Tuesday, January 21, 2020

How Trump Could Really Make US Industry Competitive Again - By David Stockman

International Man: Trump’s America First economic policy seemed to help him win the 2016 election. He promised to renegotiate America’s trade deals and bring jobs back to the United States.
As president, Trump has used tariffs and other protectionist measures to try to reduce the trade deficit.
What do you think of Trump’s trade policies and tariffs?
David Stockman: The trade policies are idiotic. They haven’t improved the trade deficit. And have caused other problems.
We got the numbers in now for 2018 and we had the largest trade deficit in history!
The first point is that his trade policies are not accomplishing anything. In fact, it’s thrown many sectors under the bus. Manufacturers that import components from China are now paying much higher prices because of the tariff charge.
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Farmers have gotten thrown under the bus in a major way. The whole agricultural export system that was patiently developed over many, many years has essentially been destroyed through retaliation.
Truth be told, there isn’t that much elasticity of supply in farm products in the short run. So, what’s happened is that South American soybeans are going to China. You can see on the trade maps that the bulk carriers are all heading from South America toward East Asia, and US soybeans are backfilling markets that used to be supplied by South America.
It’s one gigantic, pointless, stupid shuffle that has resulted from attempting to impose huge tariffs on one country.
Now, this is very different from the 1930s. Everybody likes to bring up a metaphor or image of the Smoot-Hawley Tariff Act. At least with Smoot-Hawley, it was across the board globally. It affected everybody.
What Trump has done is put an average of 19% tariff on $360 billion worth in goods, which is nearly 2/3 of the $540 billion we import from China.
So, what’s happening?
Stuff is getting re-sourced and, frankly, re-badged to come from Vietnam, Malaysia, Indonesia, or other barren islands in the Pacific that produce nothing.
In some ways, it’s the craziest foreign aid program ever created. Trump doesn’t know that.
Maybe we’re finally doing some kind of restitution to the Vietnamese for destroying their country in the 1960s. We’re shuffling a lot of business their way and away from China, because Trump is trying to prove something to the movers in Beijing.
Trump often talks about the bad things going on in Mexico—saying that they need to enforce the border and threatening them with tariffs.
Mexico is going to be getting a lot of added value. The stuff that is produced in China will be shifted to finish production, packaging, or assembly in Mexico so that it doesn’t get hit with a Chinese tariff.
It’s rampant stupidity. The financial media, they cover this every day with bated breath about whether we’re going to get some kind of asinine phase one trade deal, which we actually now have. Maybe!
This is all without remarking on the chaos that’s being generated all over the world as a result of this giant-tariff-on-one-country policy that Trump has come up with on his own.
You don’t put a 19% tariff on $360 billion in goods from China, which can, with some adjustment, be produced in lots of other places around the world. It’s so obvious: A zero incremental tariff on the rest of the world suppliers is creating one giant arbitrage and incentive for re-sourcing production, relabeling stuff that now gets made in China and finished, assembled, and packaged somewhere else.
But this is where we are right now. How anybody thinks that any good could come out of this, or that it has anything to do with “Make America Great Again,” is beyond me.
Now, the one thing I will say is that it’s tarnished the idea of America first.
America First during the campaign applied to foreign policy and to our whole imperial presence all over the world—militarily, with all of these occupations, bases, and interventions.
At least in that arena, the metaphor of America First had some real power to stop being the policemen of the world and that the world can go on without American military intervention from one end of the planet to the other.
President Trump has tried to do that in little bits, but he’s constantly thwarted by the Deep State and the bipartisan establishment—who seem to think the US is the indispensable nation and that we need to be in every war, or the world is going to fall apart. That is of course totally untrue.
Where it counts with America First, Trump has made little progress, and where it shouldn’t have been applied—in trade, global commerce, and economics—it has made a disastrous mess.
International Man: Trump’s America First policy during the 2016 election appealed to the Rust Belt of the US and bringing jobs back. How have his trade policies impacted American industry and jobs?
David Stockman: I think there’s been a lot of boasting about anecdotes. In other words, some manufactures trying to curry favor with Washington put out a press release saying they’re bringing back 35 jobs. Maybe they are; maybe they aren’t.
Dell did it the other day, about manufacturing something in Texas that they were making there anyway. They had planned to move production of their high-end desktop abroad somewhere and they decided not to move it.
To get an idea of what’s really going on, it’s better to look at the data, specifically work hours. In manufacturing, they cut back overtime hours and even cut back scheduled hours, and now you begin to see the headcount changing.
So, I look at hours. In manufacturing, hours are down 1.2% in the last year.
For example, you had all this ballyhoo recently about the monthly jobs report. It seemed there were a lot of manufacturing jobs, but they weren’t new jobs. They were GM jobs that had temporarily disappeared due to a strike and had nothing to do with sustainable trends. And Trump keeps beating the tom-toms about all this alleged success.
No one points out that today, compared to the peak prior to the crisis—in November 2007—hours in manufacturing are down 13.5%. Compared to the peak prior to the dotcom bust in early 2000, it’s down 28%.
My larger point is that hours are a far better measure of output. If you want to talk about bringing jobs back, use the hours measurement.
International Man: If Trump was serious about making the US industry competitive, what could he do?
David Stockman: The best thing he could do is a housecleaning of the Fed.
The Fed’s policies are the number-one enemy of real sustainable growth, job creation, and the American economy.
First, the 2% target inflation is absurd.
We’re in a world where we’re competing with $5-an-hour labor in China and $15 or $18 in South Korea. We should be deflating our economy, not inflating it, because when we inflate a price level, wages go up with it, and we become just that much more uncompetitive in global trade either as an exporter or in competition with the imports coming in.
The American worker isn’t any better off because he got an extra 2% in his wage. He’s paying 2%—if not far more actually—at the grocery store, at the doctor’s office, for education costs, and for transportation.
The first thing we need to do is get rid of inflation targeting and try to become more competitive by allowing the market to automatically do it. If the Fed wasn’t in the way, we would have high interest rates and a deflating price system as the economy attempted to adjust to the massive new competition in China.
The second thing is to get the Fed out of the business of propping up the stock market in fear that if the stock market is allowed to correct, we’ll have a short run of recession—which is true.
Stock crashes lead to recession, owing to this crazy financial engineering that has become the total preoccupation of the corporate C-suites of America.
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Companies are spending all of their cash flow, using up their balance sheet, in order to buy back stock and do ridiculous M&A deals that four years from now get unwound because they didn’t work. Then they get praised for restructuring. It’s just an endless cycle of stupidity.
If we got the financial market back on its own two feet—back to a free market, honest price discovery, and an end to this casino effect in the stock market—it would be a powerful message to the C-suites of America.
The message would be, “You’re not going to get yourself rich on stock options on Wall Street. Make the company better, more competitive, and profitable by investing on Main Street.” But that’s not what they’re doing right now.
We’ve had this huge increase in business debt since the 2008 crisis. It was about $10 trillion then, and its over $15 trillion now. They’ve increased debt by 50%. Yet real investment on Main Street after depreciation is no higher than it was in 2007.
To summarize, if we started deflating, rather than inflating our economy, if we get the C-suites back into the business of running companies and investing for the long haul rather than financial engineering on Wall Street, it would eventually and slowly heal our competitive situation.
It would lead to more jobs, higher incomes, more sustainable prosperity for the American economy.
But that requires a massive change at the Fed—a housecleaning, of both the people and the models and policies that they use.
Reprinted with permission from International Man.
Former Congressman David A. Stockman was Reagan's OMB director, which he wrote about in his best-selling book, The Triumph of Politics. His latest books are The Great Deformation: The Corruption of Capitalism in America and Peak Trump: The Undrainable Swamp And The Fantasy Of MAGA. He's the editor and publisher of the new David Stockman's Contra Corner. He was an original partner in the Blackstone Group, and reads LRC the first thing every morning.
Copyright © International Man

A Biblical Worldview Without the Bible. How Is That Possible? • by Gary DeMar • The American Vision

One of the most popular worldview books after Abraham Kuyper’s Lectures on Calvinism is Henry Van Til’s The Calvinis­tic Concept of Culture. Van Til, in his discussion of Augus­tine, wrote:
Augustine believed that peace with God precedes peace in the home, in society, and in the state. The earthly state too must be converted, trans­formed into a Christian state by the perme­ation of the kingdom of God within her, since true righ­teous­ness can only be under the rule of Christ.
Not only in the realm of ethics and politics must conversion take place . . . [but also] for knowledge and science. Apart from Christ, man’s wisdom is but folly, because it begins with faith in itself and proclaims man’s autonomy. The redeemed man, on the other hand, begins with faith and reason in subjec­tion to the laws placed in this universe by God: he learns to think God’s thoughts after him. All of science, fine art and technology, conventions of dress and rank, coin­age, measures and the like, all of these are at the service of the re­deemed man to transform them for the service of his God.1
Van Til believed, along with Augustine, Calvin, Kuyper, and Klaas Schilder—Christian scholars whose views are ex­po­und­ed in The Calvinistic Concept of Culture—that the building of a Christian culture is a Christian imperative. Van Til castigated the Barthians for their repudia­tion of a Christian culture. “For them,” he wrote, “there is no single form of social, political, economic order that is more in the spirit of the Gospel than another.”2
If there is no specifi­cally bibli­cal blue­print, we are left with a pluralistic blue­print, no blueprint, or a postponed blue­print (dispensationalism). When we read that “reli­gious plural­ism within a society is our Lord’s intention for this time in history and hence is biblical,”3 one gets suspic­ious. First, what biblical justific­at­ion does Barker offer? How do we know that it is “our Lord’s inten­tion”? Are we to assume that whatever is, is right? Could the Lord’s intention change at some other “time in histo­ry”?
Second, what does this view mean for economics, law, poli­tics, and education? Does toleration for non-Christian reli­gious groups mean that we should also toler­ate their law sys­tems? If we tolerate the religion of Islam, must we tolerate their view of econom­ics and civil law? Babylonian law called for the “amputation of the right hand of the physi­cian whose patient died during sur­gery.”4 Should this law be placed on the same plat­ter with bib­li­cal law? If not, why not?
Someone assessing the merits of theonomy should want to know how theonomy and the views of its critics compare with the Bible, the Westminster Confession of Faith, the views of the Reformers, and books like Van Til’s Calvinistic Concept of Cul­ture. There seems to be no room for ethical pluralism for Henry Van Til. My seminary training never hinted at plural­ism. Noth­ing I read in Henry Van Til led me to embrace plu­r­alism. In rejecting Karl Barth’s repudiation of a specifically Christian cul­ture, Van Til assured us that the
Calvinist maintains that the Word of God has final and abso­lute author­ity, and is clear and sufficient in all matters of faith and conduct. It consti­tutes the final refer­ence point for man’s think­ing, willing, acting, loving, and hating, for his cul­ture as well as his cultus. . . . [F]or all prac­tical purposes, the church through­out histo­ry has ac­cepted the Holy Scriptures of the Old and New Testament as the Word of the living God. Calvinism, also in its cultural aspects, proposes to continue in this historic perspective, not willing to accept the church or the religious consciousness, or any other substitute in place of the Word.5
This is the historic position of the church, Van Til assert­ed. This is what I was taught in seminary. This is the view that my pro­fessors defended. But there was one problem. Even after finish­ing Van Til’s book, I noticed a glaring defic­iency: There were few specifics and even fewer references to the Bible as to how it applies to culture. Van Til, however, was a few steps beyond Kuyper, but the plane still had no wings. It was not going to fly.
Henry Meeter’s The Basic Ideas of Calvinism
I next turned to H. Henry Meeter’s The Basic Ideas of Calvinism. This work looked promising even though its focus was on politics. The first edition (1939) of Meeter’s work was described as “Volume I.” A subsequent volume never appeared. Again, the Bible was empha­sized as the standard for both Christian and non-Christian.
The Calvinist insists that the principles of God’s Word are valid not only for himself but all citizens. Since God is to be owned as Sover­eign by everyone, whe­ther he so wishes or not, so also the Bible should be the determining rule for all. But espe­cially for him­self the Christian, according to the Calvinist, must in politics live by these princi­ples.6
Since God is the Sovereign of all His creatures, He must be recog­nized as the lawmaker for all mankind. How does one determine what that rule is? Me­eter told us that the Bible should be the deter­mining rule for all, not just for Christians and not just for settling ecclesiastical disputes. So far, so good. Meeter then moved on to answer the question as to whe­ther the state is to be Chri­stian.
On the negative side, he made it clear that the state is still a legiti­mate sphere of government even though its laws are not based on the Bible. Of course, this is not the issue in theonomy. Is the state obli­gated, when con­front­ed with the truth of Scripture, to implement those laws which are specifically civil in application?
On the affirmative side, Meeter wrote: “Whenever a State is permeated with a Christian spirit and applies Christian principles in the adminis­tration of civil affairs, it is called ‘Chris­tian.’ If that be what is meant by a Christian state, then all States should be Chris­tian, according to the conscience of the Calvin­ist, even though many states are not Christian. If God is the one great Sovereign of the universe, it is a self-evident fact that His Word should be law to the ends of the earth.”7
Meeter had moved from “Christian principles” to “His Word should be law.” The goal, then, is God’s Word as the “law.” Meeter continues:
If God is Ruler, no man may ever insist that religion be a merely private mat­ter and be divorced from any sphere of soci­ety, political or otherwise. God must rule every­where! The State must bow to His ordinances just as well as the Church or any private individual. The Calvinist, whose fundamental principle maintains that God shall be Sovereign in all domains of life, is very insistent on having God recog­nized in the political realm also.8
In what way is the state to “bow to His ordinances”? Where are these ordi­nances found? “For matters which relate to its own domain as State, it is bound to the Word of God as the Church or the individ­ual.” For Meeter, a “State is Christian” when it uses “God’s Word as its guide.9
Meeter left the inquiring the Christian with additional questions: “If the Bible, then, is the ultimate criterion by which the State must be guided in determining which laws it must admin­is­ter, the question arises, with how much of the Bible must the State concern itself?”10 He told us that “Civil law relates to outward conduct.”11 The inquir­ing Christian is looking for specifics, a methodology to determine which laws do apply to the civil sphere. What “outward conduct” should the State regulate? Same-sex sexuality and abortion are certainly “out­ward con­duct.”
Like Kuyper and Henry Van Til before him, Meeter, who asserts that the Bible “is the ultimate criterion by which the State must be guided in determining which laws it must admin­ister” never set forth a biblical methodology. In fact, he never quoted one passage of Scripture to defend his position, al­though there are vague references to biblical ideals! Reading Meeter was like reading an unfinished novel. The plane still had no wings.
1.   Henry R. Van Til, The Calvinistic Concept of Culture (Grand Rapids: Baker Book House, 1959), 87. []
2.   Van Til, The Calvinistic Concept of Culture, 44. []
3.   William S. Barker, “Theonomy, Pluralism, and the Bible,” Theonomy: A Reformed Critique, 229. []
4.   Laws of Hammurabi, 218. Quoted in Gary R. Williams, “The Purpose of Penology in the Mosaic Law and Today,” Living Ethically in the 90s, ed. J. Kerby Anderson (Whea­ton, Illinois: Victor Books, 1990), 127. []
5.   Van Til, Calvinistic Concept of Culture, 157. []
6.   H. Henry Meeter, The Basic Ideas of Calvinism, 5th rev. ed. (Grand Rapids: Baker Book House, [1939] 1956), 99–100. A 6th edition appeared in 1990 with three chapters added by Paul A. Marshall. []
7.   Meeter, The Basic Ideas of Calvinism, 111. []
8.   Meeter, The Basic Ideas of Calvinism, 111–112. []
9.   Meeter, The Basic Ideas of Calvinism, 112. []
10.       Meeter, The Basic Ideas of Calvinism, 126. []
11.       Meeter, The Basic Ideas of Calvinism, 127. []

Monday, January 20, 2020

Do We Need the Bible to Do Ethics or is Nature Enough? • by Gary DeMar • The American Vision

No one ever questioned this theologi­cal frame­work until some of us actual­ly began to apply world­view Christianity to partic­ular social issues. This is what we were taught to do, from our first read­ing of Abraham Kuyper’s Lec­tures on Cal­vin­ism to Fran­cis Schae­ffer’s How Should We Then Live?
Those students who were interested in cultur­al Christianity were directed to Kuyper’s 1898 Lectures on Calvin­ism. It was here that we were told we would find a fully devel­op­ed, com­prehensive, biblical world-and-life view. Kuyper’s brand of Christianity has been de­scribed as the “only modern exception” to the tendency of Chri­stians either to abandon social action in favor of piety or to abandon piety in favor of social action.1
The “Kuyperian” tradition “was at once pious and socially influ­ential.”2 “As Abra­ham Kuyper said, there is not one inch of creation of which Christ doesn’t say ‘Mine.’”3 In his Lectures on Calvinism, Kuyper discussed politics, science, and art, but it was more than the familiar five points of Calvin­ism. Curiously, economics and law were absent from his discussion.
Reading Kuyper was like reading a repair manual that was all diagnosis and little if any instruction on how to fix the problem. Here’s a sample:
That in spite of all worldly opposition, God’s holy ordinances shall be estab­lished again in the home, in the school and in the State for the good of the people; to carve as it were into the con­science of the nation the ordinances of the Lord, to which the Bible and Creation bear witness, until the nation pays homage again to God.4
Everything that has been created was, in its creation, furn­ished by God with an unchangeable law of its existence. And because God has fully ordained such laws and ordinances for all life, therefore the Calvinist demands that all life be conse­crated to His service in strict obedience. A religion confined to the closet, the cell, or the church, there­fore, Calvin abhors.5
This is marvelous biblical world-and-life view rhetoric, but there is almost no appeal to the Bible in Lectures. Broad principles are set forth, but a spe­cific biblicalworldview is lacking. As one soon learns after reading Kuyper, there is little that is distinctly bibli­cal in his cultural position. Kuyper, along with Herman Dooyeweerd (1894–1977), is best known for the con­cept of sphere sovereignty and what is now being described as princi­pled pluralism. Writes pluralist Gary Scott Smith:
This position rests upon several major tenets. God built basic structures or institutions into the world, each having separate author­ity and responsibilities. He estab­lished state, school, soci­ety, workpl­ace, church, marriage, and family to carry out various roles in the world, and He commands human beings to serve as officeholders in these various spheres of life.6
What standard are these officeholders to use in the governance of these vari­ous spheres? This is the essence of the debate. The disagreement is over how we should be involved and what stan­dard we should use in our establish­ment of a developed social theory.
Principled Pluralism
A contemporary application of the Kuyper­ian worldview can be found in the writ­ings of numerous “princi­pled pluralists.” These Christian advo­cates of the Kuyperian model argue that “a biblical view of civil government must rest . . . upon general principles taught throug­hout Scripture.”7 The emphasis is on “gen­eral princi­ples” and not “isolated prooftexts­.” From these “divine norms,” the people will “experience peace, justice, and righteousness in their full­ness.”8
But exactly how should the Christian define justice and righteous­ness? Is it just and right to tax the citizenry in order to fulfill the general de­mands of jus­tice and righteous­ness, say, in caring for the poor and educating the people through an educational system con­trolled by the state because it is financed by the state? Liberals and con­servatives es­pouse justice and righ­teous­ness. Whose definition is correct? Whose solution should Chris­tians follow if the pluralist is correct when he main­tains that the Bible cannot be appealed to for specifics, since the “tares” must be tolerated until the time of the “final harvest”? By what stan­dard are Chris­tians required by God to decide these issues?
Where does the Christian pluralist go for his specific norms? They are few and far between in the plural­ist’s world. For example, in Gordon J. Spykman’s defense of principled plural­ism, there is little appeal to the Bible, even under the heading “Biblical Foundations.” He mentions general norms, but there is no worked-out judicial system.
Our view of society should not be derived from isolated pas­sages scattered throughout the Bible. Such a piecemeal approach assumes that the Bible is a collection of timeless truths with built-in, ready-made appli­cations for every situa­tion. Rath­er, the Scriptures present principles and direc­tives that hold for life as a whole in every age. We must therefore rely on the comprehen­sive mean­ing of the biblical message. Though couched in ancient forms, the Scriptures carry with them universal norms that should direct the lives of Christians and shape societies they live in.9
This is doubletalk. Let’s rephrase the first sentence in this quo­tation: “Our view of the Trinity should not be derived from isolated passages scattered throu­ghout the Bible.” How about our view of the deity of Christ, the resurrec­tion from the dead, and justification by faith alone? Could the same be said for “the family” and “the church”? It was an isolated passage in Romans that brought on the Reformation of the sixteenth century. Luther’s cry was that “The just shall live by faith alone” (Rom. 1:17). Are the doctrines of justification and sanctific­ation differ­ent from the doctrines of law and the civil magis­trate? The Westminster di­vines did not think so. Biblical passages are cited through­out the Sho­rter and Larger Catechisms.
Spykman tells us that when “the Reformers spoke of sola Script­ura, they did not mean that Scripture is God’s only revelation. God also reveals His will in creation and providence. In fact, the creati­onal word remains His fundamental and abiding revelation.” It’s true that special revelation (Scripture) is not God’s only revelation. But if general revelation is enough, then why did God give us the Bible? Adam and Eve, prior to the fall, were given special revelation regarding the maintenance of the creat­ed order. John Frame drives the point home:
Natural revelation was not sufficient before the fall of Adam. Even in Paradise, as Cornelius Van Til used to say, our first parents learned truth, not only from their senses and reason from God’s revelation in creation, but also from the divine voice itself. According to Gen. 1:28-30, God did not leave it to our first parents to find out his will on their own, by scrutinizing natural revelation. Rather, he spoke to them in his own words, giving them the fundamental task of their existence. Indeed, it is this passage, often called the “cultural mandate,” that defines culture for God’s people.
Spykman continues: “God gave the Scripture to correct and rein­force His original revelation upon our minds, redirecting our attention to its meaning, refocusing the intent and purpose of cre­ation. God’s message is al­ways the same, but it comes in different modes. Its author does not contradict Himself. Though revelation comes in various forms, its norms are constant. The word holds, even when men do not discern or obey it.”10
Spykman agrees that general and special revela­tion present the same message. If this is true, then we should expect to find the same laws in the creation order as we find in the Bible. For example, not only should we find prohibitions re­garding what a society should do with men practicing sod­omy, but we should also be able to find the same sanctions. Since both general and specific norms are found in the Bible, general and specific norms can be found in creation. They are one and the same! If the Bible was given to rein­force God’s original revelation, then why not begin with the Bible, since the original revelation is itself in need of recon­struction? Chris­tian pluralists refuse to begin here. Why? My guess is that the Bible is just a bit too clear and specific.
God has directed his people to seek his law, not through their own study of the creation, but through his written word. To be sure, nature does reveal some of God’s ordinances (Rom. 1:25322:14f.). But Scripture never suggests that nature contains a richer or fuller revela­tion than the written word. On the con­trary: In Romans 3:1-2, the Jews, because of their acquaintance with Scri­pture, are said to have a tremen­dous advantage over the Gentiles who (according to the preced­ing chapters) had only general revela­tion. Scripture, says the Apostle Paul, is sufficient “that the man of God may be com­plete, thoroughly furnished unto every good work” [2 Tim. 3:17]. Adding to God’s word is as much an act of human presumption as subtracting from it (Deut. 4:212:32Rev. 22:18).11
Because of its lack of a specific and absolute biblical ethic out­side the confines of ecclesiastical courts, Kuyper’s sphere sover­eignty has been taken to its logical conclusion in his native Amsterdam. In time, the distinctive Christian witness was so diluted by competing world­views that little remained of Kuy­per’s influence. In Amsterdam, prostitutes parade their female assets in shop windows for eager “clients.” Of course, this is not what Kuyper intended, but it is the logical outworking of his common-grace system: no bib­lical civil law.
1.   Irving Hexham and Karla Poewe, Understanding Cults and New Religions (Grand Rapids: Eerdmans, 1986), 126. []
2.   Hexham and Karla Poewe, Understanding Cults and New Religions, 126. []
3.   Douglas Groothuis, “Revolutionizing our Worldview,” Reformed Journal (No­v­ember 1982), 23. []
4.   Abraham Kuyper, Lectures on Calvinism (Grand Rapids: Eerdmans, [1931] 1970), iii. []
5.   Kuyper, Lectures on Calvinism, 53. []
6.   Gary Scott Smith, “Introduction to Principled Pluralism,” God and Politics: Four Views on the Reformation of Civil Government, ed. Gary Scott Smith (Phillipsburg, New Jersey: Presbyterian and Reformed, 1989), 75. []
7.   Smith, “Introduction to Principled Pluralism,” 76. []
8.   Smith, “Introduction to Principled Pluralism,” 76. []
9.   Gordon J. Spykman, “The Principled Pluralist Position,” in God and Politics, 80. []
10.       Spykman, “The Principled Pluralist Position,” 82-83. Emphasis added. []
11.       John Frame, The Amsterdam Philosophy: A Preliminary Critique (Phillipsburg, New Jersey: Harmony Press, n.d.), 31. []

Sunday, January 19, 2020

Uncle Sam Just Used Its Financial Nuclear Weapon Again | Zero Hedge

In August of 1945, the United States became the only country to drop nuclear bombs on an enemy.
Hiroshima and Nagasaki were largely destroyed in the blink of an eye. And the Japanese had no choice but to surrender to the Allies, finally ending World War II.
Ever since, world superpowers have been rapidly advancing weapons technology, constantly raising the bar for destructive power.
It won’t surprise you to find out that the most powerful and destructive weapon in the world, though, by far, is claimed by the United States.

But this weapon has nothing to do with America’s nuclear arsenal. It doesn’t even require bullets.
I’m talking about the US dollar.
The US is still the world’s dominant superpower, still the largest economy in the world. And the US dollar is still the world’s dominant reserve currency.
This means that the VAST MAJORITY of international trade and cross-border financial transactions take place in US dollars.
·         When Saudi Arabia’s state-owned oil company sells petroleum to the Chinese, that transaction takes place in US dollars.
·         Last year when Air France (a European airline) agreed to purchase 60 jets from Airbus (a European aircraft manufacturer), that contract was negotiated in US dollars– even though both parties are European!
·         When commodities traders buy and sell cotton futures on the national mercantile exchange… in PAKISTAN… those trades are settled in US dollars.
·         When the IMF stepped in to bail out Argentina back in 2018 with an emergency loan, those funds were paid in US dollars.
·         And right now as I write these words, the Chile-based agriculture business I founded several years is selling literally millions of pounds of blueberries to wholesale buyers in Europe and Asia. Those deals are also closed in US dollars.
You get the idea. The US dollar is at the center of global commerce. Commercial banks, central banks, governments, sovereign wealth funds, and businesses around the world all need US dollars if they expect to be able to do any business internationally.
And that’s what makes the dollar such a powerful weapon: the US government can threaten foreign countries with nearly total financial collapse.
The US government realized it had this power roughly two decades ago after the September 11th attacks.
In their efforts to track down terrorist organizations and obtain intelligence, the Treasury Department began strongarming foreign banks to hand over financial information about suspected terrorists by threatening to revoke access to US dollars.
The threat worked. And a new weapon was born.
In 2010, they made some serious upgrades when Congress passed the Foreign Account Tax Compliance Act, known as FATCA.
FATCA forces EVERY foreign bank and financial institution IN THE WORLD to share information about their depositors with the Treasury Department.
And if these foreign banks refuse to comply? You guessed it. They’ll lose access to US dollars.
We’ve continued to see the US government rely on this tactic more and more over the past ten years; in 2015, for example, the Treasury Department famously hit French bank BNP Paribas with an $8.9 billion fine.
BNP’s egregious crime? They were doing business with countries that the US government doesn’t like– countries like Cuba and Iran.
But wait a minute. BNP is a FRENCH bank! France has no beef with Cuba or Iran!
Doesn’t matter. Uncle Sam doesn’t like Cuba and Iran. BNP did business with Cuba and Iran. So BNP was punished.
And if BNP didn’t pay this ridiculous $8.9 billion fine? Yep, you know what’s coming– they’d lose their access to US dollars.
Just last week they did it again when the Iraqi parliament voted to expel all US troops from the country.
Now, it was just a non-binding resolution anyhow, which means it was just politicians making a bunch of noise. But the US government hit back, threatening Iraq with the loss of US dollar access if they went forward with the idea.
To be honest, when used in the right circumstances, this entire concept is pretty ingenious. It’s a powerful weapon that, unlike bombs and drones, causes no loss of life.

But the US government has been relying on this tactic WAAAY too much. Frankly they’re starting to look like a bunch of rowdy teenagers in skeleton costumes beating up a weakly Ralph Machio.
And every time they loudly threaten another country or foreign bank with losing US dollar access, they’re essentially daring the rest of the world to come up with another option.
Remember, America only has this power because there is no alternative to the US dollar. Not yet.
But people can only be threatened so many times before they start working on a solution.
In many respects it’s already happening. Countries like Russia and China are already engaging in trade with one another without the use of US dollars. And more and more governments are starting to hold Chinese renminbi as official reserves.
So far these actions have barely dented the US dollar’s dominance, so there’s not going to be any major change for at least the next several years.
But the world is definitely moving in that direction. They’ve learned that the US government is happy to weaponize its currency… so, fool me twice, shame on me.
Having the world’s dominant reserve currency is an enormous privilege that provides many economic benefits. And it has changed many times throughout history– from the Roman solidus to the Spanish real de ochoIt never lasts forever.

And at some point in the future when the US loses its dominant reserve status, historians will look back and realize they did it to themselves.