America"s Decline And The Neglect Of Luther"s Principles Of Liberty

Authored by S.T.Karnick via Specator.org, 

Freedom requires a sense of personal responsibility if it is to survive.

With the nation’s news dominated by reports of political corruption (most recently, the Clintons’ apparent use of “pay to play” schemes during Hillary Clinton’s tenure as U.S. secretary of state), sexual harassment scandals pandemic among the nation’s elites, extreme vulgarization of political speech and the common culture, riots against freedom of speech on the nation’s college campuses, paralyzing partisanship in Congress, death threats and open assassination attempts against government leaders and police officers, and the rest of the dismaying parade of moral shortcomings on display among the nation’s leaders in all walks of life, it appears that we are in the midst of a war not just between political and cultural factions, but over the very definition of our civilization.

The primacy of individual liberty versus rule by elites is at the heart of this conflict, but with a twist: The undermining of personal responsibility is creating a backlash against liberty as people rampantly abuse their freedoms. A half-millennium ago, the German monk and theologian Martin Luther set the foundations for the modern world by redefining the relationship between people and their institutions, shattering the legal structures that insulated elites from the consequences of their misdeeds.

Writing in the Wall Street Journal on the eve of the 500th anniversary of the beginning of the Protestant Reformation, King’s College history professor Joseph Loconte insightfully traces the sources of Martin Luther’s ideas about freedom of the individual will and the world-changing effect those thoughts would have over the subsequent half-millennium.

Although Luther was committed to the spiritual authority of the Catholic Church, his religious views about spiritual elitism would eventually affect political attitudes throughout the West, introducing “a radical egalitarianism that helped lay the foundation for modern democracy and human rights.” Loconte writes,

 

Luther came to despise every form of spiritual elitism. He sought to replace rigid church hierarchies with “the priesthood of all believers,” the proposition that there are no qualitative differences between clergy and laity. “Just because we are all priests of equal standing,” he wrote in “An Open Letter to the Christian Nobility” (1520), “no one must push himself forward and, without the consent and choice of the rest, presume to do that which we all have equal authority.”

Luther’s “message of freedom” has not lost its power after five centuries, Loconte notes, providing a useful example for those who today oppose the many leaders of modern U.S. institutions who abuse their offices for personal gain:

Luther took an ax to the legal culture that shielded priests and bishops from criminal prosecution simply because they held church offices. “It is intolerable that in canon law, the freedom, person, and goods of the clergy should be given this exemption, as if the laymen were not exactly as spiritual, and as good Christians, as they, or did not equally belong to the church.”

Loconte observes that Luther’s concept of liberty included a deep awareness of the responsibilities that accompany freedom:

“A Christian has no need of any work or law in order to be saved,” [Luther] insisted, “since through faith he is free from every law and does everything out of pure liberty and freely.” Christian liberty of this kind provided no excuse for libertinism. Just the opposite: “I will therefore give myself as a Christ to my neighbor, just as Christ offered himself to me.”

Our nation’s founders universally acknowledged this view, evident in observations such as this from Benjamin Franklin: “Only a virtuous people are capable of freedom. As nations become more corrupt and vicious, they have more need of masters.”

Similarly, the rise and proliferation of such masters undermines virtue, both by making choice impossible (one cannot earn moral credit for actions done under compulsion) and by creating moral hazard, artificial reduction of the risks associated with making choices.

Thus, the enormous growth of government in the United States over the past 125 years both reflects and generates the loss of the idea of liberty, which has made national greatness possible.

We are seeing the results in economic stagnation, the takeover of the nation’s institutions by thieves and tyrants, the decline of U.S. power in the world, and the dizzying array of stories of personal corruption among the nation’s leaders in all walks of life.

The fall of today’s political and cultural icons cannot arrive too soon.

 

Bank Of Japan Is Buying Bonds From Scandal-Hit Kobe Steel

Last week, the simmering scandal involving Japan"s third largest steel producer exploded, when following reports that Kobe Steel had falsified data about the quality of its steel, aluminum, copper, iron powder and other products it sold to customers across virtually every single industry, Japan"s Nikkei also reported that some Kobe Steel plants in Japan had been falsifying product quality data for decades, well beyond the roughly 10-year time frame given by the lying steelmaker. Worse, not only did the company, having already been caught, lie to shareholders and rule-abiding employees how long this illegal behavior had been going on, but - in a glaring example of corporate idiocy - had effectively enshrined and codified its fraudulent ways, as the cheating procedures eventually became institutionalized in what was a fraud manual, allowing the practice to continue as managers came and went.

As all this was taking place, not only did the stock price of Kobe Steel plunge, but its bonds tumbled sending its default probability sharply higher.

 

It now turns out that the rout would have been far worse, had it not been a direct intervention by the BOJ itself, which appears to have stepped in and bought Kobe bonds to arrest the plunge.

Posing a rhetorical question, "to buy or not to buy", the Nikkei reports that "the Bank of Japan appears to have chosen the former in considering whether to include debt issued by scandal-hit Kobe Steel in its bond-buying operations."

Here, it may come as a surprise to some that as part of its ultra-loose monetary easing policy, the Japanese central bank also holds roughly 3.2 trillion yen ($28.4 billion) in corporate debt, similar to the ECB"s CSPP program. The BOJ maintains that balance through purchasing operations held roughly once a month. This past Thursday"s operation was the bank"s first since Kobe Steel"s data tampering came to light earlier in October.

While the BOJ has previously avoided bonds from companies rocked by scandal, according to an official at a Japanese asset management company, this seems to no longer be the case. Whereas such avoidance has occurred even if the security otherwise meets credit ratings and other requirements set by the bank, when it comes to Kobe bonds, Kuroda decided to make an explicit exception.

And like the ECB, which provides only token transparency when it comes to its corporate bond purchases, the BOJ is likewise opaque about its open market operations. Investors who want to sell corporate bonds in a BOJ operation often do so via brokerages. These investors do not know whether the central bank bought the debt until results of the operation surface later that evening. And, as the Nikkei reports, it was learned later Thursday - to the relief of investors - that the bank purchased around 20 billion yen to 30 billion yen worth of corporate bonds, a major insurance provider estimated. About 170 billion yen worth of Kobe Steel bonds are circulating in the market, more than 40 billion yen of which fulfills BOJ requirements.

Since the BOJ does not break down the purchases by issuer, whether the central bank bought Kobe Steel bonds can be inferred by the average interest rate of corporate bonds accepted. A clue that the BOJ had indeed purchased Kobe steel bonds - the metric jumped from the prior operation in September, suggesting the steelmaker"s bonds likely were included in the purchases. Since only one company saw a dramatic spike in its bond yields - and default probability - it can be safely concluded that the BOJ did in fact purchase bonds from the distressed corporation.

Of course, having purchased Kobe Steel bonds means that the central bank has once again greenlighted an unprecedented moral hazard, encouraging bond traders to buy bonds issued by a company which according to some may be facing bankruptcy in the not too distant future. Indeed, even the Nikkei writes that the Bank of Japan finds itself in an awkward position:

"If it did buy Kobe Steel bonds, investors who normally would steer clear of such a company may purchase the asset anyway in anticipation of selling it to the BOJ. But if the bank blacklists Kobe Steel, investors might see the bonds as an even bigger risk."

An even better question: should Kobe Steel file for bankruptcy, and its debt be equitized in the form of post-reorg equity, just how will the BOJ act when, after buying billions in Kobe bonds, it finds itself a major equity stakeholder in the restructured company? While we don"t know the answer, it will certainly be a closely followed case study in central bank "activism", because after the next downturn, all eyes will be on the ECB which over the past 16 months has purchased over €110 billion in European corporate bonds with increasingly lower credit ratings. After the next European recession, many of these issuers will be bankrupt, leaving the ECB as one of the major equity stakeholders in an unknown number of upcoming restructuring processes, where it will ultimately end up owning post-reorg equity.

Or perhaps neither the BOJ nor ECB will allow any of the corporate names in its bond portfolio to default, bidding up bonds without relent, and resulting in the most bizarre zombie company world of all: one where bankrupt companies see their bonds trading at (or above) par, unable to file for bankruptcy - just like Greece - as the alternative would be the "new normal" financial equivalent of "crossing the streams."

Ending the Golden Age of Nothingness

Sir Isaac Newton once famously said, "If I have seen further, it is by standing on the shoulders of giants."

Well, Ike knew a thing or two; for it is indubitable that he would never have had the necessary foundation of knowledge to whip up the law of universal gravitation without the works of Euclid or Copernicus before him. If not for Bach - and his father"s strict hand - perhaps Beethoven would have been a bricklayer. Without Langton and Magna Carta, the Founding Fathers never write the Constitution.

Those giants of Western Civilization were once of a sort that served mankind with wisdom, guiding their antecedents to look towards a future of beauty, freedom, and existential meaning. One Golden Age developed after another as great men were inspired to outdo the other or even to reach for the heavens in art, architecture, music, and literature.

Lately, though, it seems we"ve decided to perch instead on postmodern beings who, while great in technological stature, are cultural ogres. 

When we peer through the looking glass today, all we see, both immediately surrounding and far afield, is a desolation of ugliness and mediocrity:

• Soulless architecture that betokens our standing as utilitarian drones.


• Popular music sung (or mumbled, rather) in the gutter-mouthed patois of degenerate gang members.


• Pointless films - often written by committee and informed by focus groups - that wallow for two banal hours in quick-cut action scenes without dramatic tension; one-dimensional characters as performed by two-dimensional celebrities in third-rate productions.


• An educational system that replaces the canon of Dante, Donne, and Mallory with The Red Wheelbarrow.

Modern art affirms nothing except for mindless consumerism and appealing to our basest instincts. For all our advanced tools and broad access to them, mankind should be practically minting new artistic genius. Yet nothing today can top the achievements of those of ages gone by.

So why then does Nature no longer, to paraphrase Forster, "throw out a god" to stand out as divine amongst the "thin-hammed mediocrities", than when there were billions fewer in the world?

Because when it comes to art, profit motive suborns beauty and invites the average.

This wasteland came about when the best and most talented minds - those who could have been the next Shakespeare or Michelangelo - departed the land of the arts in favor of a life serving as cogs in a corrupted, increasingly statist machine that separates individuality and spits out utility.

When potentially great creators go where the money is, the fields of cultural endeavor are left to be tended by fools.

Soon after the best and brightest left for semi-lucrative STEM careers, the lands became fallow and our current Cultural Dark Age is the result; this abandonment has left the arts securely in the hands of green-haired Gender Studies majors and Nietzsche"s Last Man in skinny jeans.

Each passing generation then subsists off this degraded fare which nourishes neither the intellect nor the soul. Eventually, there will be no one left who can remember tasting anything better and thus the negative feedback loop is in full motion.

It will only worsen until conservatives realize that those who pump the imagery of art into the minds of the young wield infinitely more power than any engineer or writer of computer code could ever dream. That is why the left won the propaganda wars of the past few generations so completely. The cycle only breaks when the political right starts grooming their children to Make Culture Great Again.

One is constantly reading well-meaning advice in the columns and comments sections of alternative media stressing that parents should continue to nudge their children towards the hard sciences, because that"s the sector where they can procure the best livelihoods.

This is sound on the surface, especially for young adults whose gifts are geared for such work. But if you do push them towards those disciplines, make sure they are on the path to self-employment or starting their own companies. Because even in the STEM fields, conservatives hold little power.

Those kids will eventually be forced to toil for the leftists of Silicon Valley who grew up immersed in, and proudly adhere to, subversive culture.  Or the budding scientist must supplicate to those in Washington who dispense the science grants. Kiss advancement goodbye if you hold the wrong opinions.

They"ll be employed by a corsortium of elitists whose ultimate goals are not only antithetical to tradition and morality, but will hasten its extinction.

These are the oligarchs whose philosophical ends are to bring about the Singularity, to silence dissent, or level humanity under one-world governance where cultural greatness, or even humble simplicity, will be made impossible. Better that your kid become a blue-collar laborer or even a NEET with a free mind than to be servants to a wicked system.

But for those of you with children of a creative bent, consider home-schooling them (or enrolling them in carefully-selected private schools) so you can bypass an educational system that is actively airbrushing Western Man"s achievements out of the history books; a system that has perverted the traditional liberal arts beyond recognition and almost out of remembrance.

Once a sufficient number are again steeped in what is the best of mankind, they will be back on the shoulders of proper giants.

They will then write the great novels, paint the sublime portraits, and direct the spiritually fortifying films that can make the fields of culture fertile once more. In so doing, the mediocrities will be banished to their romper rooms where they can frame each other"s finger paintings in deserved obscurity.

By reclaiming education and the arts from the left, we can end our current Golden Age of Nothingness and maybe even repair capitalism in the process.

A new Renaissance - moored to beauty, truth, and ethics - will ennoble the Man of the West, restoring him back to a balanced, fuller humanity. It will be as a torch to burn off the fraud and moral hazard that has attached itself like a leech to our increasingly globalist going concerns. Where virtue exists in abundance, such shady and mercenary practices are reviled.

Economic patriotism and handshake deals will be back in vogue. Instead of capitalism making utility of man, man will make utility of capitalism as originally conceived.

Lord Feverstone of Dystopia USA

New Study Suggests War Lust May Have Cost Hillary Clinton The Election

Authored by Mike Krieger via Liberty Blitzkrieg blog,

Late last week, I came across a fascinating article published at Mondoweiss highlighting a recent study positing that Hilary Clinton may have lost the election to Donald Trump partly as a result of her well documented lust for imperial war and aggression.

Here are a few excerpts from the piece:

An important new study has come out showing that Clinton paid for this arrogance: professors argue that Clinton lost the battleground states of Wisconsin, Pennsylvania, and Michigan in last year’s presidential election because they had some of the highest casualty rates during the Iraq and Afghanistan wars and voters there saw Clinton as the pro-war candidate.

 

By contrast, her pro-war positions did not hurt her in New York, New Jersey, Connecticut, and California, the study says; because those states were relatively unscathed by the Middle East wars.

 

The study is titled “Battlefield Casualties and Ballot Box Defeat: Did the Bush-Obama Wars Cost Clinton the White House?” Authors Francis Shen, associate professor at the University of Minnesota Law School, and Dougas Kriner, a political science professor at Boston University, strike a populist note.

And here are the authors themselves on the moral hazard at work here. The people who decide are not suffering as much.

 

America has been at war continuously for over 15 years, but few Americans seem to notice. This is because the vast majority of citizens have no direct connection to those soldiers fighting, dying, and returning wounded from combat. Increasingly, a divide is emerging between communities whose young people are dying to defend the country, and those communities whose young people are not.

No nation can remain a cohesive unit for long under the above circumstances. Not to mention the fact that it’s extraordinarily unethical.

Here is another powerful excerpt from the paper:

 

Imagine a country continuously at war for nearly two decades. Imagine that the wars were supported by both Democratic and Republican presidents. Continue to imagine that the country fighting these wars relied only on a small group of citizens—a group so small that those who served in theater constituted less than 1 percent of the nation’s population, while those who died or were wounded in battle comprised far less than 1/10th of 1 percent of the nation’s population.

 

And finally, imagine that these soldiers, their families, friends, and neighbors felt that their sacrifice and needs had long been ignored by politicians in Washington. Would voters in these hard hit communities get angry? And would they seize an opportunity to express that anger at both political parties? We think the answer is yes.

 

Their argument is obviously aimed at coastal elites, which have more power than rural communities over decision-making, but far less to lose. The authors are unsparing about the very different experience of war for different communities. 

 

When the United States goes to war, the sacrifice that war exacts in blood is far from uniformly distributed across the country. And in the Civil War, Korea, Vietnam, and Iraq, constituencies that have suffered the highest casualty rates have proven most likely to punish the ruling party at the polls.

In the Iraq and Afghanistan wars, for example, seven states have suffered casualty rates of thirty or more deaths per million residents. By contrast, four states have suffered casualty rates of fifteen or fewer deaths per million. As a result, Americans living in these states have had different exposure to the war’s human costs through the experiences of their friends and neighbors and local media coverage.

 

The four states with the lowest rates are NY, NJ, CT and Utah. All but Utah voted Democratic. Overall, rural states have higher casualty rates, and the authors find pretty significant inverse correlations between state income and education medians and casualty rates. Though it must be noted that Vermont suffered the worst casualty rate– more than 41 deaths per million– and it is home to the most vociferous antiwar candidate, Bernie Sanders, but was also very safe for Clinton.

People in the tristate area where I grew up should think a bit more deeply about support for imperial wars abroad, especially when their families aren’t as willing to make the necessary sacrifices.

Here’s Krayewski’s summary again, emphasizing the policy takeaway from the study:

 

The president’s electoral fate in 2020 “may well rest on the administration’s approach to the human costs of war,” the paper suggests. “If Trump wants to maintain his connection to this part of his base, his foreign policy would do well to be highly sensitive to American combat casualties.” More broadly, the authors argue that “politicians from both parties would do well to more directly recognize and address the needs of those communities whose young women and men are making the ultimate sacrifice for the country.”

The most effective way of addressing their needs is to advance a foreign policy that does not see Washington as the world’s policeman, that treats U.S. military operations as a last resort, and that rethinks the foreign policy establishment’s expansive and often vague definition of national security interests.

Reason also covered the study:

The paper—written by Douglas Kriner, a political scientist at Boston University, and Francis Shen, a law professor at the University of Minnesota—provides powerful lessons about the electoral viability of principled non-intervention, a stance that Trump was able to emulate somewhat on the campaign trail but so far has been incapable of putting into practice.

The study, available at SSRN, found a “significant and meaningful relationship between a community’s rate of military sacrifice and its support for Trump.” The statistical model it used suggested that if Pennsylvania, Michigan, and Wisconsin had suffered “even a modestly lower casualty rate,” all three could have flipped to Hillary Clinton, making her the president. The study controlled for party identification, comparing Trump’s performance in the communities selected to Mitt Romney’s performance in 2012. It also controlled for other relevant factors, including median family income, college education, race, the percentage of a community that is rural, and even how many veterans there were.

“Even after including all of these demographic control variables, the relationship between a county’s casualty rate and Trump’s electoral performance remains positive and statistically significant,” the paper noted. “Trump significantly outperformed Romney in counties that shouldered a disproportionate share of the war burden in Iraq and Afghanistan.”

For all his nice campaign rhetoric, Liberty Blitzkrieg readers will be well aware of my serious concerns when it comes to Trump’s foreign policy and his sincerity regarding keeping the nation out of unnecessary imperial wars. Nevertheless, if it’s true that Hillary’s war lust materially impacted the 2016 election, this unquestionably would be a great thing. It means real issues are finally coming to the fore of U.S. politics, and that populism truly is ascendant and isn’t going away. Hopefully members of Trump’s team are aware of the study and will make him memorize its contents.

If less imperial violence can in fact become a winning election theme, then we are indeed making some real progress.

Servitude In America's Plantation Economy

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

The only possible output of low social capital is rising inequality.

One of the themes I"ve been addressing since 2008 is the neocolonial-plantation structure of the U.S. economy. The old models of colonial exploitation that optimized plantations worked by cheap imported labor (or situated in peripheral nations with plenty of cheap labor) have, beneath the surface, been adapted to advanced capitalist democracies.

The adaptations have been so successful that not only do we not even recognize the Plantation structure--we love our servitude within it.

As noted yesterday, the current mode of production optimizes the commoditization of everything: computer chips, fish and chips, labor, expertise, everything.

This commoditization optimizes the Plantation Model of integrated production, global supply chains and distribution to global marketplaces, a hierarchical management focused on maximizing profits to send back to the owners, a ruthless focus on lowering costs via labor arbitrage (commoditize the work so it can be performed anywhere labor is cheaper/more desperate) and a fanatical desire to eliminate competition or fix prices via cartels to ensure high profits.

Global capital has optimized the Plantation Model in the form of global corporations. Wal-Mart is the quintessential example. Like a classic agricultural plantation, Wal-Mart enters a region with a diverse, employment-rich ecology of small businesses and supply chains of local and regional manufacturers and distributors, and it bulldozes the entire "forest" of businesses, suppliers and distributors with the irresistible blade of integrated global supply chains and "lower prices, always."

Wal-Mart replaces the localized economy with a low-pay, highly efficient plantation economy in which the townpeople"s only choice is to work for Wal-Mart or scrape out a living feeding the Wal-Mart workers, doing their laundry, etc.--exactly as on a classic plantation.

On a classic plantation, the wages are low and the "company store" offers easy credit, binding the workers to the corporation not just for wages but for credit.

Those few who manage to save up enough capital to start small service businesses-- laundry, cafes, etc.--must do so in the shadow of the Company, which can always drive them out of business should they speak against their corporate overlords.

A once-diverse landscape is reduced to a monoculture wasteland dependent on subsidies, either implicit or explicit. Wal-Mart"s low wages leave many of its workers" families on state aid or food stamps to survive, and so it prospers on the backs of taxpayers who subsidize its low wages.

The alternative is not some fantasy of "old-time America"--this model still exists where citizens refuse to submit to the mono-tyranny of "low prices."

Isn"t it odd how this statement--the nation does not exist to benefit corporations, corporations exist to benefit the nation and its citizenry --sounds breathtakingly revolutionary in today"s politics of experience?

One of the key concepts in the Survival+ critique is the politics of experience. This is an elusive concept because what we take for granted is invisible to us, and we have to go back in time, so to speak, to rediscover a history in which the experience of daily life was quite different from the present.

Today, we accept it as "normal" that marketing worms into every once-private area of our lives. Not that long ago, adverts and marketing were limited to print media (newspapers and magazines) and TV--fundamentally passive media.

The key concept in all marketing now is supremely pernicious: any advert or campaign which reaches deep into the last refuges of privacy is considered highly valuable.

Where the only public adverts were once billboards, now there are adverts on the shopping carts in the supermarket--another violation of what could be considered temporary private space--and on the floor of the supermarket. Even the rubber dividers used to separate one"s own purchases from the next customers now display an advert.

The colonization of the plantation of the mind is now complete. It is not coincidental that those citizens who "consume" the most media are also the biggest buyers of junk food and its accompanying junk worldview based on consumption, faux novelty ("get the new chicken-bacon-cheese-double-burger today!") and a passive disengagement from the real world: we endlessly watch cooking shows rather than actually cook real food in our own kitchens.

The plantation of the mind optimizes consumption, impulse buying and short-term thinking: just buy the junk we"re pushing, and what happens to you afterward is your problem.

Experience itself has become so derealized that we don"t even recognize our perceptions and experiences have been organized into neatly internalized plantations.

It doesn"t have to be this way. As I explain in the Survival+ / Survival+ The Primer chapter entitled The Crisis of Neoliberal (Predatory) Global Capitalism, global capitalism has reached the limit of the plantation model in terms of exploiting new colonies around the globe and exploiting new sources of cheap, abundant energy.

The only possible output of a hyper-financialized Plantation Economy is rapidly increasing wealth and income inequality--precisely what we see now.

What we need is a social economy, an economy that recognizes purposes and values beyond maximizing private gains by any means necessary, which is the sole goal of hyper-financialized Plantation economies.

Given the dominance of profit-maximizing corporations and the state, we naturally assume these are the economy. But there is a third sector, the community economy, which is comprised of everything that isn’t directly controlled by profit-maximizing companies or the state.

What differentiates the community economy from the profit-maximizing market and the state?

1. The community economy allows for priorities and goals other than maximizing profit. Making a profit is necessary to sustain the enterprise, but it is not the sole goal of the enterprise.

2. The community economy is not funded by the state.

3. The community economy is locally owned and operated; it is not controlled by distant corporate hierarchies. The money circulating in the community stays in the community.

4. The community economy is not dominated by moral hazard; the community must live with the consequences of the actions of its residents, organizations and enterprises.

The community economy includes small-scale enterprises, local farmer’s markets, community organizations, social enterprises and faith-based institutions. Its structure is decentralized and self-organizing; it is not a formal hierarchy, though leaders naturally emerge within civic and business groups.

The Plantation Economy institutionalizes poverty, parasitic finance, externalized costs, moral hazard (since the corporate/state overseers do not live in the community being cannibalized) and centralized wealth and political power. These are the only possible outputs of the hyper-financialized Plantation Economy.

Once the Plantation Economy has displaced the community economy, opportunities for work and starting small enterprises shrivel, and residents become dependent on state social welfare for their survival. By eliminating the need to be a productive member of the community, the welfare state destroys positive social roles and the inter-connected layers of the community economy between the state and the individual.

When the individual receives social welfare from the state, that individual has no compelling need to contribute to the community or participate in any way other than as a consumer of corporate goods and services. State social welfare guts the community economy by removing financial incentives to participate or contribute.

Why is the community economy so important? The community economy is first and foremost the engine of social capital, which is the source of opportunity and widely distributed wealth.

Corporations cannot replace communities for the simple reason each organization has different purposes and goals. The sole purpose and goal of a corporation is to expand capital and profits, for if it fails to do so, it falters and expires.

The purpose of a community is to preserve and protect a specific locale by nurturing social solidarity: the sense of sharing a purpose with others, of belonging to a community that is capable of concerted, collective action on the behalf of its members and its locale.

It is not accidental that the current system of corporations, banks and the state increases inequality and erodes the community economy: the only possible output of low social capital is rising inequality.

(I discuss community economies in my book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.)

We have a choice. We can continue loving our servitude in our Plantation Economy, or we can choose another model and another mode of production.

Deutsche Bank Accuses ECB Of "Creating Asset Bubbles, Expropriating Savers And Backdoor Socialization"

While not quite as full of fire and brimstone as his June report in which Deutsche Bank"s chief economist, David Folkerts-Landau said that "The ECB must change", and in which he accused Mario Draghi of putting not only the ECB"s future at risk, but the future of the entire Eurozone, with its destructive policies, overnight the German bank"s top economist released yet another subversive if quite accurate analysis which could have come from your typical, fringe (blog which has accused the central banks of all of this for many years), in which Folkerts-Landau once again exposes that "dark sides of QE", listing "Backdoor socialisation, expropriated savers and asset bubbles."

And, in an amusing twist, none other than Deutsche Bank"s twitter account subtweeted the ECB earlier this morning pointing out that "ECB intervention: negative repercussions are becoming overwhelming "

#ECB intervention: negative repercussions are becoming overwhelming https://t.co/XAX0q6Dw8N #dbresearch

— Deutsche Bank (@DeutscheBank) November 2, 2016

While the 6-page paper does not contain anything particularly groundbreaking, the fact that DB continues to push the openly confrontational narrative, demanding the ECB unwind its extraordinary measures, suggests that the German bank continues to suffer, and most importantly, this outright bashing of Draghi"s policies received the explicit green light of John Cryan.

The summary of the note, as crystalized by Bloomberg, is the following: "While European central bankers commend themselves for the scale and originality of monetary policy since 2012, this self-praise appears increasingly unwarranted,” because, as he concludes, “ECB is stuck ... between an unfavorable equilibrium of low growth, high unemployment and zero reform momentum on the one hand and growing risks to core country balance sheets on the other.”

Here are the main points of the report. Stop us if you have heard these countless times in the past:

The dark sides of QE

Backdoor socialisation, expropriated savers and asset bubbles

While European central bankers commend themselves for the scale and originality of monetary policy since 2012, this self-praise appears increasingly unwarranted. The reality is that since Mr Draghi’s infamous “whatever it takes” speech in 2012, the eurozone has delivered barely any growth, the worst labour market performance among industrial countries, unsustainable debt levels, and inflation far below the central bank’s own target.

While the positive case for European Central Bank intervention is weak at best, it seems that the negative repercussions are becoming overwhelming. This paper outlines the five darker sides to current monetary policy.

The first is a paradox of ECB intervention: that monetary policy stifled the very reform momentum it sought to create. Up until July 2012, high interest rates and refinancing threats forced governments to be serious about reforms. Indeed, pre-2012, more than half the growth initiatives recommended by the OECD were being implemented across the eurozone. But last year just twenty per cent were. ECB intervention has curtailed the prospect of significant reforms in labour markets, legal systems, welfare systems, and tax systems across the continent.

Second, bond prices have lost their market-derived signalling function. Since investors began to anticipate sovereign purchases by the central bank in late 2014, intra-eurozone government bond spreads have been locked together. In turn, misrepresentative sovereign yields distort the whole fixed income universe that is priced off government debt.

Perhaps the darkest side of ECB monetary policy is the increasing concentration of risk on the eurosystem balance sheet – expected to be EUR 2tn by March 2018. In the event of a debt restructuring of a eurozone member, the liabilities of the national central bank are likely to be borne by the taxpayers of the other eurozone member states, even if losses are spread over a long period. Fundamentally, however, the debt will have been socialised.

Fourth, ECB intervention has not been a net positive for eurozone savers. While high and stable revaluation gains have buttressed total returns over recent years, this is clearly a one-time gain. Today, rising energy prices, the shortage of high coupons and ultimately mean-reversion are likely to take their toll.

Finally, the misallocation of capital caused by ECB policy is preventing creative destruction and causing asset bubbles. Increased lending has gone mostly to low quality existing borrowers while obviating troubled banks from the need to write down loans. Without creative destruction in ailing industries, investors in high-saving countries have simply bid-up the price of healthy assets.

One of the most salient points, and one we have been pounding the table on ever since the start of QE, is what the economist callsed the "paradox of EVB intervention", which can be simply summarized as monetary policy stifling the very reform momentum it sought to create. To be sure, this website has said ever since the start of the decade, that through their monetary intervention, central banks obviate the need for much harder, structural reform (which can cost politicians their careers) and fiscal policy. Folkerst-Landau is one of the most prominent strategists to agree with this:

Up until July 2012, high interest rates and refinancing threats forced governments to be serious about reforms. Indeed, pre-2012, more than half the growth initiatives recommended by the OECD were being implemented across the eurozone. But last year just twenty per cent were. ECB intervention has curtailed the prospect of significant reforms in labour markets, legal systems, welfare systems, and tax systems across the continent.

To undescroe his point he shows data which clearly demonstrates that t“deficit countries” – France, Estonia, Greece, Ireland, Italy, Portugal, Slovakia and Spain – made a much greater effort in 2011 and 2012 than they did last year. Indeed, the OECD itself says that in the early part of the European debt crisis “reform responsiveness” was greater in countries that were facing more difficult circumstances, though that correlation has broken down somewhat lately. The OECD also warns against over-interpreting year-over-year changes too much, as many types of improvements to economic frameworks take years to complete.

As Bloomberg adds, Folkerts-Landau draws a conclusion that the OECD does not, namely that the reason for this slowdown is the more favorable conditions that the deficit countries are enjoying on bond markets, in particular after the ECB announced its OMT bond-buying plan in 2012. That compressed bond yields as well as the urge to reform, he argues. “Any incentive to reform disappeared with the guarantee to bail out countries in need via OMT."

Some other valid criticisms from the DB economist:

• Bond prices have lost their signalling function: Another casualty of ECB policy is financial analysis. Since the last few months of 2014, when markets began to anticipate sovereign purchases by the central bank – subsequently announced in January 2015 – intra-eurozone government bond spreads have been more or less locked together. For example, Italian and Spanish bond spreads versus bunds have hovered in a 120 basis points range, notwithstanding the political risks in both countries. By contrast, Portuguese bond spreads have increased almost 120 to 310 basis points during the past 12 months, due to heightened concerns that the only remaining agency rating Portuguese debt as investment grade might change its assessment – which ultimately has not happened – thereby making them no longer eligible for quantitative easing.


• Mounting strain on the eurosystem balance sheet: Potentially the biggest negative repercussion of ECB monetary policy is the fate of the substantial claims by the central bank on member countries held through the eurosystem balance sheet. Based on the potential losses a core country is theoretically on the hook for given the costs associated with the two main rescue funds (EFS and ESM), quantitative easing and Target2, it is inconceivable that any member country would be allowed to fail, save a small one with limited contagion effects.... Target2 imbalances are already elevated and will continue to rise. These imbalances, which are a proxy for the accumulated current account deficits or surpluses of eurozone member countries to each other, first became an issue during the periphery funding crisis in the first half of 2012. Then, capital flight from periphery countries to core economies increased imbalances substantially. These subsequently narrowed in 2013 and 2014 after President Draghi’s “whatever it takes” speech. However, they have subsequently moved back to levels experienced during the heights of the bank funding crisis in 2012. As researchers from the Dutch Central Bank suggest in a recent article, this is partly due to quantitative easing. Investors who sell assets under quantitative easing to their national central bank in vulnerable countries have tended to put the proceeds into bank deposits in countries with the highest perceived creditworthiness. The recent surge in Target2 imbalances is slightly different compared with 2012 in that it is supply-driven (quantitative easing) rather than demand-driven (capital flight). But the underlying logic is the same.


• Difficult times for savers. The effect on savers’ ability to plan and execute long-term planning is another negative externality of the prolonged low and negative interest rate environment. For German households thus far, the ECB and Bundesbank are correct in pointing out that the impact on savers has so far been limited, but it is not clear for how long this can continue. Consider that nominal total returns for German households have averaged 3.4 per cent over the past four years, similar to the average throughout the 2000s and similar to the rest of the eurozone. In fact, real returns even trended upwards due to declining inflation since 2012. Even nominal returns on interest-bearing investments did not slip below two per cent until 2015 because a large proportion of longer-dated and mostly higher-coupon investments dampened the effect of evaporating market returns.  In this sense, the evidence suggests that savers have not yet suffered the full brunt of ECB monetary policy. However, many of these effects are unrepeatable and likely to be exhausted.


• No creative destruction, many asset bubbles.  While ever-lower rates were meant to encourage real economic activity, investment opportunities remain scarce due to the lack of structural reforms and creative destruction in inefficient industries. OMT and the collapse in bond spreads benefited the worst-quality borrowers disproportionately. In their paper “Whatever it takes: The Real Effects of Unconventional Monetary Policy”2, Acharya et al. show that peripheral banks with large holdings of national sovereign debt enjoyed a “recapitalisation through the backdoor” from revaluation gains. These banks increased lending, but mostly to low quality existing borrowers. Such firms benefitted from rates often below what high-quality public borrowers had to pay, and used cheap funding to repay debts, instead of financing employment or investment. The authors show OMT supported “zombie companies” via evergreening, which prevented banks from the need to write down the existing loans. Without the creative destruction of ailing industries, investors have simply bid-up the price of healthy assets. These now function as the exhaust valve, especially in countries with substantial net savings. The flipside of tumbling yields across Europe is therefore inflated asset prices and a general hunt for yield.

The DB report wraps up the complaints into a familiar lament: the ECB has unleashed moral hazard on such an unprecedented scale that it will be simply impossible to unwind the trillions in stimulus.

The euro’s design – a combination of unified monetary policy and national fiscal policy where rules can be ignored without sanction – is flawed. But with Mr Draghi’s promise of “whatever it takes” the implied moral hazard was pushed into a much larger dimension.

There are two broad options now. The eurozone could move towards fiscal union and the sharing of liabilities. Alternately, policymakers could install a system more geared towards individual fiscal responsibility, via re-introducing market-based pricing of sovereign risks. The former is not being proposed by any national politician in the eurozone, because it is unpopular. The second could be the ideal solution, though it is difficult to imagine politicians seeking re-election in the periphery to back a move to raise risk premia on their own assets. Moreover it would likely also be rejected by the ECB, since it would – at least in the ECB’s own logic – undermine the effects of its monetary policy.

The conclusion is as scathing as anything we, or any other rational thinker could have put together:

And so the ECB is stuck, as it has been since 2012, between an unfavourable equilibrium of low growth, high unemployment and zero reform momentum on the one hand, and growing risks to core country balance sheets on the other. It remains to be seen how it will escape from this dilemma of its own making.

How will the ECB respond to this latest criticism? The same way Mario Draghi always has reacted to unkind words, by sarcastically casting it aside, and telling his fawning fans that all that is needed is a little more time, a little more QE and slightly lower rates and everything will be fixed. And if that fails, then "whatever it takes"... again.

Source

ECB's First Chief Economist Warns: The EU Is A "House Of Cards"

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

None of the following about the EU will come as a surprise to most of you, but the language used by Otmar Issing is nevertheless pretty remarkable.

The Telegraph reports:

The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.

“One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.

Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.

The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said. 

The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.

The central bank already holds over €1 trillion of bonds bought at “artificially low” or negative yields, implying huge paper losses once interest rates rise again. “An exit from the QE policy is more and more difficult, as the consequences potentially could be disastrous,” he said.

“The decline in the quality of eligible collateral is a grave problem. The ECB is now buying corporate bonds that are close to junk, and the haircuts can barely deal with a one-notch credit downgrade. The reputational risk of such actions by a central bank would have been unthinkable in the past,” he said.

Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all. The Greeks should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma.

Indeed, as I highlighted in last year’s post: German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks.

Jacques Delors, the euro’s “political” founding father, issued his own candid post-mortem last month on the failings of EMU but disagrees starkly with Prof Issing about the nature of the problem.

His foundation calls for a supranational economic government with debt pooling and an EU treasury, as well as expansionary policies to break out of the “vicious circle” and prevent a second Lost Decade.

The fact that some are actively considering this in the wake of all the populist movements tells on the continent, tells you just how disconnected many of these people are.

“It is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis,” said the Delors report.

Prof Issing is not a German nationalist. He is open to the idea of a genuine United States of Europe built on proper foundations, but has warned repeatedly against trying to force the pace of integration, or to achieve federalism “by the back door“.

He decries the latest EU plan for a “fiscal entity” in the Five Presidents’ Report, fearing that such move would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life, beyond democratic accountability.

Such a system would erode the budgetary sovereignty of the member states and violate the principle of no taxation without representation, forgetting the lessons of the English Civil War and the American Revolution.

Of course, since most EU technocrats have virtually no capacity for introspection, there’s close to a zero percent chance they’ll do the right thing. Therefore, as I laid out in the post, It’s Not Just the UK – Widespread Support for EU Referendums Seen Across the Continent, here’s how I see things playing out:

1. Euro skepticism is on the rise.


2. EU technocrats will fight back with sticks instead of carrots, furthering euro-skepticism.


3. Great Britain will be the first, but probably not the last country to hold an EU referendum over the next 5-10 years.


4. The EU as it stands is a failed experiment. This is proven by the inept and corrupt handling of both the Greek “bailout” program and the refugee crisis.


5. The only solution is to increase decentralization and restore national democracy within the framework of some of the popular attributes the EU offers.


6. EU technocrats are obsessed with a further centralization of power and will continue to push it against the will of the people.


7. The EU will ultimately disintegrate as a result of overwhelming popular dissent to technocratic scheming and incompetence.

For related articles, see:

German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks

Does the Migrant Crisis Represent the End of the European Union?

Video of the Day – Here’s What Happened When a Member of European Parliament Tried to Read the TTIP Text

The EU Wants to Impose a Tax for Sharing Links on the Internet

Head of the European Parliament Warns – EU at Risk of Falling Apart