Sunday, February 28, 2021

Set Yourself Apart from This Corrupt Generation - By J.B. Shurk (The new mission ground - convincing Churchians to become Christians! - CL)

A few years back, Jim Caviezel spoke at a number of venues to discuss his new movie, Paul, Apostle of Christ.  Rather than shying away from his Christianity or attempting to filter his words through the lens of pop culture's censorship, he passionately urged his listeners to become "proud warriors, animated by their faith" in fighting, and even dying, for the preservation of human freedom.  

When he spoke of freedom, he was clear to articulate that God's gift to His children is not the freedom to do recklessly whatever we wish, but rather the freedom to choose wisely how we ought to act in pursuit of moral lives.  He answered Maximilian Kolbe's trenchant observation that "indifference is the greatest sin" by charging every listener to "fight for that authentic freedom" that requires us to live courageously.  "And with the Holy Spirit as your shield and Christ as your sword, may you join St. Michael and all the angels in sending Lucifer and all his henchmen straight back to hell where they belong!"

It is sadly rare these days to hear such moral clarity, particularly from any kind of public figure, who makes himself a target by refusing to conform to our culture's secular and pagan fascinations.  Caviezel has not been seduced by the lie that "good" and "evil" are relative concepts determined by man and man alone.  He knows that the opposite is true.  There absolutely is "good" worth defending to our last breaths.  There absolutely is "evil" that requires us to fight until we can fight no longer.  And because the world is right now blinded by wickedness and corruption, those of us who are still free to see truth must work tirelessly to free those around us, too.  "There was a lot of pain and suffering before the resurrection," Caviezel reminded listeners, "and your path will be no different."  

Your path will be no different.  What a tremendously difficult truth to accept.  How daunting a reality placed before us.  Yet what an opportunity.

Caviezel's words are in my head not just because of the liturgical calendar, but because the attacks on freedom in America since he delivered those words have only accelerated at a pace many Americans once deemed not possible. 

It is no easy thing to watch the nation's political custodians destroy America by rejecting her foundations.  It is not easy to watch millions of American citizens timidly obey politicians' demands that they destroy their own livelihoods and consent to house arrest in the name of a virus.  It is not easy to watch members of Congress join tech monopolists and news anchors in aggressively targeting speech they dislike.  It is not easy to watch the Second Amendment under attack by a president who was put into office by, as one Time writer admitted candidly, a "secret cabal of wealthy and politically connected elites" who conspired "to manipulate the rules and laws of an election in order to win."  It is not easy to watch domestic intelligence services willfully ignore the violence of Antifa terrorists while aggressively arresting and prosecuting Americans for agreeing with Time that the election was won illegitimately.  It is not easy to watch the Supreme Court prove that it is irredeemably compromised by refusing to consider election lawsuits that might expose how corrupt America's elections have become.  And it is certainly not easy to listen to Republicans like Liz Cheney reinforce Democrats' fever-pitched lies that "white supremacy," a blood libel rhetorically identical to Hitler's obsession with Jewish supremacy a century ago, is at the root of all our nation's problems.  It is tempting and entirely understandable to feel overwhelmed by the madness unfolding in America daily.  

Yet what an opportunity to stand courageously for truth.  

In contemplating Paul's conversion from a notorious hunter of Christians to a devout follower of Jesus Christ, Caviezel also reflected on the significance of the apostle's name.  Before disappearing into the desert and suffering blindness, he was Saul; after comprehending the truth of the Holy Spirit and finding sight, he became Paul.  "The name Saul means 'great one.'  The name Paul means 'little one,'" Caviezel noted.  By "changing one little, tiny letter ... we can become great in the eyes of God.  But it requires us to be little if we wish to be great.  This is the way of the saints."

This is the way of the saints.  What a magnificent and revealing truth.  We live in an age of megaphones.  Anybody with a computer connection can become a star on YouTube.  Anybody willing to collect "friends" on Facebook or Twitter can become famously popular overnight.  Anybody willing to stoop low enough or submit completely enough to the cultural excesses of the day can claim more "followers" than Alexander the Great or Caesar Augustus ever had.  And anyone who sufficiently bows down to the pressures of political correctness can be rewarded generously by the same political players who insist on determining what is "correct" for everyone else.  We live in a time when noise is mistaken for wisdom and "likes" are mistaken for authenticity.  Yet the whole artificial structure requires so much conformity to survive that the smallest voice of opposition becomes a threat.    

Why is the "land of the free" so afraid of free speech?  Why is the U.S. military more concerned with spreading intersectional Marxism and purging Trump voters among its ranks than completing wars that have endured for decades?  Why can't Americans question an election without being called terrorists by their government?  Why does a company as powerful as Amazon feel threatened by a single book questioning transgenderism?  Why must a company as dominant as Google insist on banning interviews with President Trump in order to keep control of the "narrative"?  Why must companies with universal name brand recognition such as Disney and Coca-Cola still bow down before false woke gods by firing actresses who question "cancel culture" and subjecting employees to racial indoctrination?  Why must abortion enthusiasts hide the slaughter of babies by calling it "women's health"?

Perhaps it is because truth, no matter how small it is made to look, is too impressive when not endlessly threatened and controlled by those who wish to distort it.  Perhaps that is why the same people in power spend all of their time demonizing the people with no power at all.  Perhaps people with no power but who refuse to betray or relinquish truth for temporary comforts will find that they are more powerful than they know.  Perhaps those Americans now made to feel little will remember that humility and courage are the siblings of greatness.

It's as Caviezel pleaded with his audience a few years back: "Set yourself apart from this corrupt generation." 

"Stand out."

"Be saints."

Hat tip to Mr. Caviezel, whose entire speech should be seen and message absorbed.

Vox Popoli: Amazon is locking down - (....and speaking of Barbarians - modern version! - CL)

Having already eviscerated both the ebook and audiobook markets, Amazon is now going to sabotage its own print book sales:

Conservatives are sounding the alarm about an updated Amazon policy that bans books the ubiquitous billion-dollar company deems offensive or includes so-called “hate speech.”

Amazon has ramped up its censorship on conservative views in recent weeks. For example, a popular documentary on U.S. Supreme Court Justice Clarence Thomas was banned from their streaming service this past week. Before that move, the company deplatformed conservative Ryan Anderson’s book critical of gender theory, “When Harry Became Sally: Responding to the Transgender Movement.”

When Just the News reached out to Amazon over the ban on Anderson’s book, the outlet said the company directed them to a page outlining their “Content Guidelines for Books.” Under a section labeled “Offensive Content,” Amazon states that they “don’t sell certain content including content that we determine is hate speech, promotes the abuse or sexual exploitation of children, contains pornography, glorifies rape or pedophilia, advocates terrorism, or other material we deem inappropriate or offensive.”

“A review of those policies suggests that sometime in the last few months Amazon made a major change to the ways in which it moderates book content on its servers, imposing a much stricter standard on books than it had previously done,” the report said. It appears the company recently added so-called “hate speech” to their guidelines on book platforming, and is amping up their censorship of the “offensive.”

Castalia has already removed most of its audiobooks from Audible. We're well set up to not only survive, but thrive upon the convergence and decline of Amazon, so don't worry about us. If you must worry, worry about all the independents who have staked their careers and livelihoods upon Amazon. 

And if you're not using the Arkhaven and Castalia Direct stores yet, you really should be.

Escobar: Putin, Crusaders, & Barbarian

Authored by Pepe Escobar via The Asia Times,

Moscow is painfully aware that the US/NATO “strategy” of containment of Russia is already reaching fever pitch. Again.

This past Wednesday, at a very important meeting with the Federal Security Service board, President Putin laid it all out in stark terms:

We are up against the so-called policy of containing Russia. This is not about competition, which is a natural thing for international relations. This is about a consistent and quite aggressive policy aimed at disrupting our development, slowing it down, creating problems along the outer perimeter, triggering domestic instability, undermining the values that unite Russian society, and ultimately to weaken Russia and put it under external control, just the way we are witnessing it transpire in some countries in the post-Soviet space.

Russian President Vladimir Putin during a meeting of the Federal Security Service Board in Moscow on February 24. Photo: AFP / Alexei Druzhinin / Sputnik

Not without a touch of wickedness, Putin added this was no exaggeration: “In fact, you don’t need to be convinced of this as you yourselves know it perfectly well, perhaps even better than anybody else.”

The Kremlin is very much aware “containment” of Russia focuses on its perimeter: Ukraine, Georgia and Central Asia. And the ultimate target remains regime change.

Putin’s remarks may also be interpreted as an indirect answer to a section of President Biden’s speech at the Munich Security Conference.

According to Biden’s scriptwriters, 

Putin seeks to weaken the European project and the NATO alliance because it is much easier for the Kremlin to intimidate individual countries than to negotiate with the united transatlantic community … The Russian authorities want others to think that our system is just as corrupt or even more corrupt.

US President Joe Biden speaks virtually from the East Room of the White House in Washington, DC, to the Munich Security Conference in Germany on February 19. Photo: AFP / Mandel Ngan

A clumsy, direct personal attack against the head of state of a major nuclear power does not exactly qualify as sophisticated diplomacy. At least it glaringly shows how trust between Washington and Moscow is now reduced to less than zero. As much as Biden’s Deep State handlers refuse to see Putin as a worthy negotiating partner, the Kremlin and the Ministry of Foreign Affairs have already dismissed Washington as “non-agreement capable.”

Once again, this is all about sovereignty. The “unfriendly attitude towards Russia,” as Putin defined it, extends to “other independent, sovereign centers of global development.” Read it as mainly China and Iran. All these three sovereign states happen to be categorized as top “threats” by the US National Security Strategy.

Yet Russia is the real nightmare for the Exceptionalists: Orthodox Christian, thus appealing to swaths of the West; consolidated as major Eurasian power; a military, hypersonic superpower; and boasting unrivaled diplomatic skills, appreciated all across the Global South.

In contrast, there’s not much left for the deep state except endlessly demonizing both Russia and China to justify a Western military build-up, the “logic” inbuilt in a new strategic concept named  NATO 2030: United for a New Era.

The experts behind the concept hailed it as an “implicit” response to French President Emmanuel Macron’s declaring NATO “brain dead.”

Well, at least the concept proves Macron was right.

Those barbarians from the East

Crucial questions about sovereignty and Russian identity have been a recurrent theme in Moscow these past few weeks. And that brings us to February 17, when Putin met with Duma political leaders, from the Communist Party’s Vladimir Zhirinovsky – enjoying a new popularity surge – to United Russia’s Sergei Mironov, as well as State Duma speaker Vyacheslav Volodin.

Putin stressed the “multi-ethnic and multi-religious” character of Russia, now in “a different environment that is free of ideology”:

It is important for all ethnic groups, even the smallest ones, to know that this is their Motherland with no other for them, that they are protected here and are prepared to lay down their lives in order to protect this country. This is in the interests of us all, regardless of ethnicity, including the Russian people.

Yet Putin’s most extraordinary remark had to do with ancient Russian history:

Barbarians came from the East and destroyed the Christian Orthodox empire. But before the barbarians from the East, as you well know, the crusaders came from the West and weakened this Orthodox Christian empire, and only then were the last blows dealt, and it was conquered. This is what happened … We must remember these historical events and never forget them.

Well, this could be enough material to generate a 1,000-page treatise. Instead, let’s try, at least, to – concisely – unpack it.

The Great Eurasian Steppe – one of the largest geographical formations on the planet – stretches from the lower Danube all the way to the Yellow River. The running joke across Eurasia is that “Keep Walking” can be performed back to back. For most of recorded history this has been Nomad Central: tribe upon tribe raiding at the margins, or sometimes at the hubs of the heartland: China, Iran, the  Mediterranean.

The Scythians (see, for instance, the magisterial The Scythians: Nomad Warriors of the Steppe, by Barry Cunliffe) arrived at the Pontic steppe from beyond the Volga. After the Scythians, it was the turn of the Sarmatians to show up in South Russia.

From the 4th century onward, nomad Eurasia was a vortex of marauding tribes, featuring, among others, the Huns in the 4th and 5th centuries, the Khazars in the 7th century, the Kumans in the 11th century, all the way to the Mongol avalanche in the 13th century.

The plot line always pitted nomads against peasants. Nomads ruled – and exacted tribute. G Vernadsky, in his invaluable Ancient Russia, shows how “the Scythian Empire may be described sociologically as a domination of the nomadic horde over neighboring tribes of agriculturists.”

As part of my multi-pronged research on nomad empires for a future volume, I call them Badass Barbarians on Horseback. The stars of the show include, in Europe, in chronological order, Cimmerians, Scythians, Sarmatians, Huns, Khazars, Hungarians, Peshenegs, Seljuks, Mongols and their Tatar descendants; and, in Asia, Hu, Xiongnu, Hephtalites, Turks, Uighurs, Tibetans, Kirghiz, Khitan, Mongols, Turks (again), Uzbeks and Manchu.   

Arguably, since the hegemonic Scythian era (the first protagonists of the Silk Road), most of the peasants in southern and central Russia were Slav. But there were major differences. The Slavs west of Kiev were under the influence of Germania and Rome. East of Kiev, they were influenced by Persian civilization.

It’s always important to remember that the Vikings were still nomads when they became rulers in Slav lands. Their civilization in fact prevailed over sedentary peasants – even as they absorbed many of their customs.  

Interestingly enough, the gap between steppe nomads and agriculture in proto-Russia was not as steep as between intensive agriculture in China and the interlocked steppe economy in Mongolia.

(For an engaging Marxist interpretation of nomadism, see A N Khazanov’s Nomads and the Outside World).

The sheltering sky

What about power? For Turk and Mongol nomads, who came centuries after the Scythians, power emanated from the sky. The Khan ruled by authority of the “Eternal Sky” – as we all see when we delve into the adventures of Genghis and Kublai. By implication, as there is only one sky, the Khan would have to exert universal power. Welcome to the idea of universal empire.

Kublai Khan as the first Yuan emperor, Shizu. Yuan dynasty (1271–1368). Album leaf, ink and color on silk. National Palace Museum, Taipei. Photo: Wikimedia Commons/National Palace Museum, Taipei

In Persia, things were slightly more complex. The Persian Empire   was all about Sun worship: that became the conceptual basis for the divine right of the King of Kings. The implications were immense, as the King now became sacred. This model influenced Byzantium – which, after all, was always interacting with Persia.

Christianity made the Kingdom of Heaven more important than ruling over the temporal domain. Still, the idea of Universal Empire persisted, incarnated in the concept of Pantocrator: it was the Christ who ultimately ruled, and his deputy on earth was the Emperor. But Byzantium remained a very special case: the Emperor could never be an equal to God. After all, he was human.

Putin is certainly very much aware that the Russian case is extremely complex. Russia essentially is on the margins of three civilizations. It’s part of Europe – reasons including everything from the ethnic origin of Slavs to achievements in history, music and literature.

Russia is also part of Byzantium from a religious and artistic angle (but not part of the subsequent Ottoman empire, with which it was in military competition). And Russia was influenced by Islam coming from Persia.

Then there’s the crucial influence of nomads. A serious case can be made that they have been neglected by scholars. The Mongol rule for a century and a half, of course, is part of the official historiography – but perhaps not given its due importance. And the nomads in southern and central Russia two millennia ago were never properly acknowledged.

So Putin may have hit a nerve. What he said points to the idealization of a later period of Russian history from the late 9th to early 13th century: Kievan Rus. In Russia, 19th century Romanticism and 20th century nationalism actively built an idealized national identity.

The interpretation of Kievan Rus poses tremendous problems – that’s something I eagerly discussed in St. Petersburg a few years ago. There are rare literary sources – and they concentrate mostly on the 12th century afterwards. The earlier sources are foreigners, mostly Persians and Arabs.

Russian conversion to Christianity and its concomitant superb architecture have been interpreted as evidence of a high cultural standard. In a nutshell, scholars ended up using Western Europe as the model for the reconstruction of Kievan Rus civilization.

It was never so simple. A good example is the discrepancy between Novgorod and Kiev. Novgorod was closer to the Baltic than the Black Sea, and had closer interaction with Scandinavia and the Hanseatic towns. Compare it with Kiev, which was closer to steppe nomads and  Byzantium – not to mention Islam.

Kievan Rus was a fascinating crossover. Nomadic tribal traditions – on administration, taxes, the justice system – were prevalent. But on religion, they imitated Byzantium. It’s also relevant that until the end of the 12th century, assorted steppe nomads were a constant “threat” to southeast Kievan Rus.

So as much as Byzantium – and, later on, even the Ottoman Empire – supplied models for Russian institutions, the fact is the nomads, starting with the Scythians, influenced the economy, the social system and most of all, the military approach.   

Watch the Khan

Sima Qian, the master Chinese historian, has shown how the Khan had two “kings,” who each had two generals, and thus in succession, all the way to commanders of a hundred, a thousand and ten thousand men. This is essentially the same system used for a millennia and a half by nomads, from the Scythians to the Mongols, all the way to Tamerlane’s army at the end of the 14th century.   

The Mongol invasions – 1221 and then 1239-1243 – were indeed the major game-changer. As master analyst Sergei Karaganov told me in his office in late 2018, they influenced Russian society for centuries afterwards.

For over 200 years Russian princes had to visit the Mongol headquarters in the Volga to pay tribute. One scholarly strand has qualified it as “barbarization”; that seems to be Putin’s view. According to that strand, the incorporation of Mongol values may have “reversed” Russian society to what it was before the first drive to adopt Christianity.   

The inescapable conclusion is that when Muscovy emerged in the late 15th century as the dominant power in Russia, it was essentially the successor of the Mongols.

And because of that the peasantry – the sedentary population – were not touched by “civilization” (time to re-read Tolstoy?). Nomad Power and values, as strong as they were, survived Mongol rule for centuries.

Well, if a moral can be derived from our short parable, it’s not exactly a good idea for “civilized” NATO to pick a fight with the – lateral – heirs of the Great Khan.

Monetary Inflation: The Next Step...

(Globalust monetary policy:
Eat, drink and be merry, for tomorrow we die! Let our grandkids take care of it, say DaFreakingBoomers - who now control our administrative state!
There will be a reckoning - and those Boomers (and those who think like them) will have an eternity to regret their current 'wisdom' from DaBastahd who runs this god forsaken world. - CL)

Authored by Alasdair Macleod via,

Earlier this month the US Treasury released its plan to flood the financial system with cash by reducing its balance on its general account at the Fed by $1.229 trillion by not renewing an equivalent amount of T-Bills

Separately, the Fed will continue with its QE at the rate of $120bn every month, which combined with the Treasury’s plans means an inflation of the money supply totalling $1.829 trillion [(120x5 months)+929+300] is in progress from the beginning of this month until end-June. This does not include the planned stimulus of $1.9 trillion

The banks do not have the balance sheet capacity to take this expansion on board, and if they are forced to turn new depositors away it will almost certainly be by charging for deposits (imposing negative interest rates). That being the case, not only will the US economy be flooded with unprecedented levels of inflated money, but commercial banks will implement negative rates without the Fed having to do so

To prevent this outcome, the Fed will have to extend the temporary exemption from the supplementary leverage ratio due to end in March and remove the $30bn reverse repo limit on money funds, allowing them all to access the Fed’s reverse repo facility and avoid “breaking the buck”. At this late stage there is no sign of the SLR being extended, and a policy with respect to money funds may or might not be forthcoming

But with the Bank of England signalling that it will introduce negative rates later this year, leaving the dollar as the only major western currency at the zero bound, it appears that the solution is indeed to flood the markets with dollars and force the US’s commercial banks to adopt NIRP on the Fed’s behalf

And with dollar term rates already rising, not only is it likely to be too late for the Fed to succeed with an operation twist, but the bubbles in financial markets risk being undermined by rising bond yields, taking the dollar down with it in the style of a John Law combined bubble and currency collapse.

Gold does not discount this outcome and can be expected to drive its fiat price substantially higher.


It is extraordinary that anyone who pretends to know something about economics thinks that inflation is something that happens only to prices, loosely connected to changes in the money quantity. And for xenophobes, it is an unfortunate condition which only afflicts minor, foreign currencies.

When so-called economists deny a firm connection between reckless monetary expansion and rising prices, you would have thought that the empirical evidence would act as a check-stop. But no, in support of statist planning economists rely on supressed evidence and economic models which are programmed to assume every extra dollar benefits economic activity without contrary effects, and that every fall in interest rates is an encouragement for the expansion of economic activity.

The parameters which guide policy decisions have become wholly artificial. The CPI is now so tamed that the consequences of monetary inflation for rising prices are barely visible. And GDP, no more than an inflated money total, substitutes for the genuine economic condition. Now that the true consequences of money-printing are suppressed, the mantra has become to inflate or die.

Inflating the quantity of money in circulation has become the most important objective for monetary policy. The other stuff about interest rates, quantitative easing and yield curve control is little more than supporting flimflam, even diverting attention from the inflation objective which reeks of confirmation bias. Confirmation bias is reinforced by the increasing dependency of the state on this form of financing. The fact it is apparently free money, justified by its alleged stimulative qualities, makes monetary inflation highly addictive.  An understanding of the damage it causes is casually dismissed and along with it the painful alternative of cutting government spending to escape a downward spiral into the financial gutter. As an inflation addict, the US Government is edging closer to that gutter, now with the addition of an intensified socialistic modern monetary theory adopted by the Biden administration.

MMT is just another form of confirmation bias for inflationary financing of government spending, and there is nothing modern about it. Since time immemorial governments and their epigones have sought to escape the limitations of unpopular taxation and justify access to a free money tree. Only the language has evolved. The accumulating evidence is that the US Government, claiming a renewed democratic mandate, has become so addicted to money-printing that its escape from the consequences of debasement has become well-nigh impossible. It is this that led me recently to accuse America of already being in a state of hyperinflation: my definition is that of a state which has embarked upon a course of inflationary financing which accounts for most of its income and becomes practically impossible to reverse. Since last March, both these conditions have been fulfilled.

Unless you are blinded by economic models and neo-Keynesian macroeconomics, you will see that it is now just a matter of recognising the waymarks illuminating the route to monetary and economic ruin. We passed the first, where inflation stimulates the economy – utter nonsense when the hidden consequences are taken into account. We passed the second, where the supposed stimulation has become continual, only succeeding in transferring wealth from the productive economy and savers to the unproductive state. Then there was the third, where the state became dependent for the majority of its finances on money printing — the hyperinflationary condition that happened under the cover of covid. And now we have embarked on the fourth, the final destruction of money and the descent into monetary hell and economic ruin. Virgil’s Facilis decensus averni, indeed. But we can now surmise that the combined ambitions for the Treasury and the Fed to print money are about to exceed the capacity of the banking system to accommodate it.

The Yellen Treasury and negative interest rates

The Biden administration, and in particular its Treasury secretary, Ms Yellen, appears bent on a course of accelerating MMT policies in a desire to rapidly inflate the economy. That comes as no surprise. Follow the dogma, and you understand the next step is negative interest rates as the policy designed to stimulate the US economy out of its post-covid slump. The dollar and sterling are the only two major Western currencies whose central banks are yet to embrace this policy, yet the Fed remains reluctant. This appears to be the immediate objective behind a policy of overdosing the US economy with so much money, that the banks without the balance sheet capacity to absorb it will have little option but to discourage further deposits by charging depositors for the privilege, by moving their rates into negative territory.

We can’t know what private conversations have taken place between the US Treasury and the Fed, but this new twist to monetary policy bears the hallmarks of a combined operation that permits the Fed to duck the tricky decision to impose negative rates on bank reserves. If there is a plan, then negative rates will be achieved instead by the US Treasury flooding money markets by transferring its accumulated balance on its general account with the Fed into the financial system. Figure 1 below is extracted from the US Treasury’s Sources and Uses Reconciliation Table published earlier this month and illustrates the starting point whereby negative deposit rates can be achieved.

On 1 February the cash balance on the government’s general account at the Fed was $1.729 trillion, and by 31 March the Treasury planned to reduce it to $800bn, implying that $929bn will be injected into the financial system in the first quarter. At the time of writing, the most recent balance available is for 17 February at $1.567 trillion, which tells us that by the end of March $767bn was still to be added into the economy from that date, with a further $300bn in the quarter following.

There are two ways in which the balance on the US Treasury general account at the Fed can be reduced; either by spending it or by reducing outstanding Treasury bills by not renewing them as they mature. Given the very short timeframe between the administration assuming office in late-January these plans are almost certainly a policy of paying down T-bills ahead of the new $1.9bn stimulus, which is likely to be directed entirely at supporting consumers and businesses in the economy.

Our immediate consideration is the monetary effect on the financial system. With $929bn of T-bills not being rolled into new ones between 1 February and the quarter-end, the same amount of cash is liberated to be placed elsewhere by a combination of foreign central banks, money market funds and commercial banks acting for both domestic and foreign accounts. As Zoltan Pozsar in a note for Credit Suisse points out, a foreign central bank can swap T-bills for deposits at the Fed’s New York branch, or it can use the foreign repo facility. No problem there, then. For money market funds there is little alternative to a reverse repo with the Fed, but these are limited to $30bn for each counterparty and not all money market funds have access to this facility. Furthermore, the rejection of large deposits by the banks lacking balance sheet capacity will encourage inflows into money market funds, which cannot invest in negative-yielding instruments and have the same problem as the funds they attract.

The reduction of holdings of T-bills by central banks and money market funds might push term rates down to the zero bound out along the curve for a year or so, and commercial banks will end up with larger balances in their reserve accounts at the Fed. But it seems likely that a significant portion of this liberated cash will increase customer deposits at the commercial banks anyway. These will include the proceeds of T-bills held by pension and insurance funds. Additionally, we must consider the position of foreign private sector holders of T-bills, reflected in foreign banks holding $1,132bn in UST-bills and certificates, according to figures from the Treasury’s TIC latest available data in December.

There are, therefore, significant balances currently invested in T-bills that cannot access the Fed’s facilities and will end up looking to be deposited in the banking system instead. This will inflate the money supply even further than is already shown in Figure 1. But with all the stimulus money in 2020 plus bank lending to private sector corporations, plus the fact that the repo market blow-up in September 2019 showed a lack of balance sheet capacity even before the covid crisis, the banking system may be unable to absorb further deposits on the scale demanded, particularly if foreigners unable to reinvest into T-bills attempt to shift dollar money into bank deposits.

In that case, it is likely that in the attempt to duck them, commercial banks will be forced to impose negative interest rates on new deposits. In this case, reverse repo rates between commercial banks will also go negative. This will not be something of the Fed’s doing, but a consequence of the US Treasury’s decision to run down the balance on its general account. A further consequence is that the pressure on foreign holders of a trillion in T-bills will encourage them to sell the dollar for another currency, driven by the convergence between short-term dollar rates and those of the yen and euro. But then a weaker dollar is likely to be another ambition of the US Treasury’s desire to stimulate economic activity.

The Fed’s QE continues…

Meanwhile, there is no indication that the Fed will alter its quantitative easing programme of $120bn every month, $90bn of which is earmarked for Treasury bonds. That continues, with the Fed thereby suppressing yields along the curve below where they would otherwise be. This QE is primarily targeted at supplying insurance and pension funds with cash in return for bonds, which they are encouraged to reinvest in higher risk assets, such as corporate debt and equities. The payment flows from the Fed accumulate in the reserve accounts of the funds’ bankers at the Fed. The bond bubble and all assets referenced to it will continue to be inflated.

The commercial banks were granted a temporary suspension from the supplementary leverage ratio (SLR) last March to allow them to add and maintain both government debt and excess reserves on their balance sheets without penalty. That this was necessary was an indication that ratios were already looking stretched a year ago, which should be no surprise, given the repo market blow-up the previous September. The commercial banks, whose expansion of reserves is a consequence of QE targeted at their insurance and pension fund customers, have swollen balance sheets for which the relief from SLR is important. With that facility due to come to an end next month, the banks will face the reimposition of the SLR, requiring them to hold at least 3% base equity relative to their leverage exposure and an extra 2% for the G-SIBs (global systemically important banks). These buffers are supplemental to other regulations and were introduced in the wake of the last banking crisis in 2008.

But with QE continuing at the current $120bn monthly rate and the Treasury set to inject a further $767bn by not refinancing T-bills to that amount by end-March, something will have to give. As things stand, it will result in banks trying to shrink their balance sheets relative to equity capital, unless there is a further extension to the SLR, and even that may not be enough.

This is additional evidence that deposits resulting from the Treasury’s actions will be unwanted and costly to the banks. Another way of looking at the problem is that the scale of intended stimulus is simply too great for the banking system with its current equity base. It is an aspect of inflationary financing that is rarely considered.

The consequences of negative interest rates

Negative interest rates must have been the hottest topic under discussion at the regular bimonthly meetings of central bankers at the Bank for International Settlements in Basel in recent years. Trial balloons have been floated in the UK for months, the latest being by Gertjan Vlieghe, a member of the Bank of England’s Monetary Policy Committee in a speech at Durham University where he said, “It is therefore an important and welcome development that the MPC will be adding negative interest rates to its toolkit from August once banks have made the necessary operational adjustments.” There can hardly be a clearer statement of intent from one of the only two major central banks in the west not to have breached the zero bound.

Given that interest rate policy is a central bankers’ obsession, the introduction of negative interest rates for the two major western currencies yet to do so is surely now no more than a matter of time. But the evidence from those that have imposed negative interest rates is that have not encouraged increased lending activity. A negative rate is a tax on a bank’s deposits at the central bank which cannot easily be passed on to its own depositors. Even with the BoE’s base rate at 0.1%, the turn on paying deposit interest is compressed to the extent that British banks are charging usurious rates of interest on arranged personal overdrafts to compensate: NatWest’s rate is 39.49% APR and the TSB’s is 39.9%.

Admittedly, a determination to reduce lending commitments in these risky times might be partly responsible for overdraft charges. But given that central banks want to stimulate consumption, by cutting rates to zero or even less, commercial banks with limited space on their balance sheets end up discouraging it. And to the extent they try to recoup a negative interest rate tax from their lending to commercial borrowers, they also deter businesses from drawing down credit. Negative rates simply seize up the banking system, and the only beneficiaries are zombie corporations in bare survival mode who hope to see their funding costs fall in the junk bond market. Current zero rate policies in the US and the UK are not therefore achieving the desired effect at the zero bound, let alone with a prospective move to negative rates.

The destruction of savings, which perversely is the policy intention, is a consequence of interest rate policies pursued to their Keynesian endpoint with social implications too important to overlook. Because they are not on any central bank’s radar, the misery of the loss of income for small savers is ignored along with the damage to private sector pensions and the higher insurance premiums compensating for lower investment returns. The whole thing is a deepening morass, but it seems central bankers are determined to continue with these policies nonetheless.

Presumably, the reluctance of the Fed to reduce its funds rate to below zero relates to the dollar’s role as the international currency in which commodities and energy are priced. The imposition of negative dollar rates immediately puts them all in backwardation, an artificial condition that values commodities today more than the money alternative. The way to understand the phenomenon is to look at it from the money side. Negative interest rates mean that the possession of money on deposit today is a cost, while that of tomorrow does not, because you don’t yet own it. This is reflected in a higher value for not owning money and getting rid of it for something else. In commodity markets it is echoed in a higher value for cash settlement than for deferred settlement.

It could be argued that the bull market in commodity prices illustrated in Figure 2, which commenced when the Fed reduced its funds rate to zero last March, is a function of not just the infinite extension of zero rates, but the anticipation that negative rates will be introduced at some time.

If so, we can understand why the Fed is reluctant to embark on a negative rate policy, but Ms Yellen as a card-carrying inflationist can achieve it from her position at the US Treasury.

The consequence for the dollar’s purchasing power

In almost all currency debasements, they start on the foreign exchanges. Foreigners whose primary interest is to maintain an operational liquidity in currencies other than their own accounting medium are super-sensitive to avoiding exchange related losses. Because they use them for international business and the purchases of raw materials, their dollar balances are the largest foreign exchange exposure they have. They will continue to maintain dollar balances, but with $5.29 trillion in bank deposits, T-bills and other short-term instruments, there is significant room for reducing dollar liquidity. To this balance we can add longer term maturities and portfolio investment of $6.134 trillion held by private sector foreigners.

The scope for foreign selling of dollars is therefore substantial, and if these holders get wind of negative rates the run on the exchange rate will be significant. Higher prices for industrial raw materials and imported goods then rapidly follow, exacerbating a lack of domestic production to soak up inflationary demand. It will not go unnoticed by resident Americans, a significant minority of which will have accumulated unaccustomed levels of cash liquidity during lockdowns. There will be a shift from inflation of financial assets to worldly goods, which is already evident in residential property markets and will be accelerated by the initial stages of rising bond yields.

Despite the flooding of QE money into pension and insurance funds and the positive effect of their reinvestment into replacement financial assets, a fall in the dollar’s exchange rate will lead to higher yields for US bonds with longer maturities. A new Operation Twist from the Fed, strongly rumoured today, would simply drive the dollar lower, so the Fed’s ability to suppress long-term rates becomes limited. Consequently, and despite the tendency for a move to negative short-term rates, the valuation basis for all financial assets risks being undermined by a greater time preference factor for dollars, reflected in longer bond maturities.

The US will then face John Law’s dilemma. Having issued money to inflate a perpetual asset bubble, its bursting by higher bond yields undermines the currency and must be prevented. The hardest part is retaining the currency’s purchasing power. The only cure, which arguably is already embarked upon, is to increase the pace of monetary inflation to keep the bubble inflated. For the dollar it is a trap worthy of Thucydides: the more QE is used to inflate, the more it has to be increased to keep the inflation going. The more the quantity of money is expanded, the more it has to be expanded. Stopping it brings on a crisis. Not stopping it temporarily defers an even larger crisis. Today, this outcome is not expected, but tomorrow it will be.

Implications for gold

The consequences of negative dollar rates for the gold price will be to drive it higher, probably substantially so. There are several aspects to consider: the effect on the dollar, the backwardation issue, the technical position in the market and the fact that as an asset class it is underrepresented in portfolios.

There can be no question that negative rates, either imposed by the Fed or the commercial banks, will result in a lower dollar. As a currency it is over-owned by foreigners, and the move below the zero bound into similar interest rate territory as the euro and the yen will reverse conditions in the fx swap market with predictable consequences. On Comex, hedge funds in the Managed Money category, whose pair trade is to sell dollar/buy gold or the opposite, hold 67,956 net long contracts (16 February) compared with an average long-term net long position of 110,000, leaving them underexposed to a falling dollar and rising gold price. The slightest indication that overnight rates are heading below the zero bound would rapidly reverse this position, potentially driving them to be record long. And for the pure traders among them a developing slump for the dollar on the foreign exchanges would be enough.

The counterargument concerns rising term rates, the steepening of the yield curve. But the error here is that other than as cash to be unaware that gold has its own interest rate, and the relationship with fiat rates must incorporate shifts in their relative purchasing powers. The only way to take the steam out of the gold price is to raise fiat interest rates to a level that discounts the differential, which is what Paul Volker did in 1980, by raising the Fed’s fund rate to nearly 20%. Today, fiat rates are being forced unnaturally the other way, including the suppression of bond yields by QE. The argument that marginal changes in rate differentials matter is short-term and does not alter the underlying condition.

This leads us to consider the backwardation issue, which in the absence of balance sheet capacity in the banking system is unlikely to result in long gold positions being financed by domestic bank credit. But gold becomes more attractive relatively to foreigners swapping dollars for gold, and importantly for minor central banks as well, which are already net buyers on other grounds. Furthermore, negative dollar rates would almost certainly impel commodity and energy prices higher through a combination of backwardation and weakening dollar issues, tending to take the gold price with them.

But the most important consideration today concerns the relationship between physical and paper markets. Paper markets have led gold prices lower since the price peaked in early August. Driving it has been a concerted attempt by the bullion banks (Swaps) to reduce or eliminate their short positions at a time of accelerating monetary inflation. They were badly caught out by the Fed’s interest rate reduction to zero on 20 March 2020, and the Fed’s statement that QE would be increased to $120bn on the following Monday. Premiums of up to $90 over spot materialised on Comex futures contracts, and the bullion banks’ short positions led to emergency actions by both the LBMA and Comex acting together to contain the fallout. Less obviously, the central banks increased their leasing to supply physical. We know this because the Bank of England ended up as a sub-custodian to the GLD ETF last August.

This time, the dumping of general account balances on money markets could develop into a similar crisis for bullion bank traders, facing a combination of demand for paper gold from hedge funds and an escalation of physical deliveries. And physical silver supplies are already severely constrained.

Lastly, gold ownership in portfolios is almost entirely through physical ETFs, which total 3,765.3 tonnes valued at $225.8bn (source: WGC —end January). With global investment portfolios estimated at about $100 trillion, this leaves a average exposure to gold of only 0.23%, ignoring the lack of clear title to the underlying bullion.

The Danger of the Administrative State Ethan - by Ethan Yang

Lockdowns should have shown every American just how tyrannical and unreasonable our leaders can be. There are elected leaders like Governor Cuomo who have acted as outright tyrants, alienating everyone, even those in his own party. Then there are the unelected bureaucrats who wave away our liberties with the stroke of a pen from the secrecy of their massive offices with technocratic efficiency. This is all of course a sudden and dramatic curtailing of our freedoms. I would not be surprised that with this much public attention, some sort of effort will be made to roll back much of what has been done. Although lockdowns are certainly an existential threat to our long-term freedoms and system of liberal democracy, there has been another specter out there that many experts have been sounding the alarm on for decades. The growth of the administrative state. 

The chilling narrative about the growth of the administrative state, which is essentially the regulatory apparatus of the executive branch, is usually confined to specialist professions. The ever-present danger of a slowly expanding and unaccountable apparatus of bureaucrats that threatens to sap the life out of American society and drown it in a sea of paperwork is typically a concern that only keeps policy wonks and lawyers up at night. Although many lawyers probably celebrate this dystopian vision because they benefit from the compliance fees. The regulatory state not only threatens to make society that much slower and dreary with its excessive onslaught of regulation but it also makes us poorer. Robert Samuelson writes for the Washington Post that

“No one really knows by how much, but “there is ample evidence that regulation has expanded and that this expansion has limited economic growth,” as Ted Gayer and Philip Wallach of the Brookings Institution recently wrote. One study estimates that regulation has shaved 0.8 percent off the U.S. annual growth rate, which — if confirmed by other studies — would be huge.”

The regulatory state refers to organizations such as the Environmental Protection Agency, the Centers for Disease Control, the Federal Trade Commission, the Department of Education, the Department of Justice, the Internal Revenue Service, and all the other three-letter agencies in Washington, DC. If you would like to see how long the list of agencies is, take a look at the Federal Register, to which there are 455. That number is absolutely mind-boggling and you don’t need a fancy degree in political science like I have to say that society can function without their oversight. A paper by Peter Strauss at Columbia Law School notes that there are currently over 2 million civilians employed in the federal government alone. He notes that for context,

“The first Congress to meet once the Constitution was ratified created a Post Office and Departments of War, Navy, Foreign Affairs, and Treasury, each in unique ways suited to its responsibilities; this new government employed few civil servants to manage all its affairs. The first serious count of federal civilian employees, in 1816, reported that they numbered 4,837.” 

The drastic expansion of the administrative state has come at a cost to not only our liberty, which is slowly being eroded by a sea of paperwork and regulations, but it also undermines our democracy. According to Article 1 of the Constitution, the legislative branch or Congress is supposed to be the primary law-making body of our government. That is because if there are bad laws or laws society doesn’t like, we can hold people accountable. However, more and more power has been shifted to the executive branch because of the growth of the administrative state. Even the judicial system is losing power to the administrative state after the establishment of a legal doctrine known as Chevron Deference, which binds the court system to defer to the administrative agency’s interpretation of a rule, not the Constitutional interpretation of a sitting judge. It shouldn’t be too hard to assume that the interpretation will probably favor the ambitions of the agency, not the integrity of the Constitution. These issues and more form the basis of legal scholar Richard Epstein’s assertion that the administrative state is not congruent with rule of law in this country.

The worst part about all of this is that society continues to tell itself that those in the administrative state are simply humble public servants. Although I’m sure many of them are, the hard reality is that at the end of the day it’s a source of income and advancement for bureaucrats just like jobs in the private sector are for everyone else. This is the basic insight of Public Choice Theory, which is the common-sense realization that government agents are not angels, they are humans and follow human nature. That means that although many government agents may think they are serving the country, they are also limited by their own capabilities as humans as well as their desires. This is demonstrated by a phenomenon known as the Washington Monument Syndrome, which refers to how when a government agency is threatened with a budget cut or hiring freeze, they shun fiscal restraint in order to protect their own self-interests. The Washington Monument Syndrome gets its name because when the National Park Service was faced with budget cuts, instead of streamlining its finances like a normal private company they protested by shutting down the Washington Monument rather than taking sensible steps to cut costs. In the private sector there is a natural check on how much workers can demand, such as the threat of going out of business. In the public sector there are no such restraints. This is part of the reason why the bureaucracy simply grows and grows and grows, taking our freedom as well as our treasure as it does. 

Finally, there is the dark fact that there are ambitious people in the administrative state who want to make a name for themselves at the expense of their fellow countryman. If there aren’t any problems to solve, hotshot regulators are trying to move up the food chain by creating problems to solve by either targeting innocent private actors or trying to pump up their resumes with unnecessary sanctions. This problem is well known when it comes to the criminal justice system, as prosecutors leverage plea bargains to increase their incarceration statistics regardless of the guilt of the defendant and without ever having to take a case to trial, which is a constitutional right. However, this system of perverse incentives to simply rack up wins at the expense of society is present in the regulatory state as well as agencies bringing the government’s boot down on businesses just trying to provide a good service. 

I had a personal experience with this dynamic when I interned at a law firm providing pro bono services to private entities that were being pursued by trigger-happy regulators. The case I worked on was FTC vs D-Link Systems, which was settled finding no liability for any violations. The FTC in this case levied a claim that D-Link Systems was engaging in deceptive practices. However, upon investigation there were no rules that they violated, nor were there any widespread complaints from consumers to be found. The FTC was essentially going out of its way and leveraging vague rules to pursue a responsible corporation likely in the name of career advancement. That is because there are no rewards for doing nothing, even though that’s what the government should be doing when its citizens are being responsible. Sadly, not every private business has the resources to fight back against overzealous government regulators. Even worse, there is little being done to check the powers of the administrative state. In fact, many elected politicians simply see it as a way to shift blame away from themselves.

Key Takeaway

If lockdowns were a sudden and brutal assault on our liberties, the rise of the administrative state would be the silent killer. It keeps itself away from the public spotlight, only raising alarms for the communities it directly affects and policy wonks who enjoy ranting about taxes and federal codes all day. To the average person, the administrative state is not a problem until it is. Every year it grows and grows with little incentive to care for the trouble it has caused for the rest of American society. It is the true embodiment of the leviathan illustrated by Hobbes. Although there is certainly a time and place for regulatory agencies, today they have so greatly outgrown their bounds to the point they are becoming an unelected judge, jury, and executioner. What was a handful of executive agencies at the beginning of the republic has now become an expansive list of alphabet soup abbreviations, some with their own SWAT teams and court systems. The administrative state not only saps our treasure and stifles our creativity but it drains our spirit. If left unchecked it will surely turn this country of ambitious innovators and entrepreneurs into one of paper pushers and clerks.

Ethan joined AIER in 2020 as an Editorial Assistant and is a graduate of Trinity College. He received a BA in Political Science alongside a minor in Legal Studies and Formal Organizations.

He currently serves as Local Coordinator at Students for Liberty and the Director of the Mark Twain Center for the Study of Human Freedom at Trinity College.

Prior to joining AIER, he interned at organizations such as the American Legislative Exchange Council, the Connecticut State Senate, and the Cause of Action Institute.

Ethan is currently based in Washington D.C.