August 2016


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The most definitive study on fascism written in these years was As We Go Marching by John T. Flynn. Flynn was a journalist and scholar of a liberal spirit who had written a number of best-selling books in the 1920s. It was the New Deal that changed him. His colleagues all followed FDR into fascism, while Flynn himself kept the old faith. That meant that he fought FDR every step of the way, and not only his domestic plans. Flynn was a leader of the America First movement that saw FDR’s drive to war as nothing but an extension of the New Deal, which it certainly was.

As We Go Marching came out in 1944, just at the tail end of the war, and right in the midst of wartime economic controls the world over. It is a wonder that it ever got past the censors. It is a full-scale study of fascist theory and practice, and Flynn saw precisely where fascism ends: in militarism and war as the fulfillment of the stimulus spending agenda. When you run out of everything else to spend money on, you can always depend on nationalist fervor to back more military spending.

Flynn, like other members of the Old Right, was disgusted by the irony that what he saw, almost everyone else chose to ignore. After reviewing this long history, Flynn proceeds to sum up with a list of eight points he considers to be the main marks of the fascist state.

As I present them, I will also offer comments on the modern American central state.

Point 1. The government is totalitarian because it acknowledges no restraint on its powers.

If you become directly ensnared in the state’s web, you will quickly discover that there are indeed no limits to what the state can do. This can happen boarding a flight, driving around in your hometown, or having your business run afoul of some government agency. In the end, you must obey or be caged like an animal or killed. In this way, no matter how much you may believe that you are free, all of us today are but one step away from Guantanamo.

No aspect of life is untouched by government intervention, and often it takes forms we do not readily see. All of healthcare is regulated, but so is every bit of our food, transportation, clothing, household products, and even private relationships. Mussolini himself put his principle this way: “All within the State, nothing outside the State, nothing against the State.” I submit to you that this is the prevailing ideology in the United States today. This nation, conceived in liberty, has been kidnapped by the fascist state.

Point 2. Government is a de facto dictatorship based on the leadership principle.

I wouldn’t say that we truly have a dictatorship of one man in this country, but we do have a form of dictatorship of one sector of government over the entire country. The executive branch has spread so dramatically over the last century that it has become a joke to speak of checks and balances.

The executive state is the state as we know it, all flowing from the White House down. The role of the courts is to enforce the will of the executive. The role of the legislature is to ratify the policy of the executive. This executive is not really about the person who seems to be in charge. The president is only the veneer, and the elections are only the tribal rituals we undergo to confer some legitimacy on the institution. In reality, the nation-state lives and thrives outside any “democratic mandate.” Here we find the power to regulate all aspects of life and the wicked power to create the money necessary to fund this executive rule.

Point 3. Government administers a capitalist system with an immense bureaucracy.

The reality of bureaucratic administration has been with us at least since the New Deal, which was modeled on the planning bureaucracy that lived in World War I. The planned economy— whether in Mussolini’s time or ours— requires bureaucracy. Bureaucracy is the heart, lungs, and veins of the planning state. And yet to regulate an economy as thoroughly as this one is today is to kill prosperity with a billion tiny cuts.

So where is our growth? Where is the peace dividend that was supposed to come after the end of the Cold War? Where are the fruits of the amazing gains in efficiency that technology has afforded? It has been eaten by the bureaucracy that manages our every move on this earth. The voracious and insatiable monster here is called the Federal Code that calls on thousands of agencies to exercise the police power to prevent us from living free lives.

It is as Bastiat said: the real cost of the state is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The state has looted us just as surely as a robber who enters our home at night and steals all that we love.

Point 4. Producers are organized into cartels in the way of syndicalism.

Syndicalist is not usually how we think of our current economic structure. But remember that syndicalism means economic control by the producers. Capitalism is different. It places by virtue of market structures all control in the hands of the consumers. The only question for syndicalists, then, is which producers are going to enjoy political privilege. It might be the workers, but it can also be the largest corporations.

In the case of the United States, in the last three years, we’ve seen giant banks, pharmaceutical firms, insurers, car companies, Wall Street banks and brokerage houses, and quasi-private mortgage companies enjoying vast privileges at our expense. They have all joined with the state in living a parasitical existence at our expense.

Point 5. Economic planning is based on the principle of autarky.

Autarky is the name given to the idea of economic self-sufficiency. Mostly this refers to the economic self determination of the nation-state. The nation-state must be geographically huge in order to support rapid economic growth for a large and growing population.

Look at the wars in Iraq, Afghanistan, and Libya. We would be supremely naive to believe that these wars were not motivated in part by the producer interests of the oil industry. It is true of the American empire generally, which supports dollar hegemony. It is the reason for the North American Union.

Point 6. Government sustains economic life through spending and borrowing.

This point requires no elaboration because it is no longer hidden. In the latest round, and with a prime-time speech, Obama mused about how is it that people are unemployed at a time when schools, bridges, and infrastructure need repairing. He ordered that supply and demand come together to match up needed work with jobs.

Hello? The schools, bridges, and infrastructure that Obama refers to are all built and maintained by the state. That’s why they are falling apart. And the reason that people don’t have jobs is because the state has made it too expensive to hire them. It’s not complicated. To sit around and dream of other scenarios is no different from wishing that water flowed uphill or that rocks would float in the air. It amounts to a denial of reality.

As for the rest of this speech, Obama promised yet another long list of spending projects. But no government in the history of the world has spent as much, borrowed as much, and created as much fake money as the United States, all thanks to the power of the Fed to create money at will. If the United States doesn’t qualify as a fascist state in this sense, no government ever has.

Point 7. Militarism is a mainstay of government spending.

Have you ever noticed that the military budget is never seriously discussed in policy debates? The United States spends more than most of the rest of the world combined. And yet to hear our leaders talk, the United States is just a tiny commercial republic that wants peace but is constantly under threat from the world. Where is the debate about this policy? Where is the discussion? It is not going on. It is just assumed by both parties that it is essential for the US way of life that the United States be the most deadly country on the planet, threatening everyone with nuclear extinction unless they obey.

Point 8. Military spending has imperialist aims.

We’ve had one war after another, wars waged by the United States against noncompliant countries, and the creation of even more client states and colonies. US military strength has led not to peace but the opposite. It has caused most people in the world to regard the United States as a threat, and it has led to unconscionable wars on many countries. Wars of aggression were defined at Nuremberg as crimes against humanity.

Obama was supposed to end this. He never promised to do so, but his supporters all believed that he would. Instead, he has done the opposite. He has increased troop levels, entrenched wars, and started new ones. In reality, he has presided over a warfare state just as vicious as any in history. The difference this time is that the Left is no longer criticizing the US role in the world. In that sense, Obama is the best thing ever to happen to the warmongers and the military-industrial complex.

The Future

I can think of no greater priority today than a serious and effective antifascist alliance. In many ways, one is already forming. It is not a formal alliance. It is made up of those who protest the Fed, those who refuse to go along with mainstream fascist politics, those who seek decentralization, those who demand lower taxes and free trade, those who seek the right to associate with anyone they want and buy and sell on terms of their own choosing, those who insist they can educate their children on their own, the investors and savers who make economic growth possible, those who do not want to be felt up at airports, and those who have become expatriates.

It is also made of the millions of independent entrepreneurs who are discovering that the number one threat to their ability to serve others through the commercial marketplace is the institution that claims to be our biggest benefactor: the government.

How many people fall into this category? It is more than we know. The movement is intellectual. It is political. It is cultural. It is technological. They come from all classes, races, countries, and professions. This is no longer a national movement. It is truly global.

And what does this movement want? Nothing more or less than sweet liberty. It does not ask that the liberty be granted or given. It only asks for the liberty that is promised by life itself and would otherwise exist were it not for the Leviathan state that robs us, badgers us, jails us, kills us.

This movement is not departing. We are daily surrounded by evidence that it is right and true. Every day, it is more and more obvious that the state contributes absolutely nothing to our wellbeing; it massively subtracts from it.

Back in the 1930s, and even up through the 1980s, the partisans of the state were overflowing with ideas. This is no longer true. Fascism has no new ideas, no big projects—and not even its partisans really believe it can accomplish what it sets out to do. The world created by the private sector is so much more useful and beautiful than anything the state has done that the fascists have themselves become demoralized and aware that their agenda has no real intellectual foundation.

It is ever more widely known that statism does not and cannot work. Statism is the great lie. Statism gives us the exact opposite of its promise. It promised security, prosperity, and peace; it has given us fear, poverty, war, and death. If we want a future, it is one that we have to build ourselves. The fascist state will not give it to us. On the contrary, it stands in the way.

In the end, this is the choice we face: the total state or total freedom. Which will we choose? If we choose the state, we will continue to sink further and further and eventually lose all that we treasure as a civilization. If we choose freedom, we can harness that remarkable power of human cooperation that will enable us to continue to make a better world.

In the fight against fascism, there is no reason to be despairing. We must continue to fight with every bit of confidence that the future belongs to us and not them.

Their world is falling apart. Ours is just being built.Their world is based on bankrupt ideologies. Ours is rooted in the truth about freedom and reality. Their world can only look back to the glory days. Ours looks forward to the future we are building for ourselves.

Their world is rooted in the corpse of the nation-state. Our world draws on the energies and creativity of all peoples in the world, united in the great and noble project of creating a prospering civilization through peaceful human cooperation. We possess the only weapon that is truly immortal: the right idea. It is this that will lead to victory.

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Both original posts from here

Currently in Civil Litigation we are currently undertaking a reconstruction of a real case that had at its heart, a claim for ‘misleading and deceptive’ conduct.

These two examples are quite illustrative of some of the legal tests applied to the alleged misleading or deceptive conduct, where the facts lend themselves more easily to a legal analysis.

The class action lawsuit in New York’s Supreme Court accuses the doughnut maker of false advertising, fraud, and unjust enrichment. It calls Dunkin’s jelly doughnuts “defective and deficient due to their skimpy, scanty, paltry, pitiful, meager and otherwise insufficient quantities of jelly within each said doughnut unit.”

In my follow-up post, I’d written how easy it is to “have it your way” and simply ask for less ice.

And now, as expected, the iced coffee lawsuit has been tossed out. (Decision – Forouzesh v. StarbucksFor the same reason that I wrote. And for that matter, the same reason that countless others no doubt had written. Even a child knows you can ask for less ice:

But as young children learn, they can increase the amount of beverage they receive if they order “no ice.” If children have figured out that including ice in a cold beverage decreases the amount of liquid they will receive, the Court has no difficulty concluding that a reasonable consumer would not be deceived into thinking that when they order an iced tea, that the drink they receive will include both ice and tea and that for a given size cup, some portion of the drink will be ice rather than whatever liquid beverage the consumer ordered.

This conclusion is supported by the fact that the cups Starbucks uses for its Cold Drinks, as shown in the Complaint, are clear, and therefore make it easy to see that the drink consists of a combination of liquid and ice.

As I (and countless others) had indicated, an iced drink contains ice as an obvious ingredient. The court (shocker!) concurs on the obviousness of it all:

When a reasonable consumer walks into a Starbucks and orders a Grande iced tea, that consumer knows the size of the cup that drink will be served in and that a portion of the drink will consist of ice.

Case dismissed.

The problem with bad suits is that they form public opinion based on anecdotes, not empirical evidence. Empirical evidence can be boring. But an idiotic suit — even if it is one in ten thousand — sells papers.

And

With the health of the two presidential candidates, aged 68 and 70,  in the news, it’s worth revisiting the statement given out by Donald Trump’s gastroenterologist, Dr.Harold Bornstein. You may remember this from last December for its comical and very Trumpian statement:

“If elected, Mr. Trump, I can state unequivocally, will be the healthiest individual ever elected to the presidency”  (Full letter)

Yeah, that Harold Bornstein. Dr. Jen Gunter did a full, line-by-line, deconstruction of the letter at the Huffington PostI’m A Doctor. Here’s What I Find Most Concerning About Trump’s Medical Letter.

Well, it turns out the letter was even worse than Dr. Gunter thought. And that is because of the signature block, where Dr. Bornstein signs his name with “F.A.C.G.”

Bornstein Signature block

That stands for Fellow of the American College of Gastroenterologists. In order to be a Fellow, one must be board certified and pay your dues to the organization. And being board certified is a very big thing for doctors, since it entails taking a grueling test to show that you have the knowledge to be an expert in your field.

The gastroenterology boards are a subspecialty of internal medicine.

But as Rachel Madow learned, after being tipped by one of her viewers, that membership in ACG actually lapsed in 1995 — 21 years ago. And according to the American College of Gastroenterologists, he shouldn’t be claiming he is a member of the organization if he is no longer a dues paying member of the organization.

Yet Dr. Bornstein continues to use those initials after his name.

Dr. Bornstein, incredibly, responded to Madow’s request for comment and said that:

F.A.C.G. is a title that they sell for a fee; in reality it has no value.

He then went on to explain to Madow that he would continue to use this title that “has no value.”

Now that I have given you the past, let me stand on the shoulders of Gunter and Madow to go further with some facts and opinion: What he is doing is fraud.

The website for the New York State Department of Health, gives examples of medical fraud:

Examples of Medical Fraud

  • False and intentionally misleading statements to patients.
  • Submitting false bills or claims for service.
  • Falsifying medical records or reports.
  • Lying about credentials or qualifications.
  • Unnecessary medical treatment or drug prescription.

You can see the one that I highlighted. I posted all of the ones listed so that you can see the significance of the infraction. Not significant to me as someone tossing around opinions, but to the Department of Health.

Is this something that the Department’s Office of Professional Medical Conduct (OPMC) should be investigating? Maybe.

I called Douglas M. Nadjari for an opinion, he being an attorney who represents physicians primarily involving matters of professional misconduct before the Office of Professional Medical Conduct and the Office of Professional Discipline.

While not discussing Bornstein/Trump in particular, since he doesn’t have knowledge of the facts, he said that investigation and charges of professional misconduct could theoretically be pursued regarding a physician with a false credential for:

  • False advertising; and
  • Practicing the profession fraudulently
  • Lack of moral fitness

If the doctor were indeed board certified, OPMC would not pursue discipline unless it received a complaint or if a patient was injured.  If one of those two things happened, he would likely be asked to consent to an interview and be asked to change his ways.

The kicker for me, though is that he apparently already knows what he is doing is wrong. And has refused to change it.

 

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“Money, as money, satisfies no want; it’s worth to any one, consists in its being a convenient shape in which to receive his incomings of all sorts.” – John Stuart Mill, Principles of Political Economy

Daily Telegraph columnist Jeremy Warner has concluded that the euro has “destroyed” Europe. It’s when journalists write about currencies that one wishes Adam Smith, David Ricardo and John Stuart Mill (to name three) were still around to relieve them of their confusion.
Currencies don’t “destroy” a country or continent simply because currencies quite simply are. They’re a measure. Nothing else. As Mill long ago put it, they materialized thanks to “the want of a common measure for values of different sorts.” I’ve got bread, but I want the vintner’s wine. The problem is that the vintner has no interest in my bread, though he lusts for the butcher’s meat. Money is the “common language” that allows those three producers of different goods to trade with one another despite wants that are the opposite of coincident. We produce so that we can get money, but in truth, we produce so that we can get all that we don’t have.

Thinking about so-called “money supply,” it’s logically abundant where there’s lots of production, and scarce where there’s very little economic activity. Money is the proverbial “ticket” that can be exchanged for everything else, so it makes sense that tickets are in copious supply wherever the rich and economically productive are, and then it similarly makes sense that there’s always a “shortage” of tickets wherever the unproductive hang their hats. Applied to Warner’s London, Chelsea, South Kensington and Belgravia rarely have a “Pound supply” problem, but Brixton, Hackney and Peckham nearly always do.

What needs to be stressed here is that “money supply” is merely an effect of productive economic activity, not a driver of it. To see why, Warner need only consider a theoretical attempt by the Bank of England to stimulate lending in Dagenham, a relatively poor (by London standards at least…) part of city. The central bank would buy bonds from banks there, suddenly banks in Dagenham would have lots of Pounds to lend, but they would exit the downtrodden area between breakfast and lunch. Banks don’t long stay in business by making loans to people and business who lack the means to pay them back. In that case, a Pound supply “increase” in Dagenham in the morning would be in Mayfair by the afternoon.

The Dagenham example is a reminder that when central banks naively seek to stimulate economic growth, they do no such thing. Money always and everywhere goes to where it’s treated well. Central banks can’t alter this reality despite the wishes of a discredited economics profession. Attempts to boost money supply in economically weak areas will always fail, while at the same time well-to-areas don’t need central bank “ease” to begin with. Savers are lined up trying to direct their wealth toward those with the means to pay monies borrowed back. The economically productive quite simply don’t need the very central banks that similarly can’t help those who aren’t productive.

That’s what’s so comical about Warner’s assertion that what little European growth there is exists thanks to “the drip feed of central bank money printing.” Really? How? Economic growth springs from talent being matched with capital on the way to production. If we then accept Warner’s gross oversimplification of ECB policy as “money printing,” why on earth would the latter drive economic growth?

Implicit in “money printing” is a devaluation of the euro that would logically slow investment. Investors buy future currency income streams when they invest, which tells us that printing (usually an explicit attempt by monetary authorities to devalue a currency) would be an investment deterrent. Warner might reply that the printing would stimulate buying, but the latter isn’t growth. If buying or consumption were the same as growth, policy for the Pound, dollar and euro would be heavily accented toward constant devaluation to reduce any incentive to save. We would all be very poor since wealth always and everywhere results from saving. Devaluation mocks the saver while rewarding the prodigal at which point growth capital is scarce. Somehow Warner thinks devaluation powers growth.

Of course, all this speaks to the obvious problem with Warner’s rather confused argument. A currency on its own could never “destroy” anything, and certainly not a continent. At the same time, bad currency policy can weaken a country or a continent. When money floats in value it’s less reliable as a measure meant to foster trade and investment. To blame a currency itself for a country or continent’s problems is the equivalent of a short person blaming a foot ruler for his diminutive stature. Money’s not the problem, but floating money whereby the measure deprives an economy of a common language can surely cause problems. Warner doesn’t touch on this.

Instead, he blames the euro for creating a situation in which “economies were growing apart, not together.” Warner believes the lack of harmonic growth indicts the euro since the European states that utilize the currency have not been growing “richer together.” Yet that was never the purpose of the euro, at least not to the mildly sentient.

England has a common currency in the Pound, but has this equalized growth in England? No, and it’s obvious why it hasn’t. Money is once again an effect of economic growth, not a driver of it. It’s only a measure. Pounds are once again plentiful in England where economic activity is frenzied, and scarce where it isn’t. Implicit in Warner’s argument is that money is wealth. No. Money, per Adam Smith has one purpose only: to help circulate “consumable goods.” Wealth is what we create. Money is what we use to facilitate the exchange of the wealth we create. Nothing more.

Applied to the U.S., we have a common dollar across 50 different states with very different tax and fiscal policies. But has the dollar lifted West Virginia, Mississippi and Louisiana up to the economic level of California, Texas and New York? Obviously not. Money is not magic. Neither is currency union. All a currency can do – and this is a good thing – is facilitate trade and investment among producers, consumers, savers and entrepreneurs.

Warner’s belief that the euro has “destroyed” Europe simply speaks to his confusion about what money is. It’s the equivalent of a basketball coach fingering foot-rulers that unceasingly measure 12 inches as the reason his team of 5’7″ players consistently lose. But the foot ruler is merely a measure confirming reality. So is money. Where production is abundant, so is money, where production is light, money is once again scarce.

If the euro has a weakness, it has to do with the fact that it floats. This deprives it of its sole purpose as a measure. Worse, all global currencies still maintain at least a vague peg to the dollar. Since 2001 the dollar has weakened substantially, and while the euro is up on the dollar since ’01, the latter masks the bigger truth that both currencies have lost a lot of value since in the 21st century. The much higher price of gold measured in both currencies since 2001 represents the clearest evidence of broad currency weakness. This has predictably reduced investment in both the U.S. and Europe with predictably sluggish consequences.

So yes, Europe has a problem, but it’s not the euro itself. The problem is euro policy, along with all manner of government barriers to growth in Europe more broadly. For Warner to blame the euro itself for Europe’s woes is the equivalent of a portly person yelling at the scale.

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Inflation isn’t dead; it just might not be where you think it is.

To find significant price increases, you need only look in the right places. There are many goods and services with rising prices, as well as those without. Together, they tell a fascinating tale about the modern global economy. Understanding the forces driving prices higher — or not — is crucial to investors and policy makers alike.

Given that the Federal Reserve has been trying to generate inflation for much of the past decade, the significance of the distribution is both important and telling. Why some prices are rising at twice the median rate of general inflation is worth delving into.

Look at the chart below: it show specific categories of goods and services versus the entire basket of goods and services that makes up the consumer price index.

*see below

Source: American Enterprise Institute

Let’s look a little more deeply at each category.

Textbooks:  The industry operates as a quasi-monopoly. A student assigned a given text book doesn’t have much choice. The rise of used-book exchanges provided some competition, but the publishers merely issue revised editions that are neither new nor improved. Inflation here is a function of rentier capitalism. Note that other kinds of books have fallen in price during the same period.

College Tuition: Blame demographics, guaranteed student loans and administrative bloat. The baby boomers’ kids created many more potential college students than there were seats, leading to an imbalance in demand and supply. Responses varied from adding more professors to expanding class sizes to opening new schools.

But most schools responded by raising tuition.

And students paid. The Federal Reserve Bank of New York and theNational Bureau of Economic Research looked at increases in student borrowing, funded largely through federal student-loan programs. There is a good argument to be made that this is what has drivenmuch of the increase in college tuition.

Medical Care: The bottom line in the relentless rise in health-care costs is that market forces don’t work very well in this industry. This is why every modern industrialized country, except the U.S., has a single-payer government option or something like it. Even worse, the drug industry has persuaded Congress to bar government-run health programs from negotiating lower prices.

Food and Beverages: Prices for milk, beef and most other foodstuffs soared in the 2000s, as the U.S. dollar lost 41 percent of its value (many commodities are priced in dollars) and commodity prices soared.

Housing: During the 2000s housing boom, when lending standards evaporated, home prices went up two and three times their normal rates. But the Bureau of Labor Statistics had the cost of housing as falling. Why? The BLS uses something called owner’s equivalent rent, and it tends to give false reads on housing prices.

When more people are buying and driving up home prices, it means less demand for rental units, leading to lower prices. During the housing bust circa 2006-2011, they showed the opposite. Fewer buyers meant more renters, and so rental price gains were robust.  I don’t know the best way to gauge real estate prices, but tracking owners’ equivalent rent creates a distortion.

Toys: Manufacturing has been outsourced to lowest cost parts of world, hence prices have plummeted.

Wireless Services, Software, TVs: Technology prices benefit from two key factors: the technology adoption lifecycle and manufacturing economies of scale. The long and short of it is that as new products enter the mass market  they move down the unit-cost scale, from quirky one-off devices to cheap commodity goods. Think about the first flat screen televisions at more than $10,000 plus; versions that are as good or better than those now cost $500.

So what might we conclude from looking at the chart’s component parts? Maybe only that it’s a little easier to see why the Fed has been having a hard time getting inflation to rise. While some prices are indeed up, many powerful forces have driven other prices lower — and these are forces that the Fed can’t easily influence. Until there is a substantial and sustained increase in wages (or a huge drop in the dollar), inflation may very well remain below the Fed’s 2 percent target for a long time to come.

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James Grant, Wall Street expert and editor of the investment newsletter «Grant’s Interest Rate Observer», warns of a crash in sovereign debt, is puzzled over the actions of the Swiss National Bank and bets on gold.

From multi-billion bond buying programs to negative interest rates and probably soon helicopter money: Around the globe, central bankers are experimenting with ever more extreme measures to stimulate the sluggish economy. This will end in tears, believes James Grant. The sharp thinking editor of the iconic Wall Street newsletter «Grant’s Interest Rate Observer» is one of the most ardent critics when it comes to super easy monetary policy. Highly proficient in financial history, Mr. Grant warns of today’s reckless hunt for yield and spots one of the biggest risks in government debt. He’s also scratching his head over the massive investments which the Swiss National Bank undertakes in the US stock market.

About James GrantJames Grant, financial journalist and historian, is the founder and editor of «Grant’s Interest Rate Observer», a twice-monthly journal of the investment markets and must read for financial professionals. A former Navy gunner’s mate, he earned a master’s degree in international relations from Columbia University and began his career in journalism in 1972, at the Baltimore Sun.

He joined the staff of Barron’s in 1975 where he originated the «Current Yield» column. Mr. Grant is the author of several books covering both financial history and biography. His latest book, «The Forgotten Depression: 1921 – The Crash That Cured Itself», was published at the end of 2014. Mr. Grant is a 2013 inductee into the Fixed Income Analysts Society Hall of Fame. He is a member of the Council on Foreign Relations and a trustee of the New-York Historical Society. He and his wife live in Brooklyn. They have four grown children.Jim, for more than three decades Grant’s has been observing interest rates. Is there anything left to be observed with rates this low?


Interest rates may be almost invisible but there is still plenty to observe. I observe that they are shrinking and that the shrinkage is causing a lot of turmoil because people in need of income are in full hot pursuit of what little of yields remains.

What are the consequences of that?
It reminds me of the great Victorian English journalist Walter Bagehot. He once said that John Law can stand anything but he can’t stand 2%, meaning that very low interest rates induced speculation and reckless investing and misallocation of capital. So I think Bagehot’s epigraph is very timely today.

John Law was mainly responsible for the great Mississippi bubble which caused a chaotic economic collapse in France in the early 18th century. How is the story going to end this time?
It will turn out to be very bad for many people. If Swiss insurance and reinsurance executives are reading this right now they might be rolling their eyes and they might be frustrated to hear an American scolding from a distance of 3000 miles about the risk of chasing yield. After all, if you’re in the business of matching long term liabilities with long term assets you have little choice but to wish for a better, more sensible world. But you have to take the world as it is and today’s world is barren of interest income. The fact is, that these are very risk fraught times.

Where do you see the biggest risks?
Sovereign debt is my nomination for the number one overvalued market around the world. You are earning nothing or less than nothing for the privilege of lending your money to a government that has pledged to depreciate the currency that you’re investing in. The central banks of the world are striving to achieve a rate of inflation of 2% or more and you are lending certainly at much less than 2% and in many  cases at less than nominal 0%. The experience of losing money is common in investing. But where is the certitude of loss even before your check clears? That’s the situation with sovereign debt right now.

On a worldwide basis, more than a third of sovereign debt is already yielding less than zero percent.
There is not quite a bestseller, but a very substantial book called «The History of Interest Rates». It was written by Sidney Homer and Richard Sylla. Sidney Homer is no longer with us, but Richard Sylla is alive and well at New York University. So I called him and said: « Richard, I’ve read many pages but not every single page in your book which traces the history of interest rates from 3000 BC to the present. Have you ever come across negative bond yields?» He said no and I thought that would be kind of a major news scoop: For the first time in at least 5000 years we have driven interest rates below the zero marker. I thought that was an exceptional piece of intelligence. But I notice however that nobody seems to have picked up on it.

It’s now already two years ago since the ECB was the first major central bank to introduce negative rates.
There are some other historical settings: In Europe, Monte dei Paschi di Siena, this 500 and plus year old bank in Italy, is struggling and as broke as you can be without being legally broke. Monte dei Paschi has survived for half a millennium and now it is on the ropes. Meanwhile, the Bank of England is doing things today that it has never done in its history which is 300 plus years. So I suggest that these are at least interesting times and in many respects unprecedented ones.

So what’s the true meaning of all this?
In finance, mostly nothing is ever new. Human behavior doesn’t change and money is a very old institution and so are our markets. Of course, techniques evolve, but mostly nothing is really new. However, with respect to interest rates and monetary policy we are truly breaking new ground.

Now central bankers are even talking openly about helicopter money. Will they really go for it?
I already hear the telltale of beating rotor blades in the sky. I also hear the tom-toms of fiscal policy being pounded. There seems to be some kind of a growing consensus that monetary policy has done what it can do and that what me must do now – so say the «wise ones» – is to tax and spend and spend and spend. That seems to be the new big idea in policy. In any case, it is not good for bondholders.

Interestingly, nobody seems to be talking about the growing government debt anymore. Also, budget politics are just a side note in the ongoing presidential elections.
The trouble with this election is that somebody has to win it. I have no use for Donald Trump but I have equally no use for Hillary Clinton. The point is that one of those two is going to win. That is the tragedy! So we at Grant’s regret that one of them is going to win.

The financial crisis and the weak economic recovery likely have spurred the rise of Donald Trump. Why isn’t the US economy in better shape after all those monetary programs?
I wonder how it would have been if markets had been allowed to clear and if prices had been allowed to find their own level in real estate in 2008. Central banks have intervened to quell financial panics for at least 200 years. For instance, in 1825 the bank of England lent without stint and was not – as they said – overnice about the kind of collateral. That was a very dramatic intervention. So it’s not as if we have never before seen the lender of last resort at work. But what is new is the medication of markets through this opiate of quantitative easing year after year after year following the financial crisis. I think that this kind of intervention has not only not worked but it has been very harmful. Around the world, the economies are not responding despite radical monetary measures. To some degree, I believe,  they are not recovering because of radical monetary measures.

What’s exactly the problem with the US economy?
There is another side of what we are seeing now: In America certainly the Federal Reserve and bank regulators generally are very heavy handed in their interventions. I’m sure they have every good intention. But with their regulatory charges they are suppressing the recovery in credit that takes place  in a normal economic recovery and in this particular case after a depression or after a liquidation.

Then again, a revisit of the financial crisis would be catastrophic.
The new rules with respect to financial reform have absorbed not only forests worth of paper but also the time and attention of legions of lawyers. If you talk to a banking executive what you hear is that the banks have been overwhelmed by the need to hire compliance and regulatory people. This is especially bearing on the smaller banks. I think that’s part of the story of the lackluster recovery: Monetary policy has been radically open in the creation of new credit. But it has been radically restrictive with regard to risk taking in the private world.

So what should be done to get the economy back on track?
There are guides in history on how to do this. For more than a hundred years in Britain, in the United States and probably as well in Switzerland, the owners of the equity of a bank themselves were responsible for the solvency of the bank. If the bank became impaired or insolvent they had to stump up more capital to pay off the liability holders, including the depositors. But over the past hundred years collective responsibility in banking has gradually replaced individual responsibility. The government, with the introduction of deposit insurance, new regulations and interventions has superseded the old doctrine of the responsibility of the owners of a property. That’s why I think we need to go away from government intervention and go more towards market oriented solutions such as the old doctrine of responsibility of the bank owners.

At least in the US, the Fed is trying to go back to a more normal monetary policy. Do you think Fed chief Janet Yellen will make the case for another rate hike at the Jackson Hole meeting next week?
Janet Yellen is by no means an impulsive person. According to the « Wall Street Journal», she arrives for a flight at the airport hours early – and that’s plural! So this is a most deliberative and risk averse person. Also, as a labor economist, she’s a most empathetic person. She believes what most interventionist minded economists believe: They have very little faith in the institution of markets and they don’t believe that the price mechanism is anything special. They want to normalize rates and yet they can always find an excuse for not doing so. We have been hearing for years now that the next time, the next quarter, the next fiscal year they will act. So I believe what I’m seeing: None of these days the Federal Funds Rate will go higher than 0.5%. I can’t see that happening.

Wall Street seems to think along the same lines. So far, many investors don’t take the renewed chatter of a rate hike too seriously.
The Fed is now hostage to Wall Street. If the stock market pulls back a few percent the Fed becomes frightened. In a way I suppose, the Fed is justified in that belief because it is responsible to a great degree for the elevation of financial asset values. Real estate cap rates are very low, price-earnings-ratios of stocks  are very high and interest rates are extremely low. One can’t be certain about cause and effect. But it seems to me that the central banks of the world are responsible for a great deal of this levitation in values. So perhaps they feel some responsibility for letting the world down easy in a bear market. It has come to a point where the Fed is virtually a hostage of the financial markets. When they sputter, let alone fall, the Fed frets and steps in.

Obviously, the financial markets like this cautious mindset of the Fed. Earlier this week, US stocks climbed to another record high.
Isn’t that a funny thing? The stock market is at record highs and the bond market is acting as if this were the Great Depression. Meanwhile, the Swiss National Bank is buying a great deal of American equity.

Indeed, according to the latest SEC filings the SNB’s portfolio of US stocks has grown to more than $60 billion.
Yes, they own a lot of everything. Let us consider how they get the money for that: They create Swiss francs from the thin alpine air where the Swiss money grows. Then they buy Euros and translate them into Dollars. So far nobody’s raised a sweat. All this is done with a tab of a computer key. And then the SNB calls its friendly broker – I guess UBS – and buys the ears off of the US stock exchange. All of it with money that didn’t exist. That too, is something a little bit new.

Other central banks, too, have become big buyers in the global securities markets. Basically, it all started with the QE-programs of the Federal Reserve.
It is a truism that central banks do this. They’ve done this of course for generations. But there is something especially vivid about the Swiss National Bank’s purchases of billions of Dollars of American equity. These are actual profit making, substantial corporations in the S&P 500. So the SNB is piling up big positions in them with money that really comes from nothing. That’s a little bit of an existential head scratcher, isn’t?

So what are investors supposed to do in these bizarre financial markets?
I’m very bullish on gold and I’m very bullish on gold mining shares. That’s because I think that the world will lose faith in the PhD standard in monetary management. Gold is by no means the best investment. Gold is money and money is sterile, as Aristotle would remind us. It does not pay dividends or earn income. So keep in mind that gold is not a conventional investment. That’s why I don’t want to suggest that it is the one and only thing that people should have their money in. But to me, gold is a very timely way to invest in monetary disorder.

 

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The rise of passive asset management threatens to fundamentally undermine the entire system of capitalism and market mechanisms that facilitate an increase in the general welfare, according to analysts at research and brokerage firm Sanford C. Bernstein & Co., LLC.

In a note titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism,” a team led by Head of Global Quantitative and European Equity Strategy Inigo Fraser-Jenkins, says that politicians and regulators need to be cognizant of the social case for active management in the investment industry.

“A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” they write.

 

High fees and subpar returns, coupled with the creation of a plethora of relatively inexpensive exchange-traded funds that track major equity indexes have helped fuel a massive shift in asset flows away from active management in favor of passive. While policymakers are quick to praise the benefits of these low-cost options for retail investors, Bernstein argues that this is a short-sighted view that doesn’t take into account the potential downsides involved with the increase in passively-managed assets.

Source: Investment Company Institute

Fraser-Jenkins notes that the rise of indexing should theoretically entail that stocks tend to move in the same direction more often (though such a simple relationship isn’t necessarily borne out by the data), and cites research indicating that “if the correlation of stocks increases then that impedes the efficient allocation of capital. That is, there isn’t as big of a difference in capital expenditures on a sector by sector basis than what would be expected based on relative profit growth.

The social function of active management, in a capitalist society, is that it seeks to direct capital to its most productive end, facilitating sustainable job creation and a rise in the aggregate standard of living. And rather than be guided by the Invisible Hand and profit motive, capital allocation under Marxism is conducted by an oh-so-visible hand aimed at producing use-values that satisfy each member of the society’s needs. Seen through this lens, passive management is somewhat tantamount to a nihilistic approach to capital allocation.

To adapt a line from a Coen brothers classic: Say what you will about the tenets of Marxism, Dude, at least it’s a formal attempt to direct capital to achieve a desired end.

 

“The commonality between both active market management and the Marxist approach is that in both cases there are a set of agents trying – at least in principle – to optimize the flows of capital in the real economy,” writes Fraser-Jenkins.

Bernstein’s team isn’t asking for governments to bail out active managers, but merely advises that lawmakers and regulators “may wish to consider the broader benefits of a functioning active asset management industry to society as a whole so that when policy initiatives are undertaken they do not explicitly undermine active management.”

While the question of whether the rise of passive investing is an existential threat to capitalism remains an open one, Bernstein’s team acknowledges one uncomfortable truth: it certainly looms as a major downside risk for the livelihoods of people who produce sell side equity research.

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‘We have fallen upon evil times, politics is corrupt and the social fabric is fraying.’ Who said that? Donald Trump or Bernie Sanders? Nigel Farage or Marine Le Pen? It’s difficult to keep track. They sound so alike, the populists of the left and the right. Everything is awful, so bring on the scapegoats and the knights on white horses.

Pessimism resonates. A YouGov poll found that just 5 per cent of Britons think that the world, all things considered, is getting better. You would think that the chronically cheerful Americans might be more optimistic – well, yes, 6 per cent of them think that the world is improving. More Americans believe in astrology and reincarnation than in progress.
Johan Norberg and Fraser Nelson discuss the doom delusion:

If you think that there has never been a better time to be alive – that humanity has never been safer, healthier, more prosperous or less unequal – then you’re in the minority. But that is what the evidence incontrovertibly shows. Poverty, malnutrition, illiteracy, child labour and infant mortality are falling faster than at any other time in human history. The risk of being caught up in a war, subjected to a dictatorship or of dying in a natural disaster is smaller than ever. The golden age is now.

If you look at all the data, it’s clear there’s never been a better time to be alive.
We’re hardwired not to believe this. We’ve evolved to be suspicious and fretful: fear and worry are tools for survival. The hunters and gatherers who survived sudden storms and predators were the ones who had a tendency to scan the horizon for new threats, rather than sit back and enjoy the view. They passed their stress genes on to us. That is why we find stories about things going wrong far more interesting than stories about things going right. It’s why bad news sells, and newspapers are full of it.

Books that say the world is doomed sell rather well, too. I have just attempted the opposite. I’ve written a book called Progress, about humanity’s triumphs. It is written partly as a warning: when we don’t see the progress we have made, we begin to search for scapegoats for the problems that remain. Sometimes, in the past and perhaps today, we have been too quick to try our luck with demagogues who offer simple solutions to make our nations great again – whether by nationalising the economy, blocking imports or throwing out immigrants. If we think we don’t have anything to lose in doing so, it’s because our memories are faulty.

Look at 1828, when The Spectator was first published. Most people in Britain then lived in what is now regarded as extreme poverty. Life was nasty (people still threw their waste out of the window), brutish (corpses were still displayed on gibbets) and short (30 years on average). But even then things had been improving. The first iteration of The Spectator, in 1711, was published in a Britain whose people subsisted on average on fewer calories than the average child gets today in sub-Saharan Africa.

Karl Marx thought that capitalism inevitably made the rich richer and the poor poorer. By the time Marx died, however, the average Englishman was three times richer than at the time of his birth 65 years earlier – never before had the population experienced anything like it.

Fast forward to 1981. Then, almost nine in ten Chinese lived in extreme poverty; now just one in ten do. Then, just half of the world’s population had access to safe water. Now, 91 per cent do. On average, that means that 285,000 more people have gained access to safe water every day for the past 25 years.

Global trade has led to an expansion of wealth on a magnitude which is hard to comprehend. During the 25 years since the end of the Cold War, global economic wealth – or GDP per capita – has increased almost as much as it did during the preceding 25,000 years. It’s no coincidence that such growth has occurred alongside a massive expansion of rule by the people for the people. A quarter of a century ago, barely half the world’s countries were democracies. Now, almost two thirds are. To say that freedom is still on the march is an understatement.

Part of our problem is one of success. As we get richer, our tolerance for global poverty diminishes. So we get angrier about injustices. Charities quite rightly wish to raise funds, so they draw our attention to the plight of the world’s poorest. But since the Cold War ended, extreme poverty has decreased from 37 per cent to 9.6 per cent – in single digits for the first time in history.

This has not happened through the destruction of the western middle class. Times have been rough since the financial crisis, yet for all the talk of Americans ‘left behind by globalisation’, median income for low- and middle-income US households has increased by more than 30 per cent since 1970. And this excludes all the things you can’t put a price on, such as advances in medicine, an extra ten years of life expectancy, the internet, mass entertainment, and cleaner air and water.

Speaking of water, Disraeli described the Thames as ‘a Stygian pool reeking with ineffable and intolerable horrors’. As late as 1957, the river was declared biologically dead. Today it is in rude health, with scores of different species of fish. The idea of the environment as a clean canvas being steadily spoilt by humanity is simplistic and wrong. As we become richer, we have become cleaner and greener. The quantity of oil spilt in our oceans has decreased by 99 per cent since 1970. Forests are reappearing, even in emerging countries like India and China. And technology is helping to mitigate the effects of global warming.

Parts of the world are falling to pieces but fewer parts than before. Conflicts always make the headlines, so we assume that our age is plagued by violence. We obsess over new or ongoing fights, such as the horrifying civil war in Syria – but we forget the conflicts that have ended in countries such as Colombia, Sri Lanka, Angola and Chad. We remember recent wars in Afghanistan and Iraq, which have killed around 650,000. But we struggle to recall that two million died in conflicts in those countries in the 1980s. The jihadi terrorist threat is new and frightening – but Islamists kill comparatively few. Europeans run a 30 times bigger risk of being killed by a ‘normal’ murderer – and the European murder rate has halved in just two decades.

In almost every way human beings today lead more prosperous, safer and longer lives – and we have all the data we need to prove it. So why does everybody remain convinced that the world is going to the dogs? Because that is what we pay attention to, as the thoroughbred fretters we are. The psychologists Daniel Kahneman and Amos Tversky have shown that people do not base their assumptions on how frequently something happens, but on how easy it is to recall examples. This ‘availability heuristic’ means that the more memorable an incident is, the more probable we think it is. And what is more memorable than horror? What do you remember best – your neighbour’s story about a decent restaurant which serves excellent lamb stew, or his warning about the place where he was poisoned and threw up all over his boss’s wife?

Bad news now travels a lot faster. Just a few decades ago, you would read that an Asian city with 100,000 people was wiped out in a cyclone on a small notice on page 17. We would never have heard about Burmese serial killers. Now we live in an era with global media and iPhone cameras every-where. Since there is always a natural disaster or a serial murderer somewhere in the world, it will always top the news cycle – giving us the mistaken impression that it is more common than before.

Nostalgia, too, is biological: as we get older, we take on more responsibility and can be prone to looking back on an imagined carefree youth. It is easy to mistake changes in ourselves for changes in the world. Quite often when I ask people about their ideal era, the moment in world history when they think it was the most harmonious and happy, they say it was the era they grew up in. They describe a time before everything became confusing and dangerous, the young became rude, or listened to awful music, or stopped reading books in order to just play Pokémon Go.

The cultural historian Arthur Freeman observed that ‘virtually every culture, past or present, has believed that men and women are not up to the standards of their parents and forebears’. Is it a coincidence that the western world is experiencing this great wave of pessimism at the moment that the baby-boom generation is retiring?

So who did say those words at the start of this article, about how we have ‘fallen upon evil times’? It wasn’t Trump. It wasn’t Farage. A century ago, an American professor found them inscribed on a stone in a museum in Constantinople. He dated them from ancient Chaldea, 3,800 BC.

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Fits in nicely with an assignment that I am trying to complete in Environmental Law.

 

It has not only been a waste of money, it has done real harm. Some trillions of hard-earned taxpayer dollars have been spent to combat global warming over the last three decades. Has the expenditure of all of this money reduced global temperatures from where they would have otherwise been? No, at least not to a measurable degree. The major governments of the world have undertaken a public policy which to date has cost far more than any benefits. The rebuttal by the advocates of all of this government spending is to say it is nothing more than a down payment on what needs to be done and the benefits will accrue to future generations.

Earlier this month, British scientist Valentina Zharkova and her team at Northumbria University in the United Kingdom, using a new model, predicted that a coming periodic reduction in the sun’s radiation will soon lead to major global cooling. For many decades, it has been known that a decrease in sun spot activity is associated with lower temperatures. Ms. Zharkova argues that we will soon enter a new “Maunder Minimum,” which refers to the period from 1645 to 1715 when the sun’s surface ceased producing its heat-releasing magnetic storms. This period coincided with the Little Ice Age — a time of much cooler temperatures and crop failures. A number of other respected scientists have also argued that changes in solar output are more important than changes in carbon dioxide in regulating the earth’s temperature. During the last couple of weeks, since the release of the new study, the debate has been quite fierce between those who believe that solar changes trump carbon dioxide and vice versa. Remember, “climate science” is not a unified field of study like quantum physics, but a combination of many different disciplines from the people who study tree rings, ice cores, atmospheric gases, cloud science or solar output.

One climate scientist, commenting on the debate, observed that mankind might luck out with the heat-trapping effects of carbon dioxide, offsetting the temperature decline coming from the expected solar minimum. It may be that the solar folks are right, or the carbon dioxide folks are right or that neither is right.

What do we know? We know that extreme global warming doomsayers, like Michael Mann (of “hockey stick” fame), were telling world leaders if they did not make massive changes in carbon-dioxide emissions by 2002 — that it would be too late. Despite the fact that it is now “too late,” Mr. Mann and others are still preaching the same old gospel — and I expect they will continue to do so until the government grants and other monies run out. We do know that those like Al Gore, who told us that Arctic sea ice would be gone by now and that Antarctica ice would be greatly diminished, were wrong (ships still cannot sail the Arctic Ocean and Antarctica ice is now covering a record amount since the measurements were first taken). We do know that not one of the climate change models predicted the 16-year pause in rising temperatures and all of them overstated the rise in temperature that did occur. We do know that rise in carbon dioxide to date has been largely beneficial, with the earth getting greener (carbon dioxide is plant fertilizer).

What we also know is the trillions spent on global warming mitigation schemes slowed real economic growth through higher energy prices and taxes worldwide, particularly in Europe and to a lesser extent in America, thus leaving millions more people in poverty, without jobs and economic opportunity. The beneficiaries of all this spending were the crony capitalists of the ruling class, including all of the researchers who have been funded to “prove” global warming is a massive immediate threat, caused by humans, and that humans have the tools at hand to stop it. If your research happens to show something else, you are immediately attacked, not in a calm, objective manner, but in a rather vicious manner, as Professor Zharkova has found in the last couple of weeks. The scientific and political establishment has a vested interest in silencing the sun output theorists, because if they are right, many others’ funding and pride are at risk.

What is clear is that much is still unknown — let alone how to stop the newly labeled “climate change.” From the end of the Little Ice Age, temperatures and sea levels have been gradually rising, and mankind has been dealing with it quite well through adaptation. Old structures and piers are replaced as they wear out with stronger and higher structures. Air conditioning is invented. And all of this happens almost automatically without anyone noticing.

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Lovely. Maybe I treat myself if/when I graduate law school.

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Shares of Valeant Pharmaceuticals International Inc. VRX, +12.33% shot up 9.7% in active premarket trade Wednesday, after Morgan Stanley analyst David Risinger turned bullish on the drug maker, citing the belief that major risks to the company have already been priced into the stock. Risinger raised his rating to overweight, after being at in line since October 2015. He raised his stock price target to $42, which is 58% above Tuesday’s closing price of $26.60, from $27. “Risk of severe financial stress should diminish as [debt] covenants are renegotiated and [Valeant] pays down debt, and deleveraging should drive equity value accretion,” Risinger wrote in a note to clients. Regarding risks of drug pricing resets, Risinger said Valeant has already experienced step downs in net pricing and access, and he his valuation estimates already account for generic competition for the company’s most controversial drugs–Isuprel and Nitropress–over the next six to 12 months. The stock, which was on course to open at a 2 1/2-month high, had plunged 74% year to date through Tuesday, while the SPDR Health Care ETF XLV, +0.08% had tacked on 3.1% and the S&P 500 SPX, +0.03%had gained 6.6%.

The increased volatility, sharp drop, sharp rise, are generating some nice profits in this stock.

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