter how much those activities are attenuated, America’s military still has to pursue international terror networks, wherever they are, and America’s military still has to deter Chinese expansionism. Like it or not, America is in an undeclared cold war with China, and has been for decades. This is a war that can only be kept cold through deterrence, and deterrence, while fabulously expensive, is cheaper than a hot, horrific war.

Globalization, to clarify, is not the same thing as globalism. Technological advances make globalization inevitable. Intercontinental travel is now available and affordable for literally billions of people. The internet has made mass communication available from anyone, anywhere on Earth, to anyone, anywhere else on earth. Electronic transfers of funds occur instantaneously from anywhere to anywhere. Trade between nations has never been easier. And multinational corporations and banks have lost their national identities and operate as global entities.

Globalism, by contrast, is an ideology. In the crudest, most accurate terms possible, globalism can be described as the naive belief that turning global governance over to an unelected cadre of corporate and financial elites is the best possible future for humanity. But it’s not, because globalists want to cram humans into congested cities like cattle, erasing cultural and national identities and traditions. They want to ration availability of energy, water, land and raw materials, justifying it in the name of saving the planet. And they’re willing to relentlessly demonize, marginalize, ostracize and silence anyone who questions their agenda, stigmatizing them as racists and climate “deniers.”

Perhaps some globalists are truly naive, while others are cold and cynical. If so, naive globalists apparently think that rampant population growth among the impoverished nations constitutes less of a burden on the planet and its peoples than empowering these nations with cheap fossil fuel which would induce them to voluntarily check their population growth. And perhaps cynical globalists simply don’t care. They just want the power that globalism offers them, and if renewable energy fails to deliver a sustainable civilization and chaos ensues, so what? The great cull would be a violent but very effective shortcut for the elites to establish their breakaway civilization, their privileged Elysium.

The reality of accumulating debt and persistent federal spending deficits will eventually push Americans to a crossroads. Most everyone agrees about that. Hyping the tropes that keep donor dollars flowing into libertarian think tanks is not the same as offering constructive alternatives. Those critics who wish to offer up a solution more realistic that what is proposed herein are emphatically invited to do so.

This article originally appeared on the website American Greatness.

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Inflation vs Deflation – Only One Choice

Critics of government deficit spending correctly point out that perpetual debt accumulation is not sustainable. They’re right. But before they criticize an economic policy that aims to use inflation to whittle away the real value – and hence the actual burden – of accumulated debt, they’d be wise to consider the alternatives. Because there aren’t any.

Deficit spending has been touted as a potential driver of inflation, because only with devalued (inflated) currency can Americans hope to erode the real value of mounting levels of government debt. Continuing to print U.S. dollars, it is claimed, can only lead to too many dollars in the system, and hence a devalued dollar. We should be so lucky.

When American households join the Federal Government in spending more than they make, the only way to keep this up is to lower interest rates and increase the value of the underlying collateral. This second factor, the value of collateral, is particularly important for the American consumer, who has relied on home equity appreciation to enable ongoing borrowing which in-turn enabled ongoing spending beyond their means. The so-called financialization of the American economy over the past few decades has been specifically aimed at increasing the value of assets in order to stimulate more borrowing and spending.

The deflationary risk caused by debt accumulation becomes most acute if and when this asset-price bubble bursts. When the market value of the collateral suddenly becomes worth less than the amount of the loans outstanding, banks cannot extend new credit to the private sector, even at very low rates of interest.

Another way to put this is as follows: Liquidity is a function of two factors, money supply and collateral. But the impact of available collateral is far more critical to maintaining liquidity than the money supply. According to the most recent data from the U.S. Federal Reserve, in the first quarter of 2019 the total U.S. wealth, all sectors, totaled $98.3 trillion. What happens to the value of that collateral if banks cannot extend new credit? How is a deflationary spiral avoided when no new borrowing is possible, causing a collapse of demand to purchase assets, causing a compounding drop in the market value of those assets?

This is the cascading collapse of liquidity that was narrowly avoided in 2009. But with total market debt in the U.S. still hovering at approximately 343 percent of GDP, or not quite $80 trillion, it remains a threat to the American economy. Raising interest rates at this time risks the catastrophic possibility of a deflationary collapse, because if interest rates rise, borrowing and spending slow down, asset values drop because of reduced demand, and one after another, bank balance sheets show loan balances that exceed collateral value. Yet this is the alternative that deficit hawks apparently prefer to managed inflation. It is neither a more virtuous solution, nor is it necessary, nor would it work.

Even if raising interest rates does not trigger an economic calamity, it would merely continue the relentless transfer of wealth in America from the middle class to the investor class – Americans would not have borrowed so much if the economy had not become financialized, making everything cost far more. Inflation transfers wealth back from the investor class to the middle class, by eroding the value of their debt. Those responsible Americans who didn’t succumb to the debt temptation should think twice before rejecting the inflation choice. It won’t matter if your bank savings are intact when the banks fail.

How Can Inflation Be Managed to Benefit Ordinary Americans?

If one is willing to assume that inflation is a better pathway out of excessive debt than deflation, the prevailing challenge becomes how to ensure this inflation will benefit ordinary Americans. Since the 1970s, wage inflation has not kept pace with asset inflation. The challenge is to flip that ratio, so that asset inflation (and debt devaluation) does not keep pace with wage inflation.

If this can be accomplished, the cost of living for ordinary Americans will actually go down, even in an inflationary environment. Their wages will be increasing faster than the consumer price index, and the real value of their debt and interest payments will be declining. How can this be done?

As noted in a previous article, two key policy shifts are necessary to ensure wage inflation outpaces asset inflation and the CPI. First, get immigration under control so there is a sellers market for labor instead of a buyers market for labor. Second, relax the extreme environmental laws that prevent Americans from developing their own natural resources and upgrading their infrastructure. Relaxing these ridiculously excessive, punitive, misanthropic, misused and extreme environmental regulations will also dramatically lower the price of new homes.

Not only does increasing mining and drilling operations within the United States create more jobs, but it is a necessary step to take as domestic inflation equates to currency devaluation. By devaluing the dollar through inflation fueled by deficit spending and low interest rates, in-country development of natural resources becomes cheaper than importing them.

Managed Inflation is the Only Alternative

Critics of deficit spending act as if there is a choice to be made, that somehow the circumstances and givens that confront America’s policymakers are not unyielding, that somehow by harping on the virtue of living within our means, they can bend reality. But they can’t. The harsh reality is this: America’s federal government is locked into a pattern of deficit spending that cannot be stopped in the near future. America’s accumulated debt will either be smoothly resolved via managed inflation, or resolved catastrophically via unmanageable deflation that will cause an economic meltdown.

Moreover, federal deficit spending needs to increase. Now. Because putting aside the fantasies of all who would wish this weren’t so (libertarians, socialists, and nationalists all have such wishful thinkers well represented within their ranks), America is in a battle for global supremacy with the Chinese, who must be contained by the United States waging an expensive cold war that will last for decades. One does not have to be a “neocon shill” to recognize this sad fact. One only has to study history, and then observe the actions of the Chinese regime.

None of this macroeconomic reality is meant to absolve the American consumers who decided to sink into debt up to their eyeballs. It doesn’t excuse the students who chose to pay obscene amounts for college tuition, using borrowed money, nor does it excuse the loan sharks who extended them that credit, or the criminals who turned higher education into a money making scam. It is not meant to ignore the costly, useless “solutions” demanded and received by poverty pimps and identity fascists. It doesn’t let off the hook all those environmentalist fanatics and their opportunistic “green” crony capitalist puppeteers who tied our economy up in knots, nor does it forgive the public sector unions who made government services unaffordable and inefficient.

It just is what it is. Where do we go from here?

There is no palatable alternative. If America’s policymakers return to the feckless cowardice of the Obama years, appeasement will again define federal policy. Appeasement of the Chinese by neglecting our military readiness and a firm commitment to containment. Appeasement of the deficit hawks by raising interest rates, as if somehow without inflation we’re still going to whittle away $80 trillion in government and household debt. Appeasement that will turn the fate of the world over President Xi, and turn America into a debtors prison.

The United States needs to spend more on its military, it needs to spend more on its infrastructure, even if that means increasing the federal deficit. The United States then needs to restrict immigration and roll back extreme environmental regulations in order to ensure that wages inflate faster than the consumer price index. This managed inflation will not only whittle away the real value of American debt, but it will serve as a tool to reduce the real value of non-military, non-infrastructure related entitlement spending.

This article originally appeared on the website American Greatness.

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