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“Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions and will receive praise or blame for them. Liberty and responsibility are inseparable.” Friedrich Hayek

There are ambiguous and confusing terms and definitions that make such things like liberty, freedom, and democracy synonymous, when in fact they are not. There are also contrived compound words like democratic republic, liberal democrat, democratic socialism, conservative republican, etc., that confound a rational discussion with meaningless and/or contradictory labels; that contributes to the confusion and much of the irrational partisan politics dominating our current political debates. Add to this the vitriol of name calling and profanity that provides no opportunity for civil discourse.

It is odd that in a nation founded on the principles of liberty we hear precious little as to what that means. The Oxford Dictionary has a clear definition of both liberty and freedom; liberty is defined as the state of being free within society from oppressive restrictions imposed by authority on one’s way of life, behavior, or political views, while freedom is defined as the power or right to act, speak, or think as one wants. However, as Hayek so insightfully observed, it also means that every individual must accept responsibility for their actions and the consequences of those actions. While we are “free” to choose and take advantage of opportunities, we are not guaranteed the outcomes we desire, but we are responsible for whatever those outcomes are.

Hayek was not the first to discover and understand the existential relationship between liberty and responsibility as Aquinas and Locke spoke to this before him. Aquinas went further stating that men have free choice as long as they are rational, meaning that if they are ruled by irrational behavior they are not then free; while that may be true, it is also true that liberty means that men may make irrational decisions, such as alcohol or drug addiction, but still retain inalienable rights as long as they accept the responsibility for their decisions and actions.

There are those who do not want a state of liberty because it requires responsibility for the freedoms it provides; they just want the freedoms without responsibility, but that is not liberty. There are no rights in a state of liberty that provide things that are free; that would be a state of dependency which requires a parasitical and authoritarian system of governance. There is this misconception that somehow democracy creates liberty, while in reality they cannot co-exist; democracy provides for majoritarianism, essentially mob rule, which is contrary to liberty that provides for the protection of rights.  

The laws that guarantee a state of liberty for US citizens are founded in the US Constitution. What is important to understand about the US Constitution is its radical departure from national constitutions up to that time, i.e., it is not what governs the people, but what governs those who govern the people by clearly defining the powers that they have. This is an existential concept for the preservation of liberty. The framers of the US Constitution were well aware of the historical struggle between those who were inclined to domination and those who wanted no part of domination; in that sense the US Constitution limits the former and protects the latter by defining the state of liberty. The US Constitution is not perfect, and even some of its amendments are in contradiction to its founding principles, but there is no foundational law that can’t be violated if society fails to understand, respect and support it.

One of the most often used and abused concepts in democracy is equality. If used in the context of natural law, equality means all are treated the same under the law. If used under the guise of social justice, it means making people equal, when as Aristotle observed, “The worst form of inequality is to try to make unequal things equal.” At the very core of human existence is the reality that no two people are the same, which makes each and every one of us an individual, unique in many ways while similar physically, but even then, not equal. Intellectually there is even a wider range of both ability and personality. Natural law does not provide for a guarantee of happiness, only that there are choices, which means that happiness is not a reward but simply a consequence; similarly, misery is not a punishment, but also a consequence. This all goes to illustrate again that while liberty means freedom, it also means responsibility.

Many historians have identified the timeline for the discovery and understanding of natural law as the Age of Enlightenment, with the writings of Locke and Mills; however, Aristotle, Augustine and Aquinas obviously predate that period and wrote about the subject. During the Renaissance, Dante Alighieri in “De Monarchia” observed that “The human race is in the best condition when it has the greatest degree of liberty.” These great thinkers were not stating what they had invented; for them, this was a matter of discovery, an observation of natural law. More to follow, but for now consider what the great SciFi author Robert A. Heinlein said about responsibility:

“I am free because I know that I alone am morally responsible for everything I do. I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free because I know that I alone am morally responsible for everything I do.”

“A man is not dead until he is forgotten.” Unknown Soldier

There’s debate about who the author of this quote is; some say it’s by George Eliot, but while what she said was close (“Our dead are never dead to us, until we have forgotten them.”) I prefer the Unknown Soldier’s quote, even though the irony is not lost on me that he is unknown. I came across this quote while composing my father’s eulogy; he was the youngest and last surviving of the nine children of my grandparents, five of whom were brothers, all of whom served in WWII, all of whom survived, but are now deceased. My four aunts were no less memorable, but thankfully never had to endure the horrors of combat, but they too will always be remembered.

On this Memorial Day, we do not “celebrate”, we simply remember, that’s all this day is for.  It is not about politics or partisan narratives or even what the conflict was in which they served, or died in, but that they did so and are now no longer with us, except “In Memoriam”.  This ancient Latin phrase has been found on monuments and gravestones throughout the Roman world, followed simply by the name of the deceased. The idea behind it was that if carved in stone, they would not be forgotten; the intent was that if the name was not forgotten, the deceased would achieve some kind of immortality, and what better way than to have the living remember you.

I prefer our Memorial Day, because the mind is a better steward of precious memories than stone; pass the names and memories to your children and grandchildren that they may remember, because when all is said and done, history is for the living to remember the past.

“Tariff policy beneficiaries are always visible, but its victims are mostly invisible. Politicians love this. The reason is simple: The beneficiaries know for whom to cast their ballots, and the victims don’t know whom to blame for their calamity.” Walter E. Williams

Trump made a lot if promises during the last presidential campaign, and admittedly he’s keeping them; that’s not always a good thing. In the case of tariffs, as with all protectionist rackets, it’s only good for those it protects, and only for as long as everyone else is willing and able to pay for them. Tariffs are taxes, and like inflation, they happen without representation. When organized crime practices protection rackets, we call it like it is, but when organized labor does it, politicians call it democracy.

Historically, the Democrats have been the champions of tariffs, so the fact that the Trump administration is so focused on tariffs is not representative of its party’s principles, but of the man who made it a campaign promise; it was not based on any principle as he did so to cull votes from that very “organized labor” that was so much the base of the Democratic Party. Ronald Reagan’s response to when congressional Democrats pressured him to use tariffs said, “We should be aware of the demagogues who are willing to declare a trade war against our friends, our national security, and the entire free world, all the while cynically waving the American flag.”

I’ll bet that few Americans can explain what calamity Williams is referring to, except those businesses affected by supply chains, which is just about all of them. Politicians love tariffs because they provide the means to secure support of organized labor both in dollars and in votes; what’s missed with the protectionist propaganda is the collateral damage. The problem with those that support tariffs is that they don’t grasp the great and simple economic principle of comparative advantage, the foundation of free trade that created the huge human progress away from poverty.

While the administration may not grasp these existential realities of economics, the USA’s and China’s slowing economies are a wakeup call that trade wars hurt everyone. Yesterday’s news on progress in trade deals may be good news or wishful thinking, but politically the advent of the 2026 midterms, coupled with the rise in bond yields, created the pressure to make trade deals; what was needed was the time and space to do so, hence the ninety-day delay. The recent stock market volatility is more about overvaluations than tariffs; while a correction was inevitable, headline news has become a market metric. While it’s true that Wall Street is not Main Street, the recent bond market data is not welcomed by Wall Street, Main Street or Congress; all want lower interest rates, and all are disappointed. 

Trade is “The Wealth of Nations” as Adam Smith so clearly illustrated, and free trade creates the most wealth; trade balances are a myth as the less we export and more we import, the more stuff we get for trading less stuff. It’s a “stuff surplus” that we need to understand as money is only a means of exchange in order to buy wealth, not an end in itself.  Whatever we export, we can’t use for ourselves, and that goes for whomever we import from; all countries export whatever they produce more efficiently and in surplus than anyone else. It’s called division-of-labor, and that specialization is what has made human progress possible, and that’s why trade wars are economic killers.

Historically there are many lessons about “mercantilism”, a nationalistic economic policy to maximize exports and minimize imports; this was the leading cause of conflict that led to the Great War, the assassination of Archduke Ferdinand being just an excuse for the blood lust. Tariffs, coupled with central banking currency manipulations and resulting market speculations, were the root causes of the Great Depression. It’s a reality based on historical experience that nations that trade with each other tend to avoid war for fear of the economic consequences.

I am not discounting Trump’s insistence that his play on tariffs is a negotiating tactic, but it’s one that is based on a flawed policy, coupled with really bad timing given persistent inflation, deficits, and debt. Granted, Trump has successfully isolated China on the trade issue, but this also provides for a dangerous confrontation between the world’s two largest economies, a crisis for both the US and China, which may very well lead to where nobody wants to go.

While America professes free trade as a pathway to economic growth, an expression of liberty for its people, and a respect for voluntary exchange among nations, we hypocritically practice coercive policies like sanctions and tariffs. This does not provide for a good end game, and making excuses that other nations are ripping us off with their trade practices ignores the fact that, despite all the self-inflicted wounds by our government, we still have the strongest economy in the world; that doesn’t mean that all other nations are good trading partners, just weaker ones.

As if the US dollar has not already been severely diminished through poor monetary and fiscal policies, the recent showing in UST bond sales shows a decreasing confidence in what many believed was a safe haven, and a reliable reserve currency; creating trade wars, including with our allies, erodes our currency even further. Sometimes we need to understand that not all promises are good.

“Promises are not to be kept, if the keeping of them is to prove harmful to those to whom you have made them.” Cicero

“We’ve confused actors with heroes, currency with wealth, diplomas with intelligence, propaganda with news, indoctrination with education, demands with rights, tyrants with leaders, conformity with diversity, and slander with debate. It’s a fake world.” Alice Smith

The word “cringe” has only lately been accepted as an adjective, and Alice Smith’s claim to be the great-great-great-granddaughter of Adam Smith can’t be definitively confirmed; however, considering what the “Cringe Culture” do has caused many of us to recoil in disgust regarding their acts of hate, their support of cruelty and their intent to create fear. As for Alice, I don’t know if she is a descendant of Adam Smith or not, but she is fearless in her support of reason and liberty.

One of the most horrific events of our time is the 10/07/23 attack by Palestinians on Israelis; there’s no need to go into details of their heinous barbarism as it has been described ad nauseum, literally; what is equally disturbing are the protests supporting them by university faculty and students in the West. That they attempt to explain that they support Palestinians but not Hamas is disingenuous, a distinction with no difference as the vast majority of Palestinians, both in actions and words, support Hamas; that the few that don’t are murdered further attests to the validity of this fact and in turn to the obvious anti-Semitism of those that support them around the world.

In a sense, the support for Luigi Mangione, who shot the United Healthcare CEO Brian Thompson in the back as recorded on a video and wrote about his intent in his “manifesto”, is similar as it celebrates such violence as politically justified; this is exactly the very definition of terrorism no less than that by Hamas. Not only is Mangione charged with first degree murder as it was premeditated, but also terrorism as he wrote in his manifesto; why then would anyone campaign for his support and release?

Likewise, we have the Tesla terrorism, although so far no one has been murdered; however, given the use of Molotov cocktails, bullets fired, vandalisms and assaults, we have a clear case of politically motivated violence, which again is the very definition of terrorism. It is also odd that many of the perpetrators claim that they are doing so to fight fascism, a political ideology that openly supports the use of violence for the coercion of consensus.

Then there’s the bewildering support for biological men to compete in female sports, use the same locker rooms and bathrooms meant for women and girls, for teachers to take adolescent children to drag queen shows as part of their “education”, provide medical services in transitioning minors without parental knowledge, and include in their curriculum instructions on transgenderism. In a civilized society, we would condemn such things as forms of pedophilia. Instead, these supporters denounce such objections to these things as “transphobia”, using such labels to silence their detractors.

While these things may not be linked in a conspiratorial sense, they do have a common thread and that is instilling fear; after all, that is the basic purpose of terrorism. While we may “cringe” from such things out of fear, what we should be doing is first understand that such activists and ideologues use it to instill a collective herd instinct against those they do not regard as members of the herd; curiously, while they scream or deface property with a popular derogatory label against them, i.e., “Fascist”, or “Nazi”, often laced with expletives for emphasis, they are using the same playbook of those very same regimes.

Such a culture’s use of name calling for having a position contrary to their own is in itself an indication of fear, coupled with a lack of intelligence. What this “Cringe Culture” knows is that fear is easy to stoke and difficult to quell; it just takes violence and a willingness to support evil. What decent people need to do is have the courage not to allow fear of these things to create the superstition that such ignorance has any relevance to a civil society as that is itself the source of fear.  

“It is impossible to found a civilization on fear and hatred and cruelty. It would never endure. It would have no vitality. It would disintegrate. It would commit suicide.” George Orwell

“An economist is a man who states the obvious in terms of the incomprehensible.” Alfred A. Knopf

The quote above is by one of the world’s most famous publishers who supposedly read every book he printed, and this is his conclusion about economists. The debate over a recession includes some economists opining that we are in one, others that we are about to go into one, or perhaps just coming out of one; we are presented with graphs, data points, statistics and definitions, but what we aren’t getting much of is common sense. How about a recession being defined by an obvious decline in the standard of living; we can all understand and appreciate that regardless of how wealthy we are.

The reason Mises titled his famous treatise on economics “Human Action” is because he understood that all the technical jargon modern economists overwhelm us with fails to explain the simple societal behavior among humans to interact cooperatively to improve the quality of their lives. Adam Smith was not an economist, as that discipline didn’t exist in his time, but a sociologist; the “Wealth of Nations” was an account of his observations about this thing Mises later simply called human action.

We are getting a lot of human action lately, including violence on university campuses, arson, criminal gang activity, market volatility, trade disputes, recurring inflation, rising unemployment, international conflicts and bewildering judicial drama. These are all human actions, but not the kind that improves the quality of life; these kinds of negative activities are not only distractions from where our focus should be, but disruptive to productive activities known as the economy.

So, are we going into a recission, in one, or coming out of one? If we think about this as Smith and Mises would, sociologically we have more reaction than action while at the same time we have more confusion than clarity; is that just a coincidence? The markets don’t like confusion because it’s difficult to see where you are going. Businesses don’t like confusion because they can’t plan for the unknown. People are more prone to make mistakes when confused, which in turn gives markets and businesses skepticism about what lies ahead.

A basic axiom about markets is that they are forward-looking; a basic axiom about economists is that they are backward-looking. Right now, markets are so confused that they can’t be relied on for any indication where we are going. Economists make predictions usually based on something in the past that they judge to be the same or similar now, but that’s not a prediction but a statement of something current; why do experts talk in riddles?

With fiat currency, the price of gold is an inverse ratio to the value of the dollar, an indicator like the proverbial canary in the coal mine, telling us that our purchasing power is declining yet again, and now nearly on life support. To reverse that trend, we need deflation, which a recession can provide; has there ever been a politician re-elected in a recession? We already have a record rate of corporate bankruptcies and credit card debt; given that, would Americans tolerate having to endure a recession for a healthier economy?

All the above is being discussed by just about every “expert” who claims to be an economist, but none of them explain why our standard of living has declined while we are told all is well; the economy hasn’t been well for quite some time because our government keeps applying the same solutions that created the problems to begin with, like when Thomas Sowell observed that “Only in Congress do people adjust to economic adversity and growing deficits by spending more money.” When Keynes was confronted with the failure of his ideas of endless spending and consumption were unsustainable in the long run and that they would prevent the markets from functioning properly, especially in recoveries, he cynically responded that “In the long run, we will all be dead.”; this was narcissistic thinking at best as we may not be around in the long run, but our children and grandchildren will.

 “An expert is someone who knows more and more about less and less until finally he knows everything about nothing.” Mark Twain

“The misinformed observers blame the bust rather than the boom for economic misfortune.” Mises

As a follow-up to my post “Money Games”, which in response to my friend Paul’s questions had more to do with the dollar as a reserve currency and the effects of the US national debt, I thought that a post regarding the modern phenomenon of what we have come to call the “boom-and-bust cycles” of our modern economy would be appropriate. What Mises was referring to in the opening quote was the tendency of governments to manipulate fiat currencies to expand credit to “stimulate” growth in an economy; this stimulation is similar to drug addiction, and we know where that leads.

A great example of this was Bill Clinton’s 1994 policy called the “National Homeownership Strategy”, under which he issued an executive order requiring banks to practice “flexible mortgage underwriting guidelines”, with the goal to provide low-income and minorities homeownership opportunities. Mortgages were issued to borrowers with poor credit and little ability to otherwise qualify. Clinton’s executive order was translated legislatively into an updated version of the “Community Reinvestment Act” (CRA). This engineered expansion of credit, a form of inflation, led the Wall Street crowd to create credit default swaps and other dubious financial instruments, which inevitably proved to be the undoing of such legacy institutions like Lehman Brothers and Bear Sterns that spawned the “Great Financial Crisis”.

I always found it odd that it was J.P. Morgan who famously said that “Gold is money. Everything else is credit.”, as he was one of the chief architects of the Federal Reserve Bank, whose accommodative policies over the years in support of such disasters like the CRA are responsible for the boom-and-bust cycles we are burdened with. Artificially created credit is a form of monetary inflation as it provides capital out of thin air; add to this the physical monetary inflation by the UST’s printing press and the fiscal irresponsibility of government, and you have the perfect toxic formula for boom-and-bust cycles.

Yesterday, gold hit $3,100/oz, an all-time high, as were gold purchases in the US; the reasons why people, hedge funds, private investment firms and banks are doing so vary, but one common theme is a growing distrust of the Federal Reserve. When Jerome Powell held the last Fed press conference on March 19^th, he announced that there would not be a change in interest rates at that time, and again repeated his mantra about how the Fed’s future decisions on interest rates would be data driven. The Fed has backed itself into a corner as inflation has not only remained “sticky” but appears to be on the rise again, as is unemployment; the legislated mandate of the Fed is to ensure stable prices and employment, which is actually an economic contradiction. This creates an environment of uncertainty in which people seek a means of stability.

When you have a currency based on commodity money, such as a gold standard, you have a natural controlling limit against inflation, including expansion of credit; it’s not a guarantee against fiscal mismanagement but it makes such irresponsibility transparent without the cover of a fiat currency. When governments have the ability to produce the inflation that creates the boom, inevitably simple accounting catches up to the reality that nothing has really been produced other than consumption, and when prices rise as a result, it puts many things beyond the means of the average person, creating an economic event called a bust. Depending on the severity of the bust, it’s called a recession, or if really bad a depression, and this has been an observable cycle in every case where governments have manipulated money.

I am not focusing on gold for gold’s sake, but on the lack of sound money fiat has created. What is historically and therefore empirically obvious is the reality that humans created real money to facilitate trade and the resulting economic prosperity it brings them. The wisest philosopher and most critical thinker in history, said it best:

“The desire for gold is not for gold. It is for the means of freedom and benefit.” Aristotle

“When out of fear you twist the lesser evil into a lie that it is something good, you eventually rob people of the capacity to differentiate between good and evil.” Hannah Arendt

All too often we are told to choose the lesser of two evils, especially in elections, since voting for other than either of the two major parties is dismissed as a wasted vote; at times this lecture has turned into outright hostility, like the fear that there will be a loss of votes that would otherwise be theirs. It’s an understandable anxiety since categorically most of the electorate are independents who rely less on the personalities of the candidates than the policies they profess; this is what makes them independent.

What those who lecture are missing is that independents are not looking for narratives or agendas, or they would be Democrats or Republicans; what they’re looking for are policies that make sense to them. For something to make sense there must be clarity and relevance because if independents wanted ambivalence and equivocation there are plenty of mainstream politicians available. The ability to “read the room” and talk simple common sense about the things that affect the livelihood, safety and security for those who simply want peaceful and productive lives is far more powerful a message than vague lofty ideals expressed in a lecture that, if not accepted, gets you branded as someone to be despised.

Besides common sense, independents want positivity, not negativity, especially when referring to the competition. An example of this was the Clinton v. Bush campaign; Clinton focused on what he was going to do, Bush focused on Clinton. In the last election, same thing happened; Trump focused on what he was going to do, Harris focused on Trump. More importantly, Harris avoided policy and stuck to narratives and name calling that alienated many independents and even some Democrats, assuring Trump’s election.

The problem with the Democratic Party is that they are still campaigning as if the election isn’t over, and with the same narrative that lost that election; it gets worse as now the world has moved on, and applying the same narrative to current circumstances makes that narrative appear even more toxic, like support for Hamas or Tren de Aragua.  Add to this the tone and tenor of the party’s messaging that makes it even more alienating; what’s inexplicable is that a party with such huge media and pop culture support pursues such an obvious suicidal path.

This is not an endorsement of the Republican Party, and since I’m a libertarian I doubt they would want that anyway; they have their own issues with some policies that are contradictory, and at times counterproductive to their campaign promises regarding inflation, deficits, and debt. These are existential issues that hopefully Republicans will deal with soon as time is running out. However, the Democratic Party has so fatally undermined their viability and relevance that they have even less time for a resurrection.

It’s absurd that midterm election campaigning has in effect already started. I read recently that in Italy campaigning is only legal within six months of an election; it would be great if the US did that. The Biden administration was conducted like a “Theatre of the Absurd” and defended it by attacking anyone who called it out for being what it was; throwing out mindless labels like left wing or right wing extremism shows a lack of thoughtful consideration of the issues, a fig leaf to cover the essence of a problem and a sure fire way to perpetuate the polarizing partisanship we claim we want to cure. We need to realize that generations of voting for the lesser of two evils has gotten us to this point.

“Money often costs too much.” Ralph Waldo Emerson

Recently my friend Paul sent a text asking for my thoughts about the US currency, its reserve status, and the impact of the US debt, and suggested my blog for a response. The subjects of Paul’s text represent issues with considerable historical background and economic perspective, but I will attempt to keep the post readable in a few minutes; first, here is (in italics) Paul’s text:

“John, I hope this finds you well.

Periodically I do a little bit of updating and research on global economics and I thought I’d reach out to you as a knowledgeable and thoughtful individual and ask your opinion about a couple of things that I’ve been looking at. And this goes back before Trump 2.0, so I’m not just talking about what’s happening at this particular moment.

The subjects that I would like to get your thoughts on (or those of Libera Voce) are first de-dollarization, the reduction of the US Dollar as a reserve currency, and correspondingly what’s happening in the rest of the world with the reduction of their dollar reserves and increase in gold reserves, the impact on US Treasuries and the US economy.

The second subject is the impact on the US debt on the economy.  I know you’ve spoken about this in the past, but it seems to be reaching more of a head, so I’d also like to hear what you have to say about it now. And again the effect of the debt on the economy on the near and the longer term.

Also, any information sources you recommend on these subjects, be they blogs, magazines, ideas, articles, even books on these subjects. It’s hard to find something what’s objective and intelligent. Thanks John.”

OK, here goes…………….

Paul makes clear in the first paragraph that he’s talking more expansively than “…this particular moment.” I’m glad he brought that up since economic policies rarely manifest results in a short period of time. I find even the last four years of “Bidenomics” failed policies insufficient to explain the dire straits we are in regarding the subjects Paul outlines; the root causes of what the US faces are an accumulation over more than a century of poor monetary and fiscal policies such as creation of the Federal Reserve, abandoning the gold standard, and the abuse of the printing press. Paul noted that I’ve written about the US debt previously, as I have about the other stuff, so I’ll start with the WWII period:

The reserve status of the US dollar was first established with the Bretton Woods Agreement by an assembly of UN delegates in 1944; odd that they met even before the UN was officially created the following year, but there was a near panic sense of urgency given the economic chaos the Great Depression and five years of war had created. The agreement established the US dollar as the reserve currency for international trade as it was the only convertible currency left based on a commodity standard, i.e., gold, and fixed the dollar at an international rate of $35/oz. All other currencies part of the agreement had a fixed rate relative to the dollar. This system collapsed in 1971 with Richard Nixon’s decree (fiat) to abandon the gold standard; in reality, FDR and LBJ had made Nixon’s decree inevitable.

I vividly remember Nixon’s decree of August 7, 1971 as I was in Europe at the time; overnight, no one would accept payment in dollars as the exchange rate plummeted; I had to quickly exchange my dollars and travelers checks to pounds, francs, etc. in order to buy anything as the rate continued to fall. Subsequently the US Treasury had to auction their bonds denominated in Swiss Francs as the dollar suffered not only the actuarial backlash, but the perception it was on the verge of default.

Nixon’s decree was the end game to what FDR and then LBJ had done before. On April 5, 1933, FDR issued an executive order making it illegal for Americans to own gold species (coinage or ingots) or Federal Reserve Gold Certificates; they were required to exchange them at the current rate of $20.67/oz. within a month. Subsequently FDR through the UST and Fed raised the price of gold to $35/oz. in the US. Nice to be king as this was blatantly unconstitutional, an attack on sound money which had limited FDR’s grandiose plan called the New Deal, but more was to follow. LBJ signed a bill on March 19, 1968, to discard what was known as the “gold cover”, i.e., the law that required the Federal Reserve to maintain a gold reserve minimum in the UST of 25% of the issuance of Federal Reserve Notes. This allowed LBJ to fund his “Great Society” agenda without restraint, meaning inflate at will.

Amazingly, following Nixon’s decree the US dollar reserve status remained, but other currencies changed their rates as it suited whomever the powers were at any given time; this was the beginning of the modern currency wars, a floating crap game of fiat money. The differentiating characteristics as to the relative strength or weakness of any particular currency, besides fiat itself, are interest rates, monetary inflation, fiscal spending, and political stability, which are all interrelated.

The fact that the US dollar remains the reserve currency has more to do with the relative weakness of other currencies, and the stability of the states issuing them. However, such things are inherently unreliable, lacking any standard that is resilient to political machinations. Currency became a game of relativity, and despite the chaos in the US in the 1960s through the 1980s, it was still relatively stable; it became a safe haven for foreign sovereign states to invest their wealth in US Treasuries and have adequate dollar reserves for international trade. What many foreign sovereign states don’t like is the dollar dependency creating a US hegemony they resent; it is this that motivates some to seek alternatives more than any economic or fiscal integrity.

In global politics some major players like China, Saudi Arabia and Russia have instituted policies to use their dollar reserves, including liquidating UST’s, to buy gold, silver, and other precious metals, which they are doing with increasing frequency and volume, but what is their goal? Supposedly (meaning unaudited) the US still has the largest gold reserves in the world, but as far as currency strength is concerned, so what if you don’t use that as a standard to create a real stable commodity money?

In truth, that last question, while serious, has an obvious answer; gold today is nearly $3K/oz. compared to $35/oz. in the Bretton Woods Agreement. The consequences of re-establishing commodity money, gold standard or otherwise, would be like detoxing a drug addict or alcoholic, an extremely painful process; there would likely be a depression during the period of sheading fiat failure for real money, but addiction has but one inevitable outcome and that’s not recoverable.  Unfortunately, the prime focus for most politicians is to get re-elected, and a depression doesn’t get you that.

Gold has no yield as an ounce of gold today remains an ounce of gold tomorrow, or in a millennium; what accounts for the drastic price change is inflation, the cause for the inevitable death of fiat currencies. Inflation is always monetary, and it doesn’t necessarily mean only paper money; there have been instances in history where nations issued silver currency at such frequency and volume that the silver content exceeded the face value of the coins; people actually melted coins down for its content at market value. Too much money in circulation relative to the supply of goods and services creates inflation, an immutable law of economics. Inflation on steroids occurs with fiat currency because it’s subject to the control and whim of central banks and their governments. Notice how the Fed keeps harping on a target inflation rate of 2%, as if any inflation is something desirable.

Whether or not the US dollar loses its reserve status is increasingly more a question of when, not if. The leader in gold purchasing and an economic power that could dethrone the US dollar is China; they may be headed for a recession or worse as some economists predict, but that really doesn’t affect its leadership because the state determines who that is, not an election. China is slowly selling off its USTs and declining to buy as much as in the past, and they are still the largest holders of US debt. If China were to start a serious sell-off, as they buy even more gold, and remain the world’s net largest exporter in trade, they would be in a position to make the yuan (officially the renminbi) a serious contender to replace the US dollar as the reserve currency, even more so than the anemic Euro which is in a similar condition as the US dollar.  

The US debt is a result of all the above.  Take whatever paper cash you have at hand, and it doesn’t matter the denomination, it all reads at the top of the obverse side “Federal Reserve Note”. There have historically been a variety of paper bills titled notes of some kind, or certificates, but they were recognized for what they were, debt instruments. When Federal Reserve Notes were first issued in 1914, they were redeemable in gold the same as Gold Certificates or Federal Reserve Bank Notes, because they were treated as labeled, i.e., a debt owed to the bearer. That ended in 1933 for Americans, and for the world in 1971, but US currency in paper form is still titled a Federal Reserve Note.

When someone buys US Bonds, they are simply trading one debt instrument for another, but with a difference. Given inflation, the value of the dollar constantly declines, but with US Bonds you get a yield depending on the interest rate, which you hope is greater than the rate of inflation over the term of the bond; at the end of that term, the US Treasury owes the bond holders whatever they paid for the bond plus interest due in dollars, i.e. Federal Reserve Notes. This revolving door of debt is like a “Ponzi Scheme”, which in the private sector would be fraud. However, in government there are few that call it like it is; the others call it “Modern Monetary Theory” (MMT), which in practice comes down to constructing Ponzi Schemes marketed as enlightened economics.

If the US was required to have a balanced budget, besides whatever it wanted to spend it would have to include the debt service. Given its lack of fiscal integrity, the US government spends like a drunken sailor; actually, that’s not accurate since drunken sailors spend their own money. Given this egregious spending, a balanced budget would require a level of taxation that would incur the wrath of the electorate, something politicians work hard to avoid. The alternative is to keep on borrowing and inflating, or cut spending, and at this level of deficits and debt, massive cutting. The current debt is at $36T, and the debt service more than a $1T/yr.; we have the spectacle of another Continuing Resolution that just passed which raises the debt ceiling as we face yet even more deficits. Clearly this is unsustainable as at some point the dollar will implode from the self-inflicted pressure of its own debt service.

Politically, especially when there are economic issues involved, we should always ignore the personalities and focus on the policies, and sound economic policies always focus on the long run. There will always be “Black Swans”, circumstances that unpredictably arise requiring immediate action, but all too often are the result of prior bad policies. The failed policies of many past administrations focused on the short term, the expediency of the moment as in an election; such policies often ignored the debt and even made it worse with more deficits. Unfortunately, while the efforts to root out waste, fraud and abuse are welcome though long overdue, that may not be enough; what is needed is not the metaphorical scalpel or axe, but a massive purge of our leviathan bureaucracy, and that will take time, but patience is not a virtue of politics.

Paul also requested my recommendations on sources regarding these subjects; I agree that it’s difficult finding objective and intelligent ones. I realize that being a libertarian makes me a radical in the view of many Democrats and Republicans; it also means that I am in the electoral category of “independent”, which is larger than either of the two majors. Whether anyone considers these recommendations intelligent and objective or not, I hope you do so knowing something about them.

I recommend “Reason Recap” and “Mises Wire” for daily news; the latter also publishes economic and political essays from various scholars. I also read the NY Times, mostly out of a long habit, but their journalism has become increasingly partisan and less objective. Nick Gillespie’s podcasts have interviews with some very interesting people. The best book on economics that I am still reading (it’s a massive tome) is Thomas Sowell’s “Basic Economics”; basic for him maybe, but extremely insightful. For lighter but still very educational book reading try James Ricards’ “The Death of Money” and “Currency Wars”. A great book on what the essence of economics is all about, is Mises’ “Human Action”, and then there’s the classic “Economics In One Lesson” by Henry Hazlitt. A book that is very applicable to the subjects Paul presented is Murray Rothbard’s “What Has Government Done To Our Money?”

The opening quote by Emerson is like a riddle as it doesn’t describe what costs are involved, but when it’s too much. What we perceive as money today is an illusion as the damn thing keeps changing every day as it circulates through the revolving door of the debt created. In 1831 a French diplomat was sent to the young US to write about what he observed, such as:

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” Alexis de Tocqueville

“It is a popular delusion that the government wastes vast amounts of money through inefficiency and sloth. Enormous effort and elaborate planning are required to waste this much money.” P. J. O’Rourke

Decades before Americans heard about DOGE, P. J. O’Rourke’s NY Times bestseller, “Parliament of Whores”, hilariously and irreverently described how the US Government functioned in its waste, fraud and abuse of taxpayer’s money; this is even more true today than it was back in 1991. The last time anything like DOGE was attempted was under the Clinton administration, to some extent successfully, producing a balanced budget and even a surplus. If DOGE does anything comparable it will be sorely needed, but even should that happen, it may be too little too late. While we should have no delusions about the extent of corruption DOGE has found so far, neither should we have any regarding the dire situation created by the resulting debt.

O’Rourke will not be around to see if DOGE will deliver what has been promised as he died in 2022, but we can hope that it will provide something of lasting value as it pursues its mandate. Hope as they say is not a plan, and campaign promises seldom become action; I was not hopeful that Trump’s would be any different. However, based on what has been found so far, we have both dismay as to the extent of the waste, fraud and abuse Doge has found, and encouragement that things are being done about it. The curious negative reactions about DOGE sent me running to O’Rourke’s book to find just this very quote, because the second sentence of it is the most important – we should not be fooled that such reactions aren’t a fear of exposure more than a concern for the corruption involved.

This corruption has as its motivation power, and as its justification moral leadership; the American people have been asked by many administrations to have faith in this virtuous concept called democracy, a delusion to disguise a vast insatiable bureaucracy making the people dependent on benefits created by the wealth it takes from them. Delusion leads to confusion, which inevitably leads to desperation; when an electorate reaches that point, it is forced to reconsider the premise of the delusion, and that is a tipping point that leads to polarized partisanism. In this last election that became a choice between two movements, Progressivism and MAGA; the former represented socialism disguised as some new form of democracy, the latter a populism of overt patriotism.

As a libertarian I can never support socialism, but I am aware that patriotism can be manipulated to support policies conducive to socialism. According to the most recent polls, many from organizations not exactly friendly to Trump, his administration enjoys high approval ratings, while the Democratic Party is adrift, wallowing in hysterical denunciations of just about everything. There are examples of things that Trump has said that are patently outrageous regarding the Associated Press, tariffs, Canada, Ukraine, Greenland…and it’s a safe bet there will be plenty more; this is Trump, a narcissistic grifter given to self-adulation and unrelenting deprecation of all who criticize him, but that’s who he’s always been. What’s more important than the personality of a president is his policies, and so far he has delivered on his campaign promises, something I didn’t expect he was capable of.

H. L. Mencken once observed that “Politics, as hopeful men practice it in the world, consists mainly of the delusion that a change in form is a change in substance.” It’s only been a month since Trump’s inauguration, so there’s four years to go before any intelligent and objective assessment of his second term can be made; will it be merely a change in form, or something of substance? True patriots will ignore the rhetoric of political pundits and parties, and ask the same question four years from now that Trump did during his campaign– are we better off than we were four years ago?

“Now is not the time to pine for the days of agreeable politics. In recent decades, the US has gone through radical political and cultural transformations that are making the country progressively ungovernable. Any kind of national election from here on out will be viewed as illegitimate by the losing side due to the perceived high stakes of these affairs. No longer do America’s partisan coalitions treat each other as respectable competitors, but rather as existential threats that must be vanquished at the ballot box. As America’s social fabric continues withering and polarization intensifies, it’s only a matter of time before this kind of tension turns violent.” Walter Williams

I opened this post with an exceptionally long quote by an American economist that likely few people know about; I did so because this quote summed up very well where we are now. Williams died soon after the 2020 presidential election which eerily represented what he described. It was also uncharacteristic of a man who was such a positive and forward-thinking force but who so clearly described the prevailing nihilism. What began as a professed campaign by the Democratic Party to heal the divide Williams described ended in its own demise for its administration’s failure to not only do what it promised, but to make it even worse.

Now as most of my readers know, I’m not a Trump fan and have never voted for him; I do understand why some of my fellow libertarians did so as I understand those that didn’t, but what we all have to understand is that he is doing what he said he would do, so why anyone is surprised about this is odd. Further, one of his character traits is also to say sensational and headline grabbing radical stuff, what I call “Flash Bang Politics”.  A “flash bang” is slang for a non-lethal but loud and bright light grenade whose purpose is to disorient and distract people. 

Radical reforms are rapid political, social, and economic changes that are fundamentally transformative. Such reforms are often championed by what political pundits call “Populism”, an approach that appeals to ordinary people who feel that their concerns are disregarded by established elite groups; MAGA is a populist movement, and contrary to what many people think, can’t be by definition positioned in the left-right political spectrum that pervades the comfort zone of mass media analyses and narratives. Further, populism has no guaranteed results or where it will lead, as it’s a very “fluid situation”.

Most intelligent political scientists understand what populism is and accept the fact that such movements can’t be defined in any politically orthodox way because they arise historically in so many different contexts that each needs to be understood in its own time and place; simply identifying MAGA as a right wing or Donald Trump phenomenon shows a lack of political intelligence that often leads to the demise of its critics, such as happened to the Democratic Party in the 2024 election, and inexplicably continues and likely will do so throughout this administration.

Take for example Trump’s recent proposal to take over Gaza. On face value I found this to be not only a very stupid idea considering his promise to avoid US involvement in foreign conflicts that have historically caused us so much pain, but beyond the realm of a realistic solution; but then I remembered who he is, so now I think this is just more flash bang…or at least I hope so. Maybe it will wake-up the Saudi regime whose existential enemy is Iran who could very well grow back like the cancer it is in a region the Saudis view as theirs, but hope is not a plan.

An example of how populism can sometimes cause reform that is contrary to intent is Trump’s proposal to end birth right citizenship. The understanding of the constitution’s definition of citizenship has always been inclusive of this right, although admittedly there’s a case for interpretation, but why throw a flash bang at this which only distracts from the desperately needed enforcement of our immigration laws? I am hopeful that this will not be an issue for his administration to die on the hill for.

What is heartening to see in this populist regime is its protection of women’s rights in the arena of sports; how anyone can support such a stupid idea as having biological men compete against women reminds me of George Orwell’s quote that “Some ideas are so stupid that only intellectuals believe them.” The same goes for this racist and sexist fabrication known as DEI; to actually use bigotry as a metric in evaluating human beings is beyond stupid, its evil.

What this populist movement consistently promised was to address inflation; the first place to start is effectively attacking the source, which is the US Treasury’s and the Federal Reserve’s policies of monetary and fiscal mismanagement. Inflation has not gone away, it’s only hiding behind the squawk about interest rates and some strange fixation with a 2% inflation rate; that doesn’t reduce the inflated costs that have eviscerated American pocketbooks, and tariffs will only make things worse. Maybe the tariff threats as in the case with Mexico and Canada have been nothing more than flash bangs that got their attention, but they aren’t going to work with the 800 pound gorilla in trade as China will likely just laugh and retaliate as they care little for what it will do to their people. Tariffs are a tax, which is a flash bang that detracts from the goal of tax and inflation reduction.

The other big MAGA promise involves energy, which affects just about every economic activity. The Green New Deal has been exposed as little more than pork barrel politics that sacrifices economic stability and individual welfare as an ideology; renewable energy on face value is a great idea, and hopefully as we become more technologically intelligent will become plausible, but at this point it is unreliable, resource-intensive, and environmentally destructive in material extraction. Further, energy demand is increasing exponentially so we need every source available if we are to progress, grow and provide economic opportunities.

In the long run populism often evolves into other than why it arose to begin with; what we don’t know yet is where MAGA will lead, but what we do know is that four years is its political horizon to deliver on its promises or to die on its failures to do so. It is important to track what it actually accomplishes more than what it promises, especially when led by a flash bang politician. More to come…for four more years…maybe longer!