- What Will Europe's Internet Look Like After Passage Of Orwellian Directive?
Last month, members of the EU Parliament voted to advance a controversial copyright directive that contains provisions forcing tech giants to install content filters, while also setting in place a potential tax on hyperlinking.
The bill, known as Article 13, would filter everything anyone posts online and match it to a crowdsourced database of “copyrighted works” which anyone can add or change.
Good job, EU.
Once again, you have proven that your MEPs are old people who have not understood until today and who also boast of their “fight against unauthorized sharing” so that they leave like him:#uploadfilter #SaveTheInternet #uploadfilter pic.twitter.com/Yw90onngut
— Timania (@TimaniaTM) September 12, 2018
https://platform.twitter.com/widgets.js
Another portion of the directive, Article 11, is a “link tax” that would ban a quoting more than one word from an article which links to another publication – unless you are using a platform which has paid for a linking license. The link tax does however allow member states to create limitations and exceptions in order to protect online speech.
What comes next?
Now that the directive has passed through Parliament, the next step, according to the Electronic Frontier Foundation, is the “trilogues,” which are closed-door meetings between European government officials, the European commission and the European Parliament – which will be the last time that the Directive’s language can be substantially changed without a second debate in Parliament.
That said, one woman is committed to shining light on the secret discussions:
Normally the trilogues are completely opaque. But Julia Reda, the German MEP who has led the principled opposition to Articles 11 and 13, has committed to publishing all of the negotiating documents from the Trilogues as they take place (Reda is relying on a recent European Court of Justice ruling that upheld the right of the public) to know what’s going on in the trilogues).
This is an incredibly important moment. The trilogues are not held in secret because the negotiators are sure that you’ll be delighted with the outcome and don’t want to spoil the surprise. They’re meetings where well-organised, powerful corporate lobbyists’ voices are heard and the public is unable to speak. By making these documents public, Reda is changing the way European law is made, and not a moment too soon. –EFF
That said, Articles 11 and 13 “are so defective as to be unsalvageable,” writes the EFF, adding that “when they are challenged in the European Court of Justice, they may well be struck down.”
The trilogues, meanwhile, will struggle to clarify all of the terms contained within the directive in order to resolve the inevitable potential for abuse and ambiguity. The trilogues can expand on the Directive’s broad brush strokes and proeduce quantifiable terms that will minimize negative effects of the law while it works its way through the courts.
Gaming the system
As the EFF notes, existing copyright filters such as YouTube’s ContentID sytstem are designed to block users who attract too many copyright complaints – but what if people are making false claims in order to punish ideological opponents? The platforms must be able to identify and terminate the accounts of such individuals who repeatedly make false or inaccurate claims concerning copyrights.
A public record of which rightsholders demanded which takedowns would be vital for transparency and oversight, but could only work if implemented at a mandatory, EU-level.
On links, the existing Article 11 language does not define when quotation amounts to a use that must be licensed, though proponents have argued that quoting more than a single word requires a license.
The Trilogues could resolve that ambiguity by carving out a clear safe-harbor for users, and ensure that there’s a consistent set of Europe-wide exceptions and limitations to news media’s new pseudo-copyright that ensure they don’t overreach with their power. –EFF
Meanwhile, the trilogues must absolutely safeguard against internet behemoths such as Facebook, Google and MSM news websites from creating licensing agreements that would exclude everyone else.
News sites, for example, should be able to opt out of requiring licenses for sites which would like to link to them without fear of lawsuits – however these opt-outs should be universally applied to websites big and small, so that the law doesn’t give unfair leverage to companies like Google, which could simply allow partners to negotiate an exclusive exemption, while punishing smaller players who would be drowning in license fees.
The Trilogues must establish a clear definition of “noncommercial, personal linking,” clarifying whether making links in a personal capacity from a for-profit blogging or social media platform requires a license, and establishing that (for example) a personal blog with ads or affiliate links to recoup hosting costs is “noncommercial.”
These patches are the minimum steps that the Trilogues must take to make the Directive clear enough to understand and obey. They won’t make the Directive fit for purpose – merely coherent enough to understand. Implementing these patches would at least demonstrate that the negotiators understand the magnitude of the damage the directive will cause to the Internet. –EFF
Meanwhile, the organizers of the trilogues are under the impression that they can iron out the wrinkles in the Directive within a few weeks of closed-door meetings. We have our doubts.
- 'Trident Juncture 2018' About To Kick Off: NATO's Big War Games Near Russia's Borders Never End
Authored by Alex Gorka via The Strategic Culture Foundation,
The NATO-led Trident Juncture 2018 (TRJE18) exercise that is to be held in October and November is the largest coordinated show of force since the Cold War. It will primarily be hosted by Norway. The training event will largely take place in the central and eastern parts of this Nordic country that neighbors Russia, as well as over the skies and in the seas of Sweden and Finland. The maritime component will be conducted in the surrounding areas of the North Atlantic and in the Baltic Sea. TRJE18-related activities will take place as far away as Iceland. Russia has been invited to send observers to watch the exercise.
Actually, TRJE18 consists of three parts. The deployment phase has been underway since August. A live field exercise will be held from October 25 to November 7 with six brigades fighting each other right in the heart of Norway. A command post training event will be conducted from November 13 to November 24.
The drill will involve 45,000 participants from over 30 nations, including 10,000 rolling or tracked vehicles, 150 aircraft, and 60 ships. The main goal is to test the ability of NATO’s new Response Force to rapidly deploy. Norway will evaluate its ability to receive and handle reinforcements sent by its allies.
There are 700 US Marines stationed in Norway. That’s not a huge force, but as Adm. James Foggo, who heads all US naval forces in Europe and Africa and commands the Allied Joint Force Command in Naples put it, “that’s 300 Marines today. 3,000 Marines tomorrow.” The American pre-positioned forward storage sites in Norway, a complex of caves, have been upgraded to store weapons and equipment for roughly 15,000 Marines. That Scandinavian country has become the source of a threat to Russia’s national security.
The Harry S. Truman Carrier Strike Group is also taking part. The aircraft carrier returned to its home base in Norfolk in July following a three-month deployment. It was back in Europe in mid-September. Normally, US carrier groups operate according to a standard seven-month cycle. Now they are being shifted to “dynamic force employment” in order to improve flexibility.
Finland will contribute significantly to this exercise that is based on a simulated Article 5 scenario, with its troops operating in their home region, in Sweden and Norway. It will also lead and host the naval exercise Northern Coasts 18 (NOCO18) in the Baltic Sea, which is linked to Trident Juncture. Finland is sending about 2,000 troops to TRJE18. The size of that force is comparable to the contributions made by leading NATO members. For example, Germany is sending 4,000 troops, the UK — 3,500 troops, France – 3,000, Canada — 2,000, Denmark — 1,000, Italy — 1,500, Spain — 1,000, and the Netherlands — 1,500. The US contribution will be 12,000 soldiers, and the primary host is sending 6,500 servicemen. There were only about 160 Finnish troops participating in the last Trident Juncture held in 2015. Three years ago, the drill was held in southern, not northern Europe.
Sweden, another non-NATO active participant, is sending about 2,200 troops, along with four Gripen fighters that will be based in Norway. Before the TRJE kicks off, US, Swedish, and Finnish forces will conduct their own exercises in Sweden. Both Finland and Sweden participate in NATO’s Response Force.
Until now, both Scandinavian nations have shied away from holding Article 5 exercises. The Trident Juncture 2018 is a drastic shift in that policy, which is being carefully evaluated by Russia.
At an unofficial level, Sweden and Finland have already joined NATO through other groups and agreements, such as their trilateral cooperation with the US. The militarization of Norway, as well as all of the Scandinavian Peninsula and the Baltic states is being perceived by Russia as a provocation and a threat that demands a response. The Baltic states continue to request an increased military presence on their soil. NATO is stockpiling weapons, military equipment, and ammunition in the Baltic region and Poland.
There is a backstory to the Trident Juncture 2018 exercise. In early October, US Envoy to NATO Kay Bailey Hutchinson said Russia had been put on “short notice,” due to its alleged violations of the 1987 Intermediate Nuclear Forces Treaty. She warned that the US might “take out the missiles” before they could be deployed if Russia did not back down.
This year, NATO has already coordinated approximately 100 exercises, 20% more than during the same period in 2017. Poland will invite NATO members and partners for another large-scale, officially “national” exercise, Anaconda 2018, which will be held at roughly the same time as some smaller NATO drills, such as Citadel Bonus-18, Iron Wolf-18, and Baltic Host-18. The hidden aim of the exercises is to keep those forces ready to close in on Russia’s borders. That’s why the alliance is creating this “military Schengen zone,” in an effort to minimize the time needed for troop deployment. Anaconda 18 will be a cover for the deployment of a US Army brigade in Europe, in addition to the deployment of the US 2nd Armored Brigade Combat Team. Next month, we’ll see an entire US mechanized division in operation in the Old World. Four NATO multinational battalion-size groups are already stationed in the Baltic states and Poland.
These never-ending exercises adjacent to Russia’s borders show that the terrorist threat has been forgotten. The North Atlantic alliance is too busy preparing for a large-scale invasion by Russia to even think about it. American strategists appear to have a short memory. It was not Russia who attacked the United States on 9/11. A different type of exercise would be needed to fend off a terrorist threat, but time, money, and efforts are being spent on war preparations against Moscow, which is fighting against the very same Islamic fundamentalists who threaten the West. Last month, Russia held a very large-scale training event dubbed Vostok 2018, but it was held in Russia’s Far East region so as not to provoke NATO, although that alliance did not seem to appreciate this thoughtful gesture.
It is true that the terrorist threat is no big prize for the defense industry. Opposing such big potential foes as Russia or China promises huge financial benefits for companies involved in military production. These never-ending and provocative exercises are needed to keep tensions high and justify the allocations of funds. This state of constant confrontation with Russia and China rakes in profits. The ends justify the means.
- US Army Wants 250,000 Next-Gen Combat Rifles And 150 Million Bullets
The US Army’s chief of staff said Monday that the next-generation squad weapon would fire faster, farther than previous infantry rifles and penetrate the most advanced body armor technologies in the world.
“It will fire at speeds that far exceed the velocity of bullets today, and it will penetrate any existing or known … body armor that’s out there,” Gen. Mark Milley told Military.com at the 2018 Association of the US Army’s Annual Meeting and Exposition. “What I have seen so far from the engineers and the folks that put these things together, this is entirely technologically possible … It’s a very good weapon.”
Textron/AAI Next-Generation Gun (one of five firms submitted prototype weapons for the program) 
Textron/AAI Next-Generation Gun Military.com said Gen. Milley’s comments come days after an Oct. 04 draft solicitation which announced the Army’s plan to “award up to three prototype Other Transaction Agreements … with each offeror developing two weapon variants and a common cartridge for both weapon, utilizing government-provided 6.8-millimeter projectiles,” according to FedBizzOpps. “The weapons include the Next Generation Squad Weapon-Rifle (NGSW-R) and the Next Generation Squad Weapon-Automatic Rifle (NGSW-AR).”
The contract solicitation on FedBizzOpps states the Army plans to award production for up to “250,000 total weapons system(s) (NGSW-R, NGSW-AR, or both), 150,000,000 rounds of ammunition, spare parts, tools/gauges/accessories, and engineering support.”
The contract award would be valued at “$10 million the first year and $150 million per year at the highest production rates,” it adds.
In July, we documented how the Army selected five firms to build next-generation squad automatic rifle prototypes. The contracts were the result of a prototype opportunities notice that we also covered in March for the small-arms industry to submit designs to replace the M249 light machine gun.
We also said the Army is preparing for decades of hybrid wars across multiple domains – space, cyberspace, air, land and maritime. Back in Oct. 2017, we examined the military’s latest Training and Doctrine Command report, which highlights how the next round of hybrid wars could begin somewhere around 2025 and last through 2040.
Military.com said Gen. Milley did not comment on the prototype contracts, but said there were “several prototypes that were advanced forward.”
He said the Army is forbidden to “speak too much about its technical capabilities because our adversaries watch these things very closely.”
“It’s a very sophisticated weapon, very capable weapon. It’s got an integrated sight system to it, and it also integrates into the soldier’s gear and other equipment that we are fielding,” Milley said. “And not surprisingly with a weapon like that, it’s probably pretty expensive. We expect it to be expensive so we are probably not going to field the entire Army with the weapon.”
“The bottom line is we are committed to a new rifle and a new squad automatic weapon,” said Gen. Milley. “We hope to be able to shoot it on ranges down at Fort Benning, [Georgia], hopefully … maybe sometime next year late summer.”
So in case you are wondering what the next high-tech assault rifle could look like, well, watch this video:
- The Myth Of The Eternal Market Bubble And Why It Is Dead Wrong
Authored by Brandon Smith via Alt-Market.com,
Economic collapse is not an event – it is a process. I’ve been saying this since the initial 2008 crash, and I suppose I will keep saying it until it burns into people’s minds because I don’t think that it is a widely understood concept. When alternative analysts talk about financial collapse, we are not talking about something that suddenly happens out of the blue, we are talking about an ongoing decline that occurs in stages. This decline is happening today in the U.S. and around the world, and it has been accelerating since the chaos of 2008. When we bring up the reality of collapse, we are referring to something that is happening NOW, not something waiting on the distant horizon.
The reason why some analysts can see it and others cannot is most likely due to the delusions surrounding market bubbles. These fiscal fantasy worlds are artificially created by central bank intervention and represent an attempt to mislead the populace on the true health of the system – for a limited time. People with foresight see beyond the false data of the bubble to the core economic reality; other people see only the bubble and nothing else.
When it comes to stock markets, bond markets, forex markets and the general casino economy, much of the public has a terrible inability to look beyond the next month let alone the next year. If the markets appear good now, the assumption is that they will always be good. If the central banks have intervened for the past 10 years, the assumption is they will intervene for the next 10 years.
There is no accounting for why the bubble exists in the first place. That is to say, many people including most economists do not consider that these bubbles serve a particular purpose for the banking elites and that this purpose has an expiration date. All bubbles collapse, and the reasons why they collapse are observable and predictable.
Still, the delusion persists that all this talk of “collapse” is simply “doom and gloom,” an event that might happen many years or decades from now, but it’s certainly not a threat taking place right in front of our faces. I attribute this misconception to several popular fallacies and propaganda arguments, and here they are in no particular order…
Fallacy #1: Central Banks Will Continue To Prop Up Markets Indefinitely
The newest generation of market traders and economists were still in high school and college when the 2008 crash hit equities. For the entirety of their careers, they have experienced nothing but an artificial economy supported by ongoing stimulus from central banks. They know of nothing else and know little of history, and thus they cannot fathom the possibility that central banks will one day pull the plug on their fiat life support.
The problem is that 10 years of stimulus is nothing more than a pause in the process of fiscal collapse of a civilization. In fact, the economic decline of nations could be represented as a series of imploding bubbles; each one lasting perhaps a decade, leading to more power and control for central banks and less prosperity for everyone else.
Anyone examining the history of recessions and depressions in the U.S. since the inception of the Federal Reserve in 1913 can easily see a steady pattern of artificially inflated asset values followed by pervasive downturns that siphon wealth from the middle class. This wealth never really returns. Each new downturn cripples the financial independence of the citizenry a little more, while international banks absorb more and more hard assets.
What mainstream economists don’t seem to grasp is that central banks and international banks are ALWAYS positioned to benefit from the crash of the bubbles they create. It is the reason why they inflated the bubbles from the very beginning. Central banks are not afraid to allow markets to plummet, they WANT markets to plummet. The banks simply want to be sure they are set up for optimum benefit when the system does crash.
Fallacy #2: Central Banks Will Never Stop Stimulus Measures
I’m not sure why this fantasy persists despite all evidence to the contrary, but it does. Even today, I still receive letters from people arguing that the Fed will “never” end stimulus, never raise interest rates and never cut their balance sheet. Yet, this is exactly what is happening.
I heard the same arguments years ago in 2013 when I predicted that the Fed would in fact taper QE. I heard them in 2015 when I predicted that the Fed would raise interest rates. And I have heard them for the past year after I predicted the Fed would continue cutting assets from their balance sheet.
There are some people that might claim that there is no way for us to know if the Fed is actually cutting off stimulus to the economy because we have no way to audit their activities. While it is true that we do not have access to their legitimate financial records, only the records they release to the public, we can still see the affects that their policies produce. Meaning, it is obvious that the Fed is in fact cutting support to the markets given the behavior of those markets the past year.
Emerging market stocks are crashing as the Fed announced continuing balance sheet cuts. Treasury yields are spiking at historic speed and interest costs are rising on everything from car loans to mortgage loans as the Fed increases interest rates. Foreign investment in U.S. Treasuries (or lack of investment) has become a major point of concern because QE support for T-bonds is gone. Massive corporate debt loads not seen since 2007/2008 are becoming more expensive as interest rates expand.
This month Fed Chairman Jerome Powell ended all speculation on the matter when he indicated that the Fed would not only continue raising rates up to the neutral rate (where interest meets inflation), but that they could continue raising rates well beyond that. The blind faith based market is truly over.
All evidence suggests that fiscal tightening is indeed happening. Some people refuse to see it because their biases prevent them from doing so. Perhaps they are heavily invested in U.S. stocks and don’t want to believe that the party is over. Perhaps they are incapable of admitting when they are wrong. It is hard to say. They argued for years that the Fed would never take the punch bowl away and they have been proven incorrect, but until they suffer direct consequences to their pocketbooks, they will not accept reality.
Fallacy #3: The Fed Will Return To Stimulus Japanese-Style
This is a very common claim designed to build false hope in markets. Bull rally hucksters and their followers have become so used to the easy life of “BTFD!” (Buy The F#$&ing Dip!) that they will apply any rationalization no matter how absurd in order to keep the fantasy going.
The claim is that because Japan’s stimulus measures have been “successful” in keeping their markets afloat for at least two decades, this is the most likely strategy for the Fed and other central banks as well. What these people have not considered, though, is the speed at which Japan’s central bank bought up assets versus the speed that the Fed has bought up assets.
The Bank of Japan’s balance sheet reached around $4.7 trillion (U.S.) at its peak, and as mentioned, this took decades of accumulation. The Fed’s balance sheet hit $4.5 trillion in the span of only 8-10 years.
There is a point at which asset purchases and stimulus simply do not have the same effect on markets as they did when those purchases began. Debt starts to weigh heavily on further market gains over time. There are multiple reasons why the Fed is choosing to implode the bubble now — one of them is that time is running out and they want a controlled demolition rather that a crash with a mind of its own.
The printing press is not magical; the basic rules of economics and mathematics still apply.
I’ve also heard the argument that because US GDP is so much larger than Japan’s, comparing their central bank balance sheets is “not practical.” Meaning, the U.S. has a larger GDP, therefore the Fed should be able to increase its balance sheet much further than Japan has. This claim obviously relies on the notion that “GDP” as it is calculated today is an accurate measure of how much debt burden a nation can carry.
If you consider Japan’s manufacturing capability alone, the U.S. with all its outsourcing pales in comparison in terms of economic resiliency. If you also consider that every time the government spends tax dollars these programs are often added to GDP as a form of “production” (this includes Obamacare), then the idea of GDP becomes a joke. The point being, it does not matter how healthy a nation’s GDP appears to be, the central bank can only create so much debt before it begins to drag down the core economy. The Fed has reached that limit.
Fallacy #4: The Fed Can Hyperinflate Markets Perpetually
This is the last-ditch delusion used by stock market addicts and disinformation peddlers to assert that the current bubble can and will be propped up for many years to come, even after the rest of the economy is in dire regression. It is based partially on historic examples of fiscal collapses that led to inflation. Sometimes this inflation flows directly into stock markets while the rest of the system sinks due to investors looking for a safe haven, and also due to central banks manipulating asset prices. This occurred in Weimar Germany during the hyperinflationary route of the 1920s, however, people who make this argument do not know the actual history of that collapse.
Germany did indeed see a considerable stock market rally just at the peak of the hyperinflationary crisis, but this period only lasted from 1924 to 1927. In 1927, the Federal Reserve, France and the German central bank intervened to deliberately crash the bubble. While central bankers today still assert the lie that the cause of this downturn was the gold standard, the truth is that it was central bank tightening of monetary policy into an already unstable economic environment that caused the crash.
An interesting article on this issue for those that would like a better historical reference is ‘With a Bang, Not a Whimper: Pricking Germany’s “Stock Market Bubble” in 1927 and the Slide into Depression‘ by Hans-Joachim Voth.
Does any of this sound familiar? It should. This is exactly what the Fed is doing today.
In the U.S. for the past decade we have already witnessed our period of inflation in stock prices. Now, the central bank is collapsing the bubble, just as they did in Weimar Germany, just as they did here in the U.S. during the Great Depression as Ben Bernanke admitted in 2002, just as they have done in every market bubble for the past century.
I predicted in February of this year in my article ‘Is A Massive Stock Market Reversal Upon Us?’that the early stock market drop would be followed by a period of mindless exuberance and a market bounce (which is what happened this past summer), followed by a return to an extreme stock plunge in the last quarter of 2018. This seems to be occurring now.
There is no eternal market bubble. There never will be. If not for the reason that economic fundamentals make it impossible, then for the reason that crashing these bubbles benefits globalists and banking elitists.
The goal? I believe the goal is to consolidate total power over production and labor using the deliberate institution of a poverty-based civilization. Beyond that, the goal is to make the populace perpetually desperate to the point that they are socially malleable. In order for the bankers to establish what they call their “New World Order,” they need chaos to tenderize the masses, but they also have to be seen as saviors that deserve to be in a position of authority over the global economy. They need to create disasters so they can then ride in on their white horse and save us from those disasters.
Why would central banks continue to perpetuate market bubbles when the destruction of those bubbles gives them opportunities for greater power?
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- China Trade Data Suggests Trump Is Not "Winning" The 'War'
While most attention among global onlookers is focused on the almost unbelievable divergence between US and Chinese stocks this year, actual ‘real’ Chinese import and export data suggest President Trump is far from winning this trade war… in fact it’s never been worse.
Headline trade figures show China exports to the rest of the world grew at 14.5% YoY in USD terms (almost double expectations) and imports rose 14.3% YoY in USD terms (below expectations and well below August’s 20% rise).
However, all eyes were on the US-China interaction and that’s where the fun and games begin…
Chinese exports to the US rose 14.0% YoY in USD terms – the most since February – but, Chinese imports from the US actually dropped 1.2% YoY in USD terms
That pushed China’s exports to US to a new record high and saw China’s imports from the US sink to 6-month lows… sending China’s trade surplus with the US to a new record high…
As Bloomberg notes, China’s exports rebounded, while imports remained robust, thanks to strong demand at home and abroad despite worsening relations with the U.S.
China’s exports have been growing robustly all year, in the face of rising tariffs and increasing uncertainty over relations with the U.S. Companies front-loading trade to get ahead of the expected tariff increases might explain part of the growth in the third quarter, but that would likely wane as the relationship between the world’s two biggest economies deteriorates.
“Chinese exports look set to weaken in the coming quarters as global growth slows,” wrote economists from Capital Economics in a note. “U.S. tariffs will also be a drag, although front-loading by US importers mean that much of the impact won’t be felt until next year.”
In other words, by the metric that President Trump judges the trade relationship with China – things have never been worse…ever!
However, trade growth may slow in the fourth quarter, the customs administration’s spokesperson said at a press conference, while cuts to import tariffs are boosting inbound shipments.
- The Gold Standard: Protector Of Individual Liberty And Economic Prosperity
Authored by Antonius Aquinas, annotated by Acting-Man’s Pater Tenebrarum,
A Piece of Paper Alone Cannot Secure Liberty
The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse.
Sound money vs. a piece of paper – which is the better guarantor of liberty? [PT]
Instead, in the American case, the Constitution created a powerful central government which eliminated much of the sovereignty and independence that the individual states possessed under the Articles of Confederation.
While the US Constitution contains a “Bill of Rights,” the interpreter of those rights and the protections thereof is the very entity which has enumerated them. It is only natural that decisions on whether, or if such rights have been violated will be in favor of the State.
Moreover, nearly every amendment which has come in the wake of the Bill of Rights, has augmented federal power at the expense of the individual states and that of property owners.
History has shown the steady erosion of individual rights and the creation of “new rights” and entitlements (education, health care, employment, etc.) which have occurred under constitutional rule. Instead of being a limitation on government power, constitutions have given cover for a vast expansion of taxation, regulation, debt, and money creation.
As Murray Rothbard notes in Anatomy of the State: “All Americans are familiar with the process by which the construction of limits in the Constitution has been inexorably broadened over the last century. But few have been as keen as Professor Charles Black to see that the State has, in the process, largely transformed judicial review itself from a limiting device to yet another instrument for furnishing ideological legitimacy to the government’s actions. For if a judicial decree of “unconstitutional” is a mighty check to government power, an implicit or explicit verdict of “constitutional” is a mighty weapon for fostering public acceptance of ever-greater government power.” Rothbard quotes Professor Black in several footnotes; one of them states: “Where the questions concern governmental power in a sovereign nation, it is not possible to select an umpire who is outside government. Every national government, so long as it is a government, must have the final say on its own power.” [PT]
Elimination of the Gold Standard as a Check on Government Power
While taxation has always been a facet of constitutional governments, it has been the advent of central banking and with it the elimination of the gold standard which has provided the means for the state to become such an omnipresent force in everyday life.
Irredeemable fiat paper money issued by central banks has also led to the entrenchment of political parties which has allowed these elites to create and subsidize dependency groups which, in turn, repeatedly vote to keep the political class in office.
Without the ability to create money and credit, the many bureaucracies, regulations, and laws could neither be created or enforced. This would mean that the vast and powerful security and surveillance agencies could not exist or would be far less intrusive than they currently are. With commodity money, debt creation would have to be repaid in gold, not monetized as it is currently done through the issuance of paper currency.
Just as important, it would have been next to impossible for the two world wars to have been fought and carried to their unimaginable destructive ends. None of the populations involved would have put up with the level of taxation necessary to wage such costly undertakings.
Few of the wars which followed (most of which have been instigated by the US) could have taken place without central banking. Nor could the level of “defense” spending – currently at a whopping $717 billion for fiscal year 2018 – be financed if the US was on a commodity standard.
Total US federal debt streaks above USD 21 trillion. [PT]
Under a gold standard, governments would have to rely on taxation alone. Since citizens directly feel the effects of taxation, there is a “natural level” that it can be raised.
Punitive tax rates usually lead to a backlash and potential social insurrection which strike fear in the hearts of political elites.
Recent projections by the Congressional Budget Office again demonstrate that constitutional government provides little restraint on spending.
If present trends continue, the federal government will spend more on its interest serving its debt than it spends on the military, Medicare, or children’s programs. It is also expected that next year’s interest on the debt will be some $390 billion, up an astonishing 50 percent from 2017. And, for the entire fiscal year of 2018, the gross national debt surged by $1.271 trillion, to a mind-boggling $21.52 trillion.
Annual interest expenditures on US government debt: despite historically extremely low interest rates, the cost of servicing the public debt of the US has soared to new record highs. [PT]
At one time, economists used to speak of the pernicious effects that “crowding out” had on the economy. Since the onset of the “bubble era,” talk about deficits has almost dropped out of financial discussions. Yet, the reality remains the same: public spending and borrowing divert scarce resources away from private capital markets to unproductive wasteful government projects and endeavors.
Conclusion: Sound Money is the Solution
For those who seek a reduction in State power, defense of individual rights, and economic prosperity, the re-establishment of a monetary order based on the precious metals is the most efficacious path to take. Such a social system would not require elaborate legislation or fancy proclamations of man’s inalienable rights, but simply a return to honest money – gold!
- Entire F-35 Fleet Grounded After South Carolina Crash
The Pentagon has temporarily suspended F-35 flight operations in the wake of a Marine F-35B crash in South Carolina last month. All variants of the jet, including the “A” version used by the Air Force and the Navy’s “C” version are included.
UPDATE: The #F35 grounding extends to A and C variants, not just B, multiple sources confirm to @AviationWeek.
— Lee Hudson (@LeeHudson_) October 11, 2018
The entire F-35 fleet will undergo inspections for a fuel tube within the engine, which are expected to be completed within 48 hours, according to Task & Purpose, citing a Pentagon spokesman.
“If suspect fuel tubes are installed, the part will be removed and replaced,” Joe DellaVedova, a spokesman with the Pentagon’s Joint Program Office, which oversees the F-35, said in a statement.
“If known good fuel tubes are already installed, then those aircraft will be returned to flight status,” DellaVedova said. “Inspections are expected to be completed within the next 24 to 48 hours.” –Task & Purpose
“The primary goal following any mishap is the prevention of future incidents,” DellaVedova said. “We will take every measure to ensure safe operations while we deliver, sustain and modernize the F-35 for the warfighter and our defense partners.”
The office said the grounding “is driven from initial data from the ongoing investigation of the F-35B that crashed in the vicinity of Beaufort, South Carolina on 28 September. The aircraft mishap board is continuing its work and the U.S. Marine Corps will provide additional information when it becomes available.”
…
The grounding comes after the Pentagon announced that a Marine Corps F-35B conducted the platform’s first-ever combat mission on Sept. 27. The Marine Corps’ aircraft launched from the amphibious warship Essex, striking targets in Afghanistan.
In April, a Marine Corps F-35B out the Marine Corps air station at Cherry Point, North Carolina, was forced to make an emergency landingwhen the aircraft fuel light came on. –Military Times
The F-35B is a short takeoff, vertical landing variant of the design – which allows pilots to hover and land vertically like a helicopter. Since the problem which led to the grounding affects all models, it appears unlikely that the problem is connected to the VTOL capabilities on the Marines’ design.
The issue as described by the JPO indicates the issue is believed to come from a subcontractor who supplied the fuel tubes for engine manufacturer Pratt and Whitney.
A spokesman for the F-35s manufacturer, Lockheed Martin, said Thursday morning that industry partners were working with the F-35’s Joint Program Office to investigate the problems. –Military Times
“We are actively partnering with the Pentagon’s F-35 Joint Program Office, our global customers and Pratt & Whitney to support the resolution of this issue and limit disruption to the fleet,” said a Lockheed spokesman.
Meanwhile, the grounding comes amid orders by Secretary of Defense James Mattis ordering military readiness on four planes above 80% – including the F-35, by next September. According to the most recent data, the F-35A has a 55% readiness rate at present.
While the Marines are the first US service to fly the joint strike fighter, the F-35 has been used by the Israeli air force – confirming that the plane had been used in May during two airstrikes.
The F-35 was declared operational in 2015 after working out most of the kinks in the most expensive program in the Pentagon’s history. The Air Force, Navy and Marines plan to purchase a total of 2,456 F-35s at an estimated cost of $325 billion. The program is expected to top around $1 trillion to “develop, produce, field and sustain” over its lifetime according to Military Times, citing the Government Accountability Office.
Full statement from the Joint Program Office:
The U.S. Services and international partners have temporarily suspended F-35 flight operations while the enterprise conducts a fleet-wide inspection of a fuel tube within the engine on all F-35 aircraft. If suspect fuel tubes are installed, the part will be removed and replaced. If known good fuel tubes are already installed, then those aircraft will be returned to flight status. Inspections are expected to be completed within the next 24 to 48 hours.
The action to perform the inspection is driven from initial data from the ongoing investigation of the F-35B that crashed in the vicinity of Beaufort, South Carolina on 28 September. The aircraft mishap board is continuing its work and the U.S. Marine Corps will provide additional information when it becomes available.
The primary goal following any mishap is the prevention of future incidents. We will take every measure to ensure safe operations while we deliver, sustain and modernize the F-35 for the warfighter and our defense partners.
- New Data Shows Federal Reserve Is Causing More Inequality
Authored by Ryan McMaken via The Mises Institute,
Back in August, Bloomberg interviewed Karen Petrou about her research on quantitative easing and the Fed’s policies since the 2008 financial crisis. What she has discovered has not been encouraging for people who aren’t already high-income, and in recent research presented to the New York Fed, she concluded “Post-crisis monetary and regulatory policy had an unintended but nonetheless dramatic impact on the income and wealth divides.”
This assessment is based on her own work, but also on a 2018 report released by the Minneapolis Fed. The report showed that both income and wealth growth in the US have been much better for higher-income households in recent decades
Notably, when indexed to 1971 (the year Nixon ended the last link between gold and the dollar) we can see the disparity between the top wealth groups and other groups:
Petrou continues:
What did we learn [from the Minneapolis Fed report]? This new dataset shows clearly that U.S. wealth inequality is the worst it has been throughout the entire U.S. post-war period. We also know now that the U.S. middle class is even more“hollowed out” than we thought in terms of income, with any gains made by the lower-middle class sharply reversed after 2007.
Indeed, the report concludes: “…half of all American households have less wealth today in real terms than the median household had in 1970.”
A closer look at income data also suggests that income growth has been especially anemic since 2007. Using data from the Census Bureau’s 2017 report on income and poverty, we find that incomes for the 90th percentile are increasingly pulling away from both the median (50th percentile) income and from the 20th-percentile income.
The household income for the 20th percentile increased 70 percent since 1971, while it has only increased 20 percent at the 20th percentile.
Of course, we might think, “we should be happy that the 20th-percentile income went up by 20 percent!” True enough, but as we can see by merely eyeballing the graph, most of that income growth at the lower income levels occurred before the year 2000. Incomes haven’t moved much since then.
Indeed, since the year 2000, income increased 12 percent for the 90th percentile, but only 2.4 percent for the median household. It declined 3.7 percent at the 20th percentile.
Moreover, Petrou notes,
the latest census data show that U.S. median household income in 2016 rose in part because more families have more wage-earners. Two low-wage jobs may seem like more employment, but they are reflecting the ever-greater struggle lower-income Americans have making ends meet.
Similarly, the overall wealth data offers little to get excited about. As noted here at mises.org last month, median wealth in the US is still well below the peak levels pre-2007.
That’s according to Edward Wolff’s 2007 report. According to the Fed’s 2017 survey on consumer finances, median wealth reached $97,300, which is still down from 2007’s level of $139,700. Those in the 90th percentile experienced much more growth in wealth, with an increase from $1,054,000 in 2007 to $1,186,000 in 2016.
What Role Does the Fed Have in All of This?
As the Federal Reserve has become more interventionist, more inflationary, and more prone to regulate the private sector, incomes have stagnated. For example, gaps in wealth an income have been growing since the 1980s, but they worsen significantly over the past decade as monetary policy became more and more inflationary and activist.
Petrou adds:
It’s common knowledge that income inequality in the U.S. has been getting increasingly worse since 1980. But what I’ve been pointing out in some of my blog posts is that it became hugely worse after the financial crisis. Were there underlying issues pre-2008? Absolutely. But we had more of a middle class even in 2006 than we do now. … [I]f you look at the Minneapolis Fed data, as well as many other analyses, [growth in inequality] happens gradually prior to 2008. Then it actually flattens out in 2008 because rich people lost money in the crash, which narrowed the inequality gap. But starting in 2010, the gap widens dramatically.
The Fed became far more active in its interventions after 2008, leading to a variety of consequences:
The Fed did two things with huge inequality implications. First, with its massive quantitative easing, it sucked $4.5 trillion of assets out of the banking system. The idea was that it would empty out the bank balance sheets so that they would start to make loans. And that didn’t happen —initially the banks were too weak, and as they recovered, the rules created significant impediments. If you look at who is getting loans it is large corporations, not small businesses. Second, the Fed’s low-interest policy gave rise to yield-chasing. And what has the stock market done since 2010? Everybody who has money has seen their financial assets appreciate dramatically. Everybody who doesn’t have money, which is the bottom 90 percent, what is their principal source of wealth? Houses? House-price appreciation for expensive houses is way up since 2012. But overall, real U.S. house prices are down 10 percent.
On the regulatory side, the Fed made it more difficult for banks to cater to small businesses and other borrowers who are less well-known and higher risk. At the same time, the Fed has made it so that lenders don’t have to worry about catering to a broad cross-section of borrowers precisely because the Fed’s regulation and its too-big-to-fail doctrine lower the relative opportunity cost of ignoring borrowers at the lower end.
Meanwhile, ultra-low interest rate policy leads to yield-chasing which favors the already-wealthy at the expense of households of more ordinary means. Yield-chasing pulls money out of safer, more conservative investments — favored by people of modest means — and drives more investment toward riskier hard-to-access investment instruments.
Petrou describes some of the effects of yield-chasing:
As our research shows, QE exacerbates inequality because it takes safe assets out of the U.S. financial market, driving investors into equity markets and other financial assets not only to place their funds, but also in search of yields higher than those possible with ultra-low rates. The Fed hoped that soaking up $4.5 trillion in safe assets would stoke lending, and to a limited degree it did. However, new credit largely goes to large companies and other borrowers who have used it for purposes such as margin loans and stock buy-backs, not investment that would support strong employment growth. Growing household indebtedness in the U.S. is principally consumption or high-price housing driven and thus also a cause – not cure – of inequality.
And then there is the problem of asset-price inflation. This contributes to economic inequality in more than one way.
Asset price inflation is largely a result of inflationary monetary police in which newly created money continually enters the economy. This, in part, increases economic inequality through Cantillon effects. As new money enters the economy, it benefits some people — usually high-income people — more than others. The new money does not enter the economy evenly and equally for everyone, but benefits certain politically-connected firms, institutions, and persons first. These people and organizations can then use the new money before prices in the economy adjust to reflect the new, larger money supply.
But there’s more to asset-price inflation’s role in inequality.
As Petrou notes above, “Everybody who has money has seen their financial assets appreciate dramatically.” For those who already own sizable amounts of stocks, for instance, there won’t be a problem. The same will be true of people who own real estate in fashionable and expensive markets.
Stocks – Not Housing – Are Favored by Post-2008 Inflationary Policy
And here’s the rub: moderate- and low-income people tend to have much more of their wealth in residential real estate than in the stock market.
This can be seen in the Minneapolis Fed report which looks at how higher-income households have built wealth more in stock assets than in housing:
Since 2007, wealth growth in housing has been negative while growth in stock-based wealth has remained positive:
The overall effect here has been that higher-income investors, who have less of their wealth in homes — and more in stocks — have benefited more from the asset inflation of the past decade. The effect has been rising inequality.
So we might then ask ourselves: “why don’t more moderate- and low-income people just buy more stocks?”
Part is this is due to tax incentives, which reward putting money into housing rather than into stocks. Moreover, many people put money into homes rather than stocks because homes have the added perk of providing a place to live.
While it may be prudent — all else being equal — to buy less house while buying more in stocks, the Fed’s ultra-low interest-rate policies make housing relatively more attractive as a place to park one’s wealth.
And finally, investing in stocks remains something of a perk reserved to those with a surplus. After all, one can rarely elect to simply not spend money on housing. It’s easy, though, to just not buy stocks. In most cases, money must be spent on housing in some form. And many elect to purchase housing, since, in many cases, houses are often perceived — often with good reason — as a fairly safe and stable investment.
If we then add to this many deliberate efforts by both the Fed and the federal government to increase the homeownership rate, it’s not hard to see why so many have ended up with a sizable portion of their wealth in housing.
While the central bank certainly can’t be blamed for all the factors at play here, it nevertheless plays a significant role. Through a combination of inflationary monetary policy, regulation, and asset purchases, the Fed has made a sizable contribution to an economy that favors certain types of investments, certain institutions, and certain purchasing patterns. Fed policy now favors high-income earners and investors over low- or moderate- income earners and investors. The result has been a rapidly widening wealth an income gap over the past decade.
- "It's Not Such A Crazy Idea": The Hunt For Another Red October
On Monday, Morgan Stanley’s equity strategist Hans Redeker made an ominous observation: highlighting the decline of easy monetary policy and the rapid shrinkage of central bank liquidity…
… Redeker noted that the recent spike in bond volatility has been mostly a side-effect of the receding monetary tide.
Why the focus on bond volatility, i.e., the MOVE Index? For one reason: while rising FX and equity volatility can remain isolated events, rising bond market volatility tends to steer other volatility indices too, Redeker said. Hence, rising bond volatility makes a difference when volatility for risky assets diverged on the back of liquidity concentration in the US.
This led him to conclude that “in many aspects, the current constellation reminds us of what happened in autumn 1987”, which we recalled as follows:
The Fed was hiking rates, deploying a hawkish tone. Chair Greenspan had just taken office, providing hawkish rhetoric, and the global economy seemed to trail the better US performance supported by the second Reagan tax package kicking in in 1986. The consensus assumed the rest of the world (RoW) – notably Europe – was running wider output gaps and hence was surprised when the Bundesbank withdrew liquidity in September 1987. In this sense, we would not dismiss hawkish remarks from ECB’s Knot, who said that ECB rate hikes could come earlier than markets are expecting.
Just two days later, and the Dow over 1,400 points lower, it appears Redeker was on to something.
But not everyone agrees. As Bloomberg’s latest macro commentator John Authers, who recently joined from the FT, writes in a note tonight, whereas there is a growing chorus that the market may be coming up against it own Black Monday moment – and historically half of the biggest market crashes in the US have taken place in October which is statistically significant…
… Authers believes that despite the growing concerns, it’s not really quite as dire as what Morgan Stanley suggests.
He explains why in the note below.
The Hunt for Another Red October
It is not such a crazy idea. The elements of a narrative that finds a parallel between the alarming sell-off in equities over the last few days and the epic disaster that was the Black Monday crash of October 19, 1987, do exist.
Then, like now, stocks had been rising despite a menacing rise in bond yields. Then, like now, there is a new and untested chairman at the Federal Reserve (for Alan Greenspan then, read Jerome Powell now); and then like now, the U.S. economy had just enjoyed a big tax cut at the end of the previous year, after much drama involving Congress and the Republican president.
So it should be no surprise that references to Black Monday, when U.S. stocks fell more than 20 percent, are proliferating ahead of its 31st anniversary. Earlier this week, Hans Redeker’s team at Morgan Stanley produced a note suggesting that the greatest risk from the parallel was the implication that European monetary policy would also now have to tighten, as happened in 1987. Similar arguments might apply to Japan, where the Bank of Japan has been aggressively expanding its balance sheet ever since the Fed desisted from doing so.
Scott Minerd, the widely quoted chief investment officer at Guggenheim Partners, also drew the parallel, saying “Rising rates and declining stocks echo shades of October 1987.” Plenty on social media have been making similar comparisons.
Any comparison to Black Monday is bound to set alarm bells ringing. And in any case, almost all of history’s most famous market crashes happened in October.
However, even with the S&P 500 down more than 5 percent in four days, the comparison is overdone. Equities were overblown entering this sell-off, but looked nothing like as frothy as they did in 1987:
Further, the international context is starkly different. In 1987, the party in the developed world outside the U.S., covered by the MSCI EAFE index, was just as intense as it was on Wall Street. The EAFE had gained 42 percent by October 14 that year, before it joined the subsequent sell-off to the full. This time around, the U.S. has stood alone; the EAFE is currently down 7.7 percent for the year, and has been moving gently lower for most of the year. The FTSE’s All-Word stock index, including all developed and emerging markets, entered this month up only 2 percent for the year. The ground for a dramatic short-term correction, therefore, is far less fertile than it was in the second week of October 1987
If we turn to the move in bond yields, widely taken as a reason for the pressure on stocks, we can see that the rise this year is indeed roughly comparable with the rise that was experienced in 1987. There is a true tightening of financial conditions, and this can only be expected to have an effect on the stock market
The problem with this, however, is that the bond market starts from a much lower and more accommodative level, and with cheap money available in the rest of the world. This move feels tight for traders who have grown accustomed to rates of virtually zero, but in absolute terms the rise in 10-year bond yields was far greater in 1987. At this point, the 10-year Treasury yield has gained some 70 basis points for the year; by the same point in 1987, it had risen by some 300 basis points
This is already another Red October for the stock market, and there are indeed a few similarities with 1987. But on this occasion the historical comparison is unduly alarming. There are good reasons to fear that stock markets could fall a lot further from here, but there is no particular reason to think that we are primed for a massive financial accident on the scale of what happened in October 19, 1987
Is Authers right? There are less than three weeks left in the month of October (and four until the midterm elections). We’ll know the answer in less than a month.
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