Trumponomics 2.0

Posted on November 12, 2024 by thezman

The next few weeks will bring a flurry of news regarding various names for jobs in the next Trump White House. Some of it will be gaslighting from people who just make things up for regime media. Some of it will disappoint Trump supporters hoping to get something from their efforts this time. One area that has gotten no coverage, but will be one of the most important, is the economy. Trump appears determined to fundamentally change how Washington controls the economy.

That is the first thing to understand. The United States is not a free-market economy or even close to one. There are millions of lines of regulatory code covering every aspect of economic activity. It is not exactly a command economy and in no way a centrally planned one, but it is a tightly controlled economy. Washington has its tentacles in every nook and cranny, even the black markets. Therefore, a president’s view on how to control the economy matters a great deal.

When it comes to economic policy, the placed to start is former Japanese Prime Minister Shinzo Abe. Trump was a fan of Abenomics, in addition to be on very good personal terms with him. Trump has often spoke highly of what has come to be known as Abenomics. Reportedly, Trump has talked to Scott Bessent about a position in the administration, maybe even Treasury Secretary. Bessent is also a proponent of the “three arrows” approach to the economy.

The “three arrows” term is how Shinzo Abe described his approach. One arrow or prong was loose money. Get as much money into the economy as quickly as possible, even if it creates inflation. The second arrow is to direct that new money into areas of the economy that either need revitalization or startup capital. If this means growing the budget, then so be it. The third arrow is to encourage (compel) private investment in the domestic economy over yield chasing.

Applied to the American economy, it probably means a blend of loose money, the slashing of regulation and tariffs to direct investment into the domestical economy, especially the supply chain and industrial base. One obvious lesson of the Covid panic, one entirely ignored by Washington, is complex supply chains, especially those flowing through Asia, are highly fragile. The growing rift with China makes untangling those supply chains even more important going forward.

Trump has made it clear that he wants to use tariffs to redirect investment into the domestic economy. Another name turning up as a possible addition to the Trump team is Robert Lighthizer, who is both a China hawk and the architect of Trump’s trade policy in his first term. It is important to note that the changes Trump ushered in were not rolled back under Biden. Taken together, it is a clear sign that Trump 2.0 will be much more hawkish on the trade front.

Those familiar with the regulatory world remember the wild ride it was in Trump’s first term as they went on a deregulation spree. Expect Trump 2.0 to be even more aggressive, especially on the environmental front. His nominee for the EPA is Lee Zeldin, who the Gaia worshipers detest. Trump made it clear with the announcement that his job will be to clear the dense thicket of environmental regulations that make it hard to put a shovel in the ground for any reason.

Trump 2.0 will be helped by the courts in this regard. This year the Supreme Court ended what had been termed the Chevron deference. This was the rule that said the courts should defer to the regulatory agencies whenever there was ambiguity in the laws passed by Congress. Of course, this meant that everything passed by Congress was as vague as possible, to give total control to the agencies. This has been turned on its head by the courts.

What we are likely to see is a three-pronged assault on the administrative state in Trump’s second term. One prong will be the aggressive slashing of regulations that we saw in Trump’s first term. The second prong will be a flood of litigation aimed at the vagaries of the enabling legislation. There are many cases in the system. The final prong is an effort by Congress to clean up the language to both limit the agencies, but also reassert oversight.

Where things get interesting is fiscal policy. Inflation remains an issue, despite claims to the contrary, but the Fed is signaling cuts in interest rates. Will Trump demand big new spending on infrastructure? This would be one way to soak up some of the extra money being generated by lower interest rates. Anyone who goes outside knows there is a desperate need to rebuild the infrastructure. Go to an airport and you are suddenly embarrassed to be an American.

All this stuff is boring and does not get the same attention you see with some of the other stuff allegedly on Trump’s agenda. Catapulting left-wing crazies into the sea provides a much bigger dopamine rush than deregulation. On the other hand, Trumponomics is the most radical part of his agenda. Those old enough to remember Ross Perot and Pat Buchanan see the point. Trump is repudiating half a century of conservative economic dogma.

The Trump economic agenda is not without its problems. In Washington, every mortgage payment, college tuition bill, access to elite schools and universities depends on nothing changing in Washington. Trump 1.0 was largely undone by his own party, who is as invested in the status quo as the Democrats. The lawfare industrial complex is also gearing up for round two against Trump. Maybe his team is ready this time, but even if they are prepared, it will be a long slog.

The bigger question is if it will work. What Trump is proposing sounds a lot like old fashioned liberal economics from the last century. Instead of tax and spend it will be print and spend. The difference is the deregulation and tariffs. The point of this approach is to redirect investment back into the American economy and direct it to tangible things like supply chains and manufacturing. It is the approach we saw with growth economies last century.

Another thing he has on his side is the economic elites have come around to this approach to the economy. Investors love cheap money and deregulation, but Wall Street also sees it needs a replacement for Asia. The days of getting rich from the China trade are gone. If the United States replaces China as an investment option, they will get onboard with it. As we saw with the election, it is always good when the rich people are backing your play.

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The Kazan Catastrophe

Posted on October 24, 2024 by thezman

Back in the ancient times, if you wished to buy product from someone you arrived at their location with money, or they arrived at your location with product. The product was inspected, and the money was inspected. Once both sides were satisfied, the exchange was made, and the deal was done. It did not take long for a class of middlemen to turn up who brokered such deals. They inspected the goods, arranged transportation and safeguarded the product and the money.

World trade has not changed much since the ancient times. Middlemen still facilitate most of the trade. They are called banks, insurance companies, freight brokers, shipping companies and so forth, but they are all part of this vast and essential middleman economy that makes it possible for the local Walmart to have shelves stuffed with goods from Asia. It is what makes it possible for the Chinese company selling dog food to get paid by Walmart.

One thing to note about this setup is the two greatest seafaring nations in the history of the planet, the United States and Britain, do very little shipping. Instead, they control the flow of goods around the world through control of the insurance markets and the financial system used in global trade. If you are involved in global trade, you are certainly using the American financial system and either directly or indirectly the British maritime insurance system.

The dollar being the world’s reserve currency has been to this point the main driver of the explosion in global trade. The buyer in South America can do business with a seller in China, because his bank is connected to the American financial system through his country’s central bank. He does not have to get RMB from his bank to pay the Chinese vendors, because the exchange is done automatically through the dollar dominated global financial system.

This is about to change with the launch of an alternative payment system that was announced at the BRICS summit in Kazan Russia. The Russians and the Chinese have been working on creating an alternative to SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunications. It is the platform that networks the world’s banks to facilitate the flow of money around the world. The new system seeks to replace SWIFT for trade among the BRICS countries.

For most people this is an eye-glazing topic, but in the fullness of time it could be an event that generations of historians study as an inflection point. What the BRICS countries are seeking to do is wrest control of the global financial system from the West, specifically the English-speaking countries, at least for the members of BRICS and those countries willing to trade with BRICS. By extension, it is an effort to reduce the power of the dollar and thus the power of the American empire.

What this new system proposes to do is make it easier for participating countries to conduct business in the currency of other participating countries. Instead of China needing dollars to buy oil from the Saudis and therefore preferring dollars from other countries for Chinese goods, the Chinese will be able to buy oil in RMB and the Saudis will be able to buy Chinese goods in whatever currency they possess. The new system would handle the conversion and exchange rates instantly.

As an aside, that last part is interesting. In the United States, a business does not get paid by the credit card company for a few days. Often, the delay is longer. Of course, there are fees for taking credit card payments. In Russia and China, the movement of money is instant. The system is treated as a public utility, so fees are relatively small compared to what we see in the West. This is owing to much better and newer technology and a different attitude toward banking.

That aside, the significance of this proposal is enormous. The BRICS countries represent half the world’s population. The Arab oil countries, particularly Saudi Arabia, are onboard for this new system. The Saudis let expire the fifty-year-old deal with Washington that established the petrodollar. China, India and Russia are the driving force behind this new arrangement and represent three of the most important economic powerhouses in the world at the moment.

What this means for the West is far less influence over the rest of the world through the control of the financial system. The main reason China, Russia and India have pushed for this new system is they have grown weary of Washington abusing its position to bully the rest of the world. The sanctions war unleashed by Washington against Russia in 2022 was the final straw. If Washington would use the dollar to try regime change in Russia, it would do it to anyone, especially China.

What the BRICS summit in Kazan represents is decades of belligerently incompetent foreign policy in Washington. Ten years ago, it was inconceivable that these important countries would come together to create a parallel financial system, as all of them were committed to the dollar and the Western system. They were committed to the “rules-based order” because they assumed it served their interests, but decades of abuse by Washington has convinced them otherwise.

What this means for the West is clear. What we see forming up is a trading and cooperation block that includes all the countries outside the West, representing the bulk of the world’s population and the majority of economic activity. Add in the fact that the West has let its manufacturing base shrivel and seems to be at war with its agricultural base and you can see the problem. Economies based in providing services tied to the financial system are facing a cliff now.

For the United States, this could not come at a worse time. Debt is already at staggering levels and is accelerating. The productive and innovative portion of the population is aging, while the unproductive portion is exploding. Add in decades of infrastructure neglect, the demographic and cultural catastrophes, and now is not a good time for a decline in the dollar. America is an empire that debased its currency via the perfidious subversion of its own rules.

Contrary to some claims, the dollar is not about to collapse, but what Kazan signals is the steady decline in the dollar. As the rest of the world begins to trade outside the dollar, it means dollars and instruments denominated in dollars, like debt, will lose value on the global market. This means the American banking system must slow the creation of dollars to prevent inflation. This means the cost of borrowing dollars must go up and stay up in anticipation of declining dollar demand

The steady decline of the dollar means a steady decline in the American standard of living, baring a revolution in Washington. Being the world’s mint and banker only works if the world accepts what you are minting. A rentier economy reliant on skimming from every transaction is only possible if you control the currency. The parasitism that has become a feature of our economy is going to become more obvious. That will bring political consequences as well.

The Port Strike

Posted on October 1, 2024 by thezman

The International Longshoremen’s Association went on strike as of midnight in the first major port strike in the United States in decades. Twenty years ago, dock workers on the West Coast struck for eleven days. The ILA has not gone on a strike since 1977, so this is a historic event for that reason alone. If the strike lasts more than a few weeks, then it will be much more than a historical event. About half of the cargo that goes in and out of the country flows through the affected ports.

The bankers estimate that the strike will cost the economy five billion per day, but that is a number plucked from the air. What we learned from the Covid fiasco is that American supply chains are extremely fragile, so any interruption will have unpredictable long-term consequences to the economy. This is also when consumer goods for the Christmas season begin flowing into the country, so delays will result in shortages which will disrupt the biggest retail period of the year.

One of the first things that will happen is conservatives will be told by conservative media to blame the dock workers. The reason for this is conservatives are idiots who do what they are told by the people they claim to oppose. The regime would like to turn this into a problem for Trump if possible, so they are busy filling the teleprompters of Fox News with squirrely rants about the greedy union guys. The vegetables that consume that slop will then regurgitate it on social media.

The fact of the matter is there are no good guys or bad guys when it comes to the strike itself, but the port system is an indictment of the economy. There is no reason for one company to control ports up and down the coast. Ports should be controlled by the states and encouraged to compete with one another for cargo. This makes for better port operations and eliminates the prospect of a crippling port strike. It also encourages modernization and efficiency at the ports.

The reason this is not the case is our ports are primarily skimming operations, rather than a part of a manufacturing and export base. What America primarily exports does not require seagoing vessels. Transgenderism, homosexual pride parades and cultural subversion are shipped around the world on the back of the dollar. What comes back are container ships full of consumer goods. A collection of people then skim a little from each container that reaches an American port.

This gets to why the dock workers are striking. They want protection from automation that will eliminate jobs. This will strike most people as nuts as they have been conditioned to think automation is a good thing, because that is what the television has told them, but in reality, most automation is about socializing the costs of business and privatizing the profits. Automating the ports will not result in lower consumer prices, but it will make the port operators richer.

If the point of the American economy were to make things and then sell them around the world, the ports could never be allowed to function as they do today because it would interfere with selling things around the world. That is not the point of the American economy, so the main function of ports is to skim from imports. This is why one main operator controls the East Coast ports. Consolidation makes it easier to institutionalize the skim.

None of this is to suggest that the dock workers are victims. Senior members of the ILA make four and five times what the typical American earns. Most of the guys on strike make six figures plus very generous benefit programs. The reason it is impossible to get a job at the ports is they control the labor force, which means they only allow friends and family to get jobs when they come open. The docks are pretty much a government created medieval guild system.

That is the other thing about the ports. The labor situation is a creation of the federal government over the last half century. In the middle of the last century, the mafia got control of the union pensions and immediately looted them. This brought in the feds who eventually restructured the union, so it was free of gangsters in track suits, but was filled with gangsters from the government. Both sides of the current contract dispute are the result of decades of government management.

Of course, there is a political angle to this. The Biden admin has done nothing to prevent the strike, which is interesting as they moved heaven and earth to head off the rail strike last year. That was when Biden thought he was going to be allowed to run for a second term. Now that he is drifting off into retirement, no one in the admin can be bothered to work on anything other than Ukraine and Israel. Kamala will be left to deal with the politics of a port strike.

This is where things get interesting. Pennsylvania and Michigan are union states, so the white remnant will be watching this strike. These are people who have always voted Democrat for economic reasons but detest the other stuff from the party. They like Trump, but wisely distrust Republicans. There is an opening for Trump the deal maker to take the union side without pandering. Harris, on the other hand, does not have any good options on this one.

In a way, the ports are a good model for our ruling class. Everyone involved in the ports is doing well, better than they should expect, but everyone involved in the ports is sure the system is screwing him. That is because the ports exist in isolation from the rest of the economy. It is a world unto itself that only interfaces with the rest of society, rather than operate within the economy. It is how high-earning people on both sides of this strike can think they are the little guy.

Another reason for this is the bottleneck mentality. Ports are a bottleneck and everything that passes through is taxed. In this way, the ports are just like our banking system or the information system. That means the real competition is over how much you get to tax what passes through the bottleneck. To the people inside a bottleneck system, it always feels like it is a zero-sum game, and their slice of the overall pie is never the biggest slice of that pie.

In the end, the union will get what they want as there is no real reason to not give them what they want. Their cost just gets tacked onto the cost of goods that flow through the port to your local Walmart of Amazon distribution center. Just like those Walmart’s and Amazons, the cost of the ports are socialized. With no fear of competition, there is no concern for the profit margin. You get to pay more for stuff, so the dock worker and his manager get to go boat shopping this spring.

The Beginning Of The End

Posted on August 5, 2024 by thezman

Note: Behind the green door on the great stone of truth I have a post about the difference between work and exercise, a post about the alienness of the Democratic ticket and the Sunday podcast. Subscribe here or here.

The Nikkei 225 opened the week by plunging 12%, its worst day since the infamous Black Monday in 1987. European markets followed, but due to their controls on the markets ever going too far down, they declined just over two percent. The American markets are expected to open down as well. As with Europe, there are controls in place to prevent the markets from sliding too far too fast. This is determined by the Plunge Protection Team who protect the bankers.

All of this got going last week when markets began to decline and then it was revealed that the world’s most bullish investor, Warren Buffet, was dumping stocks at an unprecedented rate over the last quarter. Berkshire Hathaway dumped 58% of its Apple stock, which has been viewed as a signal that Buffett thinks the American economy is headed for a recession. In lean times, the companies hardest hit are those who make frivolous items like high end mobile devices.

Even setting aside the economic issues, the market was long overdue for a correction, and they often happen around elections. When Trump left office the Dow Jones Industrial Average was around 31,000. It peaked this year at around 40,000, which is roughly a thirty percent climb in three years. If one wants an example of irrational exuberance, there is a perfect example. The American stock market is a speculative bubble that was due to burst.

The speculation mainly rested on the assumption that the Federal Reserve would once again start handing out free money to its friends. The inflation reports had been manipulated to the point where the only people still worried about prices are the people buying things. The jobs reports and GDP numbers have similarly been set to look as if the economy could use a jolt of free money. The trouble is Jerome Powell is not in a rate cutting mood and has made this clear.

The other assumption has been that the American economy is fundamentally sound and all the bad stuff since Covid has been resolved. That has turned out to be wrong, as new bad stuff has emerged since Covid. The new Cold War launched against China and Russia is accelerating changes in the global economy, which is already putting downward pressure on Western economies. It seems that investors are now starting to understand that we are on the cusp of a new world order.

Of course, equities markets are supposed to reflect the general investor sentiment about the underlying economy. You buy a stock because you think the company will be better tomorrow than today. You sell the stock for the opposite reason. The markets are supposed to be about the future of the underlying economy, but that has not been true for close to forty years now. Instead, it has been about where to put all the extra cash the central bank creates in its role as global banker.

What happened to the American stock markets over the last half century is they went from being a place to bet on the economy and individual companies to a place to bet on the Global American Empire being the sole superpower. As long as the dollar remained the global currency and Washington controlled the rules of the global economy, there was only one bet to make. Everyone did the rational think and bet on this not changing, so over time the line went up at a steady pace.

The last two years have revealed this to be old thinking. The sanctions war against Russia has been a disaster for the empire. The Russian economy has outpaced Western economies during this time. Similarly, BRICS, which was just a worthless acronym, has now become a legitimate alternative to the Western model. Their alternative to SWIFT, the default banking transaction system, is slowly emerging as a viable and perhaps superior option for the rest of the world.

The main reason for this is the chaos at the top of the imperial order. While the endless political drama out of Washington entertains the people of the West, to those outside it looks like chaos and instability. The world’s largest economies have no idea who is in charge of imperial policy, as Joe Biden is clearly a vegetable. Further, Washington is not on speaking terms with the two most important countries at the moment. They have Russia and Iran on mute.

What we may be about to see is the canary in the coal mine fall off his perch, thus signaling the great reordering. Western economies evolved over the last half century on the assumption that Washington would control the global money supply. Over the last thirty years the assumption has been that the days of national economies were over, as all economies would be integrated. The rules based global economy using the dollar would be run from the imperial capital.

That is not going to be the future. This presents a massive problem for the West, as industrial policy, economic policy, government policy and demographic policy has all been based on the assumption that the Western managerial elite would sit atop this global system like Mustapha Mond, the world controller in Aldous Huxley’s novel Brave New World. Of course, that is the reason the dream is unraveling, as Mustapha Mond was both corrupt and cynical.

As is usually the case, the great transition will take time. It took forty years for the West to evolve down this cul-de-sac. It will take time for the world to adapt to the decline of the West and for the West to regain itself. The collapse of the Soviet system was followed by two decades of disorder. The difference is the West has further to fall, as the Russians were already poor. Americans are about to get poor because they no longer deserve to be otherwise.

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The Chevron Case

Posted on July 3, 2024 by thezman

Imagine if when the Supreme Court decided Brown v. Board of Education of Topeka, they drew a sharp line between public and private discrimination. Maybe in Katzenbach v. McClung they drew a bright line around the Commerce Clause and ruled that as long as you were not conducting business across state lines, the Civil Rights Act of 1964 did not apply to your business. In other words, what if the court said that the principles of discrimination and inclusion apply only to the government?

The answer is we would have a vastly different world. Just consider the Katzenbach case in which the court claimed that the restaurant in question was not doing business across state lines, but it was possible that it could one day buy product from a vendor in another state, so the Commerce Clause applied. If the court had ruled rationally, we would now have a world where private discrimination was still legal, just as long as you did it locally, not nationally.

Of course, if the court had drawn the line between private discrimination and public discrimination, most of our race troubles never would have manifested, because normal life would not contradict official morality. A colorblind state is well within the spirit and sensibility of the American people. The liberty to associate or disassociate with whom you choose, for any reason you choose, is also consistent with the history and sensibilities of the people.

That is not what happened, and we have suffered a half century of demographic collapse as a result of the court imposing a new moral framework. It is a good example of how even small changes in the law can lead to a revolution in how people interact with each other and the government. We may be seeing another revolution brewing with the most recent court rulings in Loper Bright Enterprises v. Raimondo and Corner Post, Inc. v. Board of Governors.

The Loper decision ends what has been called the “Chevron deference” which is the longstanding principle where the courts defer to federal agencies with regards to regulations, interpretation of regulations and enforcement of regulations. Put simply, if a business or industry did not like a federal regulation, they had to convince the regulators to change it or get help from Congress. The courts would defer to the alleged experts in the administrative state.

What the Supreme Court has done in these two cases is continue to dismantle the logic that animated the Chevron deference and much of administrative law. They are going about it in two ways. One is the Court is saying that these agencies only have powers explicitly granted to them by Congress. Second, companies and industries can now go into the courts for redress. They can challenge the expertise of the regulators and the process used by the agencies to make policy.

This may sound arcane and boring, but keep in mind that most of the federal rules that directly impact your life are not passed by Congress. In fact, no one in Congress can tell you how most of the rules come into existence. The reason for that is the federal agencies craft the rules that regulate every nook and cranny of life. Until now, they did so without having to answer to anyone. Technically, Congress oversees these agencies, but Congress is full of simpletons.

What the Court seems to imagine is a new paradigm. If the Gaia worshippers, for example, want to ban gas stoves, they will need to get enough votes in Congress for a ban on gas stoves. Currently, they just have to cajole or bribe people in the administrative state and convince industry that they can profit from the new shenanigans in order to ban your gas stove. You, the citizen, have nowhere to turn to get your gas stove back.

There are now over 200,000 pages in the Code of Federal Regulations and few people have the slightest idea what they mean. This is why large companies have lawyers who interface with the agencies overseeing their industry. It is why small and midsized companies have trade groups. It is why there is a large army of lawyers whose specialty is administrative law. This is because the leviathan, which is the administrative state, has tentacles reaching into your most private matters.

What made this all possible was the habit of Congress, going back to FDR, to grant agencies in the executive branch broad powers to make laws, interpret those laws and enforce those laws. The way they did this is to give an agency a mission and then a budget to set off on that mission, which was used to lobby Congress for more money to expand the scope of the mission and underwrite various schemes that allegedly were in pursuit of their mission.

The direction of the Court is to ignore the vague powers granted by Congress and focus only on the specific powers granted by Congress. If Congress passes the Puppies and Rainbows bill that authorizes the Department of Education to do what they can to promote puppies and rainbows, the Court will not intervene. Once the DoE makes a rule requiring puppies and rainbows in the schools, then a school system can go to court arguing that the DoE was never granted this power.

There is a long road to go and many more court cases to define this new paradigm, but the end of that road is an administrative state that is limited by the specific powers granted to it and one that must defend its rules in court when challenged. For the same reason our coins have ridges, bills coming out of Congress will have to come with specifics, rather than pages of esoteric language designed to give the administrative state unlimited power to craft new rules.

In the short term, it means that every comma in those 200,000 pages of Federal regulations is now open to challenge in the courts. Inevitably, some popular rules will be struck down and that means Congress will be forced to pass actual laws reestablishing those popular rules. On the other hand, it also means there is a chance to get rid of odious rules that serve narrow interests. Getting a light bulb ban through Congress, for example, never would have happened.

It is not all puppies and rainbows. Rich people have been bribing Congress for generations and America presently has the worst class of rich people since the French Revolution, so it means lots of terrible laws from Congress. The difference is that this stuff will be out in the open where now it is in the shadows, allowing both Congress and its wealthy owners to play dumb and pretend to be something other than odious carbuncles strip-mining the middle-class.

Civil rights looked like a small change in private behavior in pursuit of a greater good, but it led to the demographic madness of the present. These rulings in pursuit of reducing the managerial state to mere bureaucracy may not look like much, but they threaten the moral authority of managerialism. Rule by experts no longer make sense when experts can be challenged. This may one day give people room to salvage whatever is left of the American experiment.

Death In Dollars

Posted on June 12, 2024 by thezman

Without much fanfare and no coverage in Western media, one of the most important agreements of the 20th century was allowed to expire last week. That agreement is the deal made between the United States and Saudi Arabia in 1974 that established what has been known ever since as the petro-dollar. Saudi Arabia would price its oil exports exclusively in U.S. dollars and invest its surplus oil revenues in U.S. Treasury bonds while the U.S. provided military protection to the kingdom.

The importance of this deal cannot be overstated. The demand for dollars has kept the currency strong and thus kept imports cheap. It also allowed the Federal Reserve to “export excess dollars” to developing countries with a need for dollars. The institutional demand for treasuries as a result of this agreement allowed for the low interest rate environment we have seen for decades. This has made it possible for the United States to build up massive debts both publicly and privately.

Another way to think about this deal is by pricing energy in dollars, the dollar became the default global currency because the dollar was a proxy for energy units. This made the Saudis the head of the mint and the Federal Reserve the global bank. The Saudis could control the flow of energy units around the world, a very profitable position, and the United States could skim from every transaction denominated in dollars, which was every transaction across national borders.

The reason for the lack of coverage of this historic event is two-fold. One is the mass media is now populated by zombies with no agency of their own, so until the regime hands them copy, they have nothing to say. The other is the financial world has no idea where this is going. Five years ago, no one imagined this deal would be allowed to expire, but years of mismanagement by the Biden administration has made a hash of things all over the world.

There is speculation that the Saudis are simply bargaining hard knowing that the Biden admin is desperate. Anthony Blinken is supposedly prepared to offer the Saudis a generous nuclear package, in addition to more military support, in order to continue the relationship, but of course it comes with a catch. The Saudis will have to normalize relations with Israel, something they are loath to do. There is no upside to them making a deal with a regime that routinely slaughters Arabs.

Now, the expiry of this deal does not mean much at the present. Half a century of pricing everything important in dollars will not be unraveled quickly. Tens of trillions in assets are priced in dollars, so the dollar remains the default currency, but it does open the door to alternatives. The Saudis will now accept other currencies for their energy products, which means OPEC will follow their lead. China can now buy oil in yuan, rather than swap yuan for dollars.

In the short-term this will not change much of anything, but over time it will result in a decrease in the demand for dollars. For example, if you trade with China for manufactured goods, it makes sense to trade in the yuan for energy products as it simplifies trade with China. The same is true for the Russian ruble, the Indian rupee, and the Brazilian real. Of course, it also means bypassing the American controlled banking system for settling these transactions.

The next shoe to drop in this process is a settlement system that operates outside the control of Washington. Project mBridge is a scheme for creating a digital currency to facilitate cross border transactions. The Saudis have recently joined this project, which is mainly supported by China. The Russians have recently shown interest in the project, despite years of resistance. The trade war launched by Washington has changed opinion in Moscow about dealing with the West.

That is another aspect to this. The Russian economy not only absorbed the sanctions blow, but it has also grown faster than the Western economies. Russia now has the fourth largest economy in the world. Sanctions forced the Russians to do thigs like replace the retail credit card system with their own system. They cleaned up their banking system to root out fraud and corruption. It was an inadvertent test case for creating financial systems outside of Western control.

Again, none of this signal the collapse of the dollar. The people screaming such things have no idea how the world actually works. What we are seeing is the slow decline of the American financial order. The countries that make things, fix things, dig things from the ground and invent things are starting to see that they do not need the countries that merely count things. This is especially true when the people doing the counting have a history of stealing from their customers.

What comes next is the slow decline in the demand for dollars and euros, which will make inflation a feature of Western economies. It will also mean the slow rise in borrowing rates in the West. If the rest of the world needs fewer dollars and euros it means they need fewer bonds denominated in dollars and euros. That leaves Western governments with the choice of cutting spending or printing money, which is the same thing but only less honest.

None of this was inevitable. After the Cold War, the United States could have remained the world’s banker and honest broker. Instead, the economic elites of America allowed the world’s most dishonest people to gain control of foreign policy. They used that power to launch a decades long crusade against their ancient enemies and in the process, they squandered the good name of the American people and destroyed global trust in the United States. Decline is now what must follow.

Blood Sucker Economy

Posted on May 21, 2024 by thezman

Last week brought news that the iconic restaurant chain Red Lobster has filed for bankruptcy protection and has started closing locations. The chain is mostly known for being a cheap night out for people in the suburbs and businessmen stuck near a suburban business park. The people hired to write about business for regime media, people who know nothing about business, have rolled with the usual lines about how casual dining was devastated by the pandemic.

The joke online is that Red Lobster’s all you can eat shrimp deal cost them millions because diversity would sit there for hours eating shrimp. The restaurant admits it was a disaster for them, but the real reason the chain has failed is that it was taken over by gangsters who made it into a bust-out. The gangsters in this case are private equity investors who bought up the chain. This bankruptcy is part of fleecing the dumb money that still remains trapped in the enterprise.

The way these scams work is the private investors swoop in and buy a property that is asset rich but cash poor. That is, they have things of value, but those things are not generating enough revenue to meet expenses. Sometimes the enterprise is profitable but needs cash to expand or maybe reorganize itself to shed poorly performing assets and expand into more profitable areas. Private equity comes in with attractive terms and an army of experts to reshape the enterprise.

In reality, they usually sell the assets in deals that have the buyer lease back the asset to the company in order to raise quick cash. Other times the asset is pledged as collateral in a similar sort of debt arrangement. The result is the enterprise quickly raises cash to pay the investors with a healthy profit but is left stripped of its assets and often holding a lot of debt. This is what happened here. The new investors sold the real estate in lease-back deals that are now expiring.

It is a good example of how so much of our economic output is just moving money around in circles. It is the old joke about a stranger coming into a little town to rent a room for the night. Nothing of value has been created by investors buying up this restaurant chain. It simply became a vehicle for them to lure in new money to pay them a profit for their investment, while all along knowing that the end result would be these new investors getting a haircut in bankruptcy proceedings.

The argument in favor of this sort of dealing is that all of the parties involved are sophisticated enough to know the risks. The real estate investors that bought the properties and then leased them back knew the risks or at least they should have known the risks, as it is their business to know the risks. This is all true, but it obscures the fact that this is not genuine economic activity. This is not how an economy should function, but it is the core of the American economy now.

This is not without consequences. Travelers now have to check out the type of plane they could be boarding, because Boeing planes are falling apart. As with Red Lobster, the blame is placed on diversity, which is not entirely without merit, but the real culprit is the vulture capitalism that has come to define elite economics. Boeing is no longer in the business of building better airplanes. It is in the business of creating financial transactions for the benefit of the investor class.

What we see with Boeing has been happening with the military industrial complex for the last three decades. They are no longer in the business of building practical weapons that can be used by the American military. Instead, they are in the business of creating complex transactions for the benefit of insiders and investors. One result is an F-35 fleet that looks great parked at an air field, but it is too dangerous to fly. Meanwhile, Russia and China make weapons for war, not investor profit.

A root of this growing problem in the American economy is the notion that anything that can be shown to turn a profit is normatively good. The usual suspects are going to ruin the town of Harpers Ferry with a development project that will make them money, but come at the expense of the residents. They can do this because they went to the state and showed it will turn a profit, so everyone fell in line. No doubt promises of insider access to those profits were included in the pitch.

The reason profit is a good thing in an economy is it is supposed to spur innovation that results in new products and greater efficiency. Profit is a means to an end, not an end in itself from a macroeconomic perspective. When profit or the quest for profit results in planes falling from the sky or communities being harvested for their social capital, then profit or the quest for profit is bad for society. It is why we used to hunt down and punish corruption and fraud. Note we no longer do that.

An economy is about making things, fixing things, and inventing things, which is no longer the way to get rich in America. Instead, as Peter Theil explained in his book, the path to wealth is finding a way to game the system. You find a flim-flam like the Red Lobster scam or you game government to let you make electric cars that no one needs or wants. The blood sucker economy is not about making things, fixing things, and inventing things. It is about robbing the people who do those things.

The Politics Of Failure

Posted on May 1, 2024 by thezman

One of the eternal truths of human society is that the people with real power are those with control of the economics of society. Whether the society is ruled by a king or a committee of girl bosses, the people who have the final say on all matters are those who control the wealth of society. The golden rule of human organization is “the man with the gold makes the rules.” Without much fanfare, we may have seen this rule work its magic in the big neocon funding bill.

The first thing to note about the money for Project Ukraine is most of the money will never turn up in Ukraine, at least not in the form of weapons. If you read the text of the bill most of the money is for slush funds the White House can use to replenish weapons taken off the shelf and sent to Ukraine over the last year. It appears the White House has been shipping weapons to Ukraine that were not paid for by Congress, so this created a debt to the Pentagon budget that is now repaid.

The number of actual weapons going to Ukraine as a result of this bill is a fraction of the sixty billion allocated. Ukraine needs advanced air defense systems, artillery tubes and artillery shells, but none of this is coming from Washington. The main reason for this is none of these things exist, at least not in surplus quantities. You cannot send what does not exist, even with billions to spend. Instead, Ukraine is getting what is available which is wheeled vehicles and surplus arms.

It is not all that clear that supplying Ukraine with what they need would make much of a difference, as Ukraine has another problem. The Ukraine army is running out of men and there is no money solution to this problem. It takes time to draft and train men to fight this sort of war. According to Ukraine sources, they need two hundred thousand men right now to be made whole. That deficit grows bigger by about a thousand men a day and there is no way to solve this problem.

The reality on the battlefield raises an important question. If there is no money solution to the problems facing Ukraine on the battlefield, then why spend sixty billion on this project when it must inevitably fail? That money could be used to other foreign policy adventures like the planned war with China over Taiwan. Of course, they could spend the money on Israel. There is always an appetite for that in Washington. Instead, they chose to shovel sixty billion into the Ukraine furnace.

The first clue is all the money allocated to the Pentagon for various undefined things supposedly related to Ukraine. It is clear the administration sent far more to Project Ukraine than Congress authorized. What most likely happened is something like the old arms-for-hostages game played in the Reagan years. Military contractors sent men and material to Ukraine on the promise they would be made whole with interest at some point in the future. The future arrived in that bill.

The other clue is the money being sent to Ukraine for economic support. It is so tangled up in the language of government that it would take years for an outsider to figure out what any of it means. This is how Washington launders trillions of dollars through and for friends of Washington. Billions will go into obscure programs administered by the administrative state and then those funds will end up in grants to NGO’s or contracts to vendors with obscure business models.

Of course, some will go to the Ukraine government, but with very specific instructions on how it is to be spent. There are many friends of Washington that have unpaid bills for services rendered to Ukraine. The vendors must be paid in dollars, not the worthless currency of Ukraine. Some of this money will be directed through Kiev to those friends of Washington. It would be a total coincidence if those vendors just happened to employ friends and family of important people in Congress.

Most likely this was the main reason for the sense of urgency. Over the last two years big players have been making deals with Ukraine for economic development, on the assurance that Ukraine would win the war. BlackRock, for example, made a number of deals with Kiev. BlackRock and JP Morgan have created a bank for rebuilding Ukraine, by which they mean looting Ukraine. Large global operators have been cutting deals with Ukraine since the start of the war.

What this means is heavy weight players have been given exclusive access to Ukraine in exchange for economic assistance now. Much like how the Pentagon “borrowed” from military contractors, the regime has been promising the usual suspects first rights to loot Ukraine after the war, in exchange for “investments” now. This is all done informally, but no one is hiding it. War has always been good for business, especially the banking business.

In other words, another purpose of this bill was to repay economic elites who had been talked into going along with the project. Keep in mind that players like BlackRock and JP Morgan have money in Russia as well. Now that it is clear that Ukraine will lose the war, they need to think about how the world looks after Project Ukraine. As you always see with a failing enterprise, the insiders are getting their money out before it becomes obvious to everyone that the enterprise is doomed.

This is all speculation based on the available data, but the facts on the ground are making it clear to everyone that Ukraine is finished. The text of this spending bill and the announced weapons transfers that are part of it all point to a rush for the exits rather than a new commitment to the project. The smart money just jumped out the window, carrying your tax dollars with them. That means the next phase is finding someone in Washington to blame for the failure of the enterprise.

Taxes & Conservatism

Posted on April 15, 2024 by thezman

Note #1: Behind the green door is a post about the classic comedy, Dr, Strangelove, in which I reveal that I am a humorless dullard, a post about how O. J. Simpson was framed by the Clintons and the Sunday podcast. Subscribe here or here.

Today is Tax Day in America, a day when millions of Americans drop tear-soaked checks into the mail, along with their many tax forms. Of course, for most Americans it is now just another day. Their taxes are simple, and their tax is paid by their employer throughout the year. The resulting decline of Tax Day and the tax issue is a good entry point for examining how our politics have changed over the last decade and a good place to start when thinking about the death of conservatism.

Half a century ago, the run-up to Tax Day was a big party for the people we call conservatives, as it gave them an excuse to go out into the streets, banging their pots and pans about the unfairness of the tax code. Taxes were not only too high, but they were also far too complicated. Rarely said, but often implied, was the claim that a complex tax code allowed special interests to game the system and avoid taxes or bribe their favorite politicians to get special tax breaks.

You never hear this sort of talk now. Taxes were the bread-and-butter issue of so-called conservatives since Barry Goldwater, but no more. One reason for that is tax simplification was passed under Trump. For most Americans taxes are a few clicks on the computer and that is it. Business owners, rich people and the self-employed still have to go through the game of guessing what the IRS says they owe, but the typical suburban peasant is now free of this burden.

Interestingly, a central theme of so-called conservatives in the 1970’s and 1980’s regarding taxes was that if people knew how much they really paid in taxes they would revolt against the welfare state. There were schemes back then to make taxes a quarterly affair, so everyone was always be aware of their tax burden. Instead, they went the other way and made taxes simpler, so that their voters no longer cared about the main issue for the so-called conservatives.

Of course, the main reason so-called conservatives have forgotten about the tax issue is they have done with it what they have done with so many other issues and that is embraced the position of the people they oppose. The fiscal conservative is like a guy wearing a denim leisure suit in Washington. It is so rare to hear anyone talk about the nation’s finances that when it happens it brings back memories of those halcyon days when the Gipper was shaking his fist at the Soviets.

This raises another truth about so-called conservatism. They were sure that if you starved the system of taxes, it would have to cut spending. Despite history saying otherwise, they were certain of it. Instead, they habituated their minds to ever growing deficits and an incomprehensible national debt. Per capita debt is about five times higher than under Reagan and about four times higher as a percentage of the GDP, so it is safe to say they were all wrong about this one.

There is a demographic aspect to this as well. When the baby boomers were in their prime working years, it was good politics to promise them lower taxes and greater returns from their investments. Now that they are retiring in droves, the tax ploy no longer works, so no one discusses it. Instead, it is good politics to create more money from thin air to pay for the entitlement programs. Like everything else about conservatism, taxes were nothing but a good marketing ploy.

This raises another tax-related issue. Tax collections are at record highs, but the deficit is also at all-time highs. The federal deficit in 2023 was $1.7 trillion. The rosiest of rosy scenarios says that federal budget deficits be $20 trillion over the next decade and federal debt held by the public will reach 116 percent of GDP. Given that these projections always turn out wrong, it is not hard to see why no one in Washington is talking about taxes or the state of the budget.

This is why so-called conservatism is headed to the dustbin of history. It was never really a conservative political movement, but more of a money laundering scheme masquerading as a political movement. The response to progressives promising to rob your neighbor and let you have a piece was so-called conservatives promising to rob the progressive and let you have a piece. Taken together we got a half century of systemic looting of their American economy.

For the last half century, the white middle-class has been the kid getting bullied at school for his lunch money. Progressives, representing the financial elites, threatened to shove the suburban peasant into a locker. So-called conservatives kept upping the lunch money they had to pay to avoid the wedgie. Now those suburban peasants are too old for school, so those financial elites are looking to prey on their children and grandchildren to keep the plates spinning.

Another legacy of the so-called conservatives with regards to tax policy is the sacralization of rich people. Part of their sales pitch for tax changes was the claim that our noble rich people were paying more than their fair share in taxes. This was always nonsense, but it convinced most white people that it is immoral to question the motives and behavior of the rich. One result is a perfidious and destructive ruling class that seems hellbent on pulling the roof down on all of us.

In the end, the disappearance of the tax issue from public debate is a good reminder that we are at the end of a long cycle. That means we are about to start on a new political cycle, so the past framing of things is of no use to us. The old ideas and arguments from the last century, things like tax fairness, need to be sent to the dustbin of history along with the people who championed them. In some future Tax Day, no one will have a reason to think of so-called conservatism.

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Bridge Thoughts

Posted on March 26, 2024 by thezman

In the 18th century, planners did not have to worry too much about ships smashing into bridges because ships were small and made of wood, while bridges and seaports were massive and made of stone. If a captain made an error and hit a bridge support, his ship would be damaged, but the bridge would be fine. The worst case is it would take a few days to clear the debris of the ship from the waterway. In other words, the seaways were somewhat error resistant.

The news of the Francis Scott Key bridge collapse is an obvious example of how this is no longer the case in the modern world. That ship is massive, relative to anything that existed a century ago, much less the 18th century. The bridge, in contrast, was a slim wisp of thing compared to bridges in the past. When it was completed half a century ago it was the third longest truss bridge in the world. Now, of course, it is a pile of scrap iron after having been knocked off its moorings.

People will naturally rush forward with their favorite pet theory about how this could have happened. None of these claims are about the accident or why it happened, but rather a way to use the event to promote their favorite theory. Steve Sailer has decided to avoid the usual answers and instead go with an insane theory about bombs being squirrelled away on the ship. No doubt the usual suspects are working on a plot where Putin is responsible for the accident.

For those who know how ports operate, especially an inland port like the Port of Baltimore, the most likely answer is more mundane. These ships are piloted by a harbor pilot in and out of the upper bay. These are men who know every inch of the waterway and rely on a large support staff to pilot the vessel. That means the cause is a failure of that system, most likely the ships navigation systems. It lost power and the crew was unable to restore power before hitting the bridge.

Putting that aside, the port is the ninth largest seaport in the country and has certain specialties like the import of cars, which cannot be easily replaced. Until the bridge debris is cleared from the waterway and the waterway is inspected, the port will remain closed, which will create supply chain problems throughout the year. Of course, the bridge is a vital part of the local ground transportation system. Baltimore is surrounded by a beltway system and this bridge was a key part of it.

Replacing the bridge has been debated over the last ten years, but the will to do it has never been enough to overcome the sclerosis that plagues state politics. A project that will not be done until most of the people voting on it are dead or retired is never going to get a lot of support in the modern age. The things that get pols trending on social media is what gets the support, even if the reason to be trending on social media is the ghetto has just lost track of one of its simpletons.

Now they will have no choice but to replace the bridge, but that will take years to debate and then years to get approval and then more years to build. The people who make the economy work will figure out ways around this new obstacle in the meantime, so there will be no sense of urgency to address the bridge problem. In fact, it is entirely possible that the bridge is never replaced. A generation from now people will look at the remaining pillars the way people look at old Roman aqueducts.

If you want to contextualize this accident into something bigger, the best approach is from the angle of complexity. Like everything else in the American economy, our ports have become extremely complex systems with many points of failure. There are millions of people with the word “logistics” in their job title who make sure that some point of failure does not fail in the complex system of moving goods in and out of the country and around the country to your store.

One reason for that is the berserk quest for efficiency. Every manager in the system dreams the dream of that box of Cheerios arriving on the shelf just at the moment you decide to reach for it. Everything in the economy is now geared to reduce the shelf time, warehouse time and transport time of every item. Every bit of extra is cut from the system to maximize profit, but the result is often fragile systems that work well when there are no problems but fail miserably in a crisis.

The complexity problem is turning up in the Ukraine war. Russia, with its massive industrial base and redundant systems, now outproduces the West in terms of military supplies at a fraction of the cost. Western countries with massive GDP’s are faced with impossibly complex economies that cannot be quickly modified to address the need to make even simple things like artillery shells. Like the now collapsed bridge, solving this problem will probably never happen.

That is the other angle to this accident. That bridge was built in 1976 and was out of capacity twenty-five years ago. A second span should have been started at the turn of the century with a third span or another bridge up stream in the works, but these sorts of projects are not popular with modern politicians. Half a century ago, the political class was not obsessed with media attention, so they could think longer term about projects that would benefit those who followed them.

It is popular to blame “democracy” for our present ills, but our political system has not changed in fifty years. If anything, we are less democratic today. What has changed is the explosion of media. We now live suspended in a media solution. As a result, even the lowest person measures himself by likes, follows and media exposure. This has warped the political class the most, turning them into ridiculous carny acts that do nothing but find ways to get attention in the mass media.

In the end, none of this matters. The bridge story will dominate the news for a few days this week, but then the media will be onto the next thing. By the end of the summer the port will be reopened, and the bridge will be forgotten. The bridge is a symptom of a much larger problem for which no one has any answers, at least not answers that get you trending on Twitter. Maybe the remains of the bridge will one day be a warning that a people that does invest in its future has no future.

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