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How To Dismantle the American Empire – Laurence M. Vance – Mises Daily

How To Dismantle the American Empire – Laurence M. Vance – Mises Daily.

Editors note: This selection is from chapter 7 of Laurence Vance’s War, Empire, and the Military: Essays on the Follies of War and U.S. Foreign Policy, now available in the Mises Store.

The WikiLeaks revelations have shined a light on the dark nature of U.S. foreign policy, including, as Eric Margolisrecently described it: “Washington’s heavy-handed treatment of friends and foes alike, its bullying, use of diplomats as junior-grade spies, narrow-minded views, and snide remarks about world leaders.”

As much as I, an American, hate to say it, U.S. foreign policy is actually much worse. It is aggressive, reckless, belligerent, and meddling. It sanctions the destabilization and overthrow of governments, the assassination of leaders, the destruction of industry and infrastructure, the backing of military coups, death squads, and drug traffickers, and imperialism under the guise of humanitarianism. It supports corrupt and tyrannical governments and brutal sanctions and embargoes. It results in discord, strife, hatred, and terrorism toward the United States.

The question, then, is simply this: Can U.S. foreign policy be fixed? Although I am not very optimistic that it will be, I am more than confident that it can be.

I propose a four-pronged solution from the following perspectives: Founding Fathers, military, congressional, libertarian. In brief, to fix its foreign policy the United States should implement a Jeffersonian foreign policy, adopt Major General Smedley Butler’s Amendment for Peace, follow the advice of Congressman Ron Paul, and do it all within the libertarian framework of philosopher Murray Rothbard.

Thomas Jefferson, our first secretary of state and third president, favored a foreign policy of “peace, commerce, and honest friendship with all nations — entangling alliances with none.” This policy was basically followed until the Spanish-American War of 1898. Here is the simple but profound wisdom of Jefferson:

 

  • “No one nation has a right to sit in judgment over another.” 

 

  • “We wish not to meddle with the internal affairs of any country, nor with the general affairs of Europe.” 
  • “I am for free commerce with all nations, political connection with none, and little or no diplomatic establishment.”
  • “We have produced proofs, from the most enlightened and approved writers on the subject, that a neutral nation must, in all things relating to the war, observe an exact impartiality towards the parties.”

No judgment, no meddling, no political connection, and no partiality: this is a Jeffersonian foreign policy.

U.S. Marine Corps Major General Smedley Butler was the most decorated Marine in U.S. history. After leaving the military, he authored the classic work War Is a Racket. Butler proposed an Amendment for Peace to provide an “absolute guarantee to the women of America that their loved ones never would be sent overseas to be needlessly shot down in European or Asiatic or African wars that are no concern of our people.” Here are its three planks:

1. The removal of members of the land armed forces from within the continental limits of the United States and the Panama Canal Zone for any cause whatsoever is hereby prohibited.

2. The vessels of the United States Navy, or of the other branches of the armed services, are hereby prohibited from steaming, for any reason whatsoever except on an errand of mercy, more than five hundred miles from our coast.

3. Aircraft of the Army, Navy and Marine Corps is hereby prohibited from flying, for any reason whatsoever, more than seven hundred and fifty miles beyond the coast of the United States.

Butler also reasoned that because of “our geographical position, it is all but impossible for any foreign power to muster, transport and land sufficient troops on our shores for a successful invasion.” In this he was echoing Jefferson, who recognized that geography was one of the great advantages of the United States: “At such a distance from Europe and with such an ocean between us, we hope to meddle little in its quarrels or combinations. Its peace and its commerce are what we shall court.”

And then there is our modern Jeffersonian in Congress, Rep. Ron Paul, the only consistent voice in Congress from either party for a foreign policy of peace and nonintervention. In a speech on the House floor several months before the invasion of Iraq, Ron Paul made the case for a foreign policy of peace through commerce and nonintervention:

A proper foreign policy of non-intervention is built on friendship with other nations, free trade, and open travel, maximizing the exchanges of goods and services and ideas.

We should avoid entangling alliances and stop meddling in the internal affairs of other nations — no matter how many special interests demand otherwise. The entangling alliances that we should avoid include the complex alliances in the UN, the IMF, the World Bank, and the WTO.

The basic moral principle underpinning a non-interventionist foreign policy is that of rejecting the initiation of force against others. It is based on non-violence and friendship unless attacked, self-determination, and self-defense while avoiding confrontation, even when we disagree with the way other countries run their affairs. It simply means that we should mind our own business and not be influenced by special interests that have an ax to grind or benefits to gain by controlling our foreign policy. Manipulating our country into conflicts that are none of our business and unrelated to national security provides no benefits to us, while exposing us to great risks financially and militarily.

For the libertarian framework necessary to ensure a foreign policy of peace and nonintervention, we can turn to libertarian political philosopher and theoretician Murray Rothbard:

The primary plank of a libertarian foreign policy program for America must be to call upon the United States to abandon its policy of global interventionism: to withdraw immediately and completely, militarily and politically, from Asia, Europe, Latin America, the Middle East, from everywhere. The cry among American libertarians should be for the United States to withdraw now, in every way that involves the U.S. government. The United States should dismantle its bases, withdraw its troops, stop its incessant political meddling, and abolish the CIA. It should also end all foreign aid — which is simply a device to coerce the American taxpayer into subsidizing American exports and favored foreign States, all in the name of “helping the starving peoples of the world.” In short, the United States government should withdraw totally to within its own boundaries and maintain a policy of strict political “isolation” or neutrality everywhere.

The U.S. global empire with its 1,000 foreign military bases and half a million troops and mercenary contractors in three-fourths of the world’s countries must be dismantled. This along with the empire’s spies, covert operations, foreign aid, gargantuan military budgets, abuse and misuse of the military, prison camps, torture, extraordinary renditions, assassinations, nation building, spreading democracy at the point of a gun, jingoism, regime changes, military alliances, security guarantees, and meddling in the affairs of other countries.

U.S. foreign policy can be fixed. The United States would never tolerate another country building a string of bases around North America, stationing thousands of its troops on our soil, enforcing a no-fly zone over American territory, or sending their fleets to patrol off our coasts. How much longer will other countries tolerate these actions by the United States? We have already experienced blowback from the Muslim world for our foreign policy. And how much longer can the United States afford to maintain its empire?

It is time for the world’s policeman, fireman, security guard, social worker, and busybody to announce its retirement.

[Originally published by the Future of Freedom Foundation.]

Does the Fed Favor Any Group in Particular? Mark Spitznagel vs. Paul Krugman

Does the Fed Favor Any Group in Particular? Mark Spitznagel vs. Paul Krugman.

Kicking off this Economic Farce Royale… we have Mark Spitznagel explaining why the Fed is the root of all evil… or at least the source of the so-call “wealth gap”. We’ve sprinkled our own comments throughout to keep it lively and (God help us) not too serious.

OK. Round one, *ding, ding*…


Mark Spitznagel

Amajor issue is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from Republicans, they both ignore a principal source of this growing disparity.

The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm… dun, dun, dun… the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

[Go figure…]

David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

[Well, yeah…]

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students showed that an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (I’m looking at you Ben Bernanke) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.

The Fed, having gone on an unprecedented credit expansion spree, has benefited the recipients who were first in line at the trough: banks (imagine borrowing for free and then buying up assets that you know the Fed is aggressively buying with you) and those favored entities and individuals deemed most creditworthy. Flush with capital, these recipients have proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.

At some point, of course, the honey flow stops—but not before much malinvestment. Such malinvestment is precisely what we saw in the historic 1990s equity and subsequent real-estate bubbles (and what we’re likely seeing again today in overheated credit and equity markets), culminating in painful liquidation.

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness (if there is anything unfair about approximately half of a population paying zero income taxes) or deregulation.

Pitting economic classes against each other is a divisive tactic that benefits no one. Yet if there is any upside, it is perhaps a closer examination of the true causes of the problem. Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?

Ooh… Them fightin’ words. OK, we turn to *ahem* America’s leading economist, nobel laureate and pointy head, Paul Krugman. He’ll now take himself too seriously and give us his academic rebuttal. We took a few editorial liberties so you wouldn’t fall asleep…

Round two, *ding, ding*…


Paul KrugmanI’ll be the first to admit that these past few years have been lean times in many respects — but they’ve been boom years for agonizingly dumb, pound-your-head-on-the-table economic fallacies. The latest fad — illustrated by what Mark Spitznagel just wrote above [ouch] — is that expansionary monetary policy is a giveaway to banks and plutocrats generally.

Indeed, his screed actually claims that the whole 1 versus 99 thing should really be about reining in or maybe abolishing the Fed. (Hah… Could you imagine that!) Unfortunately, and I’m sorry for this backhanded compliment, some pretty smart people have bought into at least some version of this dumb story.

What’s wrong with the idea that running the printing presses is a giveaway to plutocrats? Let me count the ways!

First, the situation is utterly the reverse of what Spitznagel claimed. Quantitative easing isn’t being imposed on an unwitting populace by financiers and rentiers; it’s being undertaken, to the extent that it is, over howls of protest from the financial industry. I mean, c’mon! Where are the editorials demanding that the Fed raise its inflation target, right?!

[Crickets…]

Uhh… Beyond that, let’s talk about the economics.

The deliberately misleading… er I mean, naive, version of Fed policy Spitznagel made is that Ben Bernanke is “giving money” to the banks. What it actually does, of course, is buy stuff from the banks, usually short-term government debt but nowadays sometimes other stuff with money that didn’t exist before. But, seriously, it’s not a gift.

To claim that it’s a gift you have to claim that the prices the Fed is paying are artificially high, or equivalently that interest rates are being pushed artificially low. And you do in fact see assertions to that effect all the time. But if you think about it for even a minute, that claim is truly bizarre.

I mean, what is the un-artificial, or if you prefer, “natural” rate of interest? As it turns out, there is actually a standard definition of the natural rate of interest and it’s basically defined on a PPE basis (that’s for proof of the pudding is in the eating). Roughly, the natural rate of interest is something, kind of like the rate that would lead to stable inflation at more or less full employment.

[Uh-huh…]

And we have low inflation with high unemployment, strongly suggesting that the natural rate of interest is below current levels, and that the key problem is the zero lower bound which keeps us from getting there. Under these circumstances, expansionary Fed policy isn’t some kind of giveway to the banks, it’s just a giveaway to the banks that the economy needs.

Furthermore, Fed efforts to do this probably tend on average to hurt, not help, bankers. Yes, I just wrote that with a straight face. Banks are largely in the business of borrowing short and lending long; anything that compresses the spread between short rates and long rates is likely to be bad for their profits. And the things the Fed is trying to do are in fact largely about compressing that spread, either by persuading investors that it will keep short rates at zero for a longer time or by going out and buying long-term assets. These are actions you would expect to make bankers angry, not happy — and that’s what has actually happened.

How, exactly, does expansionary monetary policy hurt the 99 percent? Think of all the people living on fixed incomes, we’re told. But who are these people? I know the picture: retirees living on the interest on their bank account and their fixed pension check — and there are no doubt some people fitting that description. But there aren’t many of them, which makes it ok.

No, the real victims of expansionary monetary policies are the very people who the current mythology says are pushing these policies. And that, I guess, explains why we’re hearing the opposite.

The typical retired American these days relies largely on Social Security — which is indexed against inflation. He or she may get some interest income from bank deposits, but not much: ordinary Americans have fewer financial assets than the elite can easily imagine. And as for pensions: yes, some people have defined-benefit pension plans that aren’t indexed for inflation. But that’s a dwindling minority — which again means it’s perfectly ok — and I assume the effect of, say, 1 or 2 percent higher inflation isn’t going to be enormous even for this minority.

What’s the takeaway? That unless you’re going to go stumping for policy on capitol hill (in which case, there’s no hope for you) you should focus on actionable steps you can take to increase your wealth… instead of engaging in groupthink. As for the policy debate…well, it’s always good for a laugh.

Regards,

The Daily Reckoning

Ed. Note: Whether you’re on a fixed income or not, there are ways you can safeguard and even grow your wealth, regardless of where you stand on the issue debated above. Today’s Daily Reckoning email edition gave readers a chance to get in on a one-time live event that will help them do just that. Didn’t see that offer? Not to worry… The Daily Reckoning will be back tomorrow with another opportunity for you to take advantage of. Be sure you don’t miss that one too. Sign up for the FREE Daily Reckoning email edition, right here.

 

GHOST OF 1929 « The Burning Platform

GHOST OF 1929 « The Burning Platform.

Ghost of 1929 crash reappears

Commentary: Pay attention to the signals

By Anthony MIrhaydari


Library of Congress

Crowd of people gather outside the New York Stock Exchange following the Crash of 1929.

They say those who forget the lessons of history are doomed to repeat them.

As a student of market history, I’ve seen that maxim made true time and again. The cycle swings fear back to greed. The overcautious become the overzealous. And at the top, the story is always the same: Too much credit, too much speculation, the suspension of disbelief, and the spread of the idea that this time is different.

It doesn’t matter whether it was the expansion of railroads heading into the crash of 1893 or the excitement over the consolidation of the steel industry in 1901 or the mixing of speculation and banking heading into 1907. Or whether it involves an epic expansion of mortgage credit, IPO activity, or central-bank stimulus. What can’t continue forever ultimately won’t.

The weaknesses of the human heart and mind means the swings will always exist. Our rudimentary understanding of the forces of economics, which in turn, reflect ultimately the fallacies of people making investing, purchasing, and saving decisions, means policymakers will never defeat the vagaries of the business cycle.

So no, this time isn’t different. The specifics may have changed, but the themes remain the same.

In fact, the stock market is right now tracing out a pattern eerily similar to the lead up to the infamous 1929 market crash. The pattern, illustrated by Tom McClellan of the McClellan Market Report, and brought to his attention by well-known chart diviner Tom Demark, is shown below.

Excuse me for throwing some cold water on the fever dream Wall Street has descended into over the last few months, an apparent climax that has bullish sentiment at record highs, margin debt at record highs, bears capitulating left and right, and a market that is increasingly dependent on brokerage credit, Federal Reserve stimulus, and a fantasy that corporate profitability will never again come under pressure.

On a pure price-analogue basis, it’s time to start worrying.

Fundamentally, it’s time to start worrying too. With GDP growth petering out (Macroeconomic Advisors is projecting fourth-quarter growth of just 1.2%), Americans abandoning the labor force at a frightening pace, businesses still withholding capital spending, and personal-consumption expenditures growing at levels associated with recent recessions, we’ve past the point of diminishing marginal returns to the Fed’s cheap-money morphine.

All we’re doing now is pushing on the proverbial string. Trillions in unused bank reserves are piling up. The housing market has stalled after the “taper tantrum” earlier this year caused mortgage rates to shoot from 3.4% to 4.6% between May and August. The Treasury market is getting distorted as the Fed effectively monetizes a growing share of the national debt. Emerging-market economies are increasingly vulnerable to a currency crisis once the taper finally starts.

The Fed knows it. But they’re trapped between these risks and giving the market — the one bright spot in the post-2009 recovery — serious liquidity withdrawals.

But the specifics of the run up to the 1929 crash provide true bone-chilling context for what’s happening now.

The Bernanke-led Fed’s enthusiasm for avoiding the mistakes that worsened the Great Depression—- a mistimed tightening of monetary conditions — has led him to repeat the mistakes that caused it in the first place: Namely, continuing to lower interest rates via Treasury bond purchases well into an economic expansion and bull market justified by low-to-no inflation.

(Side note here: As economist Murray Rothbard of the Austrian School wrote in America’s Great Depression, prices dropped then, as now, because of gains in productivity and efficiency.)

Here’s the kicker: The Fed (mainly the New York Fed under Benjamin Strong) was knee deep in quantitative easing in the late 1920s, expanding the money supply and lowering interest rates via direct bond purchases. Wall Street then, as now, was euphoric.

It ended badly.

Fed policymakers felt like heroes as they violated that central tenant of central banking as outlined in 1873 by Economist editor Walter Bagehot in his famous Lombard Street: That they should lend freely to solvent banks, at a punitive interest rate in exchange for good quality collateral. Central-bank stimulus should only be a stopgap measure used to stem panics, a lender of last resort; not act as a vehicle of economic deliverance via the printing press.

It’s being violated again now as the mistakes of history are repeated once more. Bernanke will be around to see the results of his mistakes and his misguided justification that quantitative easing is working because stock prices are higher, ignoring evidence that the “wealth effect” isn’t working.

Strong died in 1928, missing the hangover his obsession with low interest rates and credit expansion caused after bragging, in 1927, that his policies would give “a little coup de whisky to the stock market.”

Interventionist Government Policies Cause Of, Not Cure For, Busts – Investors.com

Interventionist Government Policies Cause Of, Not Cure For, Busts – Investors.com. (FULL ARTICLE)

Time is nearly up for Ben Bernanke, the chairman of the Federal Reserve who supposedly applied his scholarly knowledge of the Great Depression to steer the U.S. to safety after the financial crisis.

In truth, Bernanke navigated a monetarist course that favored intensive intervention, following in the footsteps of many mainstream economists who grossly misunderstood the lessons of the Crash of 1929 and the ensuing malaise.

That lesson is that when corrective crashes occur, intervention is far from the cure — it is the cause.

Until we learn from the past, we will continue to expose ourselves to devastating booms and busts. The Bernanke-led Fed has only exacerbated the problem, leading us to the brink of an even worse correction.

To capture the lessons learned, we turn to a scholar of the Great Depression: Murray Rothbard of the Austrian School of Economics, who refutes the common misconception that “laissez-faire capitalism was to blame.”

His contrarian and far less popular — yet more accurate — view is that the booms and busts of the business cycle result from shocks to the system caused by monetary intervention….

 

Drones and Right to Privacy – Ludwig von Mises Institute Canada

Drones and Right to Privacy – Ludwig von Mises Institute Canada.

 

Money demand and banking – Some challenges for the “Free Bankers” | DetlevSchlichter.com

Money demand and banking – Some challenges for the “Free Bankers” | DetlevSchlichter.com.

 

Paul Krugman the Marxist – Ludwig von Mises Institute Canada

Paul Krugman the Marxist – Ludwig von Mises Institute Canada.

 

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