Hong Kong Protests & the CIA

My comment: Even if the protests have CIA money behind them, the central grievance is shared by many people in HK. They don’t wish to be extradited to the mainland to face trial and sentence; and their motivations are completely reasonable, given the oppressiveness and lack of transparency of the Chinese state. The Communist Party will have to make serious reforms before the people of HK will trust their law enforcement, their magistrates, and prison conditions. I’d like to praise the people of HK for their civic spirit, which far surpasses anything in the West. That same civic spirit [principle and discipline] was displayed a few years ago in South Korea and it was called the ‘candlelight struggle.’

I find it interesting that Trump didn’t have much to say about the protests, other than deeming them “very sad to see.” I also disagree with Rick Sanchez on trade with China. Trump didn’t lose with Xi, neither did Xi lose with Trump. Huawei received some space to maneuver in commercial operations, and so did US farmers. The fact that the trade war between China and the US did not escalate after the G20 summit is a victory for both countries.

Crosstalk: Sanctions on Two Fronts & Dem Clown Show

US-China talks are back on track, but a second front has opened up. US-Europe trade is heading into a storm. Iran is again at the center of the debate. The Instex payment system, alternative to Swift, was designed explicitly for European companies to do business with Iranian firms. But Washington is none too pleased and reiterated its warnings. Also, the circus has come to town and it’s called the Democratic primary. CrossTalking with Dmitry Babich, Marcus Papadopoulos, and Alex Christoforou.

My comment: I disagree with Marcus Papadopoulos on the question of which side will China take in the US-Iran conflict. He claims that China will pick the United States over Iran, simply due to the large volume and value of trade with it. Marcus invokes Deng Xiaoping’s legacy on Chinese development, stressing the pivotal role the US market had on China’s economic ‘miracle.’ While no doubt that’s true, there was a geopolitical downside. As the Chinese were exporting more net goods to the US in exchange for net US dollars [electronic entries that sit on the Federal Reserve’s ledger], the US was busy encircling China militarily. I don’t believe China will dump Iran to save its trade with the US. Why? It’s good to diversify trade partners, especially oil countries [like Iran] who can fuel your industries with oil, refined oil in particular. At the same time, it’s good to support a partner state who, in turn, ensures a counterweight to US geopolitical influence. Iran and China could help each other tremendously, and again I affirm my belief that Beijing won’t dump the Iranian market and the Iranian state to appease Washington. Instead, China will seek a middle-ground between the two.

Regarding the second half of the show, the clown show of the Democratic primaries… I don’t know who started the label… but I did watch a little bit of Infowars and saw Alex Jones’ sarcastic rendition of the Democrat candidates [Tulsi Gabbard was absent from his list of caricatures]. It was absolutely a clown show! As Christoforou and Lavelle pointed out, the only presidential candidate on the Democratic stage was Tulsi Gabbard. Kamala Harris clearly set herself up to play the victim card against ‘sleepy, creepy Joe,’ invoking an issue that’s been dead for 40 years. Lavelle, Christoforou and Babich noted the very little air time given to Gabbard and to Andrew Yang. Pat Buchanan’s recommendation was invoked and supported, that Trump should trade Pence for Gabbard and it will be a slam dunk. I’m fully behind that idea as well. Here’s why…

As for the Democrats trying to sell Medicare For All, man, they’ve got zero skills in sales… First of all, Medicare For All will never pass in the US if it’s advertised alongside a tax hike. But there’s hope if Democrats would try to sell it alongside a tax cut [a tax cut for labor in particular]. Why a tax cut? Because M4A will trigger redundancies in the [insurance] bureaucracy. One of the best ways to sell a Government reform is by telling people it will lay off busy bodies and reduce bureaucracy – which is what M4A does! M4A is inherently a deflationary policy; it will cause unemployment. And it will cause even more unemployment if it’s paired with a tax hike [a tax hike on the wealth creation side of the economy, not the rent extractive side]. Given its deflationary nature, that’s why M4A should be introduced alongside a tax cut [on the wealth creation side].

Here are the benefits of the program, which, sadly, don’t get air time at all in the mainstream. Doctor-patient time is doubled as doctor-insurance company time is eliminated. Diagnosis, treatment options, and treatment costs are discussed between doctor and patients, instead of with an insurance company. This increases the system’s capacity and the quality of service without increasing real costs. The program’s nominal cost is estimated at around 10 percent of GDP, which is less than being spent today, and even assuming the ugliest outcome, the numbers aren’t financially disruptive and can be easily adjusted. M4A eliminates medical costs for businesses, thus removing price distortions and medical legacy costs. It eliminates problems regarding receivables and bad debt for hospitals and doctors. It wipes out the majority of administrative costs for the nation as a whole; while patients are free to shop around for medical services and prices. M4A is fully compatible with capitalism. Capitalism runs on sales. Sales are fueled by spending, government sector spending, domestic private sector spending, and foreign sector spending. When people don’t have money to buy output, sales decline, and capitalism goes stale [unemployment, poverty, bankruptcies]. M4A puts money into people’s pockets and the people use that money to pay medical service providers [firms that create tangible output, unlike insurance companies].

I’d like to make a very important observation about M4A… so long as the Democrats include abortion coverage irrespective of context, M4A will face strong opposition from pro-life groups and moderates / independents. And they’ll have only themselves to blame. Ditto if they support extending M4A to illegal aliens. Regarding ‘where will the money come from?’ question, the stupid ‘tax & spend liberal’ will never be able to give an honest response. They have to be prepared to say, we’ll deficit spend, the program will get financed and there isn’t going to be inflation. A more elaborate answer than that really isn’t necessary for the audience at large and it’s never given on issues like Defence Budget hikes or bank bailouts – because the source of the funding is the Government sector itself [the Treasury + the Central Bank].

On the matter of medical costs, though, this reform in and of itself is not enough. The Big Pharma cartels have to be smashed, all those markups ranging in the tens of thousands percentage-wise need to be eliminated. But nobody has the guts to fight rent-seeking [patents included], usury, and cartels.

As for Student Debt Cancellation and Free College… Student Debt Cancellation is a sectional policy, and many people will claim it’s unfair that students get debt write offs, but others who are not students, but have debts, don’t get anything. As a principle of fairness, a debt jubilee should cover a large portion of the population, not a minority. As for Free College, it’s a good policy, but only if it has a direction. Not all diplomas are the same. The State should prioritize nurses, medical doctors, engineers, and the like – not professions that are superfluous [so-called Mickey Mouse degrees]. The State should prepare students for the job market of the future. Free College without a clear vector is bound to fail in my opinion.

The Duran: US-Mexico Deal

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the tariff deal reached between the United States and Mexico to “stem the tide of migration”. Donald Trump announced that the tariff threat in response to a surge in illegals from Mexico to the US has been suspended. Both men emphasize this fine detail. For its part, the Mexican Government has agreed to restrain migration through its territory and toward the Southern Border. House leader Nancy Pelosi had her own thoughts on Trump’s big PR win, saying: “Threats and temper tantrums are no way to negotiate.” Christoforou and Mercouris also discuss the past trade relationship between the US and China, pointing out that while American blue collar workers suffered as China’s trade surplus with the US grew, the US political establishment saw this and did nothing.

My Comment: Alexander Mercouris is exactly right that US elites [republicans and democrats] did nothing to protect blue collar workers from cheap Chinese imports. This graph clearly illustrates this, and, like Mercouris pointed out, it wasn’t China’s fault. Big US capital was happy to profit.

As the Chinese were selling more and more net wealth to the US in exchange for US dollars, this not only impacted the quantity of trade, but also the composition of trade, the makeup of domestic industry, its associated labor segment and remuneration. It’s also important to note that, even with fewer labor inputs, US manufacturing output did grow over time.

And despite Trump’s bogus claims that the economy is booming like never before, the country’s output capacity has yet to recover to pre GFC levels. This next graph shows us that.

The relative good economy now is due to private debt growth, not anything else. By the by, dollar reserves obtained by China [earned through trade and unearned via interest from US treasury bonds] even though being owned by the Chinese central bank, these dollar accounts sit at the Federal Reserve’s ledger. In case of serious conflict or just whim [like in the case of Venezuela], the US central bank can freeze these accounts or delete them outright, which would deny China’s ability to use these funds to purchase output [from vendors legally allowed to sell to Chinese firms]. No amount of tariffs, however, can replace domestic investment in infrastructure, R&D, and education.

Many people think the Chinese got the competitive advantage because they allowed foreign capital to come in, rape the environment, neglect workers’ rights and labor conditions and pay them slave wages. But there are other countries on the globe that do the exact same things, yet they are not manufacturing powerhouses. The key difference is that the Chinese state invested in education and infrastructure, including hospitals. And at long last, it seems the Chinese leadership is determined to focus more on domestic consumption, rather than exports.

Follow the Duran website, their youtube channel, their iTunes Podcast, their Soundcloud, on Minds, on Facebook, on Twitter, and on Instagram for future videos and great discussions. If you like their content and are able to spare a few bucks, visit their Shop, their Patreon page, their Paypal to show your support.

The Duran: US-China Trade Talks Collapse

Alex Christoforou and Alexander Mercouris discuss the breakdown in trade relationship between the United States and China. After the talks reached an impasse, Trump threatened to raise tariffs on $200 billion worth of imports from China [raising the rate from 10 percent to 25 percent]. The increase will take effect on Friday.

My comment: Trump keeps mentioning how China pays and will pay for his tariffs and how great it is that the Chinese are fueling the US Government with [ironically] its own fiat money. Chinese-owned dollars sit on the Federal Reserve’s electronic ledger, by the way.

Every mainstream and heterodox economist will tell you that consumers pay these tariffs, not exporters. I must stress the fact that the only way the Chinese are paying for these tariffs is if they agree to decrease their markups to accommodate Trump’s tariffs, in order to maintain their market share [which is shrinking]. That being said, celebrating this [as Trump is doing] doesn’t square with his promise of bringing back jobs from China. In fact, even if China’s share of the US market were to vanish, that gap would largely if not totally be plugged by other foreign countries, NOT by domestic production & employment. Given Washington’s belligerent stance, Beijing is securing commercial and strategic ties with other important state actors and it’s concluding these agreements in currency swap operations, which bypass the US state financial system.

Trump is a master when it comes to wielding smoke and mirrors, both domestically and at international level. Many think Trump is an Anti-Globalist, but that is not true. He is a Globalist who wants to keep the US as the ‘grand master’ of that cabal and is actively combating efforts led by other countries [like Russia] to create a multi-polar system. As far as the ‘one world government’ idea is concerned, the US is that entity de facto [albeit not in its complete form] and wishes to remain so at any cost, even if the price is a new Cold War and needless mayhem across the globe. The most eloquent [recent] example of such needless death and suffering is this paper from the Center for Economic and Policy Research (CEPR), which finds US Sanctions on Venezuela Are Responsible for Tens of Thousands of Deaths!

Follow the Duran website and youtube channel for future videos and great discussions. If you like their content and are able to spare a few bucks, visit their Patreon page to show your support.

The Cure For Hyperinflation: Weimar and Venezuela

by Serban V.C. Enache

We frequently hear people bemoan the dreaded phenomenon of hyperinflation. We often hear only one explanation for it – the government printed money like crazy. We rarely hear the reasons behind the overuse of the currency press, which are: loss of output capacity [human and material] as a result of natural disasters or loss of a war, unfair war reparations, political instability, brazen corruption, the end of a fixed exchange rate with a strong currency. In this article I’ll focus on the cure for the phenomenon of hyperinflation – and this cure won’t entail brutal fiscal austerity that halts inflation by condemning much land and capital [buildings and machinery] to idleness and a great many souls to involuntary unemployment, poverty, and sickness.

The Weimar Republic. Background.

After WW1, life in Germany became hell. The political and economic burdens the creditors of the Versailles Treaty [Woodrow Wilson especially] imposed on the Germans created the conditions for the hyperinflation which soon followed. These impositions were highly unjust and impossible to meet. Meanwhile, the Ruhr Valley, Germany’s industrial heartland was occupied by the Allies. Workers responded to the occupation by organizing strikes. Crashing economic activity led to falling tax revenues and higher welfare payments. The Government, deprived of gold reserves and output capacity, had no choice but to print money to cover its costs plus the war reparations. Hyperinflation ensued. Farmers and manufacturers more and more refused to sell their output for the increasingly devalued Papiermark. This is the context of the phenomenon. Those interested in the facts will verify them, those interested solely in confirming their preconceived notions will dismiss them.

The Plan To Fix The Problem

Finance Minister Hans Luther, working together with Hjalmar Schacht [later head of the Central Bank], using Karl Helfferich’s idea of a currency backed by real goods, formulated a scheme to contain the rampant inflation of the Papiermark. In 1923, Berlin, the Rentenbank was created. The institution provided credit to agriculture, industry, and commerce.

The term “Rentenbank” stems from “annuity bonds”, fixed-income securities [bearer bonds] issued by the first pension banks during the 19th century. Since the Middle Ages the peasants were forced to provide easements to their landlords – various hand services and the like. In the early 19th century, though, agrarian reforms started in Prussia and other German states aimed to disband these obligations. The effort initially failed owing to a lack of a proper credit system.

To accelerate the agrarian reforms, pension banks were established as state-owned mortgage banks. They gave state-guaranteed, freely tradable and fixed-rate bonds (annuities) as money compensation for the expired privilege of the landlords. On the other hand, the peasants paid fixed income to the pension funds over a long period of time, from which the banks were able to service the principal and interest on the bonds. These reforms and the liberation of the peasants gained traction and agricultural productivity rose dramatically.

Enter the Rentenmark

Returning to the 1920s, November 1923 to be precise, the Rentenbank issued its own currency, the Rentenmark, which was covered by mortgages on the grounds of holdings. Total amount of mortgages and land imposts was valued at over 3.2 billion gold-marks. The Act creating the Rentenmark ensured twice yearly payments on property, due in April and October. In return for the real estate, Rentenbank issued interest-bearing bonds with a value of over 500 gold marks or a multiple thereof. The exchange rate between the Rentenmark and the Papiermark was set at 1:1 trillion, and with the US Dollar at 4.2:1.

The Rentenmark didn’t have legal tender status, so there was no legal obligation for private agents to accept it as a means of payment, however, all public institutions had to accept it. Even without legal tender status, the citizens embraced it right away. The Rentenmark’s value was relatively stable, while its quantity remained fixed, Shacht insisted on it. On August 30th, 1924, the newly-introduced Reichsmark became legal tender and was given equal value to the Rentenmark. It’s very important to note that this exchange rate was applied to two fiat currencies over which the Government had power of authority. It retained the right to alter the exchange rate if it wanted or needed to. The issued Rentenmark nominal remained in circulation up until 1948.

Tight Money Policy

In charge of the Central Bank, Hjalmar Schacht implemented a tight monetary policy, the institution ceased discounting Papiermark bills and, despite political pressures, he kept the volume of Rentenmarks strictly limited. As for fiscal policy, Finance Minister Hans Luther went on the austerity route, the correct choice given the circumstances. He brought forward due dates for taxes, increased prepayments of assessed taxes, raised the sales tax, and readjusted the fiscal burden between the regional governments [Lands] and the Reich [the Central Government]. Spending-wise, Luther shrank the number of Reich bureaucrats by a quarter over four months, froze bonuses and reduced their wages. These measures accompanying the issuance of the ‘land-backed’ Rentenmark succeeded; hyperinflation was brought to an end immediately. People spoke of the ‘miracle of the pension mark.’

Between 1926 and 1929 inflation hovered below 2 percent. In the early 30s, however, in reply to the Great Depression, the Government of Heinrich Bruning imposed harsh austerity measures needlessly [tightening credit, cutting wages, cutting public assistance, and increasing taxes], which exploded unemployment and poverty levels in the country and, in the process, made the once marginal Nazis incredibly popular with the people. The National Socialists opposed Bruning’s Government from the beginning, unlike the other right wing parties. Bruning and his policies became widely hated.

See the graph below.

The reader will rightly ask, why did fiscal austerity work for Schacht and Luther, but not for Bruning’s Government? Schacht and Luther applied counter-cyclical fiscal and monetary policy, while Bruning applied pro-cyclical policy. Excess demand relative to supply is eliminated via taxation [draining income from the private sector]. But during the Great Depression, there was too little demand relative to what was actually on the shelves. Bruning’s reforms collapsed aggregate demand levels even further.

Thoughts On Venezuela

The geopolitical aspect is very important, for it can greatly amplify minor or general problems very fast [See Turkey], or it can spark them. The State Central Bank’s dollars in non-cash form reside in accounts at the Federal Reserve, which are beyond Maduro’s control. The Government can’t access these funds. Recently, the US and the UK stole Venezuelan oil and bank assets worth about 30 billion dollars. More so, the US has imposed an outright embargo against Venezuela [trade sanctions levied since 2013 got harsher and harsher, depriving the country of hundreds of billions of dollars in economic activity]. Lastly, belligerent statements coming from Europe and Latin America [Brazil and Colombia especially] and Washington threatening with ‘all options on the table,’ which includes assassination, sabotage, coup, and invasion.

Footage from supermarkets in the capital, stores filled with produce, reveal that a shortage of goods isn’t the problem, but high prices. If it’s true that Maduro’s Government kept public spending high without re-adjusting it to falling prices of crude, then his policy is a key contributor to the bolivar’s dramatically reduced purchasing power. Currency pegs and indexation of wages and pensions with anticipated inflation feed the vicious loop. The Venezuelan Government announced that it’s accepting payments in Euros. In my opinion, this is a big mistake, because the ECB can pull the same stunt on Venezuela that the FED pulled. Maduro is much better off negotiating an entry into the Petro-Yuan with Beijing. Why? You can purchase virtually anything from China. China has made numerous investments across the developing world without asking for political concessions in exchange, in stark contrast to the likes of the IMF. Beijing doesn’t seek regime change or privatizations in exchange for its money. It does business with whoever is interested and it offers advantageous rates too. Trade-wise the Chinese are interested in two things: securing raw material imports and securing demand for their factories. It’s a win-win for both sides.

In my opinion, Venezuela will become Syria 2.0, because there’s no sign that Washington is going to accept any other outcome. The satanic crowd around Trump, the Deep State, and their servants in the corporate media are all pushing the same old hypocritical, war-mongering narrative. They spew it as if it’s a new dish too, not the same rotten thing, teeming with slime and worms. And before we blame it all on the Republicans, remember that 85 percent of journalists in the US are registered Democrats. Since this issue is bipartisan, we know it’s outright devilry. Bolton, Pence, Trump, and the rest – they want to cover up their failure to dismember Syria and Iran by picking on Venezuela, a more vulnerable target closer to home.

If I were in Maduro’s shoes, I’d escalate things ahead of my rivals. I would invite in Russian and Chinese troops and war-gear. Washington doesn’t like to cooperate or negotiate with sovereign regimes. For many decades now, the logic has been, you do as we say, otherwise we treat you as a rogue state. Against a rival who doesn’t wish to bargain and who has threatened [euphemistically or not] violence and murder, you’ve no choice but to take all measures required. Maduro has to choose the 2nd most extreme of defence options [2nd only to the preemptive strike, which doesn’t apply here] because in this context, it’s the wisest step.

If mainstream commentators are fine with US gangsterism, with countries purchasing protection from Washington and the Military Industrial Complex, then they should be fine with Venezuela purchasing protection from Russia and China. They can’t oppose it without being hypocrites and without being Monroe Doctrine apologists, defenders of imperialism, oppression, and mass-murder; not that that’s gonna stop them. Let’s not be naive, US hegemony is shaking. The 2nd Cold War is on.

Update on Venezuela: a report by CEPR finds that US sanctions against Venezuela, started by Trump in 2017, are responsible for tens of thousands of deaths.

So What’s The Cure, Dammit?

The recipe for a return to price stability is contingent on the factors which spawned the instability. This list of measures will hopefully cover all eventualities: 1) Counter-cyclical fiscal policy [drain excess money in circulation via taxation, while cutting superfluous spending.] 2) Land-value capture to replace taxation of buildings, labor, sales, and enterprise [taxing natural monopolies, the rent of location; the site-value tax carries negative dead weight – it brings efficiency to the marketplace]. 3) Buffer stock policies [the public authority buys seminal commodities during periods of excess production and sells these commodities domestically during times of dearth]. 4) Allow the national currency to float freely according to demand [drop any fixed exchange rate, whether it’s to gold or foreign currencies, and embrace a sovereign fiat regime]. 5) Negotiate with rival political factions to settle differences and produce a national accord that appeases all sides to a reasonable extent. 6) Ration basic resources to ensure no section of the population starves [hands and minds are precious and must be kept alive and functional to create goods and services for another day; there’s no sense in killing off one section of the population to feed another extra rations]. 7) Bring in a second or third great power in your region, in order to decrease the bargaining power of the established one/s and strengthen your own position in the process. 8) Link up the country’s regions through a comprehensive system of infrastructure, high speed rail especially [the points of resource extraction with the manufacturing centers, the latter with the marketplaces]. 9) Restrict bank lending for speculative purposes [do not permit banks to accept financial assets as collateral for loans, or to mark their assets to market prices.] 10) Discourage private and public agents from borrowing in foreign currency [always ensure loans in domestic currency are cheaper than in foreign currency; never subsidize the latter type of loans]. 11) Employ all available labor to achieve maximum output [Depending on the situation, participation in public works programs would be mandatory or voluntary. In case of emergency, working hours could be increased and holidays decreased.] 12) Don’t lose a war [or better said, don’t lose peace negotiations concerning your fate]. 13) War Bonds [While the role of War Bonds is to allegedly fund a war, in practice what they do is drain liquidity from those who purchase them. They can be denominated in foreign currency, domestic currency, or both. That being said, liquid or illiquid purchasing power is still purchasing power. People can still purchase things on credit, contingent on their own financial situation. War Bonds may have a psychological effect on the populace, reminding households that they must tighten their belts, deferring consumption to the future, so more supplies can be allocated to the troops in the now. The promise is that, after the war is won, bond holders get paid at a profit. 14) Retiring the currency and replacing it with another [Brazil did it several times in the last 77 years; the Government announces taxes and fines payable in a different currency. This method involves burning away people’s cash savings. To escape hyperinflation, Zimbabwe gave several foreign currencies legal tender status.]