China, Capital Controls & Digital Yuan

Everyone at the I.M.F. and World Bank knows what Chinese authorities want, convertibility of the Yuan and reserve currency status.  This would eventually warrent SDR, special drawing rights.  IF it ever gets going, we’ll see it deep inside China western corridor, the interior known as the ‘Silk Road’ where numerous weak authoritarian government thrive.

As of now though, that’s not what dominates the vision of Chinese authorities.  Currently, the yuan is now used for bitcoin transactions.  The nascent payment system has lost untolds amount of money from its high of $1,100 in late 2013 to $300 now.  Bitcoin has enormous momentum inside China.

The chief culprit isn’t just financial speculation, its mainly driven by people, traders, and institutions who move vast quantities of yuan out of mainland China circumventing currency controls.  The foundation of this movement is China’s halting economy providing fewer lucrative investment opportunities.  Simply put, bitcoins surging popularity underwrites the fragility of the world’s second largest economy.

While industrial output slows, debt is surging to $4 trillion in regional debt and $20 trillion national debt.  That’s only between 2008 to 2014.

Wait, it gets worse.  Hong Kong money changers are witnessing the rise of challengers to Bitcoin, which is tapped at $20 million.  Darkcoin is fast becomming the choice media of drug merchants and many other black market activites that thrive in China’s interior.

The hidden challenge to Zhou’s rule are crypto-currencies, thriving in an authoritarian world without a rule of law, independent courts or trusted agencies of governance.

China’s threats are growing.

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The Mythology of Authority: Keynesian Abdication Called Secular Stagnation

When Raymond Aron wrote The Opium of Intellectuals, he wasn’t thinking of defending a perfect asshole like Paul Krugman, the Keynesian authority cited as the source for the canard secular stagnation.  Nor was he thinking of Dreyfus on French Guyana, even though explicit racism and a resurgent republican ideal haunted him.  Instead, Aron sought to uncover the fatal propensity intellectuals have in citing extrinsic events in abdication for failed ideas.

The west is now in free fall.  The trillions in stimulus haven’t worked.

What do intellectuals do when they’ve failed?  Well, if their tenured radicals they often do two things, find an excuse or cognitive dissonance.  This brings me to Krugman’s canard of secular stagnation as a moral panacea excusing the failure that has become Keynesian ideology.

What Keynesians like Krugman have done is to secure an extrinsic source excusing failure to enforce a fallacy.  The trope that is secular stagnation cannot be reconciled to how we arrived at this failure.  Years of deficit spending, stimulative demand, quantitative easing, expansionary fiscal intervention and radical accommodate monetary policy have all contributed.  We’re simply at the end of accommodative policy.  All to what end?

Its now over, and it failed.  The fallacy that is quickly becoming cognitive dissonance is that the west is trapped in secular stagnation and must take additional fiscal, monetary measures to stimulate demand.  You read that right.

The fallacy that this trope maintains is the continued elusive authority of spent, failed ideas, namely Keynesian thought.

The Eurozone and by extension, the entire west has received extraordinary monetary assistance (stimulus) to little effect.  Capital markets are now so distorted that indices no longer embody reliable measures of utility. The prolonged effort toward normalcy now rattles capital markets.  Despite trillions of dollars of Q.E., despite trillions of dollars in federal deficit spending, GDP has NEVER reached 3% and workforce participation remains low.

Like cancer treatment, Q.E. is killing the patient.

How does the next President or Fed. Chair resolve this dilemma.  I have an answer.  Structural reform is essential.  An exit strategy that respects the spheres of autonomy in a Constitutional Republic.  An end to transfer programs.

To achieve this, we’re going to need an engaged, seriously well read Executive that understands what Volcker and Reagan implicitly understood at the end of the Bretton Woods debacle; a policy mix that tacitly handles the simultaneous requirements of monetary, fiscal regimes grounded in sound political reform.

There’s no time for small ball, the Republic, the Union is badly hurt.  A reality that Aron implicitly understood.

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The Murder of Alberto Nisman: The Slaughter of Innocents Continues

When investigators are up against a wall, when all leads fail to show causation, then they begin to ask direct forensic questions in an attempt to square a circle.  That square has now come full circle.  There is only one way to answer a direct question regarding the death of Alberto Nisman.  Who would benefit from his murder?  Answer:  the Iranians.

As a prosecutor, Alberto Nisman has years of recorded wiretaps demonstrating criminal collusion between Iranian agents (Hezbollah) and the Kirchner government.  The Argentinian government wanted cheap oil, gas from Iran; the Iranians want a meddling prosecutor dead!

This entire case began in 1994 when Iranian agents abroad bombed Buenos Aries Jewish Community killing scores of Jews.  Nisman’s objective was never to bring down the President of Argentina, it was to extradite Iranian agents to face trial.

The Iranians are winning throughout the west.  Who will stop the satanic mullah’s?

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Economic Bastards

As time goes by, Dr. Allan Meltzer will be vindicated in his analysis of the great moral failure of the entire American political class’ handling of the ‘Great Recession’.  Dr. Meltzer had numerated his thought in several journals and lectures that I will briefly detail here at a later date.  Nevertheless, I found a comment by Ludgwig von Mises that is very relevant to Meltzer’s analysis.

The elitist political class buries its true agenda in completx economic models and tells its citizens that they are just too unsophisticated to understand.  Ultimately though, the political class knows what must be done, but they don’t know how to get re-elected once they’ve done it.”

There are in the field of economics, no constant relations.”  

All econometric models are useless because they fail to account for the coercive and distorting effects of government interventions.  The Federal Reserve, Fannie Mae, Freddie Max, the tax code and all the federal bureaucracies combined en masse are exogenous factors weighing on an economy that is taxed, regulated and coerced almost to death.”

Enough said.

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Hardly a Balkanized Federal Reserve

Let’s get power relations straight.  The Federal Reserve is a powerful, even a transnational power.  It is arguably the single most powerful institution on the planet.  It TOO can be defeated, weakened, and brought down.  The impact of weak purchasing power is well known, remember Weimar, Japan, Russia, Germany, Mexico, the list is nearly endless.  Every great political power that ever existed has had to deal with potentially life-threatening policy adjustments to keep parity.

But let’s remember that realpolitik is synonymous with relativism, and those at the helm of the Federal Reserve quietly know that they’re a creature of Congress!  They either play along or get played.  You’re either at the table, or your ON the table.  The Fed knows this and has historically dealt well with this arrangement.  I cannot say the same for the last ten years. The hit job(s) that are lining up to size-up the Fed will shake D.C.  I have no other way to say it but bluntly.

F.R.A.T. = Federal Reserve Accountability & Transparency Act has threatened to hamstring the hyper-expansionary, accommodative policies that characterizes EVERY failed Federal Reserve Chairman EVER!!  The adoption of the Taylor rule is simple:  it means that any expansionary policy to accommodate demand must watch two independent variables simultaneously, namely the output gap & inflation.  This is hardly a threat to balkanize the Fed.

AUDIT the FED is the second threat.  It has nearly nothing to do with accounting but instead asks that Fed managers expose their political philosophy in their attempt to accommodate excessive demand.  This would be done via the Government Accountability Office (GAO).  What Congress asks is that the voting members of the Federal Reserve provide transparency regarding monetary policy decisions.

How else to say it:  a truly independent Fed would welcome any policy attempt to strengthen its credibility.

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The Social Impact of Student Debt

Anyone over the age of 45 remembers a predominant cash economy.  You mortgaged a home only, everything else was cash, including tuition.  How things have changed!    What has not changed are the dominant social achievements & institutions that underwrite upper-middle class lifestyles, these include capital formation, health insurance, post-graduate credentials and vacations.  All of these are unwritten by full time employment.

So is marriage!

But I’ll get to that one another time.  Its a related topic if only because so many young people today make the presumption that if you’re married you’ve got your life together.  Interesting correlation.

The Federal Reserve’s own studies correlating numerous social, demographic currents embodying social mobility are rarely if ever mentioned in the public; why reveal miserable output when our public institutions do such a fine job of pronouncing intentions!  The truth is a very ugly reality when it comes to education, debt and social mobility.  According to the Federal Reserve’s own studies, the cost of college tuition has outgrown costs in health care, credit cards, auto loans and refinancings. The annual debt burden for tuition is $1.3 trillion dollars and rising.

The damaging results are ubiquitous.

Graduating students delay marriage.  They delay children.  Both trends reveal a startling economic and social arrangement for aspirations.  This social group postpones mortgages, cars and numerous other capital intensive purchases that secure one’s social standing when paid in full.  Nearly 45% of all college graduates return home after school.

Just ask your neighbor.

These self imposed challenges remain because mandatory fiscal spending is politically enshrined and untouchable.

These realties only match the pathetically weak recovery that began in June 2009.  Past generations implicitly knew that standards of living rose.  We have saddled ourselves to honor the social, political achievements unfit to navigate our immediate future.  Are we up for the challenge?  The conservative wing of the G.O.P. is ready, anyone else?

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Getting Growth, Then Wages: Sequencing Policy Matters

The cacophony of half truths never relent, this is especially true for the discipline of economics.  The adults that make up the White House Press Corps., journalism and hosts of other digital media never seem to get around to acknowledging intrinsic sequencing for economic growth.  Instead we get reams of semi-informed voices ranting about secular stagnation, sticky wages etc. .  while never really addressing the sources of wealth creation.

Let’s set the record straight:  real economic growth comes first, then wages.  This sequencing is chiefly derived from productivity gains; both have their source in sound monetary, fiscal policy.  Whatever increases productivity, adds to economic growth, these include:  additions to capital stock, education/skills, applied technology and finally institutional changes that procure and solidify policy incentives.  In a sentence, anything that creates economic freedom.

We haven’t had this policy driven cycle since Reagan.  The Federal Reserves ZIRP has deprived interest bearing income to millions of American’s, consequently discouraging both investment, savings and growth.  Instead, we’ve seen govmint policy aiming to encourage taxpayer provided benefits that discourage growth.

Let’s remember the whole virtuous cycle begins with getting, implementing the right policy ideas, the right sequencing of fiscal, monetary policy coordination.

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French War Plan: The Soft Underbelly of Africa. . .

If the French ever get serious about counterterrorism they should seek to capture or kill the Islamic leadership ravaging throughout French Africa.  Indigenous French resources aren’t readily at hand, however, the reach of Paris by proxy is advantageous.

Chad began deploying troops last Friday night in Cameroon, AFRICOM in Stuttgart, Germany can help given its longstanding presence throughout the region.  Nevertheless, the French can use African resources to quell the spell of militant Islam in Africa.

Cameroon’s President Paul Biya has welcomed Chadian troop movements throughout its nation, this doubles the Nigerian effort launched by President Goodluck Jonathan.  These tactical efforts must be complimented by governance issues if indigenous counterterror measures are to gain traction.  Niger, Chad and Cameroon all share a border with Nigeria.  Boko Haram’s reach is moving westward toward the Atlantic, threatening Nigeria from within.  Its stronghold is only garnished with weak national governance coupled to fragmented ethnic, religious separatism throughout Nigeria.  The vast majority of Boko Haram’s ethnicity are the Kanuri people who are indigenous to Nigeria.  It’s founder is a Cameroonian Muslim preacher who moved to Nigeria in the 1940’s, this coupled with the death of Gaddafi opened up the scope for cash rich Riyadh to import radicals.

Chad still holds the regions most experienced fighters.  A deeply poor nation of 13 million, spread across an expanse of desert larger than Texas and California combined.  Charles de Gaulle built a military base in Chad that the French are welcomed to use in its regional offensive.  The key here is sound intelligence and drones.  Chad was instrumental in battling Islamic militants who captured Mali in 2013, they were routed by Chadian troops stationed, garrisoned by French sources.

If the French turn their counterterror mission over to their bureaucracies, it will vanish.  Bureau is a French word for ‘desk’.  Bureaucracies don’t function with any resolve or efficiency, especially those in Europe.  Security bureaucracies fail when they are confused about their mission or lack of confidence in the support of their political leadership.  The fault lines for mission creep toward no-man’s-land is vast.

Let’s hope the French get, and keep up to speed.

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Yemen Falls: Iran Wins

The emergence of Yemen as a failed state is real.  The U.S. closed its embassy yesterday while ethnic, ideological strife has engulfed the Arabian southern tier.  This comes on the heels of the death of the Saudi monarch several days ago.

Whose to blame?  Let’s start with Iran.

Iranian strategy is to support the embattled Shia throughout the lands of Arabia and beyond, even to the point of failure.  The Yemeni Shia are known as the Zaidi & Houthis, living mostly in the regions northern Arabian tier, they are embittered enemies of al Qaeda  and have been fervently supported by Iran.  Yemenite Shia have sought continued political independence and sovereignty for decades.  The Iranians now have a militant proxy on the Arabian mainland and seek to threaten the House of Saud.

As of this writing, Iran is winning.

We should note that January 25th marks the fourth anniversary of the Arab Spring in Egypt.

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The French & Charismatic Jihad

It isn’t difficult to explain the origin of France’s recent terrorist incident, the slaughter of innocent civilians at a paper devoted to satire.  What is new, is the emergence of native jihadi cells acting independently of foreign organizations.  This new threat is part of Iran’s policy to encircle the west from within, any brief look at European demography shows why the French should worry.

Former C.I.A. officials throughout the west have pointed that the French counter-terror division remains the finest in Europe.  Jean-Louis Bruguiere (head of France’s Internal Security) remained cautiously pessimistic about autonomous or indigenous French Jihadi’s acting independently of foreign governments or organizations.  That world view may have ended with our most recent threat signaling that French authorities are intent on setting a example of deterrence.  My view is more circumspect:  if the French authorities ignore the political motivation animating the convictions of this new charismatic Jihad, they will be setting themselves up for slaughter again!!  Let’s explain.

If the French cannot or will not show immediate deterrent force, other nation states throughout the west, dependent on French intelligence will fold.  Period.  Islamic radicals throughout western Europe monitor the pace of Paris’ counter-terror division (DCRI), if Paris doesn’t check the advance of Islamic extremism, IT will explode across western Europe quickly.  Ditto for the U.S. which is dependent on monitoring communication signals between various European capitals.

The American Retreat Agenda throughout the Near East has solicited enormous charisma into Jihadi fundamentalism. But it can only be seen/felt in western cities where such political, social freedom is taken for granted.  As Fouad Ajami wrote, the nourishment of grievance is a staple product enamoring a new radical vision of Jihadi fundamentalism, it flourishes in political economies that sustain massive welfare states.

What can we take away from this engagement?  Its really quite simple:  European radicalized Muslims feel encouraged to dictate the terms of European expression of Islam.

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