Washington And Berlin On A Collision Course

The Russia sanctions bill that passed the US Senate by 98:2 on June 15 is a bombshell; it directly demonizes the Nord Stream 2 pipeline, under the Baltic Sea, which is bound to double Gazprom’s energy capacity to supply gas to Europe.

The 9.5 billion euro pipeline is being financed by five companies; Germany’s Uniper and Wintershall; Austria’s OMV; France’s Engie; and Anglo-Dutch Shell. All these majors operate in Russia, and have, or will establish, pipeline contracts with Gazprom.

In a joint statement, German Foreign Minister Sigmar Gabriel and Austrian Chancellor Christian Kern stressed that, “Europe’s energy supply is a matter for Europe, not the United States of America”; “instruments for political sanctions should not be tied to economic interests”; and the whole thing heralds a “new and very negative quality in European-American relations”.

An oil trader in the Gulf bluntly told me, “the new sanctions against Russia basically amount to telling the EU to buy expensive US gas instead of cheap Russian gas. So the Germans and the Austrians basically told the Americans to buzz off.”

A top US intel source, Middle East-based and a dissident to the Beltway consensus, stresses how, “the United States Senate by a nearly unanimous vote have decided to declare war on Russia (sanctions are war) and Germany has threatened retaliation against the United States if it initiates sanctions.

Germany accused the United States of trying to stop the Nord Stream 2 pipeline of Russia to the EU so that the US can export their liquid natural gas to the EU, making the EU dependent on the United States.”
But then, there’s a possible game-changing aftermath; “That would spell the end of NATO if a trade war between the EU and the United States takes place.”

The usual Brexiteer suspects obviously are falling like a ton of bricks over the “Molotov-Ribbentrop 2 pipeline” – another trademark expression of paranoia by Poland.

They are even demonizing Germany for daring to do business with Russia, “undermining the security and economic interests of Eastern and Central Europe” and – yes, roars of laughter are in order — undermining “American emotional backing for NATO.”

So much pent-up “emotion” even leads to a nasty accusation of betrayal; “We know which side Poland is on. Which side is Germany on?”

What’s really unforgivable though is that Nord Stream 2, in practice, buries for good failed state Ukraine’s $2 billion in revenue from pipeline fees.

Nord Stream 2 is opposed by all the usual suspects; Poland; the Baltic states; Washington; but also the Nordic states. The top official argument is that it “harms EU energy security”. That in itself embeds a massive joke, as the EU has been harming itself in interminable “energy security” discussions in Brussels for over a decade.

Lucrative creative destruction, anyone?

Analyst Peter G. Spengler qualifies the US Senate bill as a “declared, but not yet executed act of warfare, an act of (sanctions) war against Germany and Austria directly, possible recipients within the EU indirectly.”

Spengler draws attention to the reminder of the FRG/USSR Agreement on Economic Cooperation of 1978 with a 25 years duration 1978 Agreement of Economic Cooperation between the then Federal Republic of Germany and the USSR, designed to last for 25 years; “This agreement together with all the foregoing treaties between West Germany and the Soviet Union were the basis on which [Helmut] Kohl could build his ‘Haus Europa’ with the Soviet Union/Russia from the summer of 1989 in Bonn onwards.”
Crucially, this agreement also included a gas transportation triangle between Moscow, Teheran and Bonn, and was “fiercely but completely clandestinely embattled by the Carter administration, among so many silent wars against the Federal Republic of Germany in those years.”

And guess who was trying to sabotage the agreement 24/7; recently deceased Polish “Grand Chessboarder” Zbigniew Brzezinski.

So nothing much changed since the late 1970s; Washington demonizing both Tehran and Moscow. The section of the US Senate bill related to Russia is some sort of after thought to yet another hardcore package against Iran, the Countering Iran’s Destabilizing Activities Act (which includes the Russia sanctions.)

It’s not an accident that the US Senate sanctions bill targets energy; this is a sub-product of a fierce energy war. But what is the US Senate really up to? Call it creative (lucrative) destruction.
The US Senate is convinced that Nord Stream 2 “would compete with US exports of liquefied natural gas to Europe”. Thus the US government “should prioritize the export of United States energy resources in order to create American jobs, help United States allies and partners, and strengthen United States foreign policy”.

Yet this has absolutely nothing to do with helping “allies and partners”; it’s rather a case of US energy majors getting a little help from their friends/puppets in the Senate. It’s in the public domain how US energy majors donated over $50 million in 2015/2016 to get these people elected.

Watch those Hamburg fireworks

Compared to the US Senate, the role of the European Commission (EC) in the saga remained somewhat murky, until it became clear it will interfere via a “mandate”. This “mandate” will have to be approved by a “reinforced qualified majority” vote by member states, a higher than usual threshold of 72 percent of EU states representing 65 per cent of the population.

Spengler observes how, “the commission’s continued attempts to get a legal foot in the contracts between European companies and Gazprom would be much more detrimental and potentially efficient than even a President’s signing of the Senate (and House) sanctions law.”

So where will this all lead? Arguably towards an extremely messy clash “between the European Commission/Court of Justice and German/Austrian (plus Russian) jurisdiction.”

The Senate bill will have to be backed by a veto-proof majority in the House; that vote won’t happen before the G-20 in Hamburg. Then it would become law – assuming President Trump won’t squash it.

The key, “nuclear” issue is a non-mandatory clause for the US Treasury to sanction those five Western firms involved in Nord Stream 2. If the law is approved, the White House better ignore it. Otherwise Germany, Austria and France will definitely interpret it as a declaration of war.

Trump and Chancellor Angela Merkel will definitely be on a collision course at the G-20, with Merkel emphasizing discussions on climate change, refugees and no trade protectionism, much to Trump’s disgust. The Russia sanctions bill just adds to the unholy mess. Expect a lot of fireworks “celebrating” those bilaterals in Hamburg.

Thousands Of Americans Are Fleeing The Big Cities In Preparation For The Coming American Apocalypse

Authored by Michael Snyder via The Economic Collapse blog,

Why are so many people suddenly moving away from major U.S. cities?  Recently, I wrote about the mass exodus that is happening out of the state of California, but the truth is that what is happening there is just part of a national phenomenon.  The populations of some of our largest cities are steadily shrinking, and many experts are completely mystified by the seismic demographic shifts that we are now witnessing.  Of course there are a whole host of reasons why people would want to move away from huge cities such as Chicago, Detroit, Baltimore and Cleveland.  For some families, it simply comes down to wanting a better life for their children.  But as you will see below, there are others that believe that things in this country are about to take an apocalyptic turn, and the big cities will not be a place that you want to be when economic collapse, rioting, looting, civil unrest and crime are all spiraling out of control.

According to data just released by the U.S. Census Bureau, Chicago took the prize for the biggest population loss from 2015 to 2016, and it was followed by Detroit and Baltimore…

The counties containing Chicago, Detroit and the independent city of Baltimore were the biggest population losers in the United States from 2015 to 2016, according to data released today by the Census Bureau.

Cook County, Ill., where Chicago is the county seat, had the largest population loss of any county in the country from 2015 and 2016.

Cook County alone had a “domestic migration” loss of more than 66,000 people.  That is a staggering number of people to lose in a single year.

Cleveland and Milwaukee were also very high on the list, and some are pointing out that all of these cities are in relatively colder climates and are all struggling economically.

So you certainly can’t blame people living in these cities for wanting to find somewhere warmer and more economically prosperous to live.

But others that are moving away from large cities are deeply concerned about where things are ultimately headed in this country.  It doesn’t take a genius to see that anger, frustration and hatred are rising all around us, and many believe that conditions are ripe for civil unrest and civil conflict.  In fact, best-selling author Doug Casey believes that we could soon see a “civil war” that is set off by a “financial collapse”…

Best-selling author Doug Casey wrote “Crisis Investing” at the time when the U.S. political landscape was transitioning from the Carter Administration to the Reagan Administration. Now, Casey sees a coming crisis that is equal or worse than the Civil War.  Casey explains, “In the U.S. right now, there seems to be so much antagonism it’s almost like pre-Civil War.  There is actually hatred in the U.S. at this point.  It used to be the Republicans and Democrats could disagree, but they could have a civil conversation about a difference of opinion.  Now, it’s active hatred between these two groups.  This is not going to end well.”

Casey thinks the coming financial collapse will be the trigger. Casey says, “It’s going to come down eventually.  I am worried about that, but we are in a situation where the country seem like it is just before a civil war.  It will be more serious than just a financial collapse, and it is likely to be set off by a financial collapse.”

Without a doubt, our financial system is certainly primed for a financial collapse, and when things get really, really bad in this country how will people respond?

Many have decided that they want to get away from the major population centers before we find out the answer to that question.

For example, not too long ago the Chicago Tribune ran a story about why so many preppers are moving to the Great Northwest.  One of the individuals profiled was an ex-resident of California named Trevor Treller who moved up to north Idaho prior to the recent election…

Trevor Treller, 44, who carries a small Smith & Wesson pistol on his hip, moved to north Idaho last year from Long Beach, California, and recently paid a little less than $400,000 for a defensible three-bedroom house on five wooded acres.

Treller, a sommelier at a local resort, said Obama was a key factor in his decision. He said the president has inflamed racial tensions in America, presided over a dangerous expansion of the national debt, been “hostile” to Second Amendment rights and failed to curtail the nuclear ambitions of North Korea and Iran.

Treller said any one of those factors could lead to crippling chaos, so he and his wife have laid in food, weapons and ammunition and are installing an iron gate across their long gravel driveway.Of course it isn’t just ordinary Americans such as Treller that are deeply concerned about what is coming.

Less than a week ago, CNN ran an article entitled “Billionaire bunkers: How the 1% are preparing for the apocalypse“…

Many of the world’s elite, including hedge fund managers, sports stars and tech executives (Bill Gates is rumored to have bunkers at all his properties) have chosen to design their own secret shelters to house their families and staff.

Gary Lynch, general manager of Texas-based Rising S Company, says 2016 sales for their custom high-end underground bunkers grew 700% compared to 2015, while overall sales have grown 300% since the November US presidential election alone.

So why are Bill Gates and his billionaire friends so interested in buying luxury survival bunkers if everything is going to be just fine?

Can someone explain that one to me?

Everywhere you look, retail stores are closing and economic warning signs are flashing red, but those that sell survival bunkers to the elite are making tremendous amounts of money.

And I certainly wish that I could afford one of these survival bunkers, because they sound quite appealing…

One of those shelters, Vivos xPoint, is near the Black Hills of South Dakota, and consists of 575 military bunkers that served as an Army Munitions Depot until 1967.

Presently being converted into a facility that will accommodate about 5,000 people, the interiors of each bunker are outfitted by the owners at a cost of between $25,000 to $200,000 each. The price depends on whether they want a minimalist space or a home with high-end finishes.

The compound itself will be equipped with all the comforts of a small town, including a community theater, classrooms, hydroponic gardens, a medical clinic, a spa and a gym.

These elitists plan to ride out the coming American apocalypse in style while the world above them is literally going insane.

Meanwhile, most of the general population continues to be completely oblivious to what is about to happen to them, and so the events that are coming will close upon them suddenly like a trap and there will be no escape.

Stockman Warns Trump "Flynn's Gone But They're Still Gunning For You, Donald"

Submitted by David Stockman via The Ron Paul Institute for Peace & Prosperity,

General Flynn"s tenure in the White House was only slightly longer than that of President-elect William Henry Harrison in 1841.  Actually, with just 24 days in the White House, General Flynn"s tenure fell a tad short of old "Tippecanoe and Tyler Too".  General Harrison actually lasted 31 days before getting felled by pneumonia.

And the circumstances were considerably more benign. It seems that General Harrison had a fondness for the same "firewater" that agitated the native Americans he slaughtered at the famous battle memorialized in his campaign slogan. In fact, during the campaign a leading Democrat newspaper skewered the old general, who at 68 was the oldest US President prior to Ronald Reagan, saying:

Give him a barrel of hard [alcoholic] cider, and… a pension of two thousand [dollars] a year… and… he will sit the remainder of his days in his log cabin.

That might have been a good idea back then (or even now), but to prove he wasn"t infirm, Harrison gave the longest inaugural address in US history (2 hours) in the midst of seriously inclement weather wearing neither hat nor coat.

That"s how he got pneumonia! Call it foolhardy, but that was nothing compared to that exhibited by Donald Trump"s former national security advisor.

General Flynn got the equivalent of political pneumonia by talking for hours during the transition to international leaders, including Russia"s ambassador to the US, on phone lines which were bugged by the CIA. Or more accurately, making calls which were "intercepted" by the very same NSA/FBI spy machinery that monitors every single phone call made in America.

Ironically, we learned what Flynn should have known about the Deep State"s plenary surveillance from Edward Snowden. Alas, Flynn and Trump wanted the latter to be hung in the public square as a "traitor", but if that"s the solution to intelligence community leaks, the Donald is now going to need his own rope factory to deal with the flood of traitorous disclosures directed against him.

In any event, it was "intercepts" leaked from deep in the bowels of the CIA to the Washington Post and then amplified in a 24/7 campaign by the War Channel (CNN) that brought General Flynn down.

But here"s the thing. They were aiming at Donald J. Trump. And for all of his puffed up bluster about being the savviest negotiator on the planet, the Donald walked right into their trap, as we shall amplify momentarily.

But let"s first make the essence of the matter absolutely clear. The whole Flynn imbroglio is not about a violation of the Logan Act owing to the fact that the general engaged in diplomacy as a private citizen.

It"s about re-litigating the 2016 election based on the hideous lie that Trump stole it with the help of Vladimir Putin. In fact, Nancy Pelosi was quick to say just that:

"The American people deserve to know the full extent of Russia"s financial, personal and political grip on President Trump and what that means for our national security," House Minority Leader Nancy Pelosi said in a press release.

Yet, we should rephrase. The re-litigation aspect reaches back to the Republican primaries, too. The Senate GOP clowns who want a war with practically everybody, John McCain and Lindsey Graham, are already launching their own investigation from the Senate Armed Services committee.

And Senator Graham, the member of the boobsey twins who ran for President in 2016 while getting a GOP primary vote from virtually nobody,  made clear that General Flynn"s real sin was a potential peace overture to the Russians:

Sen. Lindsey Graham also said he wants an investigation into Flynn"s conversations with a Russian ambassador about sanctions: "I think Congress needs to be informed of what actually Gen. Flynn said to the Russian ambassador about lifting sanctions," the South Carolina Republican told CNN"s Kate Bolduan on "At This Hour. And I want to know, did Gen. Flynn do this by himself or was he directed by somebody to do it?"

We say good riddance to Flynn, of course, because he was a shrill anti-Iranian warmonger. But let"s also not be fooled by the clinical term at the heart of the story. That is, "intercepts" mean that the Deep State taps the phone calls of the President"s own closest advisors as a matter of course.

This is the real scandal as Trump himself has rightly asserted. The very idea that the already announced #1 national security advisor to a President-elect should be subject to old-fashion "bugging," albeit with modern day technology, overwhelmingly trumps the utterly specious Logan Act charge at the center of the case.

As one writer for LawNewz noted regarding acting Attorney General Sally Yates" voyeuristic pre-occupation with Flynn"s intercepted conversations, Nixon should be rolling in his grave with envy:

Now, information leaks that Sally Yates knew about surveillance being conducted against potential members of the Trump administration, and disclosed that information to others. Even Richard Nixon didn’t use the government agencies themselves to do his black bag surveillance operations. Sally Yates involvement with this surveillance on American political opponents, and possibly the leaking related thereto, smacks of a return to Hoover-style tactics. As writers at Bloomberg and The Week both noted, it wreaks of "police-state" style tactics. But knowing dear Sally as I do, it comes as no surprise.

Yes, that"s the same career apparatchik of the permanent government that Obama left behind to continue the 2016 election by other means. And it"s working. The Donald is being rapidly emasculated by the powers that be in the Imperial City due to what can only be described as an audacious and self-evident attack on Trump"s Presidency by the Deep State.

Indeed, it seems that the layers of intrigue have gotten so deep and convoluted that the nominal leadership of the permanent  government machinery has lost track of who is spying on whom. Thus, we have the following curious utterance by none other than the Chairman of the House Intelligence Committee, Rep. Devin Nunes:

"I expect for the FBI to tell me what is going on, and they better have a good answer," he told The Washington Post. "The big problem I see here is that you have an American citizen who had his phone calls recorded."

Well, yes. That makes 324 million of us, Congressman.

But for crying out loud, surely the oh so self-important chairman of the House intelligence committee knows that everybody is bugged. But when it reaches the point that the spy state is essentially using its unconstitutional tools to engage in what amounts to "opposition research" with the aim of election nullification, then the Imperial City has become a clear and present danger to American democracy and the liberties of the American people.

As Robert Barnes of LawNewz further explained, Sally Yates, former CIA director John Brennan and a large slice of the Never Trumper intelligence community were systematically engaged in "opposition research" during the campaign and the transition:

According to published reports, someone was eavesdropping, and recording, the conversations of Michael Flynn, while Sally Yates was at the Department of Justice. Sally Yates knew about this eavesdropping, listened in herself (Pellicano-style for those who remember the infamous LA cases), and reported what she heard to others. For Yates to have such access means she herself must have been involved in authorizing its disclosure to political appointees, since she herself is such a political appointee. What justification was there for an Obama appointee to be spying on the conversations of a future Trump appointee?

Consider this little tidbit in The Washington Post. The paper, which once broke Watergate, is now propagating the benefits of Watergate-style surveillance in ways that do make Watergate look like a third-rate effort.  (With the) FBI "routinely" monitoring conversations of Americans...... Yates listened to "the intercepted call," even though Yates knew there was "little chance" of any credible case being made for prosecution under a law "that has never been used in a prosecution."

And well it hasn"t been. After all, the Logan Act was signed by President John Adams in 1799 in order to punish one of Thomas Jefferson"s supporters for having peace discussions with the French government in Paris. That is, it amounted to pre-litigating the Presidential campaign of 1800 based on sheer political motivation.

According to the Washington Post itself, that is exactly what Yates and the Obama holdovers did day and night during the interregnum:

Indeed, the paper details an apparent effort by Yates to misuse her office to launch a full-scale secret investigation of her political opponents, including "intercepting calls" of her political adversaries.

So all of the feigned outrage emanating from Democrats and the Washington establishment about Team Trump"s trafficking with the Russians is a cover story. Surely anyone even vaguely familiar with recent history would have known there was absolutely nothing illegal or even untoward about Flynn"s post-Christmas conversations with the Russian Ambassador.

Indeed, we recall from personal experience the thrilling moment on inauguration day in January 1981 when word came of the release of the American hostages in Tehran. Let us assure you, that did not happen by immaculate diplomatic conception -- nor was it a parting gift to the Gipper by the outgoing Carter Administration.

To the contrary, it was the fruit of secret negotiations with the Iranian government during the transition by private American citizens. As the history books would have it because it"s true, the leader of that negotiation, in fact, was Ronald Reagan"s national security council director-designate, Dick Allen.

As the real Washington Post later reported, under the by-line of a real reporter, Bob Woodward:

Reagan campaign aides met in a Washington DC hotel in early October, 1980, with a self-described "Iranian exile" who offered, on behalf of the Iranian government, to release the hostages to Reagan, not Carter, in order to ensure Carter"s defeat in the November 4, 1980 election.

The American participants were Richard Allen, subsequently Reagan"s first national security adviser, Allen aide Laurence Silberman, and Robert McFarlane, another future national security adviser who in 1980 was on the staff of Senator John Tower (R-TX).

To this day we have not had occasion to visit our old friend Dick Allen in the US penitentiary because he"s not there; the Logan Act was never invoked in what is surely the most blatant case ever of citizen diplomacy.

So let"s get to the heart of the matter and be done with it. The Obama White House conducted a sour grapes campaign to delegitimize the election beginning November 9th and it was led by then CIA Director John Brennan.

That treacherous assault on the core constitutional matter of the election process culminated in the ridiculous Russian meddling report of the Obama White House in December. The latter, of course, was issued by serial liar James Clapper, as national intelligence director, and the clueless Democrat lawyer and bag-man, Jeh Johnson, who had been appointed head of the Homeland Security Department.

Yet on the basis of  the report"s absolutely zero evidence and endless surmise, innuendo and "assessments", the Obama White House imposed another round of its silly school-boy sanctions on a handful of Putin"s cronies.

Of course, Flynn should have been telling the Russian Ambassador that this nonsense would be soon reversed!

But here is the ultimate folly. The mainstream media talking heads are harrumphing loudly about the fact that the very day following Flynn"s call -- Vladimir Putin announced that he would not retaliate against the new Obama sanctions as expected; and shortly thereafter, the Donald tweeted that Putin had shown admirable wisdom.

That"s right. Two reasonably adult statesman undertook what might be called the Christmas Truce of 2016. But like its namesake of 1914 on the bloody no man"s land of the western front, the War Party has determined that the truce-makers shall not survive.

The Donald has been warned.

After Obama, A New Dawn Or More Of The Same?

Submitted by William Anderson via The Mises Institute,

Nearly four decades ago, political pundits were shocked as voters turned away President Jimmy Carter and voted in Ronald Reagan, who promised to bring fundamental change to Washington and the indwelling political establishment. At the time, unemployment was rising quickly and inflation raged in double-digits, and Reagan had promised to deal with the economic failures by cutting income tax rates, slashing government spending, and reducing the regulatory burden.

As we know, Reagan succeeded in convincing Congress to do one of those three things — cut income tax rates — but the spending and regulatory monster continued to grow. The Carter administration already had initiated most of the major deregulation initiatives, and Reagan’s role in that area was minor at best. Reagan had to deal with something else in 1982 that threatened to turn his presidency into a one-term failure: a major recession in which the nation’s unemployment rate rose to above 10 percent and the disappearance of whole swaths of the nation’s industrial sector, resulting in what has been called the “Rust Belt” of the northern United States.

Ending 1970s-Style Inflation

We know the rest of the story. The economy recovered (despite interest rates that were above 10 percent) and Reagan won re-election in 1984 in a huge electoral landslide. We also know that while the Reagan administration had many failures, capital investment nonetheless turned toward the “high-technology” sectors and telecommunications.

The one thing that was on no one’s political agenda in 1980 was on Federal Reserve Chairman Paul Volcker’s mind: how to wring inflation out of the system and reestablish some balance in the monetary sector. Reagan claimed that by cutting tax rates, businesses would follow with new investments and increase the supply of goods available to consumers, thus reducing inflation on the “supply side.” This is why the Reaganites referred to their plan as “Supply-side Economics.”

Volcker understood, however, that while supply-side’s boosters might have claimed it to be a painless way to end inflation, it clearly would be doomed to failure, something Austrian economists like Murray Rothbard and others also comprehended. Inflation is first and foremost a monetary phenomenon and reducing inflation would not come about by just cutting taxes and producing more goods. Instead, Volcker and the Fed needed to stop expanding the economy’s money supply and also allow interest rates to rise — and rise they did.

Unfortunately, the pundits (along with most economists — who should have known better) employed the post hoc ergo propter hoc fallacy, claiming that higher interest rates caused the severe recession of 1982. Instead, the higher interest rates exposed the economic malinvestments that needed to be liquidated before the economy could have a real recovery, and while Austrian economists are not necessarily satisfied with what the Fed and US government did during the 1980s, some positive things happened with the economy during the 1980s.

Will Trump Pop the Bubble?

Donald Trump faces a much different situation post-election than did Ronald Reagan, but nonetheless a recession looms, as the Federal Reserve policies of the past two decades have piled up a mountain of malinvestments, and especially since 2008, when the housing bubble finally crashed.

Since then, the economic “game plan” for the Fed and the Barack Obama administration has been to prop up the weak sectors of the economy through a combination of outright subsidies and Fed security purchases. The stunning diagram below explains in part why both interest rates are extraordinarily low and the US economy remains sluggish.

As one can readily see, Fed purchases pre-2008 meltdown consisted mostly of six-month U.S. Treasury Bills, with the dollar amount being about 5 percent of US Gross Domestic Product (GDP). Post-meltdown purchases, however, have skyrocketed, and the Fed, while cutting back on six-month T-bills, has engaged in two very questionable activities, including the purchase of massive numbers of mortgage securities to continue what is left of the housing bubble, and buying long-term US bonds in order to decrease the interest rate spread between short-term and long-term securities. This is something that former Fed Chairman Ben Bernanke called “Operation Twist” (or what Peter Schiff more aptly said should be named “Operation Screw”).

The purchases tended to level off after 2014, but not until the Fed was propping up a quarter of U.S. GDP through its purchases. Yes, the official rate of unemployment in this country is less than 5 percent, but no one — not even Paul Krugman — is claiming that all is well. Certainly, both Bernie Sanders and Donald Trump were able to generate a lot of political enthusiasm for saying the economy is in peril.

The Real Problems Underlying This "Expansion"

Because Keynesians are wedded to the false “theory” of aggregate demand and aggregate supply, they are incapable of understanding the real issues facing the economy, and no one should be surprised. After all, Japan’s political and business leaders have been delusional for a quarter of a century, as the government now is trying to “stimulate” the economy via negative interest rates, something that truly places the government in a war with nature. For that matter, Krugman’s recent claims that future “austerity” measures — presumably imposed by the future Trump administration — will lead to a recession actually demonstrates a terrible ignorance of what actually causes economic downturns.

The US economy clearly is sluggish, yet interest rates are very low, thanks to Fed programs like quantitative easing. Yet, while Keynesians call for increased amounts of government borrowing and spending (called “fiscal policy” in Keynesian jargon), the problem isn’t a lack of government-bred “stimulus.” The problem is that of large-scale malinvestments. When the Fed finds it necessary to use its large checkbook to manipulate huge swaths of the economy through playing with interest rates, there is no doubt that there are large underlying weaknesses throughout the economic system. Combine that with the vast government subsidies of “green” energy and the gargantuan amounts of money being poured into the unproductive US Armed Forces, and one can see that the government is cannibalizing the productive sectors in order to prop up the unproductive ones.

What Must Be Done

What needs to be done, or more specifically, what must the government not do so that a real economic recovery can occur? First, and most important, the Fed must stop purchasing mortgage securities and long-term treasuries. That means that both mortgage rates and long-term interest rates will rise, and this also will pull up short-term rates. The economy cannot have a recovery if the Fed fails to do this.

All of this seems to be counterintuitive, since both Keynesians and Austrians agree that the immediate effect of the Fed’s discontinuation of such purchases would mean a steep, short-term recession. Permitting interest rates to rise means that both housing and related industries will be hit hard (as was the case in 1982 — and the industry demanded a bailout). The current economy — sluggish as it is — is addicted to low rates, and this cannot go on if the USA is going to avoid the fate of Japan and Europe, where the economy also is weak.

Austrians vs. Keynesians

However, Austrians and Keynesians diverge at interpreting what actually is happening after interest rates increase. Keynesians claim that aggregate demand is falling and will continue to fall until the economy reaches bottom unless government intervenes through spending and more money creation. Austrians, on the other hand, realize that in the short term, malinvestments that built up during the credit-caused boom are being liquidated, and if government and monetary authorities permit the liquidation and do not block the redirection of resources, entrepreneurs will lead the economy into a real recovery.

For that matter, Austrians and Keynesians are not even on the same planet when it comes to interpreting the role of interest. Austrians note that interest rates are connected to time preferences of borrowers and savers, and that interest rates send signals regarding the direction of capital goods and consumer goods. Keynesians, on the other hand, see interest rates as the gateway for aggregate demand, and suggest that interest rates generally should be lower than they would be if set by the market.

This difference of thinking is crucial. Keynesians demand an economic version of the alleged Einstein definition of insanity: doing the same thing repeatedly and expecting different results. Japan has engaged both in massive government spending (read that, building tunnels, roads, and bridges to nowhere) and monetary manipulation, even resorting to negative interest rates, and yet Japan suffers from anemic economic growth — and will continue to experience the same until someone is willing to admit that 25 years of “stimulus” does not an economy make.

Donald Trump will face this moment, like it or not. Barack Obama faced it and decided to kick the can down the road and opt for yet more “stimulus.” How Trump deals with it will determine whether or not the US economy recovers from bad policies, or goes the way of Japan and Europe.

The irony (at least for Keynesians and fellow True Believers) is that the very thing that Keynesians believe will create long-term economic downturn — raising interest rates — is what the US economy needs most. More than a decade of artificially-low interest rates has distorted the economy’s structures of production to the point where it will take a sharp recession to bring back productive balance — as counterintuitive as that may seem to many readers. There is no doubt that should Trump agree to allow rates to rise, he will pay a steep political price, as there is no doubt that the Dow Jones Average will tank and short-run liquidation of malinvestments will create some havoc.

What should Trump do when higher interest rates expose many of the dislocations? In a word, nothing. When the 1982 recession was in full force and much of official Washington, along with journalists, was calling for reflation of the economy, bailouts, and other “corrective” measures, President Reagan simply replied, “Stay the course.” Although, as noted earlier, Reagan did a number of things that were both politically and economically harmful throughout his presidency, nonetheless, he was right on that point, and ultimately his stubbornness bore some economic fruit.

Trump's Paradox: To Reach His Economic Targets, The President Would Need A "Dramatic Surge In Immigration"

In what could become an ideological paradox for Donald Trump, according to the ECRI, the president would have no choice but to allow a substantial number of immigrants into the US if he wishes to reach his goal of adding 25 million jobs over the next 8 years as his administration has promised.

As the ECRI calculates without a dramatic surge in immigration – or the number of women joining the labor force – it will be virtually impossible to add 25 million jobs in the next eight years - one of the bedrock economic growth promises of the Trump administration. This is because a key measure of economic health, the number of people participating in the work force (LFPR), that showed positive trends in the 20th century, has been going in the wrong direction largely because fewer women are participating.

The vast majority of baby boomers attained adulthood in the 28 years between the end of President Truman’s last term and the end of President Carter’s term, when male and female populations both grew at about 1.7% per year, on average. But in the next 20 years, until the beginning of the 21st century, the male population grew at only three-quarters of that pace and the female population grew at only two-thirds of that pace. In the 21st century, population growth slowed a bit further (not shown). The point that many appreciate is that overall population growth is well below what it used to be through the waning years of the Carter administration.

But drilling down to gender-related data shows a much more troubling story. Following the end of World War II, almost seven-eighths of the over-16 male population and nearly one-third of the over-16 female population were in the labor force (see chart). However, the LFPR for men has fallen continuously ever since, with the decline speeding up between the mid-1950s and the mid-1960s, then slowing somewhat until the eve of the Great Recession, around which time it took another step down, ending up at 69%.

In sharp contrast, the LFPR for women kept rising throughout the second half of the 20th century, converging quickly with the male LFPR, and rising rapidly between the mid-1970s and early 1980s — essentially the Carter years and early Reagan years. The pace of increase in the LFPR for women slowed in the 1980s and 1990s, and then peaked just above 60% around the end of the 20th century.

In effect, this convergence between the LFPRs for men and women, which was a critical feature of the 20th century job market, ended in the late 1990s. Only in the wake of the Great Recession did the two LFPRs come a bit closer, but that was just because the men’s participation rate fell even faster than women’s.

Furthermore, with the rising role of technological replacement and obsolescence of unskilled and semi-skilled menial laborers, the natural rate of job creation could be even slower.

As a result, with both the participation rate continuing to decline, to a big extent due to population demograhics, as well as due to a slowdown in the natural growth rate of the organic US population, Trump may have no choice but to open the floodgates to foreigners if he hopes to hit his 25 million bogey.